The Foreign Investment in Real Property Tax Act (FIRPTA) imposes some significant financial requirements when individuals who are not permanent residents of the U.S. try to sell property that they own here. Failing to abide by the law could result in financial penalties.
A Vienna FIRPTA lawyer has deep experience in matters relating to this law and could offer guidance throughout the transaction and afterward. A local tax lawyer could advise a foreign national about complying with the law, and in some cases, it could be possible to reduce or eliminate the FIRPTA withholding requirement.
When U.S. citizens sell property, the profit they make on the transaction is subject to tax. The tax structure for foreign residents of the U.S. is different. FIRPTA ensures that foreign nationals who profit from selling property within the country pay the appropriate tax on their gains.
This law is directed towards “foreign persons.” An individual is a foreign person if they are a non-resident citizen of a foreign country and not a Green Card holder. There are many G-4 visa holders that are employees of international organizations living in the DC area. They are treated as non-residents in the U.S. but are subject to FIRTPA. Under FIRPTA, the foreign person definition also includes a foreign corporation, partnership, trust, or estate.
Transferring U.S. property to another party via sale, gift, or exchange for a profit is what triggers FIRPTA. FIRPTA applies to U.S. real estate, and, in some cases, interests in U.S. corporations or partnerships that hold real estate.
Even when a transaction initially appears to trigger FIRPTA, it might not take effect if it falls into a category of transactions that are exempt from the tax withholding requirements. For example, if the property is a primary residence valued at less than $300,000, FIRPTA does not apply. Some sales of corporate interests do not trigger FIRPTA if the seller meets specific conditions. A Vienna attorney could help a person or business determine whether FIRPTA would apply to a business transaction they are considering.
If FIRPTA applies, then in many cases the buyer must withhold 15 percent of the sales price from the seller and pay it directly to the Internal Revenue Service (IRS) with Form 8288 and Form 8288-A. The IRS will stamp the 8288-A form and send the seller a copy. The seller submits that form with their tax return to receive credit for the withholding. If the buyer does not comply with FIRPTA, they can be held liable to the IRS.
If circumstances warrant, the IRS might allow a buyer to withhold less than 15 percent of the sales price. Either the buyer or seller could request a FIRPTA Withholding Certificate that allows a smaller withholding.
The IRS might issue a Withholding Certificate if it determines that withholding the full 15 percent would exceed the seller’s maximum tax liability. A Certificate might be appropriate if withholding a smaller amount would not compromise the IRS’ collection of the full amount of tax from the seller. The IRS would issue a Certificate of Withholding if the seller’s gains are exempt from U.S. tax.
The rules regarding when a Certificate of Withholding could be issued are complex. However, receiving a Certificate could help a foreign national minimize the financial burden of FIRPTA. A Vienna FIRPTA attorney could explain whether a foreign person’s circumstances merit applying for a Certificate of Withholding.
If you are a foreign national, business, or partnership, you will likely encounter FIRPTA issues at some point as you engage in business in the U.S. A Vienna FIRPTA lawyer stands ready to assist you in complying with the law while minimizing its burdens.
A savvy legal professional with tax experience could provide an asset to your business. Schedule a consultation today.
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.