Form 8288-A: How to File for FIRPTA Withholding
Navigate the FIRPTA withholding process with Form 8288-A. Learn how this form connects the buyer's payment to the foreign seller's U.S. tax credit.
Form 8288-A, “Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests,” is a document used in real estate transactions involving foreign sellers. This form is a direct result of the Foreign Investment in Real Property Tax Act (FIRPTA). It functions as a receipt for the foreign seller, confirming that the buyer has withheld a portion of the sales price for tax purposes.
The FIRPTA Withholding Requirement
The Foreign Investment in Real Property Tax Act (FIRPTA) requires tax withholding on proceeds from the sale of U.S. real estate by foreign persons. When a foreign person sells a U.S. Real Property Interest (USRPI), the buyer acts as the withholding agent. The buyer must deduct and send a portion of the sale price to the Internal Revenue Service (IRS) to cover the seller’s potential capital gains taxes. The standard withholding rate is 15% of the total amount realized from the sale.
The parties in this transaction are the transferor (the foreign seller) and the transferee (the buyer responsible for withholding). A USRPI includes interests in land, buildings, and certain mineral rights in the United States. The responsibility for withholding the correct amount from the seller’s proceeds at closing rests on the buyer.
This withholding is a prepayment toward the seller’s final tax liability, which is calculated on their U.S. tax return. The withholding amount can be reduced if the buyer intends to use the property as a personal residence. For sales prices over $300,000 but not more than $1,000,000, the rate is reduced to 10%, and if the price is $300,000 or less, no withholding is required.
Information Required for Form 8288-A
Before filing, the buyer, acting as the withholding agent, must collect specific information from all parties in the transaction. This data is necessary to accurately complete the required tax documents and ensure the withheld funds are credited to the correct individual. The process involves gathering details about the buyer, the foreign seller, and the property itself. The latest version of Form 8288-A can be downloaded from the IRS website.
Transferee (Buyer) Details
The buyer must provide their full legal name, complete mailing address, and a U.S. Taxpayer Identification Number (TIN). The TIN is a nine-digit number used for tax administration and can be a Social Security Number (SSN) for individuals or an Employer Identification Number (EIN) for business entities.
Transferor (Seller) Details
For the foreign seller, the buyer must obtain their full name and complete mailing address. A U.S. TIN for the seller is also required. Foreign individuals who do not have and are not eligible for an SSN must apply for an Individual Taxpayer Identification Number (ITIN) using Form W-7. Without a valid TIN for the seller, the IRS cannot process the withholding credit, which can create delays for the seller when claiming a refund.
Property and Transaction Details
The filing requires a description and location of the property being sold, as well as the date of transfer, which is the closing date. The total amount realized, meaning the gross sales price, must be reported, along with the amount of tax withheld. If there are multiple foreign sellers, a separate Form 8288-A must be prepared for each one, showing their respective share of the withheld amount.
Completing and Submitting the Filing Package
Form 8288-A is not filed alone but is submitted as part of a package with Form 8288, “U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests.” This package is used to report and remit the withheld tax.
Form 8288 acts as the cover sheet for the filing. The buyer must attach Copy A and Copy B of Form 8288-A for each foreign seller. A check or money order for the withheld tax, payable to the “United States Treasury,” must be included.
The package must be mailed to the Ogden Service Center, P.O. Box 409101, Ogden, UT 84409. The submission deadline requires that the forms and payment be sent no later than the 20th day after the date of the property transfer. The buyer retains Copy C of Form 8288-A for their own records.
Post-Submission Process for the Foreign Seller
After the buyer submits the withholding package, the IRS service center processes the forms. Upon verification, an IRS employee will stamp Copy B of Form 8288-A, certifying that the withholding has been received and credited to the seller’s account. This stamped copy is then mailed directly to the foreign seller.
The stamped Copy B of Form 8288-A is the official evidence needed to claim the withheld amount as a tax payment. To reconcile their tax situation, the seller must file a U.S. income tax return for the year of the sale, such as Form 1040-NR, “U.S. Nonresident Alien Income Tax Return.” On this return, the seller will report the property sale and calculate the actual capital gains tax liability.
The seller must attach the stamped Copy B of Form 8288-A to their filed Form 1040-NR. This action allows the seller to claim a credit for the amount that was prepaid by the buyer. If the amount withheld exceeds the actual tax owed, the seller will be issued a refund for the difference. Without the stamped form, the IRS will not grant the credit, preventing any potential refund.