November 18, 2019
U.S. TREASURY TARGETS CERTAIN BUYERS OF FLORIDA REAL ESTATE
On November 8, 2019, the U.S. Treasury Department, through its Financial Crimes Enforcement Network (FinCEN), issued a “Geographic Targeting Order” (GTO) that requires certain title insurance companies, and their agents, to report information about the actual beneficial owners (i.e. the individuals) involved in certain “residential real estate” purchases in the amount $300,000 or more, when the purchase is made by a legal entity, other than certain entities registered with the SEC. The title insurance company, or its agent, must file the FinCEN Form 104 “Currency Transaction Report” online, within 30 days of the closing of the transaction. Noncompliance may result in civil or criminal penalties.
Residential Real Estate
For purposes of this GTO, residential real estate means real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families. An exception exists if the property is purchased with a bank loan or other similar form of external financing.
FinCEN Form 104
FinCEN Form 104 must report information on the new beneficial owner of the property, (i.e., the individual who is ultimate owner of the legal entity), the individual primarily responsible for representing the legal entity (i.e., the individual authorized by the entity to enter into legally binding contracts on behalf of the entity), and the legal entity itself. The title insurance company, or its agent, must obtain, and retain for at least 5 years, a copy of the driver’s license, passport, or other similar identifying documentation for each of the beneficial owners of the property and the individual primarily responsible for representing the legal entity. Of course, other information such as purchase price, address, and purchase date of the property, must also be reported.
For purposes of this GTO, the beneficial owner means each individual who directly or indirectly owns 25% or more of the entity purchasing the property. The title insurance company, or its agent, may reasonably rely on information provided to it by third parties involved in the transaction, including the purchaser and its representatives, in determining whether the individual identified as the beneficial owner is, in fact, a beneficial owner.
Geographic Areas Covered
This GTO covers not only Miami-Dade, Broward, and Palm Beach counties in Florida, but also various counties in Texas, California, Hawaii, Nevada, Washington, Massachusetts, Illinois, and various Boroughs in New York City. This current program ends May 9, 2020.
Potential “FIRPTA” Compliance
This reporting requirement adds to the existing reporting obligations of title insurance companies under the “Foreign Investment in Real Property Tax Act” (FIRPTA). Title insurance companies are aware that federal withholding tax of 15% of the selling price generally applies to the sale of U.S. real estate by a foreign individual or by a foreign entity. Failure to withhold may result in civil or criminal penalties.
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