FIRPTA Certificate: in order to avoid the IRS withholding 15% of your sale (presuming you did not qualify for an exception, you may request a FIRPTA withholding certificate. With a withholding certificate the amount that the IRS records is minimized or avoided completely. This is a very important tool come especially for individuals who would not otherwise have to file a tax return other than to report the gain (or loss) antenna refund of their FIRPTA withholding.
The request for FIRPTA withholding is made on IRS Form 8288-B.
Let’s review the process for a FIRPTA Withholding Certificate:
Who Makes the FIRPTA Withholding Certificate Request?
There are multiple parties in the disposition transaction involving a foreign seller who are authorized to make this request for FIRPTA Withholding Certificate. Specifically, that is the transferee, transferor, or the transferring agent. It’s important that the request is made timely in order to avoid it having any negative impact on the underlying transaction.
How Long for the IRS to Respond?
Generally, it takes the IRS upwards of 90 days to respond to the request for withholding certificate. With the additional hurdle of COVID, it may take the IRS even longer to respond.
Another important component this to make sure the transferor updates the transferee in writing that the certificate has been applied for on the day of or the day before the transfer takes place.
Taxpayer Identification Numbers (TIN’s)
One important component when requesting me FIRPTA withholding certificate are the taxpayer identification numbers. Internal revenues requires submissions to include the taxpayer identification numbers for all parties to transaction.
When Can a FIRPTA Withholding Certificate be Issued?
As provided by the IRS:
“A withholding certificate may be issued due to:
- A determination by the IRS that reduced withholding is appropriate because either:
- The amount that must be withheld would be more than the transferor’s maximum tax liability, or
- Withholding of the reduced amount would not jeopardize collection of the tax,
- The exemption from U.S. tax of all gain realized by the transferor, or
- An agreement for the payment of tax providing security for the tax liability, entered into by the transferee or transferor.”
“All applications for withholding certificates are divided into six basic categories. This categorizing provides for specific information that is needed to process the applications. The six categories are:
- Applications based on a claim that the transfer is entitled to nonrecognition treatment or is exempt from tax,
- Applications based solely on a calculation of the transferor’s maximum tax liability,
- Applications under special installment sale rules,
- Applications based on an agreement for the payment of tax with conforming security,
- Applications for blanket withholding certificates, and
- Applications on any other basis.
Please refer to Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for detailed instructions on how to apply for a withholding certificate under each of the 6 categories above.”
The following six (6) categories above refers to the type of situations in which a FIRPTA Withholding Certificate may be issued.
Availability of Records
The applicant must make available to the IRS, within the time prescribed, all information required to verify that representations relied upon in accepting the agreement are accurate, and that the obligations assumed by the applicant will be performed pursuant to the agreement.
Failure to provide requested information promptly will usually result in rejection of the application, unless the IRS grants an extension of the target date.”
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