Navigating the Corporate Transparency Act and new reporting requirements for real estate transfers to trusts or business entities
Corporate Transparency Act
The Corporate Transparency Act (CTA) introduces significant changes to corporate reporting requirements in the United States aimed at enhancing transparency in business ownership and preventing illegal activities, such as money laundering and tax evasion. Under the CTA, certain entities, known as "reporting companies," must report information about their beneficial owners – individuals who own or control a substantial interest in the company. Entities that are impacted include small businesses and single-purpose entities, whether structured as a corporation, limited liability company or limited partnership. While most trusts do not qualify as reporting companies, trusts that hold ownership interests in these entities may need to disclose key figures involved, such as trustees and beneficiaries.
Companies formed before Jan. 1, 2024, have until Jan. 1, 2025, to file their report, in contrast, companies formed after Jan. 1, 2024, must file within 30 calendar days of receiving actual or public notice that the company’s creation or registration is effective. As the CTA rolls out, it is essential for business owners and trustees to understand their reporting obligations, especially regarding the ownership structures of their entities. Failure to comply with these requirements could lead to penalties and increased scrutiny. Working with a knowledgeable attorney can help ensure compliance and address any complexities related to beneficial ownership disclosures.
Requirements for real estate transfers to trusts or business entities
In addition to the CTA, the Financial Crimes Enforcement Network (FinCEN) proposed a new reporting requirement for certain “reporting persons” involved in non-financed transfers of residential real estate to business entities or trusts, defined as “reportable transfers.” After considering feedback from affected parties, FinCEN issued a final rule that becomes effective Dec. 1, 2025. This rule aims to balance the need for valuable information to combat money laundering with the administrative burdens placed on businesses.
What is a “reportable transfer”?
A real estate transfer is “reportable" if:
- The property is residential real estate;
- The transfer is non-financed; and
- The property is transferred to a legal entity or trust
Residential real property: this term includes not only homes but certain apartment buildings, and vacant or unimproved land if the transferee intends to build a structure designed for occupancy by one to four families.
Non-financed: transfers financed solely by a non-bank private lender, which does not have obligations to maintain an anti-money laundering (AML) program or file Suspicious Activity Reports (SARs), are also treated as non-financed transfers that may need to be reported. For instance, sales of residential real estate to Intentionally Defective Grantor Trusts (IDGTs) in exchange for a promissory note fall into this category.
Exempt transfers
The good news is that many common estate planning transactions are exempt from these rules, for example:
- Transfers that occur as part of an estate after someone passes away
- Transfers that happen as a result of a divorce
- Transfers for no consideration (i.e., gifts) to a trust in which the person gifting the property, or their spouse, is the grantor
Who needs to report?
If your real estate transfer is considered “reportable,” someone involved in the transaction must file the required report. If no one is designated to file the report, FinCEN has established a cascading list of real estate professionals that dictates who is responsible. This could be your attorney, real estate agent or another party involved in the deal.
When must reports be filed?
Reports must be filed within the following timeframes:
- By the last day of the month following the transfer; or
- Within 30 days of closing
It is important to work with an attorney to ensure all the necessary steps are taken and reports are filed on time as failing to do so could result in penalties.
Conclusion
Given the complexities and potential liabilities associated with the CTA and the new reporting requirements for real estate transfers, it is crucial to consult with an experienced attorney who can guide you through these changes. Whether you are a small business owner or are otherwise involved in real estate as an investor, developer or real estate professional, understanding your obligations under the CTA and the final rule is essential to ensure compliance and avoid penalties. Deadlines are fast approaching – reach out to a legal expert today to safeguard your interests.
For more information, please contact Ron Sessa or any member of Weil Brown's Tax, Estate Planning & Personal Wealth Department.
