The Foreign Investment in Real Property Tax Act—or FIRPTA—is a federal law that applies federal income tax liability on foreign investors when they sell real property located in the U.S. These laws are complex and compliance is not always easy to achieve without the help of a dedicated tax lawyer.
If you are involved in the sale of real property within the United States from a foreign national, it is vital that you take into account all of your tax obligations. If you do not comply with FIRPTA, there could be penalties. Let a Washington DC FIRPTA lawyer help you navigate these complex regulations and avoid any penalties.
There is a specific process for withholding a portion of the sales price of foreign-owned real estate to comply with FIRPTA. This withholding process is done to ensure that the Internal Revenue Service (IRS) receives its portion of the sale price, as ordered under law. A Washington DC attorney could assist with every aspect of the FIRPTA withholding process with the goal of preventing a problem later.
Generally, FIRPTA requires that a buyer of real property in the United States withhold 15% of the total sale price. Instead of paying that money to the seller, these funds must be remitted to the IRS along with Form 8288. The failure to do so could result in penalties for the buyer.
There are some exemptions that apply which would allow a buyer to avoid withholding a portion of the sales price of the property. The most common of these exemptions covers property that is worth less than $300,000 and that is intended to serve as a primary residence. FIRPTA withholding is also not required when the seller can provide documentation that they are not a foreign resident, or when the buyer is making a purchase of shares of a publicly-traded company.
There are penalties that are incurred when the buyer fails to withhold a portion of the sales prices as required under FIRPTA. If there is a failure to comply with the requirements laid out in federal law, a Washington DC FIRPTA attorney could assist with resolving the dispute.
The primary recourse for the IRS following a failure to comply with FIRPTA withholding rules is through collecting the amount that the buyer owes. Even if the buyer fails to withhold that portion of the sales price, they are still on the hook for what they owe to the IRS. This gives the IRS a number of collection options to pursue against the buyer, which could include tax levies or liens.
There is also the matter of interest. From the point where the withholding should have taken place, a buyer would also accrue interest on the unpaid debt. This interest will continue to increase depending on the length of time from the date it was owed until the date it is eventually paid. If a lawyer later determines that a penalty was made in error, they could also move to get the related interest abated as well.
Although the tax issues surrounding the purchase of American real estate by a foreign investor can be complex, it is important to remember that compliance with the IRS withholding rules is required. The failure to follow these complicated rules and regulations to the letter of the law could lead to penalties.
Before you move forward with a real estate transaction, it could be in your best interest to discuss your obligations with a Washington DC FIRPTA lawyer. Furthermore, if you did not withhold a portion of the sale for remittance to the IRS, call a lawyer to learn how you could rectify the situation.
Pontius Tax Law, PLLC is a tax law firm that strives to resolve sensitive tax problems through trust, dedication and value. The law firm was founded by John Pontius with offices in Washington, DC, Rockville, MD, Bethesda, MD, Vienna, VA, and Alexandria, VA. Mr. Pontius represents individual and business clients with sensitive and serious tax matters before the Internal Revenue Service and state taxing authorities. His client base is local, national, and international.
Over the course of his career, Mr. Pontius has represented businesses and individuals with complex tax issues in the following areas: FBAR examinations, offshore and domestic disclosures, FATCA, FIRPTA, tax planning, unfiled tax returns, release of tax liens and levies, trust fund recovery penalty, IRS and state audit examinations, as well as appeals, penalty abatement, U.S. Tax Court litigation, along with defense of tax fraud and evasion. If you require assistance from a tax lawyer, contact Mr. Pontius to discuss your situation.