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Compliance Steps for Buyers of Real Estate from Foreign Persons

FIRPTA withholding is the buyer’s responsibility. Failure to comply can result in the buyer being held liable for the full withholding amount, plus penalties and interest.

Verify Seller’s Status

Confirm whether the seller is a foreign person under the FIRPTA. Request a Certification of Non-Foreign Status if the seller claims to be a U.S. person. If the seller is a foreign person, proceed with FIRPTA withholding requirements.

Determine Withholding Amount

Calculate the withholding based on the amount realized (generally the sales price). The standard withholding rate is 15% of the amount realized. A reduced 10% rate applies where the property is acquired for use as a residence and the amount realized exceeds $300,000 but does not exceed $1 million ( IRC §1445(c)(4)); the outright exemption at $300,000 or less for a residence sits in IRC §1445(b)(5). Both depend on the buyer’s residence intent, not the seller’s.

File Forms 8288 and 8288-A

As the buyer (withholding agent), you must remit the withheld amount to the IRS within 20 days of the property transfer. Use Form 8288 to report the withholding and Form 8288-A to provide details for each foreign seller. Buyers must use Form 8288-A to report withholding for each foreign seller. The IRS will use this form to credit the withheld amount to the seller’s tax account. Attach the payment to Form 8288 and submit both forms to the IRS.

The Form 8288 series is required under the following circumstances:

  • IRC §1445: When a U.S. real property interest (USRPI) is acquired from a foreign person or when distributions are made by foreign or domestic corporations, qualified investment entities (QIEs), or certain trusts and estates.
  • IRC §1446(f)(1): When a foreign person transfers a non-publicly traded partnership interest, and the partnership is engaged in a U.S. trade or business.
  • IRC §1446(f)(4): When a partnership distributes proceeds related to a transferee who failed to withhold under IRC §1446(f)(1).
Seller’s Withholding Certificate Application (Optional)

A foreign seller may apply for a withholding certificate using Form 8288-B to reduce or eliminate the withholding amount. This application must be submitted before or shortly after the sale. If the IRS issues a withholding certificate, you, as the buyer, must adjust the withholding amount accordingly.

Adjust Withholding Based on IRS Determination

If the seller applies for a withholding certificate and the IRS approves a reduced withholding amount, ensure compliance with the revised withholding requirement. Retain documentation of the IRS determination for your records.

Failure to withhold the required amount exposes you to:

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