FIRPTA WITHHOLDING

ATTENTION BUYERS

You may be impacted by Foreign Investment in Real Property Tax Act and Withholding Requirements (FIRPTA) whether you are the buyer or seller of US real estate.  FIRPTA requires any person acquiring real property to collect a withholding tax equal to 10% of the gross sales price from a foreign seller and forward those funds to the IRS within 20 days of the closing. To properly forward those funds the buyer and seller must have or obtain a United States taxpayer identification number. Additionally, if the seller determines that the actual tax owed is less than this 10% amount to be withheld, the seller can submit a request to the US IRS (Form 8288) that only a lesser amount be withheld.  IRS application for reduction of withholding must be filed before the transaction closing.

Without IRS permission, the 10% must be withheld regardless of the amount of tax due.  These amounts must be paid over to the IRS within 20 days of the transfer, unless a timely filed application to reduce or eliminate withholding tax has been filed. If the funds are not paid over timely there a hefty penalties assessed.

A trust account holds the 10% funds until the trustee receive an IRS certificate of determination.

If the application is filed the 10% withheld tax is still withheld at the closing and is deposited in a trust account until a determination letter is received. The application suspends the payment of tax until a certificate is received; normally takes 2 to 6 months to receive a determination letter.

The FIRPTA tax withheld does not eliminate the sellers’ obligation to file a US tax return.  The withholding agent must report the details of the transaction on an IRS forms.

The Buyer is required to have or obtain a US Identification number to assist in seller’s application

Buyers and sellers alike should retain both their initial purchase and subsequent closing documents as well receipts for any improvements or additions to the property.  Additionally, all tax returns filed relating to properties or other investments here in the United States should be maintained to determine the current profit/loss to calculate tax due.

(See checklist)

See also FIRPTA CHECKLIST

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DISCLAIMER

The information contained in this communication is intended as general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there may be delays, omissions or inaccuracies in information contained in this transmission. Accordingly, the information contained herein should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisors. Before making any decision or taking any action based on this content, you should consult a Gidney & Company, P.A. professional. We are not responsible for errors, misinterpretations, or omissions related to these articles and announcements. Nor are we responsible for the applicability to your personal, business or tax situation.  In no event will Gidney & Company, P.A. and its owners, partners, agents or employees, be liable to you or anyone else for any decision made or action taken in reliance on the information in this transmission or for any consequential, special or similar damages, even if advised of the possibility of such damages. To ensure compliance with requirements imposed by the United States Treasury Department, you are hereby informed that any advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This advice may not be forwarded without our express written consent. For more information about the U S Treasures’ / IRS Circular 230 disclosure, (Available at IRS.GOV website).

If you have any questions call Gidney & Co, CPA at (305)866-6266.