Applying for an 8288B Withholding Certificate Under FIRPTA

Since the passage of the Foreign Investment in Real Property Tax Act (FIRPTA) in 1980, foreign nationals who transfer or sell their U.S. properties are required to have up to15% of the gross sales proceeds withheld per IRS regulations. Not only does this requirement reduce the foreign seller’s net sale proceeds, but it also adds yet another step to what may already be a complex closing transaction. To ensure you get any excess proceeds back as quickly as possible, hire attorneys who know the fastest way of getting an 8288B Withholding Certificate.

How the 8288B Withholding Certificate Works

In transactions governed by FIRPTA, the buyer is technically responsible for withholding the necessary proceeds and then submitting them to the IRS, though in reality this is typically done by the closing agent responsible for disbursing the closing funds. In a typical FIRPTA transaction, the withheld funds are sent to the IRS within twenty days of closing. However, if an 8288 Application for a Withholding Certificate is submitted on or prior to the closing date, the funds will be held in escrow pending the IRS’ rejection or approval of the 8288B Application. If everything is in order, the IRS will issue the 8288B Withholding Certificate authorizing the withholding agent to release the withheld funds (or a portion of the funds) directly back to the seller. Thus, instead of having to wait for a tax refund by filing a U.S. tax return the following year, the seller can get his or her funds back in approximately three or four months.

Timing is Everything

As with any tax-related matter, timing is of critical importance: you want to get the certificate as soon as possible to get your funds, but you also do not want to start earlier than tax law allows. The 8288B Withholding Certificate Application cannot be submitted until a valid real estate contract has been executed. Afterward, the application must be submitted to the IRS on or before the closing date on the contract. If it has not been sent by the time the transaction closes, then the filing will be considered untimely and the withholding agent must transfer the applicable withholding to the IRS within twenty days of the closing.

A critical part of the process entails open communication: the foreign seller should make it clear to both the buyer and the closing agent that an application for an 8288B Withholding Certificate will be made so that no one is caught off guard. It is not uncommon for closing agents to hold the funds only for a certain number of days before sending the withheld proceeds to the IRS without notice to the seller, not knowing that an 8288B Application was being made. This error can greatly delay the return of funds to the seller.

Jurado & Farshchian, P.L. Can Help You Apply for the 8288B Withholding Certificate

Our real estate attorneys have experience handling FIRPTA transactions and all the processes and requirements therein, including applying for the 8288B Withholding Certificate. We can also serve as the closing and escrow agent, keeping all parties in the loop while making sure that the IRS regulations are followed with the utmost efficiency and timeliness.

If you are a Realtor or seller involved in a FIRPTA transaction, please contact me at 305-921-0440 or email me directly at [email protected].

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