FIRPTA Withholding Exemptions
Transferees are generally relieved of their withholding obligations if one of the following FIRPTA withholding exemptions is triggered and the FIRPTA notification requirements are met.
Below is a list of FIRPTA withholding exemptions:
- The transferee acquires the property for us as a residence and the amount realized does not exceed $300,000. For this exception to apply, the transferee must be an individual, and must have definite plans to reside at the property for at least 50% of the days that the property is used by any person during each of the first two 12-month periods following the date of transfer.
- The property disposed of is an interest in a domestic corporation and any class of stock of the corporation is regularly traded on an established securities market. Note, however, that this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded corporations.
- The disposition is of an interest in a domestic corporation and that corporation furnishes a certificate, dated not more than 30 days prior to the date of transfer, stating, under the penalties of perjury, that the interest is not a U.S. real property interest. Generally, a corporation may make this certification only if either of the following is true:
- During the previous 5 years (or the period the interest was held by its present owner), the corporation was not a U.S. Real Property Holding Company (USRPHC).
- As of the date of disposition, the interest in the corporation is not a U.S. real property interest by reason of Section 897(c)(1)(B) of the Internal Revenue Code.
- The transferor provides a certification stating, under penalties of perjury, that the transferor is not a foreign person. The certification must contain the transferor’s name, U.S. taxpayer identification number, and home address (or office address, if the transferor is an entity).
- The transferor provides a certification to a qualifying substitute, who in turn gives a statement to the transferee, under penalties of perjury that the certification is in the possession of the qualified substitute.
- A qualified substitute is (1) the person, including an attorney or title company, responsible for closing the transaction, other than the transferor’s agent, and (2) the transferor’s agent.
- The transferee receives a withholding certification from the Internal Revenue Service that excuses withholding.
- The transferor gives the transferee a written notice stating that not recognition of any gain or loss on the transfer is required because of a nonrecognition provision in the Internal Revenue Code or a provision in a U.S. tax treaty. A copy of the notice must be filed with the Ogden Service Center by the 20th day after the date of transfer. The mailing address for the Ogden Service Center is as follows: P.O. Box 409101, Ogden, UT 84409.
- The amount the transferor realizes on the transfer of a U.S. real property interest is zero.
- The property is acquired by the United States, A U.S. state or possession, a political subdivision, or the District of Columbia.
- The grantor realizes an amount of the grant or lapse of an option to acquire a U.S. real property interest. However, the transferee must withhold on the sale, exchange, or exercise of that option.
- The disposition is of an interest in a publicly traded partnership or trust. Note, however, that this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded partnerships or trusts.
The FIRPTA certifications referenced in Exceptions 3 and 4 are not effective if the transferee (or a qualified substitute) has actual knowledge, or has received notice, that the certifications are false. This also applies to the statement of the qualified substitute under Exception 5.
If a transferee or qualified substitute is required to furnish a copy of the certification or statement to the IRS and fails to do so in the time and manner prescribed, the certification or statement is not effective.
Liability of Agent or Qualified Substitute
An agent is any person who represents the transferor or transferee in any negotiation with another person (or another person’s agent) relating to the transaction, or in settling the transaction. A person is not rested as an agent if the person only performs one or more of the following acts related to the transaction:
- Receipt and disbursement of any part of the consideration;
- Recording of any document
- Typing, copying, and other clerical tasks;
- Obtaining title insurance reports and reports concerning the condition of the property; or
- Transmitting documents between parties.
A “withholding agent” is any person having the control, receipt, custody, disposal or payment of income that is subject to withholding. A withholding agent is personally liable for the full amount of FIRPTA withholding tax, plus penalties and interest. Generally, there person who pays an amount to the foreign person subject to the withholding must do the FIRPTA withholding.
If a transferee (or substitute) receives either a certification discussed in Exceptions 3 and 4 or a statement discussed in Exception 5, and the agent (or substitute) has actual knowledge that there certification or statement is false or, in the case of Exception 3(a), that the corporation is a foreign corporation, then the agent (or substitute) must notify the transferee. The agent (or substitute) fails to notify the transferee, he/she will be held liable for the tax. The agent’s (or substitute’s) liability is limited to the compensation the agent (or substitute) receives from the transaction.