LIBERTY
Real Estate Investors Association

A National REIA with free resources

The Corporate
Transparency Act: 

An Unwelcome Intrusion on Real Estate Investor Privacy,
Bad Policy and Unconstitutional

By John Adams, for LibertyREIA.com



The purpose of our REAL ESTATE LLC, or limited liability company for real estate, is to shield the owner from personal liability for the company’s debts. Most states allow residents, individuals who live outside the state or country, other LLCs, corporations, pension plans, and trusts to serve as LLC owners. 

The REAL ESTATE LLC structure primarily exists to protect its owners (aka members) and managers from liability. Not only does the REAL ESTATE LLC protect your personal assets, but it can help attract investors who would otherwise be reluctant to provide venture capital. Otherwise, they could risk losing more than their investment in the event of a lawsuit or insolvency. This liability protection does not extend to criminal actions by LLC members. Liability protection also ensures that any debt the business accrues does not become personal debt.

The REAL ESTATE LLC combines the flexibility of a partnership with the limited liability of a corporation. Because the IRS does not recognize LLCs as tax entities, LLC members can choose how the business is treated for taxation.

As a real estate investor, I’ve always valued the ability to structure my holdings through Limited Liability Companies (LLCs). These entities provide a crucial shield, separating my personal assets from liabilities associated with any particular property. However, the recent implementation of the Corporate Transparency Act (CTA) throws a wrench into this well-established practice, raising serious concerns about privacy and government overreach.

The Corporate Transparency Act is a poorly constructed bit of law. It will do little to combat money laundering as the criminals will simply refrain from self-reporting their crimes, but it will saddle millions of lawful small business owners with yet another reporting requirement as well as an opportunity to have their personal information spread all over the internet.

The CTA marks a seismic shift in the legal landscape for small businesses operating in the United States. Prior to the CTA, entity beneficial owner disclosure was solely (if at all) the purview of state law. Now it is a focus and purview of federal law enforcement agencies.

The CTA has largely flown under the radar to date, but it is now time to become educated on the actions that may be taken prior to the CTA’s January 1, 2024, implementation date, and after. The Act’s impact on and implications for businesses, particularly small businesses, are complicated and difficult to succinctly communicate, and the CTA has not received widespread mass media attention. In fact, federal lawmakers and industry groups have decried the lack of CTA public education undertaken by the Treasury Department to date.

The CTA mandates the disclosure of “beneficial ownership information” (aka BOI) for certain business entities, including newly formed LLCs. This means revealing my personal details, the very information an LLC was designed to protect.  In other words, the Treasury Department’s Financial Crimes Information Network (FinCEN) demands to know the name, TAX ID, and current whereabouts (within 30 days) of every “carbon-based life form” (aka human being) who owns a 25% or greater interest in the entity.  It also demands disclosure of those who may “influence or control” the operation of the entity. No one knows what that means until the courts decide.

In addition, disclosure requires your birthday, as well as a copy of an acceptable identification document, such as your passport or driver’s license, along with the issuing jurisdiction and the document’s ID number.

This requirement feels like a violation of my right to privacy, a fundamental American principle increasingly under siege by the federal government.

While existing LLCs (pre-2024) received a temporary reprieve from reporting requirements until January 1st, 2025, those formed since January 1, 2024 must navigate this new bureaucratic hurdle. The penalties for non-compliance are hefty, designed to be punitive and ensure swift compliance. This heavy-handed approach feels unnecessary, especially considering the potential for a future administration to overturn this act.

There’s a silver lining for existing LLC owners. We can acquire new assets under our pre-2024 structures without triggering immediate disclosure. Additionally, there’s always the possibility that a change in political winds could bring about the repeal of this intrusive legislation.

However, a crucial caveat remains. Even if the information stays within the Department of the Treasury for now, there’s no guarantee of perpetual confidentiality. A determined plaintiff’s attorney, in the event of a lawsuit, could potentially petition a judge to unseal these disclosures, exposing our private information.

This highlights the precarious situation that real estate investors now face. If you’re considering forming a single-member or multi-member LLC for property ownership after January 1st, 2024, be prepared to comply with the CTA’s disclosure requirements or face significant financial penalties. The future of this act remains uncertain, but for now, it represents a significant threat to the privacy of real estate investors like myself.  

In addition, CTA may very well give plaintiff’s attorneys in liability lawsuits an easy way to pierce the corporate veil of corporate ownership, exposing individual investors to full personal liability for acts of others.

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US federal judge rules Corporate Transparency Act unconstitutional, future of beneficial ownership regime in limbo

By Brett Wolf  Regulatory Intelligence

11 Mar 2024

A ruling out of an Alabama court saying the CTA is unconstitutional throws the whole question of requiring beneficial ownership information from companies into doubt

A U.S. District Court judge in Alabama has ruled unconstitutional the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020 and underpins the nascent beneficial ownership reporting regime.

The ruling’s ultimate impact on the US beneficial ownership information reporting requirement cannot be known at present, as the government is expected to appeal, although a Treasury Department official said that the department was complying with the court’s injunction.

“The Government says that the CTA is within Congress’ broad powers to regulate commerce, oversee foreign affairs and national security, and impose taxes and related regulations,” Judge Liles C. Burke wrote in the ruling, issued March 1. “The Government’s arguments are not supported by precedent. (That is) because the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress policy goals.”

In short, Burke’s ruling suggested that there was not a clear enough case that the CTA was supported on the grounds of national security. Judge Burke’s ruling was the product of a legal challenge brought by the National Small Business Association (NSBA) and one of its members against the Secretary of the U.S. Treasury Department.

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We will watch and report.

John Adams

LibertyREIA.com