Welcome to your Excluded Transfers Quiz!

Read the prompt below and complete the questions to test your knowledge of excluded transfers under the Residential Real Estate Rule.

Prompt:

To be reportable, a non-financed transfer of residential real property to a transferee entity or transferee trust must involve a true transfer of ownership. Real property transactions that do not involve a true transfer of ownership will not count.

In addition, the Rule excludes eight types of common ownership transfers:

(i) Grant, transfer, or revocation of an easement;

(ii) Transfer resulting from the death of an individual, whether pursuant to the terms of a decedent's will or the terms of a trust, the operation of law, or by contractual provision;

(iii) Transfer incident to divorce or dissolution of a marriage or civil union;

(iv) Transfer to a bankruptcy estate;

(v) Transfer supervised by a court in the United States;

(vi) Transfer for no consideration made by an individual, either alone or with the individual's spouse, to a trust of which that individual, that individual's spouse, or both of them are the settlor(s) or grantor(s);

(vii) Transfer to a qualified intermediary for purposes of 26 CFR 1.1031(k)-1; or

(viii) Transfer for which there is no reporting person. 31 CFR § 1031.320(b)(2).

Some of these categories received FinCEN’s attention in the comments leading up to the Reporting Rule that are worth reviewing.

The first category, involving the grant of an easement, is easy to understand because easements are usually low in value and seldom are the subject of subsequent transfers, and speculation.

The second and third categories, transfers resulting from death and transfers incident to a divorce, are at low risk of being abused for money laundering purposes.

The fourth and fifth categories, transfers to a bankruptcy estate or when supervised by a U.S. court, resulted from comments received by FinCEN. In its commentary on the Reporting Rule, FinCEN described how commenters had requested an exception for “transfers made in connection with a court-supervised legal settlement.” Reporting Rule, 89 Fed. R., 70258 at 70268 (August 29, 2024). FinCEN wrote that it believes that “transfers required as a result of judicial determination in the United States are generally publicly documented and subject to oversight and therefore are subject to a lower risk for money laundering.” Id.

The sixth category, transfers for no consideration to a trust of which the transferor or the transferor’s spouse is a settlor or grantor, was added by FinCEN in response to comments that asked for a broader exclusion for estate planning-related purposes. FinCEN wrote that it believed this category of common estate planning transfers was at low risk for money laundering.

The seventh category, transfers in connection with a Section 1031 exchange, also arose from comments FinCEN received on a prior draft regulation.

Practitioners should be conversant with these excepted types of real estate transactions, so they can identify reportable transactions.

--- Test Your Knowledge Below ---

Mrs. Jones owns a residential real property when she is deceased. Ownership of the property transfers to a corporation under the terms of her will. Which of the following is true?

The transfer is excluded (and not reportable) because the transfer takes place as the result of her death.

The transfer is excluded (and not reportable) because Mrs. Jones had a will. If she did not had a will, it would have been reportable.

The transfer is excluded (and not reportable) because the transfer was to a corporation.

Mrs. Jones transfers the same residential real property to the same corporation during her lifetime. Which of the following is true?

The transfer is now reportable because it is a non-financed transfer of residential real property to a transferee entity.

The transfer is not reportable because the corporation would have received the property through Mrs. Jones’ will anyway.

Mrs. Jones owns a residential real property at the time of her death and ownership passes through her will to her grandson. Her grandson takes title and then transfers the property, for cash, to a corporation. Which of the following is true:

Both transactions can be reported at the same time if they take place during the same calendar month.

Neither transaction is reportable, since the transfer process started with the death of Mrs. Jones.

The transfer from Mrs. Jones to her grandson is not reportable. The transfer from the grandson to the corporation is reportable.

Bob Jones and Mary Jones are a married couple who own a residential real property. They divorce and, pursuant to their divorce settlement agreement, Bob Jones transfers his interest in the property to Mary Jones. Which of the following is true:

Since there is no mortgage loan involved, the transaction should be reported.

Because the transfer is incident to a divorce, it is not reportable.

If the transfer is supervised by the court, it will not be reportable.

Johnson Real Estate, LLC owns a residential real property. Johnson Real Estate, LLC files for bankruptcy protection and, as part of the bankruptcy process, the bankruptcy trustee files a deed that transfers ownership of the property to the trustee. The transfer of the residential real property to the trustee is:

Reportable, because it is a non-financed transfer of residential real property to a transferee entity.

Not reportable, because it is a transfer to a bankruptcy estate.

Only reportable if the bankruptcy trustee is not an individual.

Same facts as the previous question, except the bankruptcy trustee, as part of the estate settlement plan, transfers the residential real property to Acme Corporation, in settlement of indebtedness owed by the bankruptcy estate to Acme Corporation. The transfer from the bankruptcy estate to Acme Corporation is:

Reportable, because it is a non-financed transfer of residential real property to a transferee entity.

Not reportable, because it is a transfer from a bankruptcy estate.

Not reportable, because it is a transfer supervised by a court.

Only reportable if ACME Corporation is not publicly traded.

Corporation A is indebted to Corporation B and, as a compromise and settlement of its debt, Corporation A transfers title to a parcel of residential real property to Corporation B. Within ninety (90) days, Corporation A files for bankruptcy. As part of the bankruptcy court proceedings the bankruptcy court orders Corporation B to transfer title back to Corporation A because the transfer was a voidable preference. The transfers from Corporation B to Corporation A is:

Reportable, because it is a non-financed transfer of residential real property to a transferee entity.

Not reportable, because it is a transfer from a bankruptcy estate.

Not reportable, because it is a transfer supervised by a court.

Only reportable if ACME Corporation is not publicly traded.

Mr. Blackheart is the president of Black Corporation, which owns a residential real property. As part of a scheme to embezzle from Black Corporation, Mr. Blackheart causes the corporation to transfer the residential real property to his grandson for $10 in cash. The shareholders of Black Corporation file a derivative suit against Mr. Blackheart for breach of fiduciary duty and the court orders the grandson to convey the property back to Black Corporation. The first transfer, from Black Corporation to the grandson:

Was not reportable, because the grandson was not aware of the fraud.

Was reportable, because the grandson received the property for nominal consideration.

Was not reportable, because the grandson was not a transferee entity or transferee trust.

Was reportable, because the transfer was non-financed.

Same facts as the previous question. The second transfer, from the grandson to the corporation:

Was not reportable, because the transfer was supervised by a court.

Was reportable, because the transfer was non-financed.

Would be reportable if Black Corporation was not publicly-traded.

Was not reportable because the real property was originally owned by Black Corporation.

Bob Jones and Mary Jones are a married couple. They transfer residential real property to an estate planning trust. Their child, Alice Jones, is the sole beneficiary. The transfer from Bob Jones and Mary Jones to the trust is:

Reportable, because it was a non-financed transfer of residential real property.

Not reportable, because it was a transfer by an individual, with the individual’s spouse, to a trust of which that individual, that individual's spouse, or both of them are settlors or grantors;

Not reportable, because the sole beneficiary of the trust is a child of the transferors.

Not reportable, of the property had transferred to Alice through their wills that transfer would have been exempt.

Same facts as the previous question. After a few months, the trust Bob and Mary Jones created determines that the local real estate market is over-valued and the trust sells the property to a real estate investment corporation for cash. The transfer from the trust to the corporation is:

Reportable, because it was a non-financed transfer of residential real property to a transferee entity.

Not reportable, because it made by a trust.

Not reportable if the proceeds of the transaction are retained by the trust for the benefit of Alice.

Mary Jones owns a residential real property as an investment that she transfers to a qualified intermediary as part of a 1031 exchange transaction. The transfer to the qualified intermediary is:

Reportable, because it was a non-financed transfer of residential real property to a transferee entity.

Not reportable, because it is a transfer to a qualified intermediary as part of a Section 1031 exchange.

Reportable if the transfer is non-financed.

Same facts as the previous question. Later, the qualified intermediary transfers the property to a real estate investment corporation for cash. The transfer to the investment corporation is:

Reportable, because it was a non-financed transfer of residential real property to a transferee entity.

Not reportable, because it is part of Section 1031 exchange.

Not reportable, if the real estate investment corporation is a REIT.

Excluded Transfers Quiz

Welcome to your Excluded Transfers Quiz!

Read the prompt below and complete the questions to test your knowledge of excluded transfers under the Residential Real Estate Rule.

Prompt:

To be reportable, a non-financed transfer of residential real property to a transferee entity or transferee trust must involve a true transfer of ownership. Real property transactions that do not involve a true transfer of ownership will not count.

In addition, the Rule excludes eight types of common ownership transfers:

(i) Grant, transfer, or revocation of an easement;

(ii) Transfer resulting from the death of an individual, whether pursuant to the terms of a decedent's will or the terms of a trust, the operation of law, or by contractual provision;

(iii) Transfer incident to divorce or dissolution of a marriage or civil union;

(iv) Transfer to a bankruptcy estate;

(v) Transfer supervised by a court in the United States;

(vi) Transfer for no consideration made by an individual, either alone or with the individual's spouse, to a trust of which that individual, that individual's spouse, or both of them are the settlor(s) or grantor(s);

(vii) Transfer to a qualified intermediary for purposes of 26 CFR 1.1031(k)-1; or

(viii) Transfer for which there is no reporting person. 31 CFR § 1031.320(b)(2).

Some of these categories received FinCEN’s attention in the comments leading up to the Reporting Rule that are worth reviewing.

The first category, involving the grant of an easement, is easy to understand because easements are usually low in value and seldom are the subject of subsequent transfers, and speculation.

The second and third categories, transfers resulting from death and transfers incident to a divorce, are at low risk of being abused for money laundering purposes.

The seventh category, transfers in connection with a Section 1031 exchange, also arose from comments FinCEN received on a prior draft regulation.

Practitioners should be conversant with these excepted types of real estate transactions, so they can identify reportable transactions.

--- Test Your Knowledge Below ---

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