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Notice to Buyers & Sellers Regarding Foreign Investment Real Property Tax Act (FIRPTA)

by | May 7, 2010 | Contracts and Forms

NOTICE TO BUYERS AND SELLERS REGARDING

FOREIGN INVESTMENT REAL PROPERTY TAX ACT (FIRPTA)

 

The United States in 1980 adopted the Foreign Investment in Real Property Tax Act (FIRPTA). Under FIRPTA, Buyers are legally obligated to withhold ten percent (10%) of the gross sales price otherwise payable to the Seller. Buyers must pay that 10% amount to the Internal Revenue Service (IRS) unless Seller, or the particular transaction, is exempt.

 

Sellers are exempt if all Sellers give the escrow holder completed FIRPTA Seller Affidavits signed by all Sellers, which Affidavits must state, among other things, that the Sellers are not nonresident aliens.  FIRPTA requires these Seller’s Affidavits to include the taxpayer identification number of the Sellers (“TIN”).  For individuals this is the usually Seller’s Social Security Number (“SSN”).

 

This requirement is satisfied if the Seller’s Affidavits which include the individual seller’s SSN’s are delivered to the escrow holder, and the escrow holder in turn provides the buyer with a statement under penalty of perjury that they have the required Sellers’ Affidavits with the SSN’s in their possession (the “Escrow Holder’s Statement”).

 

ATTENTION SELLERS:  If you, as the Sellers, are relying on the exemption that you are not nonresident aliens, you must provide the escrow holder with a completed Seller Affidavits including your SSN’s. 

 

ATTENTION BUYERS:  If, after a request to do so, the escrow holder does not, or is unable to, deliver to you the required Escrow Holder’s Statement, you should:

 

A. Instruct the escrow company to withhold 10% of the gross sales price and pay that amount to the IRS for the tax account of the Seller; and/or:

B. Instruct the escrow company to delay the closing of escrow for the transaction until you are provided with the required Escrow Holder’s Statement.

 

In the event the Sellers and/or the escrow holder still refuses to comply with A or B, above, the real estate broker(s) in this transaction recommend that Buyer seek legal advice concerning his/her legal rights before proceeding.  If you decide to consummate your purchase with the Sellers without obtaining the required Escrow Holder’s Statement, or without withholding 10% of the gross sales price, then you have acted against the advice of your broker/agent, and may be liable to the IRS for that the non-withheld 10% amount plus interest, and penalties if applicable.  

 

NOTE:  This Notice is not intended to give tax or legal advice to Sellers or Buyers of real property.  Sellers and Buyers are strongly advised to discuss any legal or tax issues related to this transaction with their respective legal and tax advisors; including the contents of this Notice, whether this transaction qualifies for an exemption, or whether Seller qualifies for an exemption, from the requirements of FIRPTA.

 

I have received and understand this Notice:

 

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Date                                                                            Date

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Seller                                                                           Buyer

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Seller                                                                           Buyer