Starting March 1, 2016, and ending August 27, 2016, FinCEN will require title companies to report the beneficial ownership information of legal entities purchasing real estate for cash if the purchase price is over $1 million in Miami-Dade County, or $3 million in New York City.
FinCEN is testing the waters to see if foreign or domestic criminals are using real estate to hide their illegally obtained cash in money laundering schemes. It is very common for foreigners and others to have their lawyers to create Delaware, Nevada, or Wyoming limited liability companies or Florida land trusts to be used to take title to real estate for which the member or beneficiary is using cash to purchase the property. The U.S. Government is concerned that they are unable to track the source of the cash being used to purchase the properties.
We don’t understand how they aren’t tracking the cash already. We know of no settlement agent who would accept a bag of $1 million in cash to purchase a piece of property. So the funds would be required to go through the FED system either by wire or other form of deposit into the settlement agent’s account. At that point, the banks would be reporting the large cash deposit already. Secondly, the settlement agent would issue a 1099-S to report the sale to the IRS who — supposedly — shares information with FinCEN along with the FED. Finally, if the property is to be held in a land trust, the trustee is filing Form 56 with the IRS to give the IRS notice of the holder of the beneficial interest in the trust since the trust is a pass-through entity for taxation.
We would be surprised if this new required form of reporting provides information to FinCEN than they already have access to, other than a faster and more detailed reporting. However, during the test phase, REALTORs and settlement agents who work with foreign buyers who buy expensive property in Miami-Dade or NYC, utilizing an entity to hold title, should prepare the buyer for the prospect of being required to give the settlement agent true identification of the members, shareholders, partners, or beneficiaries of the entity that is taking title to the property in the cash transaction.
The FinCEN bulletin is available online.
The GTO Order was expanded on July 26, 2016, to cover properties in Broward and Palm Beach County, Florida, that meet the same requirements of reporting in Miami-Dade County. The sunset deadline for the order has also been extended to February, 2017, from August, 2016. A copy of the revised order may be found here.
If anyone is purchasing a property for cash, and the purchase price exceeds $1 million in Miami-Dade, Palm Beach, or Broward Counties, Florida, then the closing agent is required to obtain information on the purchaser and report it to FinCEN.