CTA Update: Real Estate Companies and Their Subsidiaries may Benefit from a Helpful Clarification for the Forthcoming Implementation of the Corporate Transparency Act

As we have previously reported¹, the Financial Crimes Enforcement Network (“FinCEN”) issued the “Final Rule” regarding implementation of the reporting of beneficial ownership information to FinCEN under the Corporate Transparency Act of 2019, which is part of the Anti-Money Laundering Act of 2020. These regulations are currently scheduled to go into effect on January 1, 2024 and will affect clients in the real estate investment space.

Last month, FinCEN announced a clarification² to the Final Rule that will be beneficial to many real estate companies that form single purpose entities to enter into transactions under their larger company umbrellas. This clarification states that a reporting company may report another related entity’s FinCEN identification number (“FinCEN Identifier”) and the full entity name in lieu of providing full beneficial ownership information (“BOI”) of the reporting company. 

The following conditions, however, must be met (i) the related entity has obtained a FinCEN Identifier and provided it to the reporting company, (ii) an individual is or may be a beneficial owner of the reporting company by virtue of an interest in the reporting company that the individual holds through ownership interest in the related entity and (iii) the beneficial owners of the related entity and the reporting company are the same individuals. 

In other words, if a parent company (with the exact same beneficial ownership) has already provided its BOI and has obtained a FinCEN Identifier, all a company must report for a later newly formed SPE is the FinCEN Identifier of the parent company and the parent company’s name. This will reduce the administrative burden on reporting companies as they will not need to duplicate efforts and provide full BOI for each new entity under that same company umbrella.  However, if at any time the reportable beneficial owners of either the reporting company or the entity whose FinCEN identifier was reported changes such that the two are no longer identical, then the reporting company must file an update with FinCEN and can no longer report the relevant entity’s FinCEN identifier.

Obtaining a FinCEN Identifier is very simple—all that a reporting company must do is tick a box electing to receive a FinCEN Identifier when submitting a BOI report.  After submitting the report, the FinCEN Identifier will be immediately provided.³

We will continue to monitor the Corporate Transparency Act and further clarifications to the Final Rule and provide an updated alert if merited.⁴

¹ https://www.huntonak.com/en/insights/who-owns-it-anyway-implications-of-the-beneficial-ownership-requirements-under-the-corporate-transparency-act-on-structuring-real-estate-transactions.html.

² 88 Fed. Reg. 76,995 (Nov. 8, 2023) and 31 C.F.R. § 1010.380(b)(4)(ii)(B) once effective.

³ https://www.fincen.gov/boi-faqs#M_3.

⁴ FinCEN has released a helpful FAQ guide, which provides further information regarding the requirements and is periodically updated: https://www.fincen.gov/sites/default/files/shared/BOI_FAQs_QA_12.12.23.pdf.