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If I am a foreign national selling property is California as

Customer Question
a short sale, am I...
If I am a foreign national selling property is California as a short sale, am I still subject to firpta withholding of 10%? Technically I still own the property, however there will of course no proceeds due me at closing.

If I am exempt what form would I provide to escrow evidencing this? The firpta withholding form sent by escrow seems not applicable, as I am unable to answer any the questions.
Submitted: 6 years ago.Category: Tax
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Answered in 27 minutes by:
3/2/2011
Tax Professional: Lev, Tax Advisor replied 6 years ago
Lev
Lev, Tax Advisor
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LEV :

Hi and welcome to Just Answer!

LEV :

The withholding tax is intended to ensure that the IRS will be able collect income tax on the gains realized on the sale of such interests.

LEV :

According to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) a US real property interest by a foreign person (the transferor) is subject to income tax withholding - income tax responsibility is determined upon filing a tax return - and if there is no income tax responsibility - all withholding would be refunded.

LEV :

Persons purchasing US real property interests (transferee) from foreign persons, certain purchasers' agents, and settlement officers are required to withhold 10% of the amount realized (special rules for foreign corporations)

LEV :

There are exemptions from FIRPTA mandatory withholding - see here - http://www.irs.gov/businesses/small/international/article/0,,id=102254,00.html


You are not exempt from withholding - but as long as you do not expect any payments due to you - there will not be FIRPTA withholding and you are correct - the exemption form would be useless.

Customer:

Thank you for the response.

Customer:

I will not receive any proceeds through the sale, however the escrow company maintains that an affidavit of non-foreign status form be completed prior to closing in order to verify is withholding is required. I either need to return this form or some other document evidencing that I am exempt in order for escrow to provide same to the Buyer. I am advised that if no form is received then escrow will withhold 10%.

Customer:

To further complicate things, this is a short sale and all charges have been approved by my existing lender of record (i.e. closing costs, commissions etc.). Escrow is stating that since I technically still own the property that the FIRPTA withholding is applicable. Therefore, they would have to go back to the lender for another approval, which probably will not fly. I doubt my lender would accept the large withholding amount to be sent to the IRS. Please advise of this.

LEV :

In most situation FIRPTA withholding exemptions is included in the sale contract - means the buyer/transferee agrees with exemption.

LEV :

The form f8288b may be used if any exemption may be applied and you decide to use it regardless if there is a taxable gain on the sale - while the buyer might have no any knowledge about seller's capital gain and tax reporting requirements.

Lev
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