Corporate Transparency Act – Impacting Real Estate Owners

The Corporate Transparency Act (“CTA”) went into effect January 1, 2024.  Through the CTA, the U.S. Treasury Department (“Treasury”) hopes to reduce money laundering and other illegal flow of funds otherwise hidden through entities used for various investment and financial transactions.  Within the Treasury crosshairs is the ubiquitous real estate holding company.  Litigation challenging CTA requirements is widespread.  Companies and individuals now facing compliance burdens wonder how, after decades of conducting only straightforward, legal, and essentially common real estate transactions, they became tasked with additional governmental reporting.  In addition, many residential condominium owners and homeowners belonging to standard homeowner associations (commonly referred to as “HOAs”) now find themselves on Treasury’s list – required to provide personal data to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).

Did Treasury intentionally throw this broad net?

Real estate holding companies are commonly established as vehicles for real estate investment and ownership, providing owners with anonymity and liability protection.  Use of holding entities is common coast-to-coast for owning commercial real estate, from shopping malls to hotels to industrial facilities.  But what about the limited liability company that mom or grandpa formed 40 years ago when purchasing the family cottage, family farm, or hunting property?  Unfortunately, barring some unique exemption these family-held assets now come with compliance obligations, subjecting even family members to CTA’s deadlines with threat of civil and/or criminal non-compliance penalties.

Under the CTA, any “reporting companies” existing prior to January 1, 2024 have only until January 1, 2025 to comply, and entities formed after January 1, 2024 have only 90 days to report (reduced to 30 days starting in 2025). Interest holders in small family holding companies are likely unaware of reporting requirements, where survey data shows even larger operating businesses, many of which have regular contact with trusted legal and financial advisors, remain uncertain on what CTA compliance requires.

Unless otherwise exempt, entities must file CTA information reporting on “beneficial owners” (individuals) who directly or indirectly own or control the entity.  For real estate holding companies with few owners (a very common structure) this could include all owners; while for condominium associations and HOAs, it often remains unclear who holds the requisite “control”.  HOA officers and board members have certain control, but if HOA leadership roles now come with mandatory reporting to FinCEN fewer qualified people will be willing to serve.

There are multiple exemptions from CTA reporting, but most cover large companies which are already subject to other regulatory requirements, and tax-exempt entities. Many (if not most) real estate holding companies and HOA entities appear subject to CTA reporting, whether or not this was Treasury’s intent.

Please contact your Miller Johnson attorney or a member of the Corporate Transparency Act team to learn more about how we may be able to support you in preparing for CTA compliance.