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Perspectives

Limited Liability Companies Purchasing and Selling Residential Real Estate Must Now Disclose the Names of All Their Owners

Owners of real estate in New York have often taken title to their properties in the name of a limited liability company (LLC). Among the advantages of taking title in this fashion was the ability to protect the identity of the ultimate owner or owners of the property from disclosure, because New York LLCs were not required to identify their ultimate ownership in any publicly filed documents.

Recent amendments to New York’s tax laws and regulations, however, have changed the rules. The property tax forms that must be filed in any transaction involving a deed for residential real estate containing a one- to four-family dwelling unit now require that where an LLC is either the transferor or transferee, the names and business addresses of the ultimate owner or owners of the LLC must be provided. Title companies that handle the filing of transfer tax forms are also applying the new disclosures to individual cooperative and condominium units where the seller or purchaser is an LLC. Moreover, an LLC cannot avoid meaningful disclosure through the device of having the LLC owned by a corporation or another LLC, because the forms require that the disclosures continue through all levels of ownership until reaching the natural persons who are the ultimate beneficial owners of 100% of the entity.

In the past, a taxpayer identification number only had to be provided for the LLC and its members. For properties in New York City, the New York City Department of Finance has taken the position that the taxpayer identification number or Social Security number must now be provided for the LLC itself, all of its members, and if any member of the LLC is itself an LLC or other business entity, for each of the shareholders, directors, officers, members, managers, and/or partners of the LLC or other entity. There have been reports of ACRIS’s rejecting transfer submissions that omit this information. Prospective purchasers or sellers who are concerned about the implementation or effects of these new disclosure requirements should discuss them with their counsel, well in advance of the scheduled closing of any transaction.