FIRPTA Withholding Early RefundPosted on June 20, 2016
A nonresident alien selling U.S. real property can apply to the IRS for a withholding certificate, which is a determination that the withholding obligation exceeds the actual tax owed, and the withholding should be reduced or eliminated. The withholding is still required, but the withheld funds do not have to be submitted to the IRS while the application for the withholding certificate is pending, and the funds are returned to the seller upon receipt of the withholding certificate. Alternatively, the seller can claim a refund when the seller files their US income tax return reporting the sale of the property.
The application for a withholding certificate must be submitted to the IRS on or before closing.
If the seller does not apply for a withholding certificate on or before closing, the seller can still apply to the IRS for an early refund. The application process for an early refund is very similar to an application for a withholding certificate.
The IRS typically acts on an application for an early refund within 90 days of the application date. Thus, a seller selling property late in the tax year most likely will not apply for an early refund, and will instead apply for a refund on an income tax return for the year of the sale. But for sellers selling property early in the tax year, an application for an early refund can result in a much faster refund of excess amounts withheld.