Foreign Investment in Real Property Tax Act and Your TIN – IRC 897, 1445; TD 9082; IRS Form 8882, W-7

As part of an IRS Examination under the Foreign Investment in Real Property Tax Act (FIRPTA) you absolutely must have a Taxpayer Identification Number (TIN) to mitigate 26 U.S. Code § 1445 - Withholding of tax on dispositions of United States real property interests

If you do not qualify for a Social Security Number (SSN) you may apply for an Individual Taxpayer Identification Numbers (ITINs) by filing IRS Form W-7 to be compliant with FIRPTA processing.

NOTE - To get an ITIN - attach Form 8288-B to Form W-7 and mail the documents to:

Internal Revenue Service, Austin Service Center, ITIN Operation, PO Box 149342, Austin TX 78714-9342.

Here are a few other observations:

  1. In order to obtain an ITIN number for FIRPTA purposes, when completing Form W-7 select the "other" box in the "Reason you are submitting Form W-7" section of the form and  insert exception "4" in the write-in area to the right of Box h "other".
  2. The IRS will only issue ITINs based on applications that are complete and demonstrate a tax need for the numbers.  If the IRS rejects the ITIN application, the attached Form 8288-B will not be processed.

Observations about what happens if the W7 ITIN Application is not accepted?

  1. The IRS’ ITIN Unit will notify you by mail that the Form W-7 was not processed and the FIRPTA Unit will also send Letter 3793 SC/CG with instructions to complete Form W-7 and reapply. This letter will include instructions to resolve the issue outlined in the ITIN rejection letter.
  2. When reapplying you must include a copy of Letter 3793 SC/CG with Form W-7 to be considered under Exception 4.  If the reason for rejection cannot be resolved, then unfortunately you must file Form 8288/8288-A and remit the 10% tax.

Treasury Decision 9082 requires all buyers and foreign sellers of U.S. real property interests to provide their TINs, names and addresses on withholding tax returns, applications for withholding certificates, notice of non-recognition, or elections under sections 897(i) when disposing of a U.S. real property interest.

The entity engaging the transfer withholds tax under IRC 1445 and remits it via IRS Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interest, and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests (FIRPTA).

If you are intending to reduce or eliminate FIRPTA withholding with the entity engaging the transfer- AREN'T WE ALL - you must file IRS Form 8288-B, Application for Withholding Certificate for Disposition by Foreign Persons of U.S. Real Property Interests.

If you do not have a TIN and an amount withheld under section 1445 is due to the IRS:

1. Complete Form 8288, 8288-A and mail the forms along with the payment by the 20th day from the date of sale to:

IRS, Ogden Submission Processing Campus, PO Box 409101, Ogden UT 84409

2. In a separate package, mail a completed Form W-7 with supporting documentation and a photocopy of Form 8288 and 8288-A (do not send any payment) to:

IRS, Austin Submission Processing Campus, ITIN Operation, PO Box 149342, Austin TX 78714-9342

3. If you are the entity transferring the property, once you receive the ITIN number write it on the 3794 SC/CG letter and mail it back to the Ogden IRS office.  The Ogden IRS office is supposed to document the ITIN number on Form 8288-A

4. If the Ogden IRS office receives a completed Form W-7 application with supporting documentation attached to Form 8288 and 8288-A, then the Ogden IRS office will detach Form W-7 with supporting documentation and mail it to the Austin IRS Campus ITIN Operation along with a photocopy of Form 8288 and 8288-A.

5. Once Austin processes the W-7 application they will edit the ITIN number on Form 8288 or 8288-A and fax it to the Ogden IRS office FIRPTA unit.  The Ogden IRS office will document the ITIN number on Form 8288-A.

How to claim reduced withholding on a tax return

If you are a US Taxpayer and also foreign to the US who has an ITIN and is claiming credit for FIRPTA withholding shown on Form 8288-A you must complete a federal tax return using your assigned ITIN

REMEMBER to attach the date stamped Form 8288-A to the return as evidence of FIRPTA withholding.

If you are a US Taxpayer and also foreign to the US and you do not have a TIN nor a date stamped Form 8288-A from the IRS but still would like to claim a credit for FIRPTA you must first request an ITIN.

To request an ITIN under these circumstances you must send the following items to IRS Austin Service Center, ITIN Operation, PO Box 149342, Austin TX 78714-9342:

  • an original Form W-7 with all substantiating documentation
  • a copy of the settlement statement from the sale that reflects the 10% withholding
  • a federal tax return which will most likely be IRS Form 1040-NR by default for the year of the transfer;

Notice of nonrecognition

When exchanging U.S. real property interest that qualifies for nonrecognition treatment, you must:

  1. draft a notice of nonrecognition in accordance with IRC §1445 and include on the notice your TIN, name and address
  2. present this notice to the taxpayer receiving the property interest before the date of sale
  3. mail the notice of nonrecognition to the IRS no later than 20 days from the date of the exchange.

There are many non recognition exemptions including:

* Furnishing a non-foreign affidavit

* Non-publicly traded domestic corporation furnishes affidavit that interests in corporation not United States real property interests

* Qualifying statement: "the transferor or transferee has satisfied any transferor’s unsatisfied withholding liability or has provided adequate security to cover such liability (because) the transferor either:

(I) has reached agreement with the Secretary (or such agreement has been reached by the transferee) for the payment of any tax imposed by section 871 (b)(1) or 882 (a)(1) on any gain recognized by the transferor on the disposition of the United States real property interest, or
(II) is exempt from any tax imposed by section 871 (b)(1) or 882 (a)(1) on any gain recognized by the transferor on the disposition of the United States real property interest"

* Residence where amount realized does not exceed $300,000

* Stock regularly traded on established securities market

SPECIAL NOTE - If the notice of nonrecognition does not contain the your TIN, name and address, then the taxpayer transferring the property to you cannot rely on the notice and is required to withhold tax.

IRC §897(i) - Election to be treated as a domestic corporation for FIRPTA purposes

When a foreign corporation holding a U.S. real property interest wants to be treated as a domestic corporation for FIRPTA reporting, it must submit an election under IRC §897(i).

This election must contain the U.S. Employer Identification Number (EIN), name and address of the foreign corporation.

To obtain an EIN, the foreign corporation must complete Form SS-4, Application for Employer Identification Number, and apply either by choosing one of the options listed in the form instructions which may or may not include obtaining an ITIN.

John R. Dundon, EA [720-234-1177, John@JohnRDundon.com]. John is a lifelong student of the US Tax Code; enrolled with the United States Treasury Department to practice before the IRS (Enrolled Agent # 00085353); under contract with the IRS as a Certified Individual Taxpayer Identification Number (ITIN) Acceptance Agent; regulated under USC 31 Section 330 & USC 26 Section 7525a.3.A; governed under US Treasury Cir. 230.

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Posted in 1031 Exchange, Asset valuation, FIRPTA, Foreign Income, Foreign Investment, Immigrant, ITIN

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