FIRPTA FAQ’S For Sellers
WHAT IS FIRPTA?
FIRPTA is the Foreign Investment in Real Property Tax Act of 1980. It allows the United States to tax foreign persons on dispositions of U.S. real property interests. All real estate sales are subject to FIRPTA withholding requirements.
WHAT DOES FIRPTA REQUIRE?
In transactions where any seller (including a spouse not in title) is a foreign person, the buyer is obligated to withhold 15% of the amount realized on the sale by that seller.
WHAT IS A FOREIGN PERSON?
A foreign person is a nonresident alien individual, foreign corporation that has not made an election under Section 897(i) of the Internal Revenue Code to be treated as a domestic corporation, foreign partnership, foreign trust, or foreign estate. It does not include a resident alien individual. A resident alien is an individual that is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year.
For more information and for links to the substantial presence and green card tests, please see: https://www.irs.gov/individuals/international-taxpayers/foreign-persons
WHAT IF THE SELLER DETERMINES HE/SHE IS NOT A “FOREIGN PERSON” UNDER THE
DEFINITION FOR FIRPTA?
Seller can execute a Certification of Non-Foreign Status (CNFS) which is a form executed under oath that discloses the seller’s U.S. taxpayer identification number, if any, and states he/she is not a foreign person.
In connection with the CNFS, a seller will likely appoint a Qualified Substitute (QS) to retain the CNFS since the taxpayer identification number is personal identifiable information which should be protected. The QS will then provide the buyer with a Qualified Substitute Statement confirming that they have received the executed CNFS.
MAY A POA BE UTILIZED FOR THE CNFS?
A power of attorney cannot execute the CNFS as it is a statement under oath and one cannot provide statements under oath for another person.
WHAT IF THE SELLER IS A “FOREIGN PERSON” AND/OR CANNOT QUALIFY FOR AN
EXEMPTION FROM FIRPTA WITHHOLDING?
The closer, at the direction of the buyer, will withhold the required 15% of the sale price from the seller and remit the funds to the IRS. If only one seller is a “foreign person,” withholding is required on that seller’s percentage of ownership (default percentage where there are joint owners is 50/50).
CAN A SELLER RECOVER THE FUNDS FROM THE IRS?
Yes, the seller can apply for an exemption after closing and if granted, will receive a refund.
WHO SHOULD A BUYER OR SELLER CONTACT IF HE/SHE HAS QUESTIONS REGARDING
FIRPTA WITHHOLDING?
Buyers and sellers with questions should be advised to seek legal and tax advice. Real estate agents and closers are not permitted to provide advice regarding FIRPTA withholding. Additional information is also available at www.irs.gov.
The information in this document is only a general overview for informational purposes. It is not intended to be considered legal or tax advice. Each situation is unique and the circumstances will dictate each transaction and therefore should be specifically discussed with a tax or legal professional.
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