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The Department of Treasury is scrutinizing large cash residential real estate purchases

Investors who are thinking of paying cash for residential real estate in New York City should know that the federal government may be looking closely at their transaction. The Department of the Treasury's Financial Crimes Enforcement Network (FINCEN) announced recently that it renewed an order requiring title companies in certain areas of the United States to reveal the names of individuals paying cash for "high-end" residential real estate. The compliance with the order requires completion of IRS Form 8300 and a review of the subject transaction.

Where is FINCEN targeting?

This Geographic Targeting Order (GTO) applies to New York City and five other parts of the country, including Miami and surrounding areas, Los Angeles, the Bay Area, San Diego and San Antonio. New York City and the Miami area have been targets of this GTO since 2015. In New York City, title companies must report all real estate transactions in Manhattan of $3 million, and of $1.5 million or more in Brooklyn, Queens, the Bronx and Staten Island. This renewal order went into effect on February 24, 2017, and will be in effect for 180 days.

What is the purpose of this scrutiny?

In short, the purpose of these orders is to help the federal government find evidence of money laundering and tax evasion. In recent years, shell companies have made up an increased share of large residential transactions. In 2015, the New York Times reported that LLCs and other so-called "shell companies" make more than half of all residential real estate purchases of more than $5 million were conducted by shell companies. This percentage was higher in New York City.

FINCEN states that since the beginning of the GTO, roughly one-third of the transactions they have monitored have involved owners or purchasers who have been "the subject of a previous suspicious activity report."

A multi-faceted approach

This is just one of many steps FINCEN has taken to shine a light on potentially suspicious activities. Under the Bank Secrecy Act (BSA), FINCEN has substantial abilities to compel banks and other financial institutions to prevent money laundering, tax evasion and related financial crimes. For example, any taxpayer who has to file a Report of Foreign Bank and Financial Accounts (FBAR) is doing so because of the BSA.

Goldburd McCone provides a flat rate service for the preparation of Form 8300 and such compliance to its Title Company clients. Anyone facing possible scrutiny or investigation by FINCEN needs to understand that the federal government has vast resources at its disposal. Strong legal counsel is essential. The attorneys of Goldburd McCone vigorously protect the rights of individuals facing criminal tax issues and related allegations.

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