Income Other Than Real Estate

Income From Other than Real Estate

Some of our Foreign non-US clients are or have had FIRPTA withheld by the ones paying (Payers) from distributions of income they receive as investors or shareholders. 

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While the name of the Payer in a Real Estate Transaction is Buyer, in a non-real estate transaction they are referred to as Payer because they are paying money to a non-resident alien, also known as a Foreign Investor.

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When the Payer pays the Foreign Investor gains or income the Payer must withhold 15% from the payment under FIRPTA, (the Foreign Investment in Real Property Tax Act)  and remit the withheld funds due Foreign Investor, to the IRS within 20 days of the payment. This withholding is almost always going to be much more than the tax due because the withholding is on the gross sale proceeds and not the tax on net gains.

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If the payment has to do with income effectively connected to real property (ECI) interests the deductions may be taken against it. Deductions against fixed, determinable, annual or periodic (FDAP) income are not allowed. 

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ECI is generally considered to include income from activities having to do with a trade or business. FDAP generally consist of passive types of investment income such as rents, dividends, interest, royalties and such. FIRPTArefunds tax division has decades of experience in the different tax considerations of ECI and FDAP earnings