Page 5 - FIRPTA Guide AZ

What is FIRPTA? Cont’d

If the seller believes he/she does not have a tax liability, tax withheld to the IRS by the 20th day after the date of
they may be able to obtain an exemption. One example transfer.
of this would be if they purchased the property at a higher
price and now he has a capital loss on the property. Failure to provide the complete and necessary forms could
cause penalties and interest to accrue against the buyer.
In order for the seller to obtain exemption, he would com- The 8288 form must be completed with information not
plete the 8288B form. This is the application for an Exemp- only from the seller, but the buyer as well. The buyer must
tion/Withholding Certificate. This form can be submitted submit this form with their own ITIN.
by the seller prior to closing. The settlement agent will most
likely want to see this form and either have the seller’s tax There are penalties starts out with a $10,000.00 penal-
attorney send to the IRS or the settlement agent will send it ty just for the failure to collect the tax and file the forms
in. If the seller is simultaneously applying for a ITIN, these on time. Then there are additional interest and penalties
forms should be sent together. tacked on to that.

The settlement agent will still hold 10% or 15% in the es- The IRS acts on a withholding certificate request (Form
crow pending receipt of the Exemption Certificate. 8288- B) within 90 days after receipt of request, so this
should be obtained as soon as the seller decides to sell the
Yes, the IRS can issue a Withholding Certificate specifying property.
that no withholding, or a reduced amount of withholding
is necessary. A withholding certificate would normally be Can escrow hold the funds from the seller’s proceeds while
available when, for example, taxes due on the seller’s gain the seller goes about obtaining the withholding certificate?
will be less than 10% of the sales price.
If the buyer and seller specifically instruct that the buyer will
If the seller does not have an ITIN (Individual Tax Iden- hold the funds from the seller and permit the seller the time
tification Number) he/she must obtain one. To do that, to apply for the withholding, this should be done only upon
they must complete the IRS W-7. This is the application careful review by the buyer’s and seller’s tax attorney or
for an ITIN. They should do this as soon as possible upon CPA.
acquiring the property, but if they do not obtain the ITIN, it
can be completed and sent in with the withholding funds at Below are Web links that will take you
closing.
directly to the following FIRPTA Forms:
If the Buyer does not have an ITIN, he/she would need to
complete the IRS W-7 form. Since it is the buyer’s responsi- Form 8288
bility to collect the withholding funds from the seller and it’s U.S. Withholding Tax Return for Dispositions by Foreign Per-
the buyer’s responsibility to remit this to the IRS, the buyer sons of U.S. Real Property Interests
needs to have his own ITIN to complete the forms. http://www.irs.gov/pub/irs-pdf/f8288.pdf

No withholding is required if all of Form 8288-A
these apply: Statement of Withholding on Dispositions by Foreign Persons
of U.S. Real Property Interests
https://www.irs.gov/pub/irs-access/f8288a_accessible.pdf
Is the property a residential property?
Form 8288-B
Is the sales price of the property under $300,000.00? Application for Withholding Certificate for Dispositions by
Foreign Persons of U.S. Real Property Interests
Is the buyer going to owner occupy the property as his http://www.irs.gov/pub/irs-pdf/f8288b/pdf
primary residence? The buyer or family member has defi-
nite plans to reside in the property for at least 50% of the Form W- 8BEN
number of days the property is used during each of the Certificate of Foreign Status of Beneficial Owner for United
first two years following the date of transfer. States Tax Withholding
http://www.irs.gov/pub/irs-pdf/fw8ben.pdf
All of these questions must be yes, then the entire transac-
tion is Exempt from FIRPTA withholding. Form W- 7
Application for IRS Individual Taxpayer Identification Number
If all the documents are completed and if the buyer has
withheld the amount to the IRS from the seller, then the http://www.irs.gov/pub/irs-pdf/fw7.pdf
transferee (buyer) must file Form 8288 and transmit the

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