Buyers, is your Seller a Foreign Person? The IRS and FIRPTA say you better know…

This post is not legal advice. For legal advice, consult an attorney, not a blog.

A few months ago I posted about the Foreign Investment in Real Property Tax Act (or FIRPTA, pronounced just like its spelled). I didn’t get nearly the response I imagined, only an exchange with Tim Kane, our own escrow contributor. The absence of responses, and the initial nature of Tim’s response, got me to wondering: Am I missing something? Surely other people must appreciate this issue if its as significant as I believe…

Well, I am here to report that IMHO I’m not missing anything. I ran the “Is FIRPTA compliance a big deal?” question by some other attorneys who routinely act as escrow agents. The universal response? “Yes! FIRPTA is a big deal.” Buyers must be aware of and insure compliance with FIRPTA, particularly because the other professionals who typically assist a buyer (the escrow company, the buyer’s real estate agent) either don’t know or apparently don’t care too much about the buyer and the exposure that results from ignoring this federal law.

Oh, and FIRPTA is getting to be bigger deal all the time. With the burst of the “housing bubble” U.S. real property has become an attractive investment to foreigners. “Investment” means that, at some point those houses will be sold; “foreigners” means that, when sold, the buyer had better withhold 10% of the sale price or the buyer may have to pay that tax bill himself. In other words, buyers, ignore — or even be ignorant of — FIRPTA at your peril.

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About Craig Blackmon

I am an attorney in Seattle, where I have practiced real estate law for over a decade. I own and operate my law firm, Seattle Property Lawyer, where I help people buy and sell homes without an agent (plus handle other legal issues relating to owning a home). I maintain the FSBO Law Center a web site for "for sale by owner" sellers and buyers. I am a licensed real estate broker and innovator in the real estate industry.

8 thoughts on “Buyers, is your Seller a Foreign Person? The IRS and FIRPTA say you better know…

    • Thanks for this Craig!Regardless if this is true or not, it is somehow relieving to know that title companies in California are concerned with the welfare of both the buyer and the seller. It may mean additional work but its better than leaving some stones not turned then be surprised with issues later on!

  1. Well, that’s certainly good for buyers in CA. I wonder why title companies are requiring this information, because I’d be surprised if the insurer has any exposure to an IRS claim under FIRPTA. In other words, if the policy coverage does not include any IRS claim related to FIRPTA, why would a title insurer care about this legal requirement?

  2. Wouldn’t you think that could be an IRS tax lien?

    This is absurd, and I can see why no one challenges you on this kind of thing. You’re insulting.

    I hope your Brokerage is going gang busters, but you should think of a better format for marketing. Maybe some one will buy into this, but this is just nutsy argument making.

  3. Thanks for the info. Yeah, this entails more work but at least we can be sure that there will no be hassles to take care of later on.

  4. What liability to the Qualified Substitute title company if the foreign seller gives a fake Tax ID number and the IRS makes demand on the Qualified Substitute for the tax and penalties?

    • A great question. One beyond the scope of this post. It would require some significant analysis of the statute to answer. If it’s already happened, then clearly you need to incur the cost of a lawyer. Best of luck.

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