The Corporate Transparency Act

DenCO Property Management (DenCO) likes informing our rental property owners about regulations affecting their investments. The Corporate Transparency Act (CTA), enacted in January 2022, requires LLCs to report information about their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). A beneficial owner is an individual who controls at least 25% of the ownership interests of a company. Most privately held entities used for estate, investment, real estate, tax, privacy, or planning are not exempt. FinCEN’s mission is to safeguard our financial system by combating money laundering, usually associated with crime and terrorism. FinCEN does not share its information with the public but can disclose it to authorized government authorities primarily for law enforcement, regulatory, or compliance purposes. LLCs registered before 2024 must file with FinCEN by January 1, 2025. The penalties for non-compliance are stiff.

Money laundering is the process of making illegally gained proceeds appear legal. It involves three steps: placement, layering, and integration. First, criminals place illegitimate funds into our financial system. Criminals move the money around to cover their tracks, sometimes by wiring or transferring through numerous shell companies. Finally, they use these funds for transactions until the “dirty money” appears “clean.”

How Are Rental Proprieties Affected by the Corporate Transparency Act?

Rental property owners use LLCs to protect their assets from lawsuits and claims arising from the rental property. LLCs can have a sole owner or multiple members. There are many other benefits, such as:

• If a tenant or visitor sues for injury or loss of personal property, the rental owner’s liability is typically limited to the assets held by the LLC.
• Owners use LLCs to avoid double taxation (once at the corporate level and again at the individual level).
• Owners lower taxable income by deducting rental business expenses such as maintenance, repairs, property management fees, mortgage interest, and depreciation.
• LLCs can accommodate changes in ownership, such as adding new investors or transferring ownership interests.

Who is exempt? In general, the exemptions from the Corporate Transparency Act cover highly regulated entities and other “low-risk” entities, such as

• Large operating companies located in the U.S.
• 501(c) nonprofit organizations
• Charitable and split-interest trusts
• Publicly traded companies
• SEC-registered companies
• Insurance companies, banks, etc

LLC Reporting Deadlines and Requirements

• Registered before 2024: Must file an initial report by January 1, 2025.
• Registered in 2024: Must file an initial report within 90 days of registration.
• Registered in 2025 or later:  Must file an initial report within 30 days
• Beneficial Owner Updates or Changes: Must be filed within 30 days.

LLCs must file reports including the following information on their beneficial owners.

• Full legal name
• Date of birth
• Current residential or business street address
• Unique identifying number from an acceptable identification document (e.g., passport or driver’s license) or FinCEN identifier.

Entities that fail to comply with the CTA reporting requirements may face civil and criminal penalties, including:

• Civil penalties of up to $500 per day for each day the violation continues.
• Criminal penalties include fines up to $10,000 and imprisonment for up to two years.

LLC beneficial Owner reports must be filed electronically with FinCEN. Click here to go to FinCEN.

DenCO Property Management informs our owners about upcoming regulations such as the Corporate Transparency Act. We have been in business since 1999 and manage over 150 homes, duplexes, and apartment rentals in the DU, Washington Park, and other Denver neighborhoods. Call us at 303-722-9688 or click here to complete a Contact Us form.