With the passage of tax reform and the complexities around the new laws, it’s important to remember who and how brokers may pay people commissions in Massachusetts.
Many CPAs may be advising REALTORS® to form an LLC to receive an agent’s commission, a broker and agent must take in account specific Massachusetts laws.
The licensing of a corporation is governed by Massachusetts General Laws Chapter 112, Section 87UU. A license will only be issued to a corporation if the corporation designates a representative to obtain the license and that representative already holds a broker’s license as an individual. Further, the statute expressly prohibits the issuance of a salesperson’s license to a corporation.
The issuance of broker’s licenses is further regulated by 254 CMR 2.11, which states:
No licensee may engage in the business of real estate brokering in a corporation, limited liability company (LLC), partnership, limited liability partnership (LLP), association or society unless the entity is licensed by the Board.
No broker’s license shall issue to a corporation, LLC, partnership, LLP, association or society unless an officer in such corporation, society or association or partner in a partnership is a licensed broker in the Commonwealth and designated as the broker of record for the entity. The broker of record must be currently licensed at all times, otherwise the license of the entity shall cease.
Fees and commissions earned from a real estate transaction may only be paid to a licensed salesperson or broker, as such, any payments to an unlicensed LLC (or other unlicensed entity) are impermissible.
If you wish to take advantage of the benefits to corporations under tax reform, make sure you act within the bounds of Massachusetts laws and regulations.
Read more about the impact of tax reform on real estate and real estate professionals, HERE.
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The REALTOR® Legal Hotline offers authorized callers access to staff attorneys who can assist members with questions about current state and federal laws and regulations, permissible business practices, and important court rulings affecting real estate practitioners. To take advantage of the Legal Hotline service, a member’s designated broker must first complete and sign an Authorization Form and return to the MAR Legal Department. Once approved as an authorized caller, MAR members may access the Hotline by calling 800-370-LEGAL (5342), sending an e-mail email@example.com, or faxing questions to 781-890-4919. The hours of operation are Monday-Friday, from 9 a.m. to 1 p.m.