On Tuesday, December 3, 2024, a Texas court issued a preliminary nationwide injunction blocking the enforcement of all reporting requirements under the Corporate Transparency Act (CTA). This decision halts the enforcement of the law and stays all reporting deadlines until further court order. While the long-term fate of this stay remains uncertain pending appellate review, the Sacramento Association of REALTORS® advises our members to prepare their Beneficial Ownership Information (BOI) reports but hold off on filing until further notice.
What is the Corporate Transparency Act?
The CTA, enacted to combat money laundering and increase corporate transparency, requires certain business entities to report detailed information about their beneficial owners to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
Who Must Report Under the CTA?
The reporting requirements apply to small corporations and entities like limited liability companies (LLCs). Notably, real estate brokerages structured as corporations—including those established primarily for tax purposes by individual agents—are also subject to these obligations unless they qualify for specific exemptions.
Key Reporting Deadlines
- Existing Entities: Businesses formed before January 1, 2024, must report by January 1, 2025.
- New Entities: Businesses created on or after January 1, 2024, must report within 30 days of their formation.
Exemptions: Does Your Brokerage Qualify?
The CTA outlines 23 exemptions to the BOI reporting requirements. While none are specific to real estate brokerages, the “large operating company” exemption might apply to very large brokerages meeting these criteria:
- Employs more than 20 full-time employees in the U.S.
- Maintains a physical office within the U.S.
- Filed a federal income tax return demonstrating over $5 million in gross receipts or sales for the prior year.
Smaller brokerages and corporations that don’t meet these thresholds will likely need to comply.
What Information Must Be Reported?
For the Corporation:
- Full legal name
- Any trade or “doing business as” names
- Complete current street address of the principal place of business
- Jurisdiction of formation
- Taxpayer Identification Number (TIN)
For Each Beneficial Owner:
- Full legal name
- Date of birth
- Complete residential street address
- Unique identifying number and issuing jurisdiction from one of the following:
- U.S. passport
- State or local ID document
- Driver’s license
- Foreign passport (if no U.S. documents are available)
- An image of the document used for identification
Who Qualifies as a Beneficial Owner?
A “beneficial owner” is any individual who, directly or indirectly:
- Exercises substantial control over the reporting company, or
- Owns or controls at least 25% of the entity’s ownership interests.
What’s Next for REALTORS®?
Given the uncertainty surrounding the CTA’s enforcement, the Sacramento Association of REALTORS® recommends that brokerages and agents:
- Prepare Reports: Gather all required information to ensure compliance if the stay is lifted.
- Monitor Legal Updates: Stay informed about court decisions that could reinstate the reporting requirements.
- Seek Legal Guidance: Consult with legal or compliance professionals to navigate exemptions and reporting obligations.
Conclusion
The Corporate Transparency Act represents a significant shift in how businesses report ownership information, aiming to increase transparency and deter illicit activities. While the current nationwide stay provides temporary relief, members of the Sacramento Association of REAthis is specifically coming from the Sacramento Associaition Of Realtors so please make it real estate basedLTORS® should proactively prepare to meet their obligations. Compliance today ensures readiness for tomorrow’s legal landscape.
