Questions About The Foreign Investor In Real Property Act “FIRPTA”
There are some things you should know about FIRPTA if you are buying real estate from a “foreign person” or you are a “foreign person” selling a U.S. real property.
Following are questions and Answers that will help you understand FIRPTA.
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Who Is Responsible For Complying With FIRPTA?
While the buyer has the ultimate liability to the IRS, the collection and disbursement of funds to the IRS as part of the closing process creates a responsibility and potential liability for the settlement agent if the matter is not properly handled and documented. Accordingly, it is important that your file reflect specific written direction from the buyer if anything other than fifteen 15% is being withheld. For example, if a buyer elects to waive the withholding or withhold a reduced rate, settlement agents should obtain an affidavit from the buyer setting forth the buyer’s decision and, if applicable, the facts that entitle the buyer to the exemption or reduced rate along with an acknowledgement that the buyer has been given the opportunity to obtain independent tax or legal advice.
Requirement of TIN’s (Taxpayer Identification Number).
IRS regulations require all buyers and foreign sellers of U.S. real property interests to provide their TINs, names, and addresses on withholding tax returns, applications for withholding certificates, notice of non-recognition, and other related IRS documents when disposing of a U.S. real property interest. The best practice id to have TINs for all parties at the time of closing but it is possible to close without the TINs if you follow the following guidelines:
- If the buyer does not have a TIN, the buyer must remit the proper withholding forms within 20 days after closing; however, the buyer will also need to remit, to a separate address in a separate package, a properly completed application (Form W-7) for a TIN simultaneously with remitting the withholding forms. Please refer to the instructions for each form for further instructions and mailing addresses.
- If the seller does not have a TIN, the buyer must remit the proper withholding forms within 20 days after closing, but the seller’s TIN information will be left blank. While the TIN is not necessary for closing, it should be noted that the seller will have to obtain a TIN in order for the IRS to process the funds and, in fact, upon receipt of the withholding documentation, the IRS will follow up with the seller instructing the seller to apply for a TIN. For this reason, many settlement agents provide the friendly advice that the seller submit its separate application for a TIN by the time of closing.
You can get more information in the IRS publication entitled “ITIN Guidance for Foreign Property Buyers/Sellers,” which is available at www.irs.gov.
Submitting The Withholding.
What If There Are Otherwise Insufficient Proceeds For Withholding In A Short Sale?
What Happens When Less Than All Sellers Are “foreign Persons”?
For more information about how Monarch Law & Title can assist you with your FIRPTA transactions, please contact us by calling
(407) 377-5585 or click here to contact us.
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