The Biggest FIRPTA Risk Isn't the Withholding—It's What Happens When It's Mishandled

IRS notice following a mishandled FIRPTA transaction.

Everyone focuses on the 15% FIRPTA withholding.

Very few think about FIRPTA buyer liability and what happens when FIRPTA is mishandled.

Unfortunately, that's often when we receive the call.

"We Just Received an IRS Notice..."

The transaction closed months ago.

Everyone believed the FIRPTA requirements had been handled correctly.

Then an IRS notice arrives demanding payment.

Not just the withholding.

Depending on the circumstances, the IRS may also assess penalties and interest for failing to properly withhold, report, remit, or timely file the required FIRPTA forms.

Because FIRPTA withholding itself is often substantial, these notices can involve very large dollar amounts.

That's when panic begins.

The IRS Looks to the Buyer

One of the least understood aspects of FIRPTA is that the buyer is generally responsible for ensuring the required withholding and reporting obligations are satisfied.

If they are not, the IRS may pursue the buyer for the tax, together with applicable penalties and interest.

Many buyers are shocked to learn this months after closing.

Then the Buyer Looks to the Closing Professional

In many transactions, the buyer relied on the closing attorney, title company, escrow professional, or settlement agent to coordinate the closing.

When an IRS notice arrives, the natural question becomes:

"We relied on the professionals. What happened?"

Buyers often turn to the closing professionals who coordinated the transaction to understand what occurred and how the matter can be resolved.

That can quickly become a difficult situation for everyone involved.

This Is Where Difficult Case Resolution Begins

Many of our engagements don't begin before closing.

They begin after the IRS has already become involved.

We help reconstruct the transaction, determine what was filed, identify what may have been overlooked, communicate with the IRS when appropriate, and work toward resolving the matter.

These engagements often require careful review of transaction documents, supporting records, statutory deadlines, and the applicable FIRPTA rules.

Every situation is different, but the objective is always the same—understand what happened, determine the available options, and move the matter toward resolution.

Prevention Is Almost Always Less Expensive Than Resolution

FIRPTA is often viewed as simply withholding funds and filing a few IRS forms.

In reality, many transactions require careful due diligence long before closing.

The best time to evaluate FIRPTA is before documents are signed—not after an IRS notice arrives.

Early planning may identify opportunities to reduce or eliminate withholding when permitted by law, avoid unnecessary delays, and significantly reduce the likelihood of costly post-closing problems.

Final Thought

Most people never expect to need difficult FIRPTA case resolution.

Neither do the buyers, closing professionals, and foreign sellers who contact us after an IRS notice arrives.

Our goal has always been the same:

Help clients get the transaction right the first time—because prevention is always less expensive than resolution.