Efforts to combat money laundering have been ramped up over the past several years. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has several new policies that may directly or indirectly impact real estate practice.
One of the hurdles in combatting the use of real estate in money laundering schemes is that it can be difficult to know who truly owns or benefits from real property when it is held in an entity such as an LLC and not in the name of individual owners. The new Beneficial Ownership Information (BOI) rules, which went into effect on Jan. 1, 2024, will now require many entities to register and provide information about individuals who either own or control those entities.
This is a very basic overview of the Beneficial Ownership Information reporting requirements, along with links to more detailed resources that should be helpful in understanding the rules. Please understand that PAR will not provide advice to members or your clients about whether or how to register a specific entity, so any questions about specific entities must be directed to your (or your client’s) own attorney and/or financial professional.
The best source for detailed information about these rules is the FinCEN resource page about the BOI rules. This includes a detailed FAQ, as well as a very thorough Small Entity Compliance Guide that exhaustively covers the finer details of these rules. Here are a few of the highlights so you’ll have some basic knowledge of the requirements.
What types of entities are covered?
Registration is required for “reporting companies,” which are defined as “corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.” If you operate an entity other than an LLC or corporation, you’ll want to check to see if it was created by filing with the PA Department of State to know if it’s under this umbrella.
There are several areas where this is likely to come into play in the context of real estate practice:
- Brokerage firms owned and operated as an entity
- A qualified association owned by one or more licensees
- Property owners/buyers (including Realtors®) who own property through entities.
Are there exceptions?
There are 23 types of entities exempt from the reporting requirements – some very broad, and others very specific – none of which will be discussed here in detail. Realtors® should not advise clients on whether a specific entity should be registered. Always refer clients to their own financial/legal advisers to determine registration requirements.
What information will the entity need to report?
Each reporting company will have to report information about the entity itself (including name/trade name, address and taxpayer ID), information about its “beneficial owners” (individuals with certain ownership or control of the entity) and for those created after Jan. 1, 2024, information about its “company applicants” (the individuals who filed the state paperwork to form the entity).
Who is a “beneficial owner” of an entity?
The basic answer is that a “beneficial owner” is someone who owns at least 25% of the ownership interest of the entity or who exercises “substantial control” over the entity. That seems simple, but can quickly get complicated. There are many different types of ownership that might make someone a “beneficial owner” and there is a combination of objective and subjective criteria that can be used to determine if an individual has “substantial control” even if they’re not an owner. Both members and your clients will need to rely on your own financial/legal advisors to determine who would qualify as beneficial owners for any specific entity.
How long does an entity have to register?
The rules went into effect on Jan. 1, 2024.
- For existing entities created before Jan. 1, 2024, registration is required within one year (until Jan. 1, 2025).
- For entities created during the calendar year 2024, registration is required within 90 days of actual or public notice of the company’s formation.
- Beginning in 2025, registration will be required within 30 days of actual or public notice of formation.
How does an entity register?
All filings are done directly through FinCEN. Links to relevant information and filing resources are on the BOI resource page.
Will FinCEN or the Pennsylvania Department of State be contacting me with registration information?
NO. Neither FinCEN nor the Department of State is proactively contacting individual business owners. If you are receiving calls or emails about registration, they are quite likely scams. In fact, both the Department of State and FinCEN have already identified scams popping up around these rules.
Please rely only on your own financial/legal advisors to determine your registration requirements, and remember that registration must be done directly through FinCEN and not through third parties.
Can I call the PAR Legal Hotline for advice on whether an entity needs to be registered?
No. The Hotline provides general legal information but does not provide specific legal advice to members or your clients. We cannot provide any information beyond what is in this article, and members who call with those questions will likely receive a copy of this article and link to the various resources as the response. Both members and your clients will need to rely on your own financial/legal advisors to determine whether and how to register any specific entity.