Helping you navigate FIRPTA Paperwork Procedures
Withholding Certificate
According to IRS.gov, the withholding amount on the sale of US property can be adjusted if the IRS issues a withholding certificate. A withholding certificate is an application for a reduced withholding based on the gain of a sale instead of the selling price.
If 15% of the selling price is more than the tax you will owe on this sale, then a withholding certificate may be ideal for you.
Important features to know about withholding certificate applications:
- If the withholding certificate can’t be applied for and issued prior to closing, then typically the buyer gets to decide if the funds need to be remitted within 20 days of the closing or if they can remain in escrow pending the approval or rejection of the application.
- The IRS will generally act on these requests within 90 days after receipt of a complete application
- All parties must have or at least apply for a US tax ID for a withholding certificate
- The applicant must be able to prove their basis in the property
- The transferee, the transferee’s agent, or the transferor may request a withholding certificate.
- A transferor that applies for a withholding certificate must notify the transferee in writing that the certificate has been applied for on the day of or the day prior to the transfer.
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Firpta Withholding Certificate
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- View Categories
Conditions
A withholding certificate may be issued under the following conditions:
- A determination by the IRS that reduced withholding is appropriate because either:
-The amount that must be withheld would be more than the transferor’s maximum tax liability, or
-Withholding of the reduced amount would not jeopardize collection of the tax, - The exemption from U.S. tax of all gain realized by the transferor, or
- An agreement for the payment of tax providing security for the tax liability, entered into by the transferee or transferor.
Categories
Withholding certificates are issued under the following categories:
- Applications based on a claim that the transfer is entitled to nonrecognition treatment or is exempt from tax,
- Applications based solely on a calculation of the transferor’s maximum tax liability,
- Applications under special installment sale rules,
- Applications based on an agreement for the payment of tax with conforming security,
- Applications for blanket withholding certificates, and
- Applications on any other basis.
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