The amount that must be withheld from the disposition of a U.S. real property interest can be adjusted pursuant to a withholding certificate issued by the IRS. The transferee, the transferee's agent, or the transferor may request a withholding certificate. The IRS will generally act on these requests within 90 days after receipt of a complete application including the Taxpayer Identification Numbers (TIN’s) of all the parties to the transaction. 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.
A withholding certificate may be issued due to:
- 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.
All applications for withholding certificates are divided into six basic categories. This categorizing provides for specific information that is needed to process the applications. The six categories are:
- 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.
Please refer to Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for detailed instructions on how to apply for a withholding certificate under each of the 6 categories above.
Availability of Records
The applicant must make available to the IRS, within the time prescribed, all information required to verify that representations relied upon in accepting the agreement are accurate, and that the obligations assumed by the applicant will be performed pursuant to the agreement. Failure to provide requested information promptly will usually result in rejection of the application, unless the IRS grants an extension of the target date.
Specific information is required for withholding certificate applications. See Format for Applications below.
- FIRPTA Withholding
- Exceptions from FIRPTA Withholding
- Reporting and Paying Tax on U.S. Real Property Interests
- Format for Applications
- Road Map to Regulations
- Definitions of Terms and Procedures Unique to FIRPTA