FIRPTA

Question 1

FIRPTA - FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT OF 1980

Answer 1

The transfer of a U.S. real property interest by foreign Seller(s) is subject to FIRPTA for income tax withholding.

Advise buyer and seller that failure to comply with IRS FIRPTA withholding may result in the buyer being responsible to pay the entire withholding requirement plus penalties to IRS which could increase an IRS lien being placed against the subject property.

FIRPTA is a tax law that imposes U.S. income tax on foreign persons selling U.S. real estate. Under FIRPTA, if you buy U.S. real estate from a foreign person, you may be required to withhold 10% or 15% of the amount realized from the sale. The amount realized is normally the purchase price.

Question 2

SELLER IS NON-EXEMPT FROM WITHHOLDING IF

Answer 2

• Seller is a foreign individual or married person
• Seller is a Foreign Trust
• Seller is a Foreign Estate
• Seller is Foreign Partnership
• Seller is a Foreign corporation
• Buyer does notintend to occupy the property (hereafter referred to as “non-occupied”)as a principal residence regardless of Sales Price
• Buyer intends to occupy the property as a principal residence and the sales price is $300,001.00 or more.

Question 3

HOW MUCH DO I HAVE TO WITHHOLD IF THE SELLER IS NON EXEMPT?

Answer 3

The amount of withholding is based upon a percentage of the Sales Price and is
withheld from the Seller at close of escrow as follows:

15% of Sales Price for all non-occupied properties
10% of Sales Price for all occupied properties that are $300,001.00 to $1,000,000.00
15% of Sales Price for all occupied properties that are $1,000,001.00 and up

Question 4

WHEN AND WHERE DO I SEND THE FIRPTA WITHHOLDING?

Answer 4

100% of the funds withheld must be remitted within 20 days from close of escrow to:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

Question 5

WHAT FORMS DO I NEED FROM THE BUYER?

Answer 5

IRS Forms 8288 and 8288A as applicable must be COMPLETED and signed by the Buyer and submitted along with the tax withholding to the IRS.
Refer the principals to their attorney, tax professional, or to the IRS website at www.irs.govfor tax forms and Publication 515 for assistance.

Question 6

SELLER IS EXEMPT FROM WITHHOLDING IF:

Answer 6

• Seller is a naturalized U.S. individual or married citizen
• Seller is a resident alien (has been issued a green card by the U.S. Government)
• Seller is a U.S. Corporation
• Seller is a Qualified Foreign Pension Plan
• Buyer intends to occupy the property (hereafter referred to as “occupied”) as a principal residence and the Sales Price is $300,000.00 or less.
• Seller provides a Withholding Exemption Certificate issued by IRS to Escrow prior to close of escrow

Question 7

WHAT FORMS DO I NEED FROM THE SELLER IF THE SELLER IS EXEMPT?

Answer 7

Seller completed Non-Foreign Seller Affidavit
Review the Purchase Contract and local company FIRPTA guidelines for required forms
Form 8288B Application For A Withholding Certificate*

A withholding certificate may be issued by the IRS for either no or reduced withholding if:
a.The amount that must be withheld would be more than the Seller’s maximum tax liability, or
b.Withholding of the reduced amount would not jeopardize collection of the tax,
c.The exemption from U.S. tax of all gain realized by the Seller, or
d.An agreement for the payment of tax providing security for the tax liability, entered into by the Buyer or Seller.
For further information and to file an application direct sellers and buyers to IRS at: https://www.irs.gov/uac/Publication-515,-Withholding-of-Tax-on-Nonresident-Aliens-and-Foreign-Entities

Question 8

WHAT IS FIRPTA?

Answer 8

Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) as
amended by Protecting Americans from Tax Hikes Act of 2015 (PATH)
An imposed a tax on gain realized upon the transfer of a United States real property
interest by a foreign person (the “seller”). For purposes of FIRPTA, a foreign person is a:
• Non-resident alien individual
• Foreign corporation
• Single member LLC
• Foreign partnership, trust, or estate
It does not include a resident alien (green card holder).

Question 9

WITHHOLDING REQUIREMENTS

Answer 9

For transactions closing on or after February 16, 2016, Section 324 of the
PATH Act changed some FIRPTA withholding rates as follows:

If Buyer DOES NOT intend to reside at the property
• Any Sales Price the withholding rate is 15%

If Buyer DOES intend to reside at the property
• Sales Prices of $0 to $300,000 – zero withholding
• Sales Price of $300,001.00 to $1,000,000.00 - 10% withholding
• Sales Price of $1,000,001.00 and up - 15% withholding

If the property will be acquired by buyer with intent to reside:
• Sales Prices of $0 to $300,000 –zero withholding with affidavit
• Sales Price of $300,001.00 to $1,000,000.00 - 10% withholding with affidavit

Question 10

THE SELLER

Answer 10

• Resident Alien - Not a citizen but has a U.S. Permanent Resident Card “green card”.
• Non-Resident Alien - A Non-U.S. citizen who doesn’t pass the Green Card or
Substantial Presence Test:
• 31 days during the current year, and
• 183 days during the 3-year period that includes the current year and the 2 years immediately
before that, counting:
 All the days you were present in the current year, and
 1/3 of the days you were present in the first year before the current year, and
 1/6 of the days you were present in the second year before the current year.
• Disregarded Entity - A business entity which elects not to be separate from its owner for
tax purposes. Single-owner business entity that is not a corporation. IRS disregards a
single-owner entity and looks to the single owner.
• Foreign Corporations/partnerships/trusts/estates – For purposes of FIRPTA, an entity
which is incorporated (formed) under laws of a different nation.

Question 11

EXEMPTIONS

Answer 11

The buyer must withhold tax on a real estate transaction unless:
• The seller provides a completed Non-Foreign Affidavit, or
• The buyer intends to reside on the property and the purchase price does not
exceed $300,000 and provides an affidavit affirming same, or
• The Seller is a U.S. real property holding corporation, or
• The Seller is a Qualified Foreign Pension Fund, or
• The Seller provides a Withholding Certificate issued by IRS.

Question 12

WHAT TO SEND TO THE IRS

Answer 12

• Remittance Cover Letter
• 8288 – Original completed by Buyer
• 8288-A – Copies A & B (no signatures required)
• Check in the amount of withholding payable to Internal Revenue Service
• If sellers are married filing together – single package
• If sellers are tenants in common, separate packages for each seller

Question 13

FILING REQUIREMENTS

Answer 13

• Withholding Agent is always the Buyer

* Withholding must be sent to the IRS within 20 days of close of escrow

Question 14

PENALTIES FOR FAILING TO COMPLY

Answer 14

Failure to comply with the withholding requirements
will result in:
• Buyer being responsible for payment of the
withholding amount
• Buyer will be charged interest on withholding from
date amount was due
EXCEPTION - The Seller may apply for a Withholding Certificate directly
with the IRS prior to close of escrow. If the IRS issues a withholding
certificate establishing that the seller does not owe any tax, then the
Buyer does not have to withhold any tax from the Seller.

Question 15

SELLER AFFIDAVIT OF NONFOREIGN STATUS

Answer 15

• Required to be completed
by every seller
• Remember, this could mean a vested owner deeding off on a refinance transaction as well

Question 16

QUALIFIED SUBSTITUTE FORM

Answer 16

• Only if specifically requested by Broker or Buyer

* Do not use other forms provided by outside parties

Question 17

DO I STILL NEED A 1099?

Answer 17

YES!

FIRPTA & 1099 are two separate requirements.

They do stand alone. Just because we remit the withholding does not mean we are exempt from 1099 reporting.

Question 18

MAILING INSTRUCTIONS

Answer 18

Below are the instructions for you to send the $00,000 and the FIRPTA forms to the IRS on behalf of the buyer tomorrow.

Send the following to the IRS –

1. Cover Letter to the IRS (I have provided the body of a suggested cover letter below, please cut and paste on GAT letterhead for you to sign)
2. Buyer signed Form 8288
3. Copies A and B of Form 8288-A
4. ALTA Final Combined Settlement Statement.
5. GAT Check for $00,000 – made payable to “Department of the Treasury.”
   ***Bottom left corner of check and on a “copy” of the check stub (send both) type the below: ………………if there isn’t room to type it in, write it in, this is REQUIRED.
   8288 – Buyer’s name and the word “Transferee” and buyer’s SS# .
   8288 – Seller’s name and the word “Transferor” and the seller’s ITIN “Applied For”.

Send the forms and funds to the following address:

Department of the Treasury
Internal Revenue Submission Processing Center
1973 N Rulon White Blvd.
Ogden, UT 84404

Must be sent with ability to track and proof of delivery, please send by FedEx.
Please send me a copy of the package for a final review before you send it.

Please send to the buyer and seller a copy of the FedEx receipt and a copy of the check (paid to the IRS) so that they know that the IRS received the funds and forms.

Body of cover letter(s) to the IRS:

Date

Department of the Treasury
Internal Revenue Submission Processing Center
1973 N Rulon White Blvd.
Ogden, UT 84404

RE: FIRPTA - Withholding
Property – _________________
8288 – BUYER NAME “Transferee” SS#
8288 – SELLER NAME “Transferor” ITIN “Applied For”.

To Whom It May Concern:

Per FIRPTA withholding, please find enclosed the following:

Check # in the amount of $00,000 for FIRPTA withholding tax.
Form 8288
Form 8288-A – copies A and B
Final Settlement Statement

Please direct any further correspondence to the parties named in the tax forms provided. The buyer is the withholding agent; Great American is NOT the withholding agent and Great American is sending the check and documents only as a clerical courtesy to the parties.

Sincerely,
_____________

Question 19

IF SELLER IS A NON-RESIDENT ALIEN -THEN CONSIDERED A “FOREGIN PERSON” PER FIRPTA

Answer 19

FIRPTA withholding will apply. It is not uncommon that a foreign person has procured a SS# during their lifetime while working in the U.S., but having a SS# does not exempt a foreign person/resident alien from FIRPTA withholding tax.

Question 20

WHAT TO OBTAIN FROM BUYER

Answer 20

Obtain from the buyer the Non-Foreign Certification form (Part I) as soon as possible and send to me; we need to ensure the proper withholding for occupancy or not.

Send the seller’s SS# and the seller’s foreign address to the buyer as soon as possible; the buyer needs that information for the buyer’s FIRPTA forms (copies A, B, and C of Form 8288). And, yes, the buyer needs the seller’s complete SS#.

Find out as soon as possible if the seller plans on sending Form 8288-B Withholding Certificate application to the IRS on or before the close of escrow. If the seller is sending Form 8288-B to the IRS, then please provide the seller with the buyer’s address and tax ID which is needed on the form.

The sellers have disclosed that they are foreign sellers/persons and subject to FIRPTA and FIRPTA withholding. Per the IRS, the buyer must complete Form 8288 and copies A, B and C of Form 8288-A and send the forms with the withheld tax funds to the IRS; please have the forms ready for my compliance officer’s review before closing. As a clerical courtesy, escrow will collect the buyer’s completed forms and send the forms and funds to the IRS at or shortly after COE.

Please review, complete and sign and return to me as soon as possible the following attached documents:
FIRPTA Escrow Instructions for Withholding (please insert the amount that you want escrow to withhold on page 1, item 2).

FIRPTA Holdback Instructions (please insert the amount that you want escrow to withhold on page 1, 3rd paragraph). This form is only to be completed if the seller is sending Form 8288-B to the IRS on or before the COE.

FIRPTA Waiver of Responsibility

Question 21

WHAT TO OBTAIN FROM SELLER

Answer 21

Obtain from the buyer the Non-Foreign Certification form (Part I) as soon as possible and send to me; we need to ensure the proper withholding for occupancy or not.

Send the seller’s SS# and the seller’s foreign address to the buyer as soon as possible; the buyer needs that information for the buyer’s FIRPTA forms (copies A, B, and C of Form 8288). And, yes, the buyer needs the seller’s complete SS#.

Find out as soon as possible if the seller plans on sending Form 8288-B Withholding Certificate application to the IRS on or before the close of escrow. If the seller is sending Form 8288-B to the IRS, then please provide the seller with the buyer’s address and tax ID which is needed on the form.

Please review, complete and sign and return to me as soon as possible the following attached documents:
FIRPTA Escrow Instructions for Withholding (please insert the amount that you want escrow to withhold on page 1, item 2).

FIRPTA Holdback Instructions (please insert the amount that you want escrow to withhold on page 1, 3rd paragraph). This form is only to be completed if the seller is sending Form 8288-B to the IRS on or before the COE.

The seller must complete and send on their own Form 8288-B (escrow does not handle this) if the seller is executing the form and it must be sent on or before close of escrow and the seller must provide a copy (of the form only, not related docs) to escrow and proof of delivery on or before COE or Great American Title will send the funds for the buyer to the Internal Revenue Service at COE. Thus far the seller has not indicated that the seller will be executing Form 8288-B; if the seller does send Form 8288-B Withholding Certificate application, box 5 of the form should list the following GAT address so that GAT can quickly notify the buyer and seller of the IRS response and comply with the IRS demand to pay the IRS or refund the withholding funds to the seller, or a combination of the two. There is room for the seller to add/ include their address and/or their CPA’s as well if they like, which is suggested.