A FIRPTA Exemption Is Not a Substitute for Due Diligence
- Richard Kahn
- Jul 11
- 2 min read
An exemption from FIRPTA withholding does not eliminate the need for independent verification.
One of the most common misconceptions in a FIRPTA transaction is that claiming an exemption ends the due diligence process.
In reality, that's often when it begins.
A claimed FIRPTA exemption is a legal conclusion—not evidence. The facts supporting that conclusion should be reasonably verified before the buyer or closing professionals rely upon it.
Why FIRPTA Exemption Due Diligence Matters
Under FIRPTA, buyers may become responsible for the withholding tax if it should have been withheld. Depending upon the circumstances, closing professionals may also face scrutiny regarding the steps taken before relying upon an exemption.
That is why due diligence is more than a procedural step. It is prudent risk management.
As an IRS Certified Acceptance Agent (CAA), our work requires careful evaluation of documentation and adherence to established due diligence standards when verifying identity and tax-related information for IRS purposes. Those same principles naturally extend to our FIRPTA advisory practice, where independent verification helps provide buyers and closing professionals with a reasonable, documented basis for relying on a claimed exemption while also protecting legitimate sellers.
Our objective is not to question honest parties. Our objective is to document the facts supporting the exemption so everyone can move forward with confidence.
What Does Reasonable Due Diligence Look Like?
Every transaction is different.
Depending upon the facts and circumstances, reasonable due diligence may include:
Reviewing the supporting documentation.
Independently verifying key facts.
Confirming the consistency of the documentation presented.
Reviewing publicly available government guidance relevant to the transaction.
When appropriate, reviewing fraud alerts or advisories published by the applicable U.S. Embassy or Consulate regarding document or visa fraud trends in a particular country. U.S. embassies frequently publish fraud warnings to help applicants avoid scams and to protect the integrity of U.S. immigration processes.
Not every transaction requires every step.
Professional judgment determines the appropriate level of review.
Due Diligence Protects Everyone
Independent verification is not about distrusting the seller.
It protects:
The buyer from unexpected IRS liability.
The closing professionals from avoidable exposure.
The seller by helping ensure the transaction proceeds on a sound legal foundation.
Most transactions are straightforward.
Some are not.
Experienced FIRPTA professionals recognize when the facts and circumstances justify additional review.
Judgment Matters
At FIRPTA Refunds, we don't believe every transaction should be treated the same.
Some require only routine review.
Others require deeper analysis before anyone should rely upon an exemption from withholding.
Our responsibility is not simply to prepare forms.
Our responsibility is to help buyers, closing professionals, and foreign sellers complete transactions that remain compliant long after the closing table has been cleared.
Because in FIRPTA, a claimed exemption is not evidence. It is a conclusion that should be supported by verified facts.
That's how buyers, closing professionals, and legitimate sellers move forward with confidence.
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