Federal & State Law Requirements

OHIO GOOD FUNDS LAW:

What are Good Funds? For transactions involving residential real estate, settlement agents may disburse only when the funds for the transaction qualify as Good Funds, as defined by Ohio Statute.

What are acceptable forms of Good Funds under the Ohio Statute? Effective September 29, 2017; the following are the only form of funds a settlement agency may collect and disburse on in connection with a residential real estate transaction:

  1. Electronically transferred funds, including wire transfers.

  2. Checks: Personal, Business, Certified, Cashiers, Official Check or Money Order. The combined dollar amount of these items cannot exceed $10,000.00.

    EXAMPLES:

    Personal Check for $1,000.00 and cashiers check for $8,790.00.

    ACCEPTABLE - Total dollar amount is $9,790.00, which is less than $10,000.00

    Money order for $2,000.00 and cashiers check for $8,001.00.

    NOT ACCEPTABLE - Total dollar amount is $10,001.00, which exceeds $10,000.00 limit.

    Certified Check for $10,000.05

    NOT ACCEPTABLE - Total dollar amount is $10,000.05, which exceeds $10,000.00 limit.

  3. Automated Clearing House (ACH) Transfers and checks from the United States, the State of Ohio, or Ohio municipalities.

  4. Checks from a real estate brokers escrow/trust account.

While the Ohio statute defines what is acceptable as Good Funds, following the statutory guidelines will not protect the settlement agent from liability for loss arising from uncollected funds.

Are there any other conditions for Good Funds? Yes, the funds must be immediately available for withdrawal and disbursement by the agent for the transaction.

For additional information regarding Good Funds, please consult with your closing agent.

FinCEN: (Financial Crimes Enforcement Network)

FinCEN is a bureau of the U.S. Treasury Department that combats financial crime, money laundering, and terrorist financing by collecting and analyzing financial transaction data, enforcing the Bank Secrecy Act, and providing intelligence to law enforcement to safeguard the financial system. It works by requiring financial institutions to report suspicious activities and transactions, creating a financial trail for investigators, and promoting financial transparency. 

FinCEN exercises regulatory functions primarily under the Currency and Financial Transactions Reporting Act of 1970, as amended by Title III of the USA PATRIOT Act of 2001 and other legislation, which legislative framework is commonly referred to as the "Bank Secrecy Act" (BSA). The BSA is the nation’s first and most comprehensive Federal anti-money laundering and counter-terrorism financing (AML/CFT) statute. In brief, the BSA authorizes the Secretary of the Treasury to issue regulations requiring banks and other financial institutions to take a number of precautions against financial crime, including the establishment of AML programs and the filing of reports that have been determined to have a high degree of usefulness in criminal, tax, and regulatory investigations and proceedings, and certain intelligence and counter-terrorism matters. The Secretary of the Treasury has delegated to the Director of FinCEN the authority to implement, administer, and enforce compliance with the BSA and associated regulations.

Congress has given FinCEN certain duties and responsibilities for the central collection, analysis, and dissemination of data reported under FinCEN’s regulations and other related data in support of government and financial industry partners at the Federal, State, local, and international levels.

Please visit the FinCEN website with any questions and/or concerns at “About FinCEN | FinCEN.gov”.

FIRPTA: (Foreign Investment in Real Property Tax Act)

FIRPTA is a 1980’s law that ensures foreign taxpayers pay income tax on U.S. property sales (as well as exchanges, liquidations, or transfers of property).If you live in the U.S., capital gains tax is taken out of your regular income tax when you file your return. But foreign persons are taxed only on certain types of income, and aren’t taxed on most capital gains items, including real estate.

In a nutshell: FIRPTA makes it possible for the U.S. government to get its share of the taxes from real estate sales.

» Read the Source: Internal Revenue Code Notice 1445

Who pays the FIRPTA Tax?

Technically, the foreign seller owes a FIRPTA tax — but in practice, the buyer is held responsible for setting the money aside from the proceeds of the sale.

Why does the buyer have to withhold tax for the seller? The thought is to keep a foreign resident from taking proceeds from the sale of the US property back to their home country. Before FIRPTA, the U.S. government was unlikely to collect this tax unless the foreign seller volunteered to file a U.S. tax return. So, there was no effective way to collect the tax.

If you’re buying property from a foreign seller, you’ll have to send the funds to the IRS within 20 days of the closing, along with two forms:

  • Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests

  • Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests

The buyer will enter the amount subject to withholding.

Typically, the closing agent responsible for disbursing the closing funds handles this on behalf of the buyer.

FIRPTA Penalties

  • A buyer can be penalized for not determining or disclosing a foreign seller.

  • The buyer’s real estate agent can also be held liable – to the extent of their commission – if they have actual knowledge that the seller is a foreign person and there has been no withholding.

  • If the buyer doesn’t withhold properly, they may be held liable for the seller’s tax!