FIRPTA/HARPTA Withholding - Seller is requesting SSN of Buyer
Context: Seller is a foreigner to the US and special tax withholding must take place via FIRPTA/HARPTA. In the offer, the seller is requesting that we add this term to the contract:
Request: “Buyers authorize Escrow to release their SSN/ITIN/EIN number to Seller's CPA upon request for the limited purpose of Seller filing an exemption from FIRPTA/HARPTA withholding and/or claim FIRPTA/HARPTA withheld on the transaction on their U.S. and Hawaii tax returns and for no other purpose without the prior written consent of the Buyers."
Seller provided more context:
"The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) made the Buyer responsible for withholding tax from the Seller on the sale of real property and remitting the tax to the Internal Revenue Service (IRS). As a result, IRS credits the Seller's FIRPTA withholding to the Buyer's tax account (i.e., SSN, ITIN, or EIN), not to the Seller's account.
Therefore, for the Seller to claim the 15% income tax withheld from their sale proceeds on their income tax return, the Seller must provide documentation that proves the FIRPTA withheld was both paid to the IRS and shows where the money is being held. The IRS has recommended that foreign taxpayers with FIRTPA withheld to E-File their tax returns to facilitate reconciliation of tax withheld and the tax claimed. IRS will reject an E-filed tax return if the Buyer's SSN/ITIN/EIN provided on the tax return.”
Question:
- I've done some searching and reading online and I can't find any definitive information about this request. I think all sources do state that the seller needs to provide their SSN/ITIN/EIN/etc to the buyer so the buyer can file proper forms and withhold X% for tax purposes. I haven't found conclusive instruction online that matches the context seller provided - "IRS will reject an E-filed tax return if the Buyer's SSN/ITIN/EIN provided on the tax return." Does anyone know conclusively what should be required? If it does require buyer to share SSN/ITIN/EIN with the seller, does anyone have the exact tax form that shows up on? Would love to see it firsthand.
@Ryan Stirling
If they are an individual foreign seller applying for a withholding certificate to reduce the withholding below the 15% of proceeds amount because their taxable gain will be lower (a common scenario), then Form 8288-B is quite clear all parties SSNs/ITINs (including the buyer’s) are required to be on the form:
“Identification number. The U.S. taxpayer identification number (TIN) of all parties to the transaction must be on the application for a withholding certificate (pg 2)”
https://www.irs.gov/pub/irs-access/f8288b_accessible.pdf
The IRS is trying to make sure they can chase whoever has custody of the funds owed to the IRS and they do that by mandating the SSN. So if the seller is requesting for this purpose it’s a legitimate request.
Thanks so much, @Charles D., for the quick and thorough reply!! This is super helpful!
