$500/DAY FINE LOOMS FOR RENTAL PROPERTY OWNERS WHO IGNORE NEW CORPORATE TRANSPARENCY ACT REQUIREMENTS

By Bradley Barth

Rental income property owners need to fully understand the Corporate Transparency Act (CTA) of 2021, a federal law that took effect on January 1, 2022. The law mandates that all “reporting companies” (LLCs, Corporations, LPs and others) must submit a report to the Financial Criminal Enforcement Network (FinCEN) of the U.S. Treasury disclosing specific information.

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• THIS INFORMATION INCLUDES DETAILS ABOUT:
• Beneficial owner(s) of the reporting company.
• The individual (referred to as the “applicant“) responsible for establishing
  the company by submitting its formation documents (such as articles or
  a certificate of organization, articles of incorporation, or a certificate of
  partnership) to a state agency, for example a Secretary of State.
  

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WHAT IS A BENEFICIAL OWNER?
A beneficial owner is defined as an individual who, directly or indirectly, holds substantial control over the entity or owns or controls at least 25% of the entity’s ownership interests through contracts, arrangements, understandings, relationships, or other means. If your living revocable trust holds any of your properties, then a review of your trust must be done to identify “control” persons within the terms of the trust.

CORPORATE TRANSPARENCY ACT
(CTA) FINES
Beginning January 1, 2024, the Corporate Transparency Act began enforcing reporting companies to file. Failure to file a FinCEN report by the due date can result in significant fines. Specifically, FinCEN can impose a $500/day fine for each day that the Corporate Transparency Act form remains overdue. The CTA also includes provisions for criminal penalties in cases of willful violations of the law.

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ARE YOU EXEMPT?
It’s worth noting that nearly all entities formed in the U.S. fall under the category of reporting companies, regardless of their formation date. However, there are exemptions comprising entities that are not considered reporting companies and are thus not obliged to submit a FinCEN report. Certain small businesses, with fewer than 20 employees and less than $5 million in gross receipts or sales, are exempt from the reporting requirements. Additionally, certain types of entities, such as publicly traded companies, are also excluded from compliance. If your company is not exempt from the CTA, it qualifies as a reporting company and must file a FinCEN report. If you own your property in an LLC or other legal entity, you are most likely required to file the FinCEN report. If you own your property in your own name or your living trust there is another important topic to consider, which is your liability exposure. You have unlimited exposure to all of your assets from a liability at your property if you do not own your property in a proper legal structure.

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