How to Get FIRPTA Real Estate Withholding Back

Origianl Source:  http://freedomtaxaccounting.com/how-to-get-firpta-withholding-back/



Before looking for ways to get your FIRPTA withholding back as a foreign seller in the US, it is important to understand why it is taken. Every resident as well as non-resident alien is subject to taxation as per the US laws. If a non-resident alien is involved in trade and business, such as selling a property in this case, he is required to file tax returns the following year to report his income and how much he has earned. Similarly, a resident alien engaged in business or trade inside the US is also required to do the same.

This act of withholding 15% of the sale price, subject to the non-resident aliens, is done by the IRS to compel those businesses to file proper returns the following year in order to get that money back. It is not the actual tax amount due on them; it is the money that is held back from them as an assurance that their taxes will be paid on time.

As a general rule, the withholding amount is compared with the tax that is due from the respective seller. If that amount is greater than the tax due on him, he is refunded the extra. On the contrary, if the amount is lesser than the due tax, he is given a notice to pay the outstanding to the IRS. The basic idea is to keep the tax liability of the foreign sellers in check so that any discrepancies can be adjusted in the following tax year.

Some other ways you can get back all or part of your withholding from the IRS are discussed in detail below.

We can also help you get a withholding certificate so you do not have to pay the FIRPTA 10% tax, or if you already paid the FIRPTA tax, and don't wish to wait to file your tax return to get your money back,  please call us at 407-344-1012, or email us at info@freedomtaxfl.com for more information. 

Get a Withholding Certificate from the IRS

Withholding certificate is the most structured way to get back the money held back from you as part of the transaction. The certificate is issued by the IRS only after you file an application with all the details required by the IRS. The application is supposed to be filed on the day of the transaction or a day before the final transaction is made. Additionally, the buyer must also be notified of the fact that you are applying for a withholding certificate. This is inevitable because application requirements include buyer information as well.

In order to apply the correct way and make sure that your application is accepted and worked upon, the following attachments must be there;

• Legal name and contact numbers of the buyer


• Legal name and contact numbers of the seller


• Taxpayer Identification Number (TIN) of the buyer


• Taxpayer Identification number (TIN) of the seller

Generally, it takes a period of about 3 months for the IRS to process and work on the application after which it issues the Withholding Certificate. The ownership of that certificate by the seller then implies that the buyer entity will have to release the due amount and give it back to the seller.

This application is only for the purpose of getting the withheld amount back. It in no way frees you of the responsibility to file tax returns the following year, which is an absolute requirement no matter what other applications you might be filing.

The issuance of the withholding certificate can be due to any of the reasons given below, aptly justified by the seller:

• The IRS is convinced that releasing the withheld amount is appropriate because either the amount is exceeding the maximum tax applicable on the seller or the tax collection process would not be negatively affected from the reduced amount of withholding.


• The seller is justifiably exempted from the tax under the US tax laws.