👋 FIRPTA Liability Risks Explained
Many parties mistakenly treat FIRPTA withholding as a simple closing issue.
It is not.
I have personally seen buyers, agents, and settlement professionals suffer substantial financial loss after mishandling FIRPTA withholding obligations they believed were routine or insignificant.
Once FIRPTA compliance failures occur, “too little, too late” requests for relief often fail miserably. In many cases, these issues arise because buyers and agents are underinformed and choose not to engage a qualified FIRPTA specialist—such as FIRPTA Refunds—for what is typically a nominal fee relative to the financial exposure involved.
📌To Put This Risk Into Practical Perspective
Depending on the facts and severity of noncompliance, potential exposure may include the following:
On a $660,000 real estate sale, statutory FIRPTA withholding may require:
Required FIRPTA 15% Withholding Obligation
$99,000
If the buyer or closing parties fail to properly withhold that amount and the seller receives those funds as part of the closing proceeds, the IRS may still pursue the responsible parties for compliance failures.
Additional penalties may potentially include:
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Late Filing Penalties: Up to $25,000
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Failure to Pay Penalties: Up to $25,000
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Fraud-Based Penalties: Up to $75,000
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Willful Neglect Penalties: Up to $10,000
Potential Penalty Exposure Alone
These penalties may be assessed in addition to the original withholding obligation itself.
An original $99,000 FIRPTA withholding obligation that should have been withheld from seller proceeds may instead become a new, additional out-of-pocket expense to the buyer—separate from and on top of the purchase price—along with penalty exposure well in excess of $150,000+ depending on circumstances.
The IRS may pursue collection remedies for unpaid amounts owed, potentially including lien and levy enforcement actions. At that point, the burden often shifts to the buyer to pursue whatever remedies may remain.
⚠️ The Buyer and Agent Risk Does Not End There
In this scenario, the foreign seller may have already received the withheld funds as part of their settlement proceeds.
If the foreign seller has already:
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received the proceeds,
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left the United States, and
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refuses to cooperate,
what practical recourse remains?
Often, very little.
Buyers may be left attempting to:
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pursue foreign litigation,
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enforce indemnification provisions internationally, or
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absorb the financial loss themselves.
That means the responsible parties may be exposed not only to IRS penalties—but may also still face the practical challenge of attempting to recover the original withholding funds from the foreign seller after closing.
👉 Get Help With FIRPTA Compliance
This is why many prudent buyers, agents, and settlement professionals elect to involve an experienced FIRPTA specialist—such as FIRPTA Refunds—before closing rather than risk getting it wrong after the fact.
If you would like assistance mitigating FIRPTA risk and ensuring proper compliance, we are here to help.