I get this question on occasion from Realtors. Is the foreign seller in my transaction subject to FIRPTA withholding? There are two answers:
1. If the LLC is a single-member with only one registered owner and that owner is a foreign person or foreign corporation, the answer is yes. This entity is subject to FIRPTA withholding by the Buyer at the closing and the Settlement Agent is the one who usually facilitates it.
There is however an exception. If the US LLC (single or multiple owners) checks the box on their tax filings to be taxed as a US CORPORATION, then filing the proper form for an entity classification, the US LLC would then be subject to double taxation (LLCs are pass through and avoid this, taxation is at the partner level) and would file as a US Corporation. US Corporations are not Foreign Sellers for FIRPTA purposes. The reclassification from LLC to CORP is not automatic. It is subject to IRS approval, rejection or denial.
2. If the LLC has more than one owner, then the LLC is going to be taxed as a partnership for Federal Income Tax purposes. FIRPTA withholding at the closing of the real estate transaction does not apply. FIRPTA withholding will be applicable on foreign seller partners but this is done at the LLC tax filing level. It is not done at the real estate closing transaction level.
Most real property transactions have their own nuances. All are definitely not the same. When something comes up relative to FIRPTA, it's a great idea to inquire of experts such FIRPTArefunds.com.
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