FOREIGN Investors in US Real Property: FIRPTA WITHHOLDING CERTIFICATE
We have previously wrote on FIRPTA here –
If the amount of the FIRPTA withholding tax (generally 15% of the selling price) will exceed your “maximum US tax liability”, we can apply to the IRS for a withholding certificate to reduce, or waive, the withholding, down to the maximum US tax liability.
If the application is filed by the day of closing, the closing agent will retain the FIRPTA withholding tax in escrow until the IRS response (the withholding certificate) is received. When the certificate is received, the tax withheld is refunded by the closing agent, in accordance with the instructions in the certificate – i.e most, or all, of the FIRPTA withholding tax is refunded. This process can be completed in about 3 months. Otherwise, under normal procedures, and current IRS restrictions, you could wait a year, or longer, to receive the refund.
The amount that must be withheld from the disposition of a U.S. real property interest can be adjusted by a withholding certificate issued by the IRS. The transferee, the transferee’s agent, or the transferor may request a withholding certificate. The IRS will generally act on these requests within 90 days after receipt of a complete application including the TINs of all the parties to the transaction. A transferor that applies for a withholding certificate must notify the transferee in writing that the certificate has been applied for on the day of or the day before the transfer.
A withholding certificate may be issued due to:
- A determination by the IRS that reduced withholding is appropriate because either:
- The amount that must be withheld would be more than the transferor’s maximum tax liability,
- Withholding of the reduced amount would not jeopardize collection of the tax;
- The exemption from U.S. tax of all gain realized by the transferor;
- An agreement for the payment of tax providing security for the tax liability, entered into by the transferee or transferor.
Applications for withholding certificates are divided into six basic categories. This categorizing provides for specific information that is needed to process the applications.
The six categories are:
- Applications based on a claim that the transferor is entitled to non recognition treatment or is exempt from tax,
- Applications based solely on a calculation of the transferor’s maximum tax liability,
- Applications under special instalment sales rules,
- Applications based on an agreement for the payment of tax with conforming security,
- Applications for blanket withholding certificates, and
- Applications on any other basis.
The applicant must make available to the IRS, within the time prescribed, all information required 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 provide requested information promptly usually will result in rejection of the application, unless the IRS grants an extension of the target date.
Categories (1), (2), and (3). Use Form 8288-B to apply for a withholding certificate.
Follow the instructions for the form.
Categories (4), (5), and (6). Do not use Form 8288-B for applications under categories (4), (5), and (6). For these categories, follow the instructions given here and under the specific category.
All applications for withholding certificates must use the following format. The information must be provided in paragraphs labeled to correspond with the numbers and letters set forth below. If the information requested does not apply, place “N/A” in the relevant space.
- Information on the application category:
- State which category (4, 5, or 6) describes the application,
b. If a category (4) application:
- State whether the proposed
(A) the transferor’s maximum tax liability,
(B) the amount that would otherwise have to be withheld;
- State whether the proposed agreement and security instrument conform to the standard formats.
- Information on the transferee or transferor:
- State the name, address, and TIN of the person applying for the withholding certificate (if this person does not
have a TIN and is eligible for an ITIN, he or she can apply for the ITIN by attaching the application to a completed
Form W-7 and forwarding the package to the address given in the Form W-7 instructions);
- State whether that person is the transferee or transferor; and
- State the name, address, and TIN of all other transferees and transferors of the U.S. real property interest for
which the withholding certificate is sought.
- Information on the U.S. real property interest for which the withholding certificate is sought. State the:
- Type of interest (such as interest in real property, in associated personal property, or in a domestic U.S. real property holding corporation);
- Contract price;
- Date of transfer;
- Location and general description (if an interest in real property);
- Class or type and amount of the interest in a U.S. real property holding corporation; and
- Whether in the 3 preceding tax years
(1) U.S. income tax returns were filed relating to the U.S. real property interest and, if so, when and where those
returns were filed and, if not, why returns were not filed,
(2) U.S. income taxes were paid relating to the U.S. real property interest and, if so, the amount of tax paid.
- Provide full information concerning the basis for the issuance of the withholding certificate. Although the information to be included in this section of the application will vary from case to case, the rules shown
under the specific category provide general guidelines for the inclusion of appropriate information for that category.
The application must be signed by the individual, a responsible officer in the case of a corporation, a general partner in the case of a partnership, or a trustee, executor, or equivalent fiduciary in the case of a trust or estate, or a duly authorized agent (with a copy of the power of attorney, such as Form 2848, attached). The person signing the application must verify under penalties of perjury that all representations are true, correct, and complete to that person’s knowledge and belief. If the application is based in whole or in part on information provided by another party to the transaction, that information must be supported by a written verification signed under penalties of perjury by that party and attached to the application.
Send applications to the:
Ogden Service Center
P.O. Box 409101
Ogden, UT 84409
Category (4) applications.
If the application is based on an agreement for the payment of
tax, the application must include:
- Information establishing the transferor’s maximum tax liability, or the amount that otherwise has to be withheld;
- A signed copy of the agreement proposed by the applicant; and
- A copy of the security instrument proposed by the applicant.
Either the transferee or the transferor may enter into an agreement for the payment of tax. The agreement is a contract between the IRSand any other person and consists of two necessary elements. Those elements are:
- A detailed description of the rights and obligations of each,
- A security instrument or other form of security acceptable to the Commissioner or
For more information on the agreement for the payment of tax, including a sample agreement, see section 5 of Revenue Procedure 2000-35, available at IRS.gov/pub/irs-irbs/irb00-35.pdf.
There are four major types of security acceptable to the IRS. They are:
- Bond with surety or guarantor,
- Bond with collateral,
- Letter of credit, and
- Guarantee (corporate transferors).
The IRS may, in unusual circumstances and at its discretion, accept any additional form of security that it finds to be adequate.
For more information on acceptable security instruments, including sample forms of these instruments, see section 6 of Revenue Procedure 2000-35.
Category (5) applications.
A blanket withholding certificate may be issued if the transferor holding the U.S. real property interests
provides an irrevocable letter of credit or a guarantee and enters into a tax payment and security agreement with the IRS. A blanket withholding certificate excuses withholding concerning
multiple dispositions of those property interests by the transferor or the transferor’s legal representative during a period of no more than 12 months.
For more information, see section 9 of Revenue Procedure 2000-35.
Category (6) applications.
These are nonstandard applications and may be of the following types.
Agreement for payment of tax with nonconforming security.
An applicant seeking to enter into an agreement for the payment of tax but wanting to provide a nonconforming type of security must include the following in the application.
- The information required for category (4) applications, discussed earlier.
- A description of the nonconforming security proposed by the applicant.
- A memorandum of law and facts establishing that the proposed security is valid and
enforceable and that it adequately protects the government’s interest.
Other nonstandard applications.
An application for a withholding certificate not previously described must explain in detail the proposed basis for the issuance of the certificate and set forth the reasons justifying the issuance of a certificate on that basis.
Amendments to Applications
An applicant for a withholding certificate may amend an otherwise complete application by sending an amending statement to the address shown earlier in Withholding Certificates. There is no particular form required, but the amending statement must provide the following information.
- The name, addresses, and TIN of the person providing the amending statement specifying whether that person is the transferee or transferor.
- The date of the original application for a withholding certificate that is being amended.
– A brief description of the real property interest for which the original application for
a withholding certificate was provided.
- The basis for the amendment including any change in the facts supporting the
original application for a withholding certificate and any change in the terms of the
The statement must be signed and accompanied by penalties of perjury statement.
If an amending statement is provided, the time in which the IRS must act upon the application is extended by 30 days. If the amending statement substantially changes the original application, the time for acting upon the application is extended by 60 days. If an amending statement is received after the withholding certificate has been signed, but before it has been mailed to the applicant, the IRS will have a 90-day extension of time in which to act