The Foreign Investment in Property Tax Act (FIRPTA)

Seller
agrees to comply with IRS reporting requirements. If applicable, Seller
agrees to complete, sign, and deliver to Escrow Company (Title
Insurance Co. or Attorney) a certificate indicating whether Seller is a
foreign person or a non-resident alien pursuant to the Foreign
Investment in Real Property Tax Act (FIRPTA). Buyer acknowledges that
if the Seller is a foreign person, the Buyer must withhold a tax equal
to 10% of the purchase price, unless an exemption applies.

The
Foreign Investment in Real Property Tax Act (FIRPTA), was enacted in
1980 and provides, that if the Seller of real property is a foreign
person, the Buyer must withhold a tax equal to 10% of the gross
purchase price, unless an exemption applies. 26 U.S.C.A. § 1445(a). A
foreign person is a nonresident alien individual; a foreign corporation
not treated as a domestic corporation; or a foreign partnership, trust
or estate. A resident alien is not considered a foreign person under
FIRPTA.

There
are numerous exemptions to the FIRPTA requirements. The most common
exemption is when the seller furnishes a non-foreign affidavit stating
under penalty of perjury that the seller is not a foreign person. 26
U.S.C.A. §1445(b)(2). Another exemption is a transaction involving the
transfer of a property acquired for use as the buyer’s residence and
the amount realized (purchase price) does not exceed $300,000. 26
U.S.C.A. §1445(b)(5).

Although
FIRPTA generally provides that 10% of the purchase price must be
withheld, the amount withheld should not exceed the seller’s maximum
tax liability. 26 U.S.C.A. §1445(c).

Any
necessary withholding should be accomplished by requiring the escrow
agent to withhold the required funds. The escrow company should be
instructed to send the funds to the IRS at close of escrow. Additional
information regarding this issue may be obtained in IRS Publication
515.

Department
of the Treasury/Internal Revenue Service — Publication 515, Withholding
of Tax on Nonresident Aliens and Foreign Corporations

The
foregoing is for informational purposes only and is not intended as
definitive legal or tax advice. Transmission of this information is not
intended to create, and receipt does not constitute, an attorney-client
relationship. You should not act upon this information without seeking
independent legal counsel. If you desire legal advice, tax or other
professional advice, please contact your attorney, tax advisor or other
professional consultant.