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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7252
Experience:  15years with H & R Block. Divisional leader, Instructor
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I am a South African citizen and recently "sold" my shares

Resolved Question:

I am a South African citizen and recently "sold" my shares through a broker in the US. This broker is however asking that I front an amount which is described as a "final departure fee". Now I have never heard of anything like this before and he just send me copy of a document "8288 U.S. withholding tax return for dispositions by foreign person of U.S. real property interest". This is not the first time that I had to pay something in advance to the broker firm, but now I need a second opinion. I also have a lot of other questions regarding the brokerage firm and their methods which I would like some advise on as it really looks quite dodgy now. Lets hope I was not conned!
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Robin D :

Hello and thank you for using Just Answer,
I believe we should start with discussing your tax obligation on the sale of US property. This subject is complex so please allow me time to address the possibilities for you as we CHAT.

Robin D :

Generally only U.S. source income is subject to Non resident (NRA) withholding and if an item of income is foreign source, it is not subject to NRA withholding.

Robin D :

If you sold shares of a company through the broker there would be no tax . If you received dividends from a US company then you would have tax on those.

Robin D :

Any tax due on a US source of income is withheld not paid by the NRA. The fee that your broker is requesting is not under taxation.

Robin D :

The tax withheld on the acquisition of a U.S. real property interest from a foreign person is reported and paid using Form 8288. Form 8288 also serves as the transmittal form for copies A and B of Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests. Generally, you must file Form 8288 by the 20th day after the date of the transfer.

Robin D :

As you can see the 8288 is not used when stock is sold.

Robin D :

If you had sold real property you would have received the 8288 A form showing you how much was withheld from the sale.

Customer:

Hi Robin. This is getting quite confusing now. He is the broker working with a BG (bidding group) and basically acts as a middle man. This shields any knowledge between the bidding group and myself. Don't know if that has any different implications? The broker as forwarded me a completed 8288 form which indicates the amount withheld. What bother me is that he wants the fund in advance before they are released. The form is also not fully completed (part 1 is completely left blank)

Robin D :

That form is for real estate. Did you sale US real property?

Customer:

No it was facebook shares

Robin D :

Generally when there is a payment to a NRA a W8 document is requested. The 8288 is filed by the person that is buying.

Robin D :

In the US amounts are withheld. That 8288 is for real estate not shares in a company

Robin D :

Ask the broker why they hav enot requested the W8 for relief from withholding on taxes and what US law this fees is applied to.

Robin D :

If you owned shares in a US company and you sold those shares then a broker could require fees for the transaction.

Robin D :

That would be a small % and those are normally withheld form the sale.

Robin D :

from the sale* sorry

Customer:

They charge brokerage fees which is normal and usually deducted from the total amount before paid out. This is strangely different as he has given me a copy of this 8288 form and asks the funds in advance and once received they are cleared and paid out. I have never every heard of funds being paid in advance for anything.

Robin D :

Me either

Robin D :

As I said, I would tell him that form is not relevant

Robin D :

I would then advise that you understand the taxation of the sales and the fees.

Customer:

does final departure fee tell you anything?

Robin D :

I tried to find a trem in that context and the only thing I could find was related to Jamaica

Customer:

This is getting quite disturbing.....how can I check the legitimacy of a brokerage firm?

Robin D :

The SEC if they are in US. http://www.sec.gov/investor/brokers.htm

Customer:

I reckon if a broker is not registered there they are full of crap right?

Robin D :

If not registered then they are not registered and it would behoove you to know that.

Robin D :

Perhaps you would want to send a message asking them "Are you registered with the SEC, a state, or FINRA?"

Robin D :

That question in itself would be helpful.

Robin D :

I sincerely XXXXX XXXXX CHAT has been at least helpful in understanding how a sale of stock is taxed in the US an dyour withholding.

Customer:

They are not listed! If I require more assistance I will contact you again. It looks more and more like a scam. Funny enough they have been in existence for so many years but everything they do looks so wrong.

Robin D :

I could not address that issue about the company but I can say that the past few years the IRS has cracked down on so many reporting issues that it is easy for someone to make a mistake about what document is needed but .......if it looks bad to you then you should question every aspect of the deal.

Robin D :

Your positive rating is always thanks enough.

Robin D :

When you visit your question homepage, you’ll see a link to request me again. This link displays and works whether I am online or offline.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7252
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 2 other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Hi Robin. I received a quick response. Can you tell me if this is correct? See below. Unfortunately I don't understand too much of this maybe you can put it into layman's terms for me. Basically I need assurance that I am not doing something wrong here.


***************


 


No, W8 is used for shares regularly traded and listed on stock exchange, not used for private placements. See in bold below: The distribution is on stock regularly traded on a securities market in the United States.


 


 


Who Must File


 


A buyer or other transferee of a U.S. real property interest, and a corporation, qualified investment entity, or fiduciary


that is required to withhold tax, must file Form 8288 to report and transmit the amount withheld. If two or more persons are joint transferees, each is obligated to withhold. However, the obligation of


each will be met if one of the joint transferees withholds and transmits the required amount to the IRS.


 


Do not use Forms 8288 and 8288-A


 


for the following distributions.


 


1. A distribution of effectively connected income by a publicly traded


partnership is subject to the withholding requirements of section 1446.


 


 


2. A distribution from a trust that is regularly traded on an established


securities market is subject to section 1445, but is not reported on Forms 8288 and 8288-A.


 


3. A distribution by a qualified investment entity to a nonresident alien


or a foreign corporation is treated as a dividend and is not subject to


withholding under section 1445 as a gain from the sale or exchange of a U.S. real property interest if:


 


a. The distribution is on stock regularly traded on a securities market in the United States


 

Expert:  Robin D. replied 1 year ago.
The above is all dealing with how the broker would handle things. If yo are not the broker you are not engaged in a business in the US.
If your only U.S. business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U.S. resident broker or other agent, you are not engaged in a trade or business in the United States.
For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities.
This does not apply if you have a U.S. office or other fixed place of business at any time during the tax year through which, or by the direction of which, you carry out your transactions in stocks, securities, or commodities. You not the broker.
If your only U.S. business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U.S. resident broker or other agent, you are not engaged in a trade or business in the United States. You would only be taxed on dividends paid from the US company.

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