What is FIRPTA and how does it affect foreign sellers and US buyers of US realty?
FIRPTA is the Foreign Investment in Real Property Act. It authorizes the United States to tax
foreign persons on dispositions of U.S. Real Property. As of February 17, 2016, all Buyers of US
real property, sold by foreign persons, are required to withhold 15% on the amount realized on
the sale, and remit it to the IRS.
Even though the tax is on the foreign person selling the US property, it is the buyer who is
considered the withholding agent and is responsible for withholding and remitting the required
15% tax to the IRS. Therefore, upon transfer of the US realty, the foreign seller’s 15%
withholding usually goes to the buyer, for immediate remittance to the IRS.
If an escrow account is available, the seller’s 15% withholding can alternatively be held in trust,
until such a time as it should be remitted to the IRS. This is particularly helpful when the foreign
seller is eligible to a reduction or waiving of the 15% tax.
When exceptions and reductions to the 15% tax apply, a withholding certificate should be
applied for from the IRS. While the IRS makes a determination on this, the 15% tax would be
ideally held in trust in the escrow account, offering a safety net to the seller and buyer.
Within 20 days of the IRS mailing their determination: a withholding certificate or a notice of
denial; the correct tax is sent to the IRS from the escrow account, using Forms 8288 & 8288-A.
Robert Atkins Walker PC offers a full FIRPTA compliance service, with tiers of service and fees
to meet your individual needs.