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What is FIRPTA?

What is F.I.R.P.T.A.?

When a foreign person or entity (seller) disposes of U.S. real property, the IRS collects an income tax withholding payable by the receiver (buyer. The Foreign Investment in Real Property Act (FIRPTA) was created by the U.S. Congress in 1980. 

Originally FIRPTA did not have "hair" because it was voluntary. In 1984 the Debt Reduction Act changed it to mandatory and the responsibility of the party paying or receiving the U.S. real property and a party the IRS could penalize, lien, levy and enforce withholding.

Originally FIRPTA was 10% but in 2015 the PATH Act changed it to 15%. There are some exceptions that provide no withholding and reductions that provide 10% withholding. See our Exceptions section. 

Disposition in terms of the IRS Code (IRC) includes sale, exchange, liquidation, gift, transfers and such. Buyers, receivers of property, purchase agents, settlement agents are all required to withhold or face penalties, interest and collection actions.

This can cause a problem for the Seller disposing because all that is required is that the Buyer or their Agents withhold, that relieves them of their responsibility. But if the withholding documentation is not done correctly with the Seller's future interest in collecting a refund in mind, it can complicate the Seller's collection of a refund in varying degrees that can take long periods of time to resolve. Savvy Sellers and their Agents use FIRTPA Refunds Buyer's Closing Package services to make sure the withholding complies and puts the Seller in the best position for the quickest path to obtaining Tax Identification Numbers (TINs) where needed and obtain their refunds in timely manner.

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