Federal Agency Targets Individuals who Purchase Real Estate through a Shell Company

taylorlaw | 08/29/2016

shell-gameOn July 22, 2016, the Financial Crimes Enforcement Network (FinCEN) announced an expanded Geographical Targeting Order (GTO) aimed at identifying individuals who purchase residential real estate property through a shell company.  FinCEN is a bureau of the U.S. Department of Treasury.  FinCEN’s mission is to safeguard the financial system from illicit use, combat money laundering, and promote nation security through the collection, analysis, and dissemination of financial intelligence.  FinCEN carries out its mission by receiving, maintaining, analyzing, and disseminating financial transaction data.  This includes the processing of Form 8300, a Form that is required to be filled out when businesses receive more than $10,000 in cash in one transaction or in two or more related transactions.  Form 8300 must also be filed in specified special situations, such as when a GTO is in force.

This GTO is in effect from now through February 23, 2017.  The new GTO is aimed at the following metropolitan areas: (1) Los Angeles County; (2) San Diego County; (3) San Francisco (including San Mateo and Santa Clara); (4) New York City (all boroughs); (5) Miami-Date County; and (6) San Antonio, Texas (Bexar County). 

Title insurance companies and their agents located in these geographical areas are required to collect and report information about certain residential real estate transactions to FinCEN using Form 8300.  The GTO applies only to residential real property designed for the occupancy of one to four families which is sold for more than a specific dollar amount.  The dollar amount varies depending on the metropolitan area.   In California if an entity purchases residential real estate in one of the GTO areas for a price of $2M or more, and if any portion of the payment is made by some means other than wire transfer, a Form 8300 must be filed. 

On Form 8300 title insurance companies or their agents are required to provide FinCEN with the names of each individual who, directly or indirectly, own 25% or more of the equity interest of the purchasing company.  The title insurance company is required to obtain and record a copy of the beneficial owner’s driver’s license, passport, or other similar identifying documentation. 

This GTO follows a very similar GTO which applied only to New York City and Miami-Dade County.  FinCEN has reported that a significant portion of the real estate transactions covered by the prior GTO have indicated possible criminal activity associated with the individuals reported as the beneficial owners of the shell companies.  FinCEN has expanded this GTO to other areas in an effort to combat financial crimes including money laundering.

Form 8300 is required to be filed within 15 days of the transaction date.  The filer must provide a statement to the payor on or before January 31 of the year following the calendar year in which the cash is received.  The statement to the payor must show the name, telephone number, and address of the business, the aggregate amount of reportable cash received, and that the information was furnished to the IRS.  Outside of this GTO, Form 8300 is always required to be filed by businesses who receive more than $10,000 in cash in one transaction or in two or more related transactions.

Title insurance companies and their agents must ensure compliance with this GTO or else they could face large civil penalties.  The IRS can assess penalties for both failure to timely file Form 8300, and failure to timely furnish a statement to the payor.  In cases where the failure to file and/or failure to furnish was due to negligence, the IRS assesses a penalty of $250 per Form for failure to file, and $250 per Form for failure to furnish a statement to the payor.  If the failure to file is intentional, the penalty is the greater of $25,000, or the amount of cash received in the transaction, not to exceed $100,000.  If the failure to furnish a copy to the payor was intentional the penalty is 10% of the aggregate amount required to be reported.

Our firm has handled a variety of Form 8300 audits and we stand willing and able to assist you with any Form 8300 questions or issues you may have. 

Jonathan Amitrano
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