Accredited investor verification for 506(c) offerings

Reasonable belief vs reasonable steps

Every Rule 506 offering is sold to accredited investors, plus, under Rule 506(b), up to 35 sophisticated non-accredited investors. What changes between the two paths is how sure you must be. Under 506(b), you need a reasonable belief that an investor is accredited, and a completed questionnaire usually supports it. Under Rule 506(c), which allows general solicitation, you must take reasonable steps to verify that every purchaser is accredited. A checked box is not enough.

Rule 506(c)(2)(ii) sets a principles-based standard and lists non-exclusive methods for natural persons. Any method that is reasonable on the facts can work; the listed methods are the ones the rule says will satisfy the requirement. Skipping verification for even one purchaser can put the exemption for the whole offering at risk, so the file matters.

• 506(b) vs 506(c): choosing your exemption

Who qualifies as an accredited investor

Rule 501(a) of Regulation D defines the term. For individuals, the categories that come up in real estate offerings are:

• Income: more than $200,000 in each of the two most recent years, or more than $300,000 jointly with a spouse or spousal equivalent, with a reasonable expectation of the same this year.
• Net worth: more than $1,000,000, alone or jointly with a spouse or spousal equivalent, excluding the primary residence. Mortgage debt on the residence up to its value is excluded too, but debt above its value, and debt added in the 60 days before the purchase other than to buy the home, counts as a liability.
• Professional licenses: holders in good standing of the Series 7, Series 65 or Series 82 license.
• Insiders: directors, executive officers and general partners of the issuer, or of the issuer’s general partner.
• Knowledgeable employees, for investments in a private fund that relies on Section 3(c)(1) or 3(c)(7) of the Investment Company Act.
• Entities, including: corporations, LLCs, partnerships and certain trusts with more than $5,000,000 in total assets that were not formed to make this investment; entities owning more than $5,000,000 in investments, not formed for this investment; certain family offices with more than $5,000,000 under management; and any entity in which all equity owners are accredited.
• The thresholds are not indexed to inflation. On September 30, 2026, the SEC requested public comment on designating more credentials under Rule 501(a)(10), including the CPA license, the CFA designation, the CFP certification, the Series 79, 86 and 87 licenses and a FINRA-developed accredited investor exam. These are requests for comment, not rules. Check the current definition before each offering.

The verification methods for individuals

Rule 506(c)(2)(ii) lists these non-exclusive methods for natural persons. Using one correctly satisfies the verification requirement for that investor.

Two practical gaps to plan for. Early in the year, the most recent tax return may not be filed yet, so the income method does not fit neatly. And the net worth method needs the investor’s consent to pull a consumer report. Decide with counsel how you handle both before the raise starts.

The high-minimum-investment path (March 2025)

On March 12, 2025, the staff of the SEC’s Division of Corporation Finance issued a no-action letter to Latham & Watkins LLP and added Securities Act Rules Compliance and Disclosure Interpretations 256.35 and 256.36. The staff agreed that "a high minimum investment amount is a relevant factor in verifying accredited investor status" and that, on the facts in the letter, an issuer could reasonably conclude it had taken reasonable steps to verify.

The facts in the letter are specific. The issuer obtains, in writing:

• From a natural person: a representation that they are accredited under the net worth or income test (Rule 501(a)(5) or (a)(6)), a representation that their minimum investment is not financed in whole or in part by any third party for the specific purpose of making this investment, and an agreement to invest at least $200,000.
• From an entity accredited by its total assets or investments: a representation that it is accredited under the relevant category, the same no-third-party-financing representation, and an agreement to invest at least $1,000,000.
• From an entity accredited only because all its equity owners are accredited: representations covering each owner, including that each owner has a minimum investment obligation to the entity of at least $200,000 (natural persons) or $1,000,000 (entities), and an agreement to invest at least $1,000,000, or $200,000 per owner if the owners are fewer than five natural persons.
• In every case, the issuer has no actual knowledge of facts indicating that a purchaser is not accredited, or that a minimum investment was financed by a third party for this investment.
• A binding commitment to invest the minimum in one or more installments, as and when called by the issuer, counts toward the minimum.

Reading the 2025 guidance conservatively

The path is useful, and narrow. Before you rely on it:

• It is staff guidance, not a rule. It reflects the staff’s view on the facts presented, and the other methods still work.
• The minimum must be a real term for that investor. If you accept a smaller amount from someone, that investor is outside the facts of the letter.
• Red flags defeat it. If you know anything suggesting the investor is not accredited, or borrowed the money for this deal, use another method.
• The natural-person representation covers the income and net worth tests only. An investor who qualifies only through a Series 65 license, for example, needs another method; the license itself can be checked on FINRA BrokerCheck.
• Use the representations as the letter frames them, approved by counsel, and keep them with the signed subscription.

Entities, trusts and IRAs

The listed safe-harbour methods apply to natural persons. For entities, use the principles-based method: review documents that show total assets or investments, such as financial statements or account statements. For an entity that qualifies through its owners, verify each equity owner as an individual. Trusts vary widely, so ask counsel how each type you see should be treated.

Self-directed IRAs are titled in the custodian’s name for the benefit of the investor. How an IRA qualifies, and whose status you verify, is a question for counsel. Record both the custodian and the beneficial owner in your file.

What a verification letter typically states

If you rely on a third-party confirmation, the letter is your evidence. Accept letters only from the four categories of professionals the rule names, and read every one. Some sponsors use verification services that collect the documents and issue a letter signed by one of those professionals.

Below is an outline of what such a letter usually contains. It is not a legal form; have counsel approve the wording you will accept.

• Letterhead and date. The date matters: the verification must have happened within the three months before the sale.
• Who is signing and why they qualify: a registered broker-dealer, an SEC-registered investment adviser, an attorney licensed and in good standing (with the jurisdiction), or a CPA registered and in good standing (with the state).
• The investor’s exact legal name, matching the subscription agreement. For an entity, its full name and type.
• A statement that the signer took reasonable steps within the prior three months to verify that the investor is an accredited investor as defined in Rule 501(a) of Regulation D, and has determined that the investor is accredited.
• The basis relied on, such as income, net worth, a professional license or an entity test. Optional, but useful for your file.
• Who may rely on it: the issuer, its sponsor and their agents, for the named offering or for offerings within a stated period.
• The signer’s name, license or registration number and contact details.
• Any limits, for example that the letter is not investment advice or a suitability opinion.
• Before relying on it: confirm the signer’s license with the issuing body and, if anything looks off, call the signer using contact details you found independently.

A worked example

A Rule 506(c) offering requires a minimum of $200,000 from individuals and $1,000,000 from entities, and the sponsor uses the 2025 path where it fits. Three subscriptions arrive in the same week (fictional investors):

One offering, three methods. The point is not to pick one method for everyone, but to pick a reasonable one for each investor and write down why.

Building a verification file

Whatever methods you use, keep the same record for every investor:

• One record per investing entity, linked to the subscription it supports.
• The method used, the documents reviewed, who reviewed them and the date.
• Signed representations, in the wording counsel approved.
• Verification complete before you accept the subscription and take the money.
• Tax returns, statements and consumer reports kept in access-controlled storage, seen only by staff who need them, and retained under your counsel’s policy.
• A dated note of any red flag and how you resolved it.
• For the next deal: Rule 506(c) lets an issuer rely on its own prior verification for up to five years with a fresh representation. If each deal is a new entity, ask counsel whether an affiliated issuer’s verification counts.