Corporate Transparency Act Disclosures for Real Estate Investors

Friday 19th February 2021

In Congressional efforts to combat the financing of terrorism, money laundering, and other illegal activities, the recently passed Corporate Transparency Act (“CTA”) will require corporations to do business with the Financial Crimes Enforcement Network (“FinCEN”) Report ownership. . The CTA was enacted as part of the National Defense Authorization Act for fiscal year 2021.

The CTA is far-reaching and will have a significant impact on many businesses, especially real estate-owned businesses. Real estate investments are often held in layers of numerous and diverse businesses for tax planning, property syndication, liability protection, privacy concerns, and many other legal and practical considerations. According to the CTA, the beneficial owners of these companies must be disclosed to FinCEN. A beneficial owner is any company or individual who, directly or indirectly, exercises significant control over the company or who owns at least 25% of the company. This is a low bar.

The CTA may also affect lenders who request an extension of the terms and information for your customer’s knowledge if the lender becomes the beneficial owner of a company by exercising a security interest.

The CTA leaves many questions unanswered and the Treasury Secretary must enact the regulations within one year of the CTA’s entry into force – by January 2, 2022. Fortunately, the CTA regulations will not come into effect until these regulations are in place. However, it is not too early to start planning the implementation.

© Steptoe & Johnson PLLC. All rights reserved.National Law Review, Volume XI, Number 50