In June of 2008 the Housing Bill was signed. Included in the bill was a change to the Foreign Investment in Real Property Tax Act (FIRPTA) which took affect immediately. This change along with the continuing problems, claims and losses caused by the mishandling of FIRPTA withholding payments has prompted a revision to our policies and procedures. In order to properly follow these policies and procedures it is important to understand the settlement agents role in processing a FIRPTA withholding payment. IRS Publication 515 defines F.I.R.P.T.A. as: “. . .withholding obligation under section 1445 is generally imposed on the buyer or other transferee (withholding agent) when a U.S. real property interest is acquired from a foreign person…This withholding serves to collect U.S. tax that may be owed by the foreign person.”

Anytime real property is transferred 10% of the gross sales price must be withheld and remitted to the IRS UNLESS the seller or the transaction is exempt from withholding. It is the buyer’s obligation to determine if an exemption applies, not the settlement agent’s obligation. Under the Act there are ten exemptions from withholding. One of the ten exemptions is a statement by the seller of their non-foreign status. The exemption is very specific as to what the statement must include and that is must be signed under penalty of perjury. click HERE for the full report