As a new service for LAILTA members and subscribers, you can expect an email each month with a short discussion on matters of interest to the real estate attorney and title agent. This will be a monthly service, except for the months in which seminars are scheduled. LAILTA will email you recent cases of interest, notes on legislation and reminders of seldom thought of statutes and rules that affect our day to day work.
This month’s excerpt is presented by:
Robin Perrero, Attorney at Law
LAILTA Board Member
M&M Title, L.L.C.
2412 E. 70th Street
Shreveport, LA 71105
Phone: (318) 798-1198
Office Fax: (318) 798-1191
WHAT DO YOU MEAN YOU ARE A NON-RESIDENT ALIEN!
If your title practice is like mine, you conduct your closing, explaining the forms to the buyer and seller, and everything pretty much rocks along with very few hiccups at the closing table, until there is one and, sometimes, that hiccup is a pretty large one.
A while back we handled a transaction wherein Mr. Seller was active duty military, stationed out of state. In all of our conversations with him, he referred to his “wife” who was in Germany. We obtained a power of attorney for Mr. Seller to sign for his “wife” and set the transaction to close. All was well until we reached the FIRPTA Affidavit (Foreign Investment Real Property Tax Act). At that point, Mr. Seller advised me that his “wife” wasn’t really his wife anymore and, in fact, had moved back to Germany, and had given up her US Citizenship. She was a Foreign Person (a nonresident alien individual), who was a Transferor of a U.S. Real Property Interest. See IRS Publication “Definitions of Terms and Procedures Unique to FIRPTA”.
FIRPTA is an income tax law, passed in 1981, which requires foreign persons to pay U.S. income tax on the gains they make from selling U.S. real estate. See 26 USCS § 1445, as amended. For sales which took place prior to February 17, 2016, the amount was 10%, but that amount increased, in some case, to 15% after that date. Under the law, the Buyer is the withholding agent and is the party responsible for collecting and remitting the proper amount of tax to the IRS. In most cases, however, it is the settlement agent who actually reports and remits, but the buyer is still legally responsible.
This law is incredibly complicated, with multiple exceptions, and potential liability for you and your buyer. Given that, my advice to you would be:
- Have the seller review and complete a FIRPTA Affidavit, prior to closing if possible. These are generally provided to you by your title insurance underwriter.
- Unless you are a qualified tax attorney, never give legal or tax advice to the buyer or seller on this subject,
- Unless the seller provides you with a withholding certificate from the IRS granting them an exception, withhold and remit the required withholding amount, based upon the sales price, to the IRS. The seller can file an appeal with the IRS if he believes that the money was remitted in
- Consider having your buyer sign an affidavit waiving any settlement agent responsibility under this
For more information on this topic see:
IRS Publications: Definitions of Terms and Procedures Unique to FIRPTA
FIRPTA Withholding Rate to Increase To 15% for sales Exceeding $1,000,000.00
Nonresident Aliens – Real Property Located in the U.S.
FIRPTA Withholding of Tax on Dispositions of United States Real Property Interests
Exceptions from FIRPTA Withholding