Q: Regarding FIRPTA, is a title agent required to complete the IRS forms and determine the amount to be withheld when a foreign person is selling property?
A: No, and if a title agent does so, it might expose the agent to additional liability if the forms are not completed correctly and/or the amount withheld is incorrect.
Background: “FIRPTA” was adopted in 1980 as the Foreign Investment in Real Property Tax Act and is a US law that imposes income tax on foreign persons disposing of a real property interest located in the United States. A foreign person is one who is not a permanent resident (but may have a social security number or taxpayer ID number issued by the United States). A lawful permanent resident (even if that person is not a citizen of the USA) is not considered to be a foreign person. A certification provided by any person stating he/she is not a foreign person can be relied upon (unless the party receiving the certification has knowledge otherwise that the person is a “foreign person”).
Section 1445 of the IRS Code places responsibility on a buyer when acquiring real property from a foreign person for withholding and remitting of any applicable amount. A buyer should consult his/her/their/its own financial and/or legal advisor for whether the transaction qualifies for any exception allowed in the law or whether the buyer should direct the title agent to withhold a portion of the sale proceeds. If the buyer instructs the title agent to withhold and remit to the IRS, the required forms are to be completed by the buyer and provided to the title agent along with a preaddressed envelope that will be used to send both the funds and required forms.
We suggest that each agent may wish to create a form that the parties to the transaction (i.e., buyer and seller) sign that (1) financial and/or legal counsel has been consulted, or (2) financial and/or legal counsel has not been consulted but having had opportunity to do so; and then continue with directions to the title agent to deduct $____ amount (the amount determined and completed by the buyer). If the parties make the decision not to withhold, no matter the reason, give consideration to including hold harmless and indemnification language for the title agent that the parties acknowledges that it is the buyer’s obligation to remit payment, if required and penalties for failure to remit may be assessed against the buyer.
Just in case you are curious about the forms discussed and instructions regarding the forms, those may be located on the IRS website: