Understanding FIRPTA Tax Withholding: ITIN Guidance for Foreign Buyers/Sellers

ITIN Guidance for Foreign Buyers/Sellers

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ITIN Guidance for Foreign Buyers/Sellers of U.S. Property

Foreign sellers of U.S. real property interests need Taxpayer Identification Numbers (TINs) to request reduced tax withholding (if applicable) if the property value is less than $300,000 when disposing of the property interest, and to pay any required withholding. 

Individuals who do not qualify for Social Security numbers (SSN) [i.e. US Citizens, Greencard holders US residents] may obtain Individual Taxpayer Identification Numbers (ITINs) to meet the ITIN requirement for FIRPTA Reporting.

What is FIRPTA?

When any foreign person sells his USA-based property and if this foreign-based seller does not have a valid SSN or ITIN to claim a withholding exemption claim then these individuals are subject to the FIRPTA TAX withholding as per the (Foreign Investment in Real Property Tax Act) at the rate of 10% or 15% of the Gross Proceeds by the US Escrow/Selling agent. For example, The sale price of the US property sale value is $300,000×15% = $45,000. You would see this Federal tax withheld number on Form 8288A.

Understanding FIRPTA Tax Withholding

ITINs required for requests for reduced withholding (Form 8288-B)

A transferor looking to reduce or eliminate the FIRPTA withholding amount must file Form 8288-B.

Application for Withholding Certificate for Disposition by Foreign Persons of U.S. Real Property Interests.   As Form 8288-B requires an ITIN, a transferor and/or transferee who does not qualify for an SSN may apply for an ITIN by attaching Form 8288-B to Form W-7 

The IRS will only issue ITINs based on applications that are accurate complete and with all the supporting documents to prove the genuine requirement of the ITIN for the foreign seller or buyer.

If the completed ITIN application is not correct or Form 8288B is incorrectly completed then IRS will reject the ITIN application, and the attached Form 8288-B will not be processed.  

The IRS ITIN department will notify the applicant by postal mail that the Form W-7 was not processed by issuing CP566 or CP567 notice

In addition to the above FIRPTA Unit will also send Letter 3793 SC/CG to the transferee and foreign transferor with instructions to complete Form W-7 and reapply.  This letter will include instructions to resolve the issue outlined in the ITIN rejection letter.  When reapplying, the applicant must include a copy of Letter 3793 SC/CG

Important Note: The letter 3793 SC notifies the ITIN to submit within 90 days but this is tricky because the current ITIN application processing time can vary between 90 to 120 days. However, the IRS office has accepted the response sent in after 90 days as they are aware of the ITIN operation office application processing delays. Please refer to our earlier blogs for a detailed explanation of the FIRPTA Process FIRPTA

Our team specializes in international expatriate U.S. personal tax return services. If you need assistance with ITIN Renewal/US 1040 filing for refund claim/FATCA Compliance work/FBAR FINCEN114 Filing, ITIN/ Form W7 Application/E.I.N./Form W8BENE or Certified Acceptance Agents [C.A.A.] services/1040NR U.S. tax filing for refund claim of excess 1042S / 8288A/ 8805/ W2/ 1099. We are happy to assist our clients in a timely, efficient, and cost-effective way

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We are one of the IRS Enrolled Agents with many years of experience in US 1040/1040NR personal tax compliance reporting and FATCA Compliance FBAR Reporting.

We are also IRS Approved Certified Acceptance Agent [CAA] with many years of experience dealing with types of ITIN Form W7 application and passport certification processes for US TAX ID.

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