The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) governs sales of U.S. real property interests when the seller is a foreign national. The law requires withholding a portion of the realized gain as part of the sale.

Under FIRPTA, the buyer is the party who acts as the withholding agent. This means that the buyer must deduct the withholding rate, usually 15 percent, from the sale price and send it to the IRS.

For example, a foreign national sells U.S.-based real property and sees a gain of $1 million. Under standard FIRPTA withholding, the buyer would send $150,000 to the IRS.

Form 8288-A and Withholding

One of the quirks of FIRPTA is that responsibility for withholding falls to the buyer. This is the case even in situations when the buyer is a U.S. citizen or green card holder and would otherwise not be subjected to FIRPTA.

To complete Form 8288-A, the buyer must assemble information about the foreign seller and the property. Buyers will also include information about themselves.

Relevant information for Form 8288-A includes:

• Both the buyer's and the seller's full legal name, complete mailing address, and a U.S. Taxpayer Identification Number (TIN)

o   The TIN can be either a Social Security number or an Individual Taxpayer Identification Number (ITIN).

o   If a foreign seller doesn't have an ITIN, they will need to complete Form 7 as soon as possible and submit it to the IRS.

• Information on the property being sold, such as its location and the closing date of the sale. Information on both the gross sale price and the amount of tax withheld should also be included.

Once Form 8288-A is complete, the buyer submits it to the IRS with Form 8288. The buyer must complete a separate Form 8288-A for each foreign seller involved in the transaction.

If you have questions about FIRPTA, withholding, or other tax issues for foreign nationals, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.