The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) requires withholding on the sale of US real property by a non-US person or entity. The buyer must remit the withheld funds to the IRS within 20 days of the date of closing. There is also an obligation to accurately complete and submit withholding reports.

The withholding obligations are sometimes complicated, and if the buyer does not timely and accurately comply with the withholding obligation, the buyer can be held responsible for the seller’s tax obligation plus interest and penalties. Additionally, the IRS may impose a penalty of up to $10,000 for willful failure to collect and pay over the tax.

Unfortunately, buyers and sellers are not always aware of the FIRPTA requirements, which creates a liability for their realtors and the title company. At closing, the title company has the following 3 challenging choices:

1. Close without verification of FIRPTA compliance, which creates a legal liability for the buyer, the seller, and possibly the title company.

2. Take responsibility for FIRPTA compliance, which creates a legal liability for the title company.

3. Try to require the parties to retain a withholding agent, which may be met with resistance and resentment because the withholding obligation was not addressed earlier.

 A better approach. The title company could enlist the services of a third-party withholding agent who provides expertise and experience to ensure that FIRPTA funds and reports are properly submitted, received, and processed. Instead of a last-minute struggle to ensure compliance and avoid liability, the withholding agent fee becomes just another part of the closing costs.

At Lori B. Miller, P.C., we have been acting as FIRPTA withholding agent for over 19 years. We handled over 100 FIRPTA transactions in 2018 alone, with almost $8,000,000 in withheld funds.

In approximately 10% of our 2018 transactions, the IRS made errors in receiving, processing, or crediting payments. We received notice that the withholding was not properly completed, took full legal responsibility for compliance, and resolved every outstanding issue.

Hiring a third-party withholding agent alleviates some of the daily challenges for local title offices and reduces overall liability for both realtors and title companies. Please contact us to discuss the services that we currently provide.