FIRPTA Withholding Certificates Related to U.S. Real Property Interest

The amount that must be withheld from the disposition of a U.S. real property disposition may be adjusted pursuant the issuance of FIRPTA withholding certificates by the IRS.  Either the transferee, the transferee’s agent, or the transfer may request FIRPTA withholding certificates, and will typically receive an answer from the IRS within 90 days after receipt of a complete application.  Applications must include the Taxpayer Identification Numbers (TIN’s) of all parties to the transaction in order to be considered complete.  Further, a transferor that applies for FIRPTA withholding certificates must notify the transferee in writing, either prior to or on the day of the transfer, that the certificate has been applied for.  For more detailed information on applying for a FIRPTA Withholding Certificate, click here.

A withholding certificate may be issued due to:

  1. A determination by the IRS that a reduced withholding amount is appropriate because either:
  1. The amount that must be withheld would be more than the transferor’s maximum tax liability; or
  2. Withholding of the reduced amount would not jeopardize collection of the tax.
  1. The exemption from U.S. tax of all gain realized by the transferor; or
  2. An agreement for the payment of tax providing security for the tax liability, entered into by the transferee or transferor.

Categories

All applications for withholding certificates are divided into one of six basic categories.  The categories provide specific information that is needed to process the applications.  

The six categories include:

  1. Applications based on a claim that the transfer is entitled to nonrecognition treatment or is exempt from tax;
  2. Applications based solely on a calculation of the transferor’s maximum tax liability;
  3. Applications under special installment sale rules;
  4. Applications based on an agreement for the payment of tax with conforming security;
  5. Applications for blanket withholding certificates; and
  6. Applications on any other basis.

For detailed instructions on how to apply for a withholding certificate under each of the six categories, please refer to IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

Availability of Records

The applicant must provide the IRS with all information necessary 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 promptly provide requested information will typically result in rejection of the application, unless an extension is granted by the IRS.

 

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