Can FIRPTA Withholding Be Deferred Legally Using Form 8288-B?

One of the Most Misunderstood Areas of FIRPTA

One of the most misunderstood areas of FIRPTA compliance involves whether withholding funds must always be immediately remitted to the IRS at closing.

Many buyers and settlement agents assume the answer is yes.

In many cases, it is.

However, there is an important exception.

Form 8288-B May Allow a Temporary Deferral

When a properly prepared and timely submitted IRS Form 8288-B withholding certificate application is filed, IRS procedures may allow the withholding funds to remain in escrow while the IRS reviews the application.

That can be an important advantage for foreign sellers.

Why This Matters

The standard FIRPTA withholding amount is often substantially higher than the seller's actual U.S. tax liability.

For example:

• FIRPTA withholding is generally 15% of the gross sales price.

• The seller's actual tax may be significantly lower.

• In some cases, little or no tax may ultimately be due.

Without a properly planned withholding certificate strategy, substantial funds may remain with the IRS for many months while the seller waits to file a U.S. tax return and claim a refund.

Timing Is Critical

A withholding certificate application generally must be submitted on or before the date of transfer for the remittance deferral procedures to apply.

Applications submitted after closing may lose that opportunity.

Preparation Before Closing Matters

This is one reason experienced FIRPTA preparation becomes so important.

In many transactions, the withholding certificate package is prepared well before closing and finalized immediately after the final settlement statement and recorded deed become available.

Escrow Does Not Mean FIRPTA Is Waived

Settlement agents should understand an important distinction.

Escrowing the withholding funds during the IRS review period is not the same as waiving FIRPTA withholding.

The funds generally remain subject to FIRPTA until the IRS issues its determination.

The Bottom Line

FIRPTA compliance is not simply a matter of filing forms after closing.

The strategy developed before closing often determines whether unnecessary withholding, delays, and refund issues can be avoided.

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