Join Fund General Counsel Melissa Murphy and Legal Education Attorney Kara Scott for a discussion of the new law, including an examination of which legal entities are subject to the Corporate Transparency Act, those that are exempt, and how to file a Beneficial Ownership Information Report (BOIR).
Hi, everyone, and welcome to our Title Now popup webinar. I'm Melissa Murphy with The Fund, and I get to host these pop-up webinars every month. They're quick.
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You know, I think FinCEN is an acronym that those of us here at Fund are very familiar with, but maybe others are not. It stands for the Financial Crime Enforcement Network.
It's part of the Department of Treasury.
I think the folks at FinCEN decided that the business and real estate world had gotten plenty of rest over the holidays, and so they have hit us with a couple of new things. And people have been talking about them. So what is this all about?
Well, there's been a lot of talk and probably some level of angst about a new federal law, the Corporate Transparency Act.
And everyone out there watching and listening needs to keep the CTA, as we call it. You need to keep that separate from another new FinCEN rule that you're also hearing about, which has to do with reporting real estate transactions. Now, these are two completely different sets of laws and regulations.
The FinCEN enrollment is not yet in effect.
But eventually, you will need to pay attention to that.
Today, we're talking about the Corporate Transparency Act because that is already in effect and in place.
Now we've already got inquiries about your questions. We want you to post your questions in the question area of the webinar, which is over to the right.
Just click on the sideways triangle under questions and post your question, and we have Brian Stringer, who's one of our underwriting attorneys, here monitoring your questions.
Now he'll share your questions at the end, but please don't submit detailed facts and scenarios that you want us to opine on because we really can't do that in the limited time we have here. So we're looking for more general questions.
But if you have a particular fax scenario that you need help with, then just email us separately.
And with me today is one of our legal education attorneys, Kara Scott. She has really dived into the CTA and is here to share some of that high-level information with you. And you can certainly email Kira. That's super easy, I guess, just k Scott at the fun dot com. You can always email me, and I'll get the email over to Kara.
But let's welcome Kara. Thank you so much for being here, because you know a heck of a lot more about the CTA than I do.
Thank you, Melissa. I appreciate you having me here today.
You bet. So let's start. Why? What is the purpose of this law? Tell us that.
That's always everyone's first question. Right? Why? Anyone who has ever had kids knows that every toddler is a mom. Why? Right?
So, the purpose really is that it's a tool. It's a new tool by FinCEN, and it's designed to crack down on money laundering and other criminal activity by collecting information on small companies, small shell companies. Previously, they have pretty much flown under the radar, and they are really good for anonymity.
So that's why FinCEN and the federal government are targeting these companies. And that's because these small shell companies provide anonymity to their owners.
And the federal government wants to collect this information on the owners of these companies so that they can try to track them. The information is used by law enforcement and other federal agencies. It's not available to you or me.
And it's just to help them crack down on money laundering.
So are all types of entities covered?
Not all, but they're really entities that are formed by filing a document in the secretary of state's office or in the Florida Department of State. And so it's really corporations, LLCs, and other similar types of entities, unless they're exempt, but really, for the most part, it targets all entities that are formed with the secretary of state.
And does it just cover brand new entities, or is there some, you know, retroactivity to it? What is the effective date? And how does that play a role?
It actually covers all entities that were in existence prior to the effective date of the law, which was January 1, 2024, and moving forward, it's going to cover all brand new entities that get formed. But the reporting is slightly different. So for entities that were in existence before January 1, 2024, they have the entire calendar year of 2024 to file a BOI report, a beneficial ownership information report.
But new entities that get filed after January 1, 2024, have 90 days to file from the date of their formation in this calendar year, 2024, but in 2025 and moving forward, they will have thirty days to file after formation.
Yeah.
So FinCEN is assuming that after a year, people will be more aware of this, and they're scrunching down that period of time within which they want that BOI to get to their office.
I guess they're worried that a lot of bad stuff can happen in 90 days. They want to know within 30 days.
Initially, they were requiring all new entities to file in 30 days, but they realized 2024 was going to be really busy with a lot of reporting. So they gave it a little bit more time.
So this was to benefit them, not those of us who have to do the filing. I get her. Okay.
So you mentioned exemptions. So talk to us, you know, generally. I know there might be a long list of exemptions, but what are the ones that come to mind most readily among our most common exemptions?
Well, there are 23 specific exemptions in the statute itself.
And I'm not going to go over all 23, but most important to us in our industry is the exemption for insurance companies. So title insurance companies like Old Republic are exempt from reporting under the law.
Also, title insurance agencies. Are also exempt from reporting. So that's good news. However, law firms are not exempt. So if you operate as a law firm, a PLLC, or something like that, my last firm was a PLLC, so they're going to have to file a BOI report for that firm.
But is there an exemption for super-large companies, and would that cover, you know, the really large law firms that we have here in Florida? Yes.
There is a large company exemption.
It has to have at least 20 full-time US employees. It must have a U.S. presence, so it can't be overseas.
And it needs to have at least 5 million dollars in gross receipts shown on their U.S. tax return, but there is an exemption for large companies.
Well, that certainly wouldn't apply to most of our Fund Members, but there is an exemption for that. Alright. What are some of the other exemptions?
Well, charitable organizations and nonprofits are exempt, but not all of them. So that's interesting.
So, any nonprofit that's formed under 501(c)(3) of the internal revenue code is exempt. So that's good. But something to note, especially in the real estate industry, is that condominium associations and homeowners associations are usually formed under Section 528 of the IRC. And they are not exempt under the Corporate Transparency Act. So, it's going to be interesting to see how that plays out.
That seems so odd to me because you wouldn't normally think of a condo or an HOA as a shell corporation that criminals would be laundering money through. I know you can't answer this question, but I just wonder why nobody raised it.
In the discussions, etcetera, leading up to the effective date of this new law, I think that will come as quite a surprise to many people in Florida. And it's yet another reason why I don't want to be on the board of directors of my condominium or HOA.
Because generally, these people are volunteers, and now they get to provide all of their personal information to FinCEN.
And it's funny you should mention that because I made the foolish decision to join my board of directors for my condominium association. I don't know what I was thinking.
It's a thankless job. And, yeah, I'm a volunteer.
And so now I do. I have to provide my personal information to the association when they file their BOI report.
If you are a beneficial owner, well, let me back up.
Let's talk about what it means to be a beneficial owner.
I think we need to chat about what that means in the context of these HOAs and condos, but how does the law define a beneficial owner?
Right. Well, first, it defines a beneficial owner as an individual who owns at least 25% ownership interest in the entity. So that's somewhat common sense, but they also expanded that definition to include any individual who has substantial control over that entity. So that could be in the sense of a condo board; that could be the board of directors, which has substantial control.
In the sense of, say you have an LLC with 2 members, but you also have a manager who might not be a member but is a manager. So that manager is now also considered a beneficial owner under this law.
So I can see where FinCEN would consider the members of a board of directors of an HOA or a condo, each one of them having substantial control and needing to file a BOI.
So let's get down to a little bit of the nitty-gritty.
And where does one go to actually file this BOI?
So we have to go to FinCEN.gov. It is not letting me show my screen.
We're going to quickly make you an organizer.
While we do that, I also want to mention company applicants. When we're talking, we were talking about beneficial owners, but new entities now also have to be company applicants on their BOI report. So that might be someone like when I was in private practice, I used to file these new entities for my clients, and that would make me a company applicant under this new law.
Alright. So if a law firm files an LLC, the law firm is actually the individual. Correct? The individual who supervised the filing of that LLC would have to follow BOI for that NUELOS City.
THE LAW FIRM, YOU report the ATTORNEY.
And it could even go even further by requiring a paralegal to be reported. I told my paralegal to file on SunBiz for me. Now, my paralegal is also a company applicant. You have to report two.
Ouch.
That's going to cause some changes in the way people handle it. Alright. I think we've got your screen situation worked out. So, you can see this phase.
Yeah, this is FinCEN.gov. This is their homepage.
And you can see, right on the left-hand side, the big BOI.
That's a hyperlink. You can just click on that, and it takes you through a couple more pages that explain what you need to do to file. And then you will eventually get to the page where you can either download a PDF to your computer, fill it out on your computer, and then upload it, or they have a web-based portal as well. So if you use the web-based portal, you simply fill in the information it's asking for and keep clicking the next button. Until you get to the end, it's relatively simple.
So all of the filings need to be done online. There's no option to fill it out in person or mail it in.
No. No. If you fill it out on your computer, you have to upload it.
Okay. So, what information is required on each of these beneficial owners?
So first, you have to report the company itself.
So you need the company name. If it has any DBAs, their business address, tax ID number, and that sort of information.
And then you need to report on all the individuals. So, as I mentioned before, anybody who owns at least 25% of the entity, as well as anyone who has substantial control over the entity,.
And you need to report their name, address, date of birth, social security number, and upload a copy of their ID.
Wow.
That's scary.
That's lots of personal information.
Who? And if you are, let's say you're a member of your condo board of directors. I'm kind of thinking that the person who would comply with the corporate transparency act for that condominium association would either be the attorney for the condo association or maybe even the management company. So the members of this board of directors are sharing their personal information with that person.
Is there a way to not share that personal information with these different individuals?
Well, you get, you know, any kind of, can you separately give your information to FinCEN and then have some kind of way to indicate that you've already given it to them rather than sharing it with a management company? I don't know. Maybe I'll prejudice against management companies, but I'd be a little worried about that.
Yeah. And, actually, I did want to mention that there are penalties if you don't file. So you can't just say, No, I'm not doing this. I'm not giving you my information.
Civil and criminal penalties.
So, fortunately, there is an option. You can get what's called a FinCEN ID.
And what you do is go to a separate website to apply for a FinCEN ID. You simply put in your information—your name, your address, your date of birth, your Social Security number—and upload a copy of your ID, and then what happens is that at FinCEN, we'll issue you a number.
And you can then, from that point forward, use that number instead of giving your personal information out to everybody. So I actually did that because I figured, well, I'm going to need it for my condo board. So I went through the application process. It was very, very simple; I uploaded a copy of my Florida driver's license. It did not need a back. I'd only asked for the front. And I got a FinCEN ID.
So now, when my condo board does their BOI report, I just have to give them that number, and I'm already in the system. So that's a really good way to preserve privacy.
Well, and do these filings need to be done on an annual basis for corporations or only if information changes?
Right. Only if information changes. It's not like filing an annual report.
So you do it once, and then if there are any changes, you need to make updates or corrections, and then you need to file a new one.
So just speaking from personal experience in my small little HOA, it's a pretty small board. And people leave the board for a year and then come back. So kind of looking out into the future.
If I'm on the board, I follow the information.
I go off the board for a year. I come back on. I'm assuming an updated filing would need to be done with my personal information all over again. Unless I had a FinCEN ID,.
That's a good question. I know that when you leave the board and the board members change, your association will have to file an updated report.
Now, when you come back on the board, do you need to file another updated report? Probably in an abundance of caution, I would say, Yes, just do it.
And you'd have thirty days after that change, I guess.
Correct. Yes.
So I feel like we've walked everybody through the very high-level basics of this law. But what other resources do we have for fund members to take advantage of?
The Fund has a dedicated page on the fund's website that addresses FinCEN reporting; it includes the GTOs that some people might be familiar with as well.
But if you go to The Fund's website and click on the resources tab, and then scroll down a little bit, look for a hyperlink called FinCEN Reporting.
And that will take you to another page that includes a lot of information as well as a webinar. We just rerecorded the CTA webinar because the one that had been presented last year didn't include the updated beneficial ownership information report. So there's a new webinar that's available. And, as well as a lot of other information,.
As well, the FinCEN.gov website has a wealth of information.
Many FAQs and other information. There's something called the Small Entity Compliance Guide that you can download, and it's about one hundred and fifty pages or so long, but it's not that bad. It's written It's written in plain English. It's written for, you know, people who are not necessarily lawyers.
So it's a useful guide, and I would share it with my clients as well.
Yeah. Well, that's a good idea. Well, there are some resources for you all out there.
So we've got a generous amount of time for some questions. So, Brian, what kind of tantalizing questions do we have out there?
Thanks, Melissa. Most of them you guys have already answered throughout this awesome presentation that you put on, I know.
One that I saw is about dissolved entities. One question was if the LLC was formed prior to 2024 but then dissolved in 2024. Do you have to report it?
It depends on how old that entity is. There is an exemption for inactive entities.
There are a number of requirements. One of them is that the entity itself had to be formed prior to 2020.
And there are some other requirements too that need to be met, but if it qualifies as an inactive entity, it does not need to be reported. It's exempt.
Okay. Another question from a member was: if an inactive entity is owned by a foreign person and therefore not exempt, how far back does fencing go based on the formation? Is it anything formed before 2020 or after 2020?
That's a good question. I don't know the answer to that. That might be for FinCEN, and they're actually pretty responsive if you e-mail them directly with questions.
Okay. And I know we touched on this one. Another one is: who is the beneficial owner of a condo association? That would be the officers.
Yes.
The beneficial owner would be if there are officers or the board of directors, anyone with substantial control, because it's unlikely you're going to be able to have anyone as an owner with 25% interest when you deal with it.
Not at a condo. Yeah.
Not at a condo, unless you have a four-unit condo.
And then one that's come up several times is: do people that serve as registered agents for our clients, the, you know, corporations and LLCs, have to report?
The registered agent, no. But if they are the ones that formed the LLC in the first place, whoever did that filing—not the company, but the individual—still needs to be reported as a company applicant.
Okay. And does it apply to the church board of directors?
I would think churches are formed under 501 C. So, I don't; I believe it would be.
Yeah. It depends on the IRS code under which they are filed. Now, if they just filed corporations and didn't apply for 501(c) status with the IRS, they probably need to report. It's only if they have that IRS 501(c)(3) status granted to them. Right? Right.
Another one that came up was that a lot of attorneys and offices use a corporate provider to form their entities. And the question is, if they use some sort of third party to form their entities, who in their office has to report? Is it that paralegal, is it the attorney, or is it just the company that forms it?
It's the individual at the company.
So whichever company that is, that's forming the LLC, the individual that actually did the filing online with Sunbiz. That's the person who has to be a company applicant.
Okay. And the other one is: is this a one-time requirement or do you have to update it every year?
You just need to update it if there are changes. So unlike an annual report, it does not need to be filed every year.
Okay. The other question was, are sole proprietorships exempt?
So proprietorship's, Oh, not filed? So they're basically DBAs?
Then they are technically exempt because they are not considered a reporting company. A reporting company is a company that's filed a document with the secretary of state or department of state. So Okay. A sole proprietor that's just doing business because they're not a company.
Another question. If they're going to remove a member from the 2024 annual report, do they have to still report that person?
I'm guessing that's for an existing company. So, if they have the whole year of 2024 to file the BOI report, I would just say to wait until whatever changes have been made and then file.
They're going to be this rash of people who resigned. The boards of existing entities that they don't have. Yeah.
In my condo association, we're already down to only four people. Nobody wants to do it.
Well, this might motivate more people not to do it. It's kind of, yeah. It's just kind of odd that they included condos and HOAs in this.
Is that all the questions, Brian?
There are a lot more questions. You had, like I said, you guys entered of them. Another one that I've seen a few times is: what happens if one of the members or managers doesn't have a social or an TIN?
Why wouldn't they? Yeah.
I guess the foreign person. It's a foreign person.
Well, they can use their foreign social or foreign tax ID number. There is a way that, when you go through the system for filing, you put in your tax ID number, and the system will recognize if it's a US or non-US number. And then you put in the country that issued that number.
I have a question, Brian. So what this law is trying to get at is the individuals who are beneficial owners. So if you have a corporation that is owned by another corporation, you really need to drill down to get to the beneficial owners—the individuals who would be the beneficial owners. Right?
Yes.
That's correct. Right.
Okay. I might go ahead, Brian.
Another one is a change, but what triggers the requirement to update? Is the change of address enough that you have to update?
Believe it or not, Yes. Even something as simple as getting a new driver's license What if your driver's license changes?
And here's an interesting question. I think we have time for one more. This one, this member, said they've received numerous calls to transfer their LLCs into trusts to avoid reporting.
They want to know: does that negate the reporting requirement?
Well, this gets complicated. I know. It does.
If a trust has an owner, the trustees of that trust still need to be reported.
But if they are dissolving the LLC and just going to be owning their assets in the name of a trust, I don't know. That would be a question for FinCEN, I think.
Okay.
Well, thank you, Brian.
And thanks to everybody. For attending today. Kara, thank you very much.
You've gotten some really good questions today that will expand your knowledge.
Of the law, make you even more useful to Fund Members.
And for a more detailed explanation of the law, I will be walking you through the website. Watch that recorded webinar. It should be up later today.
The updated version will be released later today because there's great stuff in there.
And if you want to listen to this conversation again, you have 30 minutes driving in the car.
Get the podcast. I would love for everybody who registered today to become a subscriber.
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