FRPTA WITHHOLDING CERTIFICATE

[akist]

HAVE A NON-RESIDENT CLIENT SELLING U.S. RENTAL PROPERTY.  HE WILL BE SUBJECT TO THE WITHHOLDING.  WHICH WITHHOLDING CERTIFICATE SHOULD I PREPARE?

[Terry53029]

The sales agent will withhold 10%, and remit it to the IRS. Are you talking about having the agent withholding less, then you use form 8288-B to apply for a withholding certificate for a reduced amount of withholding

[akist]

Actually was expecting they would withhold 15%.  But, regardless, if I am not looking to have less withheld (either 15 or 10%), then I simply provide the agent with Form 8288 for them to complete and form 8288-A for them to send with payment to IRS and copy to seller?  Just looking for confirmation that I have done research correctly.  Appreciate your time and effort!

[Terry53029]

You send the 8288A to IRS, And I think it takes them a couple of months to approve it (maybe longer with COVID-19). The form must provide a calculation of the maximum tax liability that may be imposed on the disposition of the property and should be sent to the IRS after a contract is signed on the property, but before the settlement date. A copy of the 8288-B is provided to the buyer/buyer’s agent, allowing him or her to retain the funds until he/she receives an approval letter from the IRS to remit any of the excess withholding tax back to the nonresident seller.

[tkellyesq]

What is the sales price of the property?

[itonewbie · Accepted solution]

Just to be clear, 15% as required since the PATH Act of 2015 is applicable unless the rental property being sold met the specific criteria for 10% under §1.1445-1(b)(2), which stipulates the following:

(i) The property is acquired by the transferee for use by the transferee as a residence;
(ii) the amount realized for the property does not exceed $1,000,000; and
(iii) section 1445(b)(5) does not apply to the disposition. See § 1.1445-2(d)(1).

If I understand you correctly, your client is the seller.  This means neither you nor your client would send the F.8288 or F.8288-A to the buyer or the IRS.  Completing and submitting these returns are the buyer's or his/her agent's responsibilities.  However, your client needs to make sure the buyer/agent has all the correct info, particular your client's foreign address because that's where the IRS will send the stamped Copy B of F.8288-A, without which your client will have problem getting credit for the withholding when he/she files the 1040NR.  Given the recent shutdown, extension for tax filing/remittance, and the backlog at the IRS, the processing time for these returns would likely be significantly prolonged.

I am aware that you are not looking at requesting a reduced withholding.  But if your client is eligible for one of the exceptions for reduced or exemption from withholdings, you should consider submitting a F.8288-B assuming the transaction has not yet closed unless your client feels like extending an interest free loan to Uncle Sam.  With the F.8288-B submitted, the buyer/agent will be obliged to keep the withholding in an escrow until the IRS issues the withholding certificate and any excess would then be refunded to your client at that time.