21.8.5  Miscellaneous FIRPTA Related Issues

Manual Transmittal

September 02, 2014

Purpose

(1) This transmits revised IRM 21.8.5, International, Miscellaneous FIRPTA Related Issues.

Material Changes

(1) Editorial changes have been made throughout the IRM.

(2) IRM 21.8.5.3.3(1)(b) Removed reference to capital gain tax rate prior to 2003 in sentence 4 of the MTAX Calculation box.

(3) IRM 21.8.5.3.4(4) Updated control number example for 2014.

(4) IRM 21.8.5.3.5(9) Removed note referring to effective date of IRC 877(a).

(5) IRM 21.8.5.3.11.2 updated manual refund line item codes in paragraph 1(h).

(6) IRM 21.8.5.6.1 Rewrote first paragraph for clarity.

Effect on Other Documents

IRM 21.8.5 effective October 1, 2013 is superseded.

Audience

Wage and Investment, Accounts Management employees at the Ogden Campus that process Forms 8288-B.

Effective Date

(10-01-2014)

James P. Clifford
Director, Accounts Management
Wage and Investment Division

21.8.5.1  (10-01-2013)
Taxpayer Advocate Service (TAS)

  1. Refer taxpayers to the Taxpayer Advocate Service (TAS) (see IRM Part 13, Taxpayer Advocate Service ) when the contact meets TAS criteria (see IRM 13.1.7.2, Taxpayer Advocate Case Criteria), and you cannot resolve the taxpayer’s issue the same day. The definition of "same day" is within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer’s issue. Do not refer these cases to TAS, unless they meet TAS criteria and the taxpayer asks to be transferred to TAS. Refer to IRM 13.1.7.4, Same-Day Resolution by Operations. When referring cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward to TAS in accordance with your local procedures. Preparation instructions for the Form 911 are available on the form and in IRM 21.1.3.18, Taxpayer Advocate Service (TAS) Guidelines.

  2. The National Taxpayer Advocate has reached agreements with the Commissioners of the Wage and Investment (W & I) Division, Small Business and Self-employed (SB/SE) Division, Tax Exempt and Government Entities (TE/GE) Division, Criminal Investigation (CI), Appeals, and Large Business and International (LB&I) Division, that outline procedures and responsibilities for the processing of TAS casework when either the statutory or delegated authority to complete case transactions rests outside of TAS. These agreements are known as Service Level Agreements (SLAs). The SLAs are located at http://tas.web.irs.gov under the heading Policy/Procedures/Guidance.

  3. When referring cases to TAS, keep in mind that TAS employees do not have the delegated authority to make international adjustments. TAS employees however, can assist taxpayers with certain international issues. For more information about TAS’s delegated authorities, see IRM 13.1.4, Taxpayer Advocate Case Procedures – TAS Authorities.

  4. For taxpayers who prefer to contact TAS directly, provide the toll-free number 877-777-4778. International callers who cannot dial toll-free may call 787-622-8940 (English assistance) and 787-622-8930 (Spanish assistance). Publication 1456, Taxpayer Advocate Service - Your Voice at the IRS, contains addresses and phone contact information for each Taxpayer Advocate office.

21.8.5.2  (10-01-2007)
General Disclosure Guidelines

  1. IRC § 6103 establishes the taxpayer's (T/P's) right to confidentiality of returns and return information. You must be sure that you provide correct information to the correct T/P or authorized representative. Ensure the authenticity of the taxpayer and the third party by checking the Integrated Data Retrieval System (IDRS) Command Code (CC) CFINK for the Power of Attorney (POA).

  2. IRC § 7213, IRC § 7213A, and IRC § 7431 provide criminal penalties and civil remedies to ensure that T/P's returns and return information remain confidential.

  3. For more information, refer to IRM 21.1.3.2, General Disclosure Guidelines and for full discussion, refer to IRM 11.3, Disclosure of Official Information.

  4. For information on the use of FAX and Signature Stamps, refer to IRM 21.3.4.12.8, Use of FAX for Taxpayer Submissions.

21.8.5.3  (03-29-2013)
Form 8288-B, Withholding Certificate: Background

  1. The disposition/sale of a U.S. Real Property interest (USRPI) by a foreign person is subject to income tax withholding.

  2. Generally, a tax equal to 10 percent of the total amount realized (the sales price) is required to be withheld and submitted to IRS with:

    • Form 8288, U.S. Withholding Tax Return for Disposition by Foreign Persons of U.S. Real Property Interests, and

    • Form 8288-A, Statement of Withholding by Foreign Persons of U.S. Real Property Interests.

  3. The amount required to be withheld for any disposition can be adjusted with an approved Withholding Certificate.

  4. Form 8288-B, Application for Withholding Certificate for Disposition by Foreign Persons of U.S. Real Property Interests, is used to apply to the IRS for the reduction or elimination (by category of exemption or reduction) of withholding on a transfer made by a foreign seller.

    Note:

    A formal letter of application may be accepted in lieu of Form 8288-B for all categories of exemption or reduction requests.

  5. Form 8288-B, or formal letter, may be submitted by either:

    • The transferor (foreign seller)

    • The transferee (buyer) of a USRPI.

    • Agent

  6. The Internal Revenue Code treats an option to acquire a USRPI as a USRPI itself. Therefore, if a foreign person disposes of an option to acquire a USRPI, the transferee (buyer) of the option must deduct and withhold a tax equal to 10 percent of the amount realized by the transferor (seller) upon the disposition. The transferee (buyer) must remit the withholding tax to the IRS on Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interest , and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests. Alternatively, the transferee (buyer) or transferor (seller) may request a withholding certificate on Form 8288–B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests, in instances where reduced withholding is appropriate. See Publication 515, (Circular E) Employer's Tax Guide for more details.

  7. Treasury Decision 9082 requires that all foreign transferors (sellers) of USRPI's provide their Taxpayer Identifying Number (TIN) on withholding tax returns, applications for withholding certificates, and other notices or elections under IRC § 897 and IRC § 1445. TINs are required so the IRS can identify foreign taxpayers, and more easily match applications, withholding tax returns, notices, and elections with the foreign transferor's (seller's) income tax returns.

  8. The IRS is also aware of transactions where a foreign corporation arranges a sale of its USRPI to a transferee (buyer) and quitclaims the USRPI to its foreign individual shareholder, so that the individual (instead of the corporation) sells the USRPI to the transferee (buyer) at a reduced capital gain rate (a 20 percent maximum rate). If the foreign corporation had directly sold the USRPI itself, it could be subject to a capital gain rate as high as 35 percent. The foreign corporation (and not the individual) is the taxable party in this transaction and must send Form 8288 and Form 8288–A to the IRS with a withholding tax equal to 35 percent of the gain in the USRPI, unless it qualifies for reduced withholding and submits Form 8288–B to the IRS. See Publication 515. It is important that all U.S. realtors, tax practitioners, attorneys, and real estate and title companies be alerted to this tax avoidance scheme.

    Caution:

    Forward all quitclaim 8288-B applications with this tax avoidance scheme criteria to:
    Internal Revenue Service
    Attn: Brent Roberson M/S 4160
    1973 Rulon White Boulevard
    Ogden, UT 84404

  9. Purpose of Withholding Certificates: A withholding certificate, obtained prior to a transfer, notifies the transferee (buyer) and the withholding agent that either no withholding is required, or the tax can be withheld at a reduced rate.

    • A withholding certificate that is obtained after the transfer of the property may authorize either an early refund, or a normal refund.

    • A withholding certificate authorizing a reduction to or an exemption from withholding, may be issued when the general rate (10 percent of the proceeds) exceeds the transferor's (seller's) maximum tax liability; or withholding of a reduced amount does not jeopardize collection of the tax; or

    • The transferor (seller) is exempt from U.S. tax on all gain realized on the transaction; or

    • Notice of Non-Recognition the transferor (seller) notifies the transferee (buyer) in writing that 10 percent withholding is not required by the transferee (buyer) on the USRPI because the transferor (seller) is not recognizing any gain or loss with respect to the transfer.

    • An agreement with the IRS that provides security for the payment of the tax liability is executed by either the transferee (buyer) or the transferor (seller).

    • A withholding certificate can be requested for an Installment Sale. See IRM 21.8.5.3.5 (8).

  10. Agents (lawyers, real estate agents, etc.) of either the transferor (seller) or transferee (buyer) may sign the application for the exemption certificate under a power of attorney, and must certify under penalty of perjury that all representations are true and correct to the best of that person's knowledge and belief.

  11. Agents are not generally liable for the withholding tax.

    Note:

    Under Treasury Regulation 1.1445–4(e), an agent who fails to notify a transferee (buyer) of a false certification or statement received from the transferor (seller) shall be held liable for the tax that the recipient of the notice would have been required to withhold. However, the agent's liability is limited to the amount of compensation the agent receives from the transaction.

21.8.5.3.1  (10-01-2013)
Submitting the Request for a Withholding Certificate

  1. A request for a withholding certificate must:

    • Be submitted to the IRS prior to the Date of Transfer of the United States real property interest (USRPI), or

    • Be mailed to the IRS (postmarked) no later than the day of the transfer, and

    • Contain the complete name, address, and U.S. TIN number of both the transferor (seller) and the transferee (buyer) involved in the transaction.

      Exception:

      Immediately forward the Form 8288-B application received with original Form W-7,Form W-7SP and supporting documentation to the Austin Submission Processing Campus (AUSPC) Individual Taxpayer Identification Number (ITIN) unit. The ITIN unit has a 10-day turnaround time in processing the ITIN number request. Upon completion of ITIN processing, the 8288-B (reflecting the assigned ITIN number) must be transshipped to the OAMC for processing. Ogden Accounts Management Campus (OAMC) controls the case file and begins its processing.

      Note:

      If more than one person is listed as the transferor (seller), be sure that an additional sheet is attached to Form 8288-B listing the name, address and TIN of any additional transferors (sellers). If not present, reject the 8288-B.

  2. If the request for a withholding certificate is submitted on or before the date of the transfer, the amount withheld or a lesser amount as determined by the Service, does not need to be reported and paid over to the Service until the 20th day following the issuance of the withholding certificate.

  3. If the request for a withholding certificate was NOT submitted timely (on or prior to the date of transfer of the USRPI), the withholding agent is required to withhold and remit the determined amount with the Form 8288 and Form 8288-A to the Ogden Submission Processing Center, by the 20th day after the transfer date of the USRPI.

    Exception:

    Process a late request for a withholding certificate when the request has accompanying documentation that shows no tax is due or owed based on the transaction. This exception exists to ease taxpayer burden while assuring we collect the appropriate amount of tax.

  4. When the taxpayer receives a withholding certificate which reduces or eliminates the amount required to be withheld, and a higher amount has already been paid, the taxpayer may submit a written request for early refund under IRC § 1445.

21.8.5.3.2  (10-01-2009)
Initial Review Form 8288-B or Formal Letter Application

  1. The request for a withholding certificate may be submitted to the IRS in two formats:

    • A Form 8288-B, or

    • A formal letter

  2. All applicants must complete or have the following information before the withholding certificate can be issued.

    • Transferor (seller) information - Contains the Taxpayer Identification Numbers (TIN), names and addresses of all transferors (sellers).

    • Transferee (buyer) information - Contains the TIN, names and addresses of all transferees (buyers).

    • Applicant designation - Identifies who filed the application.

    • Withholding Agent - Contains the name and TIN of the withholding agent, or other entity filing the application.

      Note:

      The withholding agent and transferee (buyer) are generally the same person.

    • Alternate mailing address - Contains the complete address of where the withholding certificate is to be mailed.

    • Description of transaction (type of interest) - Includes the date of transfer (DOT), contract price, type of interest transferred real property, associated personal property, domestic U.S. real property holding corporation. Additionally, includes the use of property at time of sale rental/commercial, personal, or other and the adjusted basis.

    • Location and Description of Property Address - Contains the address of the property being sold.

    • Three Preceding Tax Years - Checkboxes - Where tax return was filed and were income taxes paid and amount.

    • Checkbox - Exemption from U.S. tax or nonrecognition or Checkbox Maximum tax liability is less than tax required to be withheld, and Installment sales rules.

    • Unsatisfied withholding liability under Section 1445 - Checkbox.

    • Application for withholding certificate under Section 1445(e) - Checkbox. If yes, Line 9a and 9b must be checked.

  3. An application/letter must have the "Penalty of Perjury" statement and be signed by one of the responsible parties listed below:

    • Individual

    • Responsible officer, if a corporation

    • General partner, if a partnership

    • Trustee, executor, or equivalent, if a trust of estate; or

    • Agent, authorized by a general or specific power of attorney

  4. Incomplete Form 8288–B: If, after review of Form 8288–B, it is determined that additional information is required from the applicant, issue database Letter 3319 (SC/CG) for the information. Prepare a Case History Sheet (Form 10022) or other history sheet designated by local management and suspend case for 30 days (45 days if there is a foreign address).

    If... Then...
    Response is received Continue to process application (90 day processing window begins).
    No response is received by the end of 30 days Reject the 8288-B application and document on the case history sheet "NO REPLY" , then:
    1. Issue database Letter 3313 (SC/CG) to the transferor (seller), and
    2. Issue database Letter 3316 (SC/CG) to the transferee (buyer).

21.8.5.3.3  (10-01-2014)
Categories for Withholding Certificate

  1. Applicants for withholding certificates must include the category or the reason the request is being submitted.

    1. Category 1: Applications for withholding certificates based on a claim that the transferor (seller) is entitled to nonrecognition treatment or is exempt from tax. The following are the additional requirements included in this category:
      a brief description of the transfer,
      a brief summary of the law and facts supporting the claim of nonrecognition or exemption,
      evidence that the transferor (seller) has no unsatisfied withholding liability,
      the Fair Market Value (FMV) or other "good faith" estimate of the property. No supporting evidence concerning the value of the property is required in the application.

    2. Category 2: Applications for withholding certificates based solely on a calculation of the transferor's (seller's) maximum tax liability. The following additional requirements must be included. The applicant must include a calculation of the maximum tax (MTAX) that may be imposed on the disposition, including the following information.

      Additional Requirements for MTAX Calculation
      1. The amount realized by the transferor (seller) with evidence confirming this amount (such as a copy of the signed contract).
      2. The adjusted basis of the property with evidence confirming the basis claimed.

      Example:

      Schedules of depreciation allowed for tax purposes during the period the property was held and/or settlement sheet when purchased.

      3. Amounts to be recaptured with respect to accelerated depreciation, investment tax credit, or other items subject to recapture.
      4. The maximum long term capital gain tax rate for individuals is 15 percent if the gain realized was on or after May 6, 2003 and before January 1, 2013. The maximum long term capital gain tax rate for individuals for gains realized on or after January 1, 2013 is 20 percent. The corporate maximum capital gain tax rate is 35 percent. However, the transferor (seller) may also submit a draft copy (DO NOT PROCESS the DRAFT COPY) of their income tax return showing the ESTIMATED MAXIMUM TAX LIABILITY (EMTAXL). The estimated taxes may differ from the 15, 20, or 35 percent calculation. If so, allow the taxpayer's Maximum Tax Liability (MTAXL). See Treasury Regulation 1.1445-6(c).
      5. Tentative tax owed.
      6. Amount of any increase or decrease of tax to which the transferor (seller) is subject, including any reduction to which the transferor (seller) is entitled, under a provision of a U.S. income tax treaty, as well as evidence supporting the adjustment claimed.
    3. Category 3: Applications for withholding certificates under the special installment sales rules. Generally, the transferee (buyer) is required to fully satisfy the withholding obligations based on the amount realized. However, when the applicant supplies the computation, as described under Category 2, the gain under the installment method can result in reduced withholding. The following are the additional requirements to include in this category:

      Additional Requirements for Installment Sales
      1. An agreement, signed by the Transferee (Buyer) "under penalties of perjury" to withhold and pay over the required tax.
      2. Withhold and pay over 10 percent or such lesser amount, as determined by IRS, of any down payment, including any liabilities of the transferor (seller) assumed by the transferee (buyer).
      3. Withhold 10 percent or such lessor amount of each subsequent payment.
      4. Notify IRS prior to the disposition or encumbrance of the subject property and pay over, using Form 8288 and Form 8288–A , to the Service the amount remaining to be withheld.
    4. CATEGORIES 4, 5 OR 6 are not identified on Form 8288–B. Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, instructs the taxpayer to include a statement containing the information pertinent to the specific category for which they qualify.

    5. Category 4: Application for withholding based on an agreement for the payment of tax. Include the following information to establish the transferor's (seller's) maximum tax liability, or the amount otherwise required to be withheld, a signed copy of the agreement proposed by the applicant, and a copy of the security instrument proposed by the applicant.

    6. Category 5: Applications for blanket withholding certificates. A statement to the effect that a blanket withholding certificate is in affect which excuses withholding with respect to multiple disposition of property interest by the transferor (seller) during a period of no more than 12 months.

    7. Category 6: Applications for withholding certificates based on any other basis. Information stated above for Category 4 must be included, along with a description of the nonconforming security, and a memorandum of law and facts establishing that the proposed security is valid and enforceable and adequately protects the government's interest.

      Note:

      If the criteria for Category 4, 5 or 6 are identified, forward the document to the Ogden Campus, using Form 3210, to:

    Internal Revenue Service
    Attn: Brent Roberson M/S 4160
    1973 N. Rulon White Boulevard
    Ogden, UT 84404

21.8.5.3.4  (10-01-2014)
Clerical Function

  1. The applications are mailed to:

    Director, OSPC
    Accounts Management Branch
    PO Box 409101
    Ogden, UT 84409

  2. The clerk must take the following actions:

    1. Extract the applications from the envelopes.

    2. Stamp the received date on the application.

      Note:

      If Form 8288-B is accompanied with an original Form W-7/Form W-7SP application with supporting documentation, transship the original Form W-7/Form W-7SP and supporting documentation to AUSPC ITIN unit for processing. Retain the copies of the Form 8288-B and supporting information necessary to process the Form 8288-B. Take no further action until notified by the ITIN unit that an ITIN is issued.

    3. Screen to determine if they are true processable applications, or other type of inquiries.

    4. Review Form 8288-BWithholding Certificate Application, and determine if the case is filed as a Category 4, 5, or 6. If so, then transship the application (see paragraph 3 below for complete instructions).

    5. Control all 8288-B Certificates on the withholding certificate database so a file control number can be assigned and placed in a file folder.

      Reminder:

      If multiple transferors (sellers) are listed on the 8288-B, then control a new case for every transferor (seller). This means a new control number is assigned (e.g., Husband and Wife, several beneficiaries, etc.) However, if a husband and wife request one certificate, control the case with the primary TIN. The secondary TIN is listed in the remarks section.

  3. If the case is forwarded to the Ogden Examination Branch, process as follows:

    1. Input the date from the Form 8288-B onto the database, including an annotation of the date the case is forwarded.

    2. Send the applicant an extension letter, including the address, telephone number, and contact person.

    3. Forward the case to the Examination Branch Attn: Brent Roberson M/S 4160, using Form 3210, Document Transmittal, noting the reason for the referral.

    4. Control, monitor and maintain all copies of Forms 3210 submitted and acknowledged by the Examination Branch.

    5. Associate the Form 3210 with the closed cases returned by the Examination Branch.

    6. Review the necessary closing actions and update the database record.

  4. If the application is a Category 1, 2, or 3, then the case is worked in the Ogden Accounts Management (AM) Technical Team, Mail Stop 6731/6732. Begin assembling the 8288-B application case to include:

    • Application

    • Form 10022, Case History Sheet (or other history sheet designated by local management)

    • Copies of Form 8288 and Form 8288–A (if applicable)

    • Control Number consists of the calendar year and a 4 digit sequential number (i.e., the first application received in 2014 will have a FIRPTA Control Number of "20140001" ).

    • Enter the applicant's name, as it is stated on the application, on the left side of the case jacket.

    • Document the FIRPTA Control Number on the application.

    • INTLWebApps Database The case must be established in the withholding certificate database:

      Select Option 3 from the FIRPTA Menu screen.
      Select "Option 1" from the 8288-B Withholding Certificate Menu screen and you'll be directed to the 8288-B input screen.
      Enter the data, then SAVE it in order to create the record. (There are 2 screens.)
      Enter the Transferor Name and press the return/enter key.
      Enter the Transferor Address and press the return/enter key.
      Enter the Transferor City and press the return/enter key
      Enter the Transferor State and press the return/enter key.
      Enter the Transferor Zip Code and press the return/enter key.
      Enter the Transferor Country (if applicable) and press the return/enter key and move the cursor to a foreign address, if identified. Use both lines of the address fields to enter the complete address. Do not input any state or zip code information.

      Note:

      The transferor is the seller.

    • Maintain the case file in numerical order within the unit.

  5. If an application is received with a Form 8288 / Form 8288–A and payment, take the following actions:

    1. Prepare Form 4287, Record of Discovered Remittances for the payment and hand carry the return and payment to the Deposit activity function.

    2. Enter action taken into the withholding certificate database.

21.8.5.3.5  (10-01-2014)
Processing the Withholding Certificate Application

  1. Review the forms for completeness. If the forms are incomplete, take these additional steps to perfect the application before entering the information in the database and issuing the withholding certificate.

    Note:

    Correspond with the transferee (Buyer) for Form 8288/ Form 8288–A when a payment is received with Form 8288–B.

  2. All supporting documentation for the application must be reviewed to determine if applicant is claiming Category 4, 5 or 6. If one of these categories has been identified, send to the Ogden Examination function.

  3. If the application is for Category 1, 2 or 3, and the package is complete, continue processing with the following instructions:

    1. Enter on the Form 10022 (or other history sheet designated by local management):

    2. The transferor (seller) name control, TIN, Form Number, and Tax Period.

    3. IRS received date and Tax Examiner (TE) received date.

    4. "Statement of Problem" line - enter the current date, and information regarding the case (e.g., Withholding Certificate request for reduction of taxes).

    5. The TE must now determine what deductions are allowable using the settlement sheet, statements containing major improvements, copies of canceled checks or receipts, etc.

      Note:

      If Form 8288–B contains multiple transferors (sellers), then be sure to use only the portion of the monies allocable to each transferor (seller). The allocable amount is the ratio determined by the percentage of ownership, unless otherwise indicated on the Form 8288–B. If this ratio cannot be determined, correspond with the applicant for the information necessary to make the allocation.

    6. The sale price of the property minus the original purchase price minus the allowable deductions give us the gain that is taxed on the sale (transfer).

      Note:

      The computation of gain may not be applicable if the transaction is governed by IRC § 1031 (like-kind-exchanges), IRC § 1033 (involuntary conversions, or former IRC § 1034 (former rollover rule)).

    7. Do not allow taxes and interest in the calculation of adjusted basis for determining gain on U.S. real property interest.

    8. The result as stated in (f) above is then multiplied by 20 percent for net long term capital gains for individuals and 35 percent for partnerships, corporations, estates, and trusts which gives you the minimum tax required. See Treasury Regulation 1.1445–6(c).

    9. Either an adding machine tape, or the calculation work sheet is needed to support the computation for the net income and tax required. It is imperative that the tape, or calculation work sheet be attached to the application. This is the only way to identify how the IRS determined the tax.

    10. After the database case file information has been entered, the case is ready for closing.

      Reminder:

      When multiple transferors (sellers) are included on an 8288-B, each foreign transferor (seller) must receive their own withholding certificate, under their own, name address, and TIN, unless they had requested one certificate.

  4. If the application is NOT COMPLETE, continue processing with the following instructions:

    1. Enter on the case history sheet - the transferor's (seller's) name control, TIN, form and Tax.

    2. Determine if the issue can be resolved by phone. If a number is available, initiate a telephone contact.

    3. If the issue cannot be resolved by telephone, or if no number is available, prepare the INFORMATION CHECKLIST by checking the required items.

    4. Send the appropriate letter using the database. This case is considered closed. Further correspondence would be considered a new case.

  5. Net Operating Loss (NOL) Calculation: Special attention must be paid to cases where a NOL is claimed. For purposes of calculating the maximum tax that may be imposed upon a disposition, only take NOLs into account if:

    1. The transferor (seller) claiming the NOL was engaged in a trade or business in the U.S. during the three preceding tax years, and has timely filed an income tax return for each of those three years. Copies of these income tax returns should be included in the application. However, if the tax returns are not included with the application, you can process the application if the necessary information can be verified using IDRS. The tax examiner MUST research IDRS to verify that the required tax returns were filed. You must verify the NOL with either the return or IDRS to consider it. The American Recovery and Reinvestment Act of 2009 provides an extended carryback period for "eligible small businesses" sustaining a NOL in tax year 2008. See IRM 21.5.9.5.14.6American Recovery and Reinvestment Act of 2009 (PL 111-5, Section 1211) - Net Operating Losses for details.

      Exception:

      If a business is less than three years old, the NOL can be taken into account, but the business must have timely filed an income tax return for those years it was in existence.

    2. The NOL is reflected on previously filed returns.

      Note:

      Do not consider an anticipated loss to current year operations.

    3. The claimed NOL is not currently the subject of an examination by or dispute with the Service (AMDIS status greater than 08).

    4. The transferor (seller) agrees that, if the amount of gain claimed and offset by the NOL on the application EXCEEDS the amount of the gain actually recognized and offset by a NOL when the tax return is filed for the current year, interest is due and payable on the amount that should have been subject to withholding (the difference between the amount actually withheld and the total actually due).

    5. The claimed NOL was not previously used to reduce holding upon other dispositions of USRPI's or to reduce the amount of any other obligation or liability under the U.S. Internal Revenue laws.

    6. The transferor (seller) states in the application: At least 80 percent of its gross income subject to U.S. taxation in the year of disposition is derived from USRPI's.

    Note:

    Handle Passive Activity Losses in a similar manner as Net Operating Losses

  6. Transferor's (seller's) unsatisfied withholding liability; analyze the application to determine if there is an unsatisfied liability.

    1. The applicant must provide a calculation of the transferor's (seller's) unsatisfied withholding liability or evidence that it does not exist. That liability is the amount of any tax the transferor (seller) was required to withhold, but did not withhold, under FIRPTA, the subject USRPI or a prior interest.

    2. The transferor's (seller's) unsatisfied withholding liability is included in the calculation of maximum tax liability, so that the prior withholding liability may be satisfied by the transferee's (buyer's) withholding upon the current transfer. Evidence may include one or more of the following:

      Examples of Evidence — See Rev. Proc. 2000–35
      The transferor (seller) acquired the subject or prior real property interest before January 1, 1985
      A copy of Form 8288 with proof of payment of the amount shown
      A copy of a withholding certificate for the subject or prior real property, plus a copy of Form 8288 with proof of payment
      A copy of the non-foreign certificate furnished by the person from whom the subject or prior USRPI was acquired, executed at the time of acquisition
      Evidence that the transferor (seller) purchased the subject or prior real property interest for $300,000 or less AND a statement signed by the transferor (seller) that he or she purchased the property for use as a residence
      Evidence that the person, from whom the transferor (seller) acquired the subject or prior USRPI, FULLY paid any tax imposed
      A copy of notice of nonrecognition treatment provided to the transferor (seller) by the person from whom the transferor (seller) acquired the subject or prior USRPI, or
      A statement signed by the transferor (seller) under penalties of perjury, giving the facts and circumstances to support the transferor's (seller's) claim that no withholding was required under FIRPTA with respect to the transferor's (seller's) acquisition of the subject or prior real property
  7. Refer to the following chart regarding Form 8288-B line 8 processing:

    If ... And ... Then ...
    Line 8 is marked yes The applicant does not provide the unsatisfied withholding liability calculation Call or correspond with the applicant to request the calculation
    The applicant responds within the given time frame The applicant provides the calculation Continue processing the application
    The applicant cannot provide the calculation, or does not respond within the given time frame   Reject the application as incomplete
    Line 8 is marked no The applicant does not provide the required evidence of no withholding liability Call or correspond with the applicant to request the evidence required under Section 1445
    The applicant responds within the given time frame The applicant provides the required evidence Continue processing the application
    The applicant cannot provide the required evidence, or does not respond within the given time frame   Reject the application as incomplete.
  8. Installment sales: When the application identifies Installment Sales (CAT 3), take the following steps.

    1. Follow the instructions in (3) above.

    2. Ensure that Installment Payment amount is in accordance with the installments approved on Form 8288–B.

  9. The 1997 Taxpayer Relief Act replaced Section 121 one time exclusion and Section 1034 roll-over provision with amended Section 121, which generally allows a taxpayer (including Nonresident Aliens) to exclude up to $250,000 ($500,000 for certain joint returns) of gain on the sale of property if the property was owned and used as the taxpayer's principal residence for at least two of the last five years before the sale or exchange. The exclusion can be used on a continuing basis, but not more frequently than once every two years. This became effective on sales after May 6, 1997.

    Exception:

    The exclusion is not available to Expatriate Nonresident Alien Individuals who are subject to IRC § 877(a)(1) because they gave up their U.S. residency for the principal purpose of tax avoidance.

21.8.5.3.6  (11-13-2008)
Transactions Affecting the FIRPTA Tax Calculation

  1. There are many transactions that can affect the FIRPTA tax calculation in addition to NOLs. This subsection describes some of the transactions that must be taken into account.

21.8.5.3.6.1  (11-13-2008)
Section 1031 Like-Kind Exchanges

  1. Under IRC § Section 1031 (like-kind exchanges), no gain or loss is recognized if property which is held for productive use in a trade, business or for investment is exchanged for property of like-kind to be used for the same purposes (For example: A city duplex for farm land, improved land for unimproved land, city real estate for a farm or ranch, or investment property and investment property of like-kind). The words "like-kind" have reference to the nature and character of the property and not to its grade or quality. Listed below are some types of property that do not qualify for like-kind exchange.

    • Stock in trade or other property held primarily for sale

    • Stock, bonds or notes

    • Other securities or evidence of indebtedness of interest

    • Interest in a partnership

    • Certificates of trust or beneficial interest

    • Choses in action (A right to property rather than actual possession)

  2. Other qualifications are found in IRC § 1031 and related regulations. To qualify for relief under FIRPTA, a transferor (seller) must meet all of the requirements of IRC § 1031 and related regulations. The transferor (seller) must also file a Notice of Nonrecognition with the IRS and with the transferee (buyer), but no Notice is allowed (accepted) if the following exists:

    • The transaction does not quality for nonrecognition in its entirety.

    • If the transaction is a non-simultaneous like-kind exchange where the transferee (buyer) (a) can’t determine the change has been completed and (b) can’t determine that all the conditions for nonrecognition have been met at the time for paying the withholding tax and filing the Form 8288.

    Note:

    In this case, withholding can only be excused if a withholding certificate is obtained. See Treasury Regulation 1.1445-2(d)(2)(ii), (iii) and (iv).

21.8.5.3.6.1.1  (11-13-2008)
Requests for Withholding Certificates for Section 1031 Transactions

  1. The regulations authorize us to ask for a withholding certificate (as opposed to a Notice) for 1031 like-kind exchange transactions. See Treasury Regulation 1.1445-3(b)(6).

  2. Obtaining a withholding certificate is especially helpful in determining if the requirements of IRC § 1031 are met, since this verification is required to be submitted. Also, if the application is properly submitted, the withholding on deferred like-kind exchanges is not required within 20 days of the date of transfer.

21.8.5.3.6.2  (10-01-2009)
Distributions from Real Estate Investment Trusts (REITS)

  1. REITS are business trusts or corporations with substantial passive real estate investments. They are classified as publicly traded or privately held, as well as domestically controlled or foreign controlled. A REIT normally qualifies as a U.S. Real Property Holding Corporation (USRPHC), which means any interest in that corporation qualifies as a U.S. Real Property Interest (USRPI). However, if a REIT is domestically controlled, an interest in that REIT is not a USRPI. Accordingly, gain on the sale of the stock in a domestically controlled REIT is generally not subject to tax under IRC § 897(a). Distributions from a domestically controlled REIT attributable to sales or exchanges of USRPIs are generally subject to tax under IRC § 897(a) pursuant to IRC § 897(h)(1).

  2. A domestically controlled REIT has less than 50 percent of the Fair Market Value (FMV) of its outstanding stock directly or indirectly held by foreign persons during the five-year period ending on the applicable determination date.

  3. A foreign controlled REIT has 50 percent or more of the FMV of the outstanding stock owned by foreign persons. An interest in the foreign controlled REIT constitutes a USRPI. See IRC § 897(h).

21.8.5.3.6.2.1  (10-01-2009)
Calculating the Gain on a REIT

  1. If a REIT makes a distribution to foreign persons and the distribution is attributable to gain realized by the REIT from the sale or exchange of a USRPI, the foreign person will be taxed on that gain under IRC § 897(h)(1).

  2. The distribution is treated as an IRC § 897 gain to the extent the distribution is attributable to gain realized by the REIT from the sale or exchange of a USRPI.

  3. The REIT is required to withhold at 35 percent on any distribution treated under IRC § 897(h)(1) as a gain realized by a nonresident alien individual or foreign corporate shareholder from the sale or exchange of a USRPI. See IRC § 1445(e)(6).

  4. The amount subject to withholding under IRC § 1445 is the amount of the distribution determined with respect to each share, or certificate of beneficial interest, designated by the REIT as a capital gain dividend multiplied by the number of shares or certificates of beneficial interest owed by the foreign person. See Treasury Regulation 1.1445–8(b)(3).

21.8.5.3.6.2.2  (10-01-2009)
Reporting and Paying Over Withheld Amounts

  1. The withholding agent responsible for withholding and reporting is the REIT or nominee on behalf of another domestic or foreign person. For purposes of IRC § 1445, a nominee is a domestic person who holds an interest in a partnership, trust, or REIT (See Treasury Regulation 1.1445-8(d)). A REIT's nominee status is determined in accordance with Treasury Regulation 1.1445–8(b)(3).

  2. Withholding and reporting for REITS is not done on Form 8288 and Form 8288–A.

  3. Withholding and reporting is done on Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons) and Form 1042–S (Foreign Person’s U.S. Source Income Subject to Withholding). See Reg. 1.1445-8(g).

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ notify the withholding agent of the correct withholding and reporting procedures for future filings. The withholding agent should not file again using Form 1042 and Form 1042–S which might result in double withholding (See Reg. 1.1445-5(b)(1)).

21.8.5.3.6.3  (10-01-2011)
Estates and Stepped-up Basis

  1. In general, the basis that a taxpayer uses for property received from a decedent, by bequest or inheritance, is the fair marked value of the property at the date of the decedent's death. This is known as the stepped-up basis.

    Example:

    A decedent owns a home originally purchased 20 years ago for $100,000. On the day the decedent dies, the fair market value of the home is $320,000 and the decedent bequeaths the home to the taxpayer. The taxpayer is generally allowed to use the stepped-up basis of $320,000 per IRC § 1014(a) resulting in an increased basis to the home.

  2. A foreign person making a disposition of the property in the U.S. must verify the stepped-up basis.

  3. Verify the stepped-up basis following the same procedures used in verifying the basis for a Category 2 (Maximum Tax) application. See IRM 21.8.5.3.3

    Note:

    This rule does not apply for decedents who died in 2010 and whose executors make an election under IRC § 1022. See IRM 21.8.5.3.6.3(4).

  4. The executors of the estates of decedents, who died during 2010, may elect out of the estate tax system and may instead apply the provisions of IRC §1022. If this election is made, there is no stepped-up basis. The taxpayer acquiring property from the decedent receives a basis equal to the lesser of the adjusted basis of the property when in the hands of the decedent, or the fair market value of the property on the date of the decedent's death.

21.8.5.3.7  (10-01-2007)
The Application and the Database

  1. The forms have been reviewed for completeness and now the information must be entered into the database in order to update the record and generate the appropriate letters to the transferor (seller) and transferee (buyer).

  2. Refer to your FIRPTA and Foreign Partnership Withholding Job Aid, Catalog Number 50568X, for instructions on the Withholding Certificate database.

  3. Take note that once the Form 8288–B information is entered into the database, and the record entry is saved, a control file number is automatically assigned by the computer. The control file number consists of the current year being processed and a 4 digit number (i.e., yyyynnnn, 20140001 for the first file number entered).

21.8.5.3.8  (10-01-2007)
Follow-up on Rejected Forms 8288-B

  1. When an Application for a Withholding Certificate, Form 8288-B, is rejected, the transferee (buyer) is instructed to file Form 8288 within 20 days of the date of the rejection, but only if the transfer took place. Otherwise, the transferee (buyer) or transferor (seller) should inform the IRS that the transfer did not take place. This will ensure that required returns are filed, and if not, then at least a follow up system has been put into place.

  2. Every Monday, the INTL NSA1 database system matches the Form 8288–BDisposal Code 04 (Rejected) or 05 (Unprocessable-Late) cases against the 8288 database when the 8288-B follow-up list is being generated.

  3. A Disposal Code 04 case enters the 8288-B Follow-up program 90 days after the initial contact rejection letter was issued. A Disposal Code 05 case enters the 8288-B Follow-up program 70-days after the initial contact unprocessable letter was issued.

  4. Every Monday (weekly basis), the Unit Manager, or Lead Tax Examiner accesses the "8288-B Withholding Certification Menu" via the FIRPTA Database main menu screen. Once at the 8288-B W/C menu, select Menu Option "2, 8288-B Follow-up on Rejected or Non-Process " . You'll be re-directed to the "8288-B Follow-up on Rejected or Non-Processable Applications" menu screen. You must now select Option "1" "View/Print 8288-B Follow-Up List" .

  5. This will bring up the report menu window where you will enter the "Monday date" . Then ensure that the "Enter report destination" is set at "View" , then depress the "Generate Report" button. This updates the database status indicator to "S" for aged cases and generates the report. Depending on the number of records it assembles, the process can take from 10 seconds to 3 minutes before you see the "Searching for 8288 records" pop-up window.

    Reminder:

    This action initiates the database search between the 8288 files and the disposal code 04 and 05 8288-B files.

  6. Review the 8288-B report list and additional research performed against the 8288 database before a second contact letter is issued.

  7. There are a number of status's used in processing Form 8288–B follow-up cases.

    Reminder:

    The status's become effective only after the initial (70 days or 90 days) pending days have expired. They are:

    • "S" = "Selected" - The computer compiles data comparison between the 8288-B DC 04 and 05 cases against the 8288 database.

    • "F" = "Found" - The computer assigns this status to all cases for which a Form 8288 has been located.

    • "P" = "Print" - Manually input this status when the second contact Letter (3543 (SC/CG) is sent to the transferee (buyer). Once the second contact letter is printed, the status automatically changes to "W" .

    • "W" = "Wait" - After the second contact letter is printed, the computer waits 90 days for a response or action to be taken in the account before automatically changing the status to "R or N" .

    • "N" = "No Response" - The applicant did not respond to second contact letter. This status is computer generated 90 days after the computer has performed a second search of the 8288 database, which is after the second contact letter has expired. However, if the amount realized is ≡ ≡ ≡ ≡ ≡ ≡ ≡ or greater, then manually input a "T" status after the 90 days elapsed.

    • "R" = "Responded Manually" - Input this status when a return has been located by the tax examiner while working on the taxpayer's correspondence response received from the transferee (buyer) or during initial research of the listing.

    • "T" = "Transship Manually" - Input this status when all cases for which the 90 day pending time frame (W status) has expired and/or no response to the second contact letter was or wasn't received.

      Reminder:

      The amount realized field must be ≡ ≡ ≡ ≡ ≡ ≡ ≡ or greater.

  8. Select Option "2" to update the status.

    1. In this screen, you can query the record by using the 8288-B file control number, property description, amount realized, and/or the transferee/transferor (buyer/seller) information.

    2. The selected case information will appear on screen and show a status of "S" for "SELECTED" .

    3. Once the screen is displayed, it is ready for input. To change the status, you must enter the correct status character as referenced in paragraph 7 above. Enter either "R" to indicate that the transferee (buyer) has "responded" to the initial letter with an acceptable response, or "P" if there has not been a response. This instructs the computer to change the status to a "W" after the second contact Letter (3543 SC/CG) is printed.

    4. Depress the SAVE button to save the status update change.

  9. In order to print the second contact Letter (3543 SC/CG), select Option "3" from the 8288-B Follow-up on Rejected or Non-Processable Applications menu. You are ready to print the 3543 SC/CG second contact letter. The "ALL" radio button on the "Print Job" window already appears depressed, since it is the default action. Depress the "Print" button and all of the letters are printed to the designated printer associated with your login name.

  10. Select menu Option "4" to check the status responses on all cases where a 3543 SC/CG letter was sent. The status is a "W" .

21.8.5.3.9  (10-01-2007)
Updating the database

  1. A "W" status automatically generates when the second contact letter is printed from the INTL NSA1 database system. This action alerts the computer to schedule a systemic follow-up 90 days from the date of the letter.

  2. If a Form 8288 return is filed within 90 days from the initial letter, then the computer will not select that "rejected / non-processable" case for the follow-up program.

  3. If the follow-up program does not locate a Form 8288 filing within 90-days from the initial letter, then it will select the "rejected / non-processable" case for the follow-up process.

  4. If the transferee (buyer) corresponds to inform the IRS that the sale did not go through, take the following action:

    1. Select Menu Option "2, 8288-B Follow-up on Rejected or Non-Process" .

    2. Depress the "Query" button.

    3. Enter the data in the applicable field(s) and depress the "Execute Query" button.

    4. When your case appears on the screen, enter an "R" in the status field to indicate that no further follow-up is required, and

    5. In the remarks field, enter the reason for the status change and your employee profile number.

    6. Depress the SAVE button.

    7. Repeat the above steps to query another case.

  5. If the status does not change within 90 days from the date of the second contact letter, the computer will perform a secondary search of the 8288 database to locate a return. If an 8288 return is not located by the computer and the amount realized is ≡ ≡ ≡ ≡ ≡ ≡ ≡ or greater, the computer will assign a "T" status, and case will appear on the weekly follow-up report for transshipping. Otherwise, the computer will assign an "N" status.

    • The INTL NSA1 database system will select cases with a "W" status, as well as new disposal code 04 and 05 cases to match them against the 8288 database.

    • If an 8288 is found, the status will update to "F or R" and no further action is required.

    • If no data is found in the 8288 database, the case will appear on the follow-up report.

    • After a second contact Letter (3543 SC/CG) is issued, suspend the case in the system for another 90 days. If after 90 days, no 8288 is found or the taxpayer does not respond, the status updates to a "T" indicating a potential transfer to Small Business Self Employed (SBSE) International Examination.

21.8.5.3.10  (03-29-2013)
Referrals to SBSE International Examination

  1. When a rejected (disposal code 04) or unprocessable (disposal code 05) 8288-B case reaches a "T" status and the case cannot be resolved in the FIRPTA Unit, refer the case to SBSE International Examination. Refer only those cases where the amount realized on the sale of the USRPI is ≡ ≡ ≡ ≡ ≡ ≡ or greater. If the amount realized is less then ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , enter status code "R " .

  2. On a weekly basis, the designated employee selects "Option 4" from the 8288-B Follow-up on Rejected or Non-Processable Applications menu.

  3. A listing generates showing cases still open and in "T" status.

  4. Before transshipping the case to SBSE International Examination, verify that the 8288 Batch work is current in processing to ensure that if the taxpayer has filed within the last 90 days the return will have been processed. If not current, search the existing batch work within the unit. If additional research is warranted, complete it before transferring the case.

  5. If transfer to SBSE International Exam in Ogden is required, prepare a Document Transmittal 3210 and address it to:
    Internal Revenue Service
    Attn: Brent Roberson M/S 4160
    1973 Rulon White Boulevard
    Ogden, UT 84404.

  6. All completed cases must show a status of "R, N or T" .

21.8.5.3.11  (02-27-2009)
Request for an Early FIRPTA Refund

  1. The transferor (a foreign person or entity seller) may request an early refund of the FIRPTA tax paid on Form 8288 within the same year of payment if they received an approved withholding certificate reducing or eliminating the FIRPTA tax withholding that was paid.

  2. Form 8288 with a Date of Transfer of 12/12/2005 (200512) and prior, is a Non-Master File (NMF) processed return. A Form 8288 with a Date of Transfer of 12/13/2005 (200512) and subsequent is a Business Master File processed return. The MFT for both is 17.

  3. The transferor's (seller's) request for an early refund must be made in the form of a letter or a Form 843 claim, and must:

    • Be signed by the transferor (seller)

    • Contain the transferor's (seller's Social Security Number (SSN), Individual Tax Identification Number (ITIN), or Employer Identification Number (EIN)

    • Have a copy of the withholding certificate attached, or secure one from database

    • Have a stamped copy of Form 8288–A, Copy B attached

      Note:

      At times, a request for an early refund is attached to the Form 8288-B application. If a reduced or zero withholding certificate is approved, process the request for an early refund.

  4. An Early FIRPTA refund is issued within the same year of withholding. Therefore, no interest is paid on the refund.

  5. Use IDRS Letter 12C, Letter 3104C, Withholding Certificate Checklist Letter 3319 SC/CG, or the telephone to communicate with the transferor (seller) for either the; signature, Form 8288-A Copy B, or TIN number. Suspend case for 30 days (45 days if foreign address) before disallowing the claim.

    Note:

    If the Form 8288–A Copy B information can be verified using the INTLNSA database, a copy of the Form 8288–A Copy B is not required to process the early refund.

  6. Upon receipt of all the required information, the FIRPTA early refund claim is complete.

  7. Prior to processing the early refund request, research the foreign person's TIN to look and see if the transferor (seller) has an existing balance due on Master File or Non-Master File, or a "V-" or "-V" freeze code.

    1. If a "V-" freeze is found, then a balance due account is present.
      NMF Form 8288: Transfer the funds via Form 2424 (use the Claim Received Date as the credit date on Form 2424, and the date of payment as the debit date on Form 2424) to the Balance Due account. The remainder of the money (if any) is refunded to the foreign person.
      BMF Form 8288: Transfer the funds via IDRS Command Code ADD24 to the balance due account. The remainder of the money (if any) is refunded to the foreign person.

    2. If a "-V" freeze is present, then the taxpayer is in Bankruptcy Status and you must contact the IRS "Insolvency Unit" located in the taxpayer's geographical area. Follow the instructions given to you by the Insolvency Unit.

21.8.5.3.11.1  (10-01-2009)
Processing a NMF Early FIRPTA Refund

  1. Complete Request (NMF): If the request for an early refund is complete, the withholding certificate has been issued, and the Form 8288-A credit has been verified via the database, take the following action to issue the early refund:

    1. Secure two copies of the ProComm print utilizing the PC. This is done by accessing the Manual Accounting Replacement System (MARS).

    2. Sign on using your Login information.

    3. Enter you password, this brings up the main Menu.

    4. Depress "1" (application).

    5. Depress "2T" or "7T" .

    6. Depress "Q" (research by TIN, NAME CONTROL OR DLN) - enter one of the following; "T" , "D" or "N" .

    7. Depress "1T" to order print. (The print is available in one day, over in the Accounting area.)

    8. Enter TIN, MFT, Tax Year, Profile number, then depress the "ESC" (escape) key to initiate request.

    9. Depress "E" to exit.

    10. Depress "O" to logout.

  2. The original return is needed to make the NMF tax adjustment to adjust the 8288 account. Use IDRS Command Code "ESTAB" for the return. If Form 4251, Return Charge Out, is received with the notation "Not in Files (NIF)," prepare Form 2275, requesting special search. If the Form 2275 is received with the notation "NIF," a copy of the Form 8288 may be used or prepare Form 4340, Certificate of Assessments and Payment for Substantiation of a Return.

  3. Prepare Form 1331–B (Notice of Adjustment) for the tax decrease and Form 3753 (Manual Refund Posting Voucher) for manual refund preparation. IRM 21.7.12 also contains additional information for completing Form 1331–B and Form 3753. The Early Refund is prepared and issued to the transferor (foreign seller). Always check to see if the foreign transferor (seller) has an open Balance Due on the ANMF or Master File. If so, satisfy the balance due first by preparing Form 2424 to manually transfer the funds. Afterwards, issue the refund to the transferor.

  4. The transferor's (seller's) request for an early refund must be made in the form of a letter or Form 843 claim, and must:

    • Be signed by the transferor (seller)

    • Contain the transferor's (seller's) SSN, ITIN or EIN number

    • Have a copy of the withholding certificate attached, or secure one from database

    • Have a stamped copy of Form 8288–A"Copy B" attached

      Note:

      At times, a request for an early refund is attached to the Form 8288-B application. Process the request for an early refund on an approved withholding certificate.

  5. Use IDRS Letter 12C, Letter 3104C, W/H Certificate Checklist Letter 3319 SC/CG, or the telephone to communicate with the transferor (seller) for either the; signature, Form 8288-A Copy B, or TIN number. Suspend case for 30 days (45 days if foreign address) before disallowing the claim.

21.8.5.3.11.2  (10-01-2014)
Processing a BMF Early FIRPTA Refund

  1. Complete Request (BMF): If the request for an early refund is complete and the Form 8288-A credit has been verified via the database, take the following action to issue the early refund:

    1. Access the Form 8288 account on Command Code TXMOD (if the TIN is an SSN or ITIN, use a definer "V" at the end of the TIN) with MFT 17.

    2. Enter IDRS Command Code "REQ54."

    3. Input a tax decrease TC 291 (the decrease amount is the difference between the TC 150 tax amount and the amount shown as due on the withholding certificate).

    4. Use FLC 60.

    5. Use Blocking Series 15.

    6. Use Hold Code 4.

    7. Enter the W/H Cert File Number in the "Remarks."

    8. Prepare IDRS Manual Refund, Form 5792, and use the appropriate Line Code 11 through 15 . For line code information refer to IRM 2.4.20-12, Description of line item numbers.

      Note:

      No credit interest is paid on Early FIRPTA Refunds.

    9. Enter a TC 971 with Action Code 037, and the SSN of the person receiving the refund.

    10. Once the IDRS Manual Refund has been prepared, use IDRS Command Code RFUNDR to enter the refund online.

  2. Access the transferor's (foreign person/entity selling the property) TXMOD account (Form 1040–NR, Form 1120–F, or Form 8804 ) and input a REQ77 action. At the FRM77 screen, input TC 971, with Action Code 650 and the amount of the refund in the existing money field.

    Note:

    When the transferor's (seller's) income tax return is filed the following tax year, and the FIRPTA credit is being claimed on it, a TC 570 .00 generates. This causes an accounts maintenance "Prior Early Refund" transcript to generate to the FIRPTA unit. This transcript generates to prevent the IRS from issuing an erroneous refund to the transferor (seller) on the same FIRPTA credit, previously refunded to the transferor (seller) from the Form 8288, MFT 17 account.

  3. Monitor the manual refund until it posts to the module. See IRM 21.4.4.5.1, Monitoring Manual Refunds.

21.8.5.3.11.3  (10-01-2007)
Working the "Prior Early Refund" Transcripts

  1. Review the transcript to see if the taxpayer is claiming the same FIRPTA withholding credit on the income tax return.

  2. If claimed, then reverse the FIRPTA credit in the TXMOD account with a TC 290 .00, and a credit reference number 332 (with a minus), which will post as a TC 767. Send the taxpayer IDRS Letter 3104C, and explain that the FIRPTA credit was previously refunded.

  3. If the same FIRPTA credit is not being claimed, then input a TC 571 .00 to release the freeze and refund.

  4. If the FIRPTA credit on the tax return is greater than the TC 971 Action Code 650 amount refunded to the transferor (seller) from the Form 8288 account, then review the return for the Form 8288–A document to see if the credit is claimed again, and in addition to another amount. If the FIRPTA credit is being claimed again, then reduce the FIRPTA credit by the TC 971 AC 650 amount, via an REQ54 adjustment (and make sure the other Form 8288-A credit has been verified on Form 13698).

    Note:

    Send the taxpayer IDRS Letter 3104C, and explain the reduction in refund was caused by the FIRPTA credit having been previously refunded.

21.8.5.4  (10-01-2012)
IRC § 897(i) Elections

  1. Under IRC § 897(i), a foreign corporation may make an 897(i) election if it meets ALL four of the following conditions. The foreign corporation MUST:

    • Hold a U.S. Real Property Interest (USRPI) at the time of the election

    • Be entitled to nondiscriminatory treatment with respect to its USRPI under any treaty to which the U.S. is a party

    • Make a 897(i) election by filing a document described in Treasury Regulations 1.897-3 and Treasury Decision 9082 and pay tax on prior dispositions

    • Actually be a U.S. real property holding corporation (Treasury Regulation 1.897–8T(b))

      Note:

      The revised regulations listed in TD 9082 require the applicant provide the IRS with their EIN on the Election request. This mandatory requirement is effective November 4, 2003. If the 897(i) Election request does not have an EIN, deny the application.

  2. The foreign corporation must supply a general statement indicating that an election under section 897(i) is being made. This statement must be signed by a responsible corporate officer (or duly authorized person) under penalty of perjury. No particular format is required for this statement.

  3. A foreign corporation that makes an election under section 897(i) of the Internal Revenue Code is not treated as a domestic corporation for purposes of ANY OTHER provision of the Code or treasury regulations except that it is treated as a domestic corporation for purposes of IRC § 1445.

  4. An election, once made, may be revoked only with the consent of the Secretary of the Treasury.

    Note:

    Forward request for revocation of a Section 897(i) election to the HQ IRM Analyst, Philadelphia Campus, BLN 2.H17.111.

21.8.5.4.1  (10-01-2013)
FIRPTA Coordinator Responsibilities

  1. The Foreign Investment in Real Property Tax Act (FIRPTA) Coordinator is the Examination Revenue Agent (RA) located at OSC. The RA serves as a resource for the FIRPTA tax examiner processing the election under IRC § 897(i) and for handling Withholding Certificates under Category 4, 5 and 6.

  2. The FIRPTA Coordinator assists the Ogden Technical Team by providing technical expertise regarding an 897(i) election.

21.8.5.4.2  (10-01-2009)
897(i) Election with No Payment

  1. Applications are made in the form of a letter or document under Treasury Regulation 1.897-3(c)(1). The letter or document must:

    • State "An election under section 897(i) is being made"

    • Be signed by a responsible corporate officer, verified under penalty of perjury, that the statement and all other documents submitted are true to his knowledge and belief (1.897-3(c)(1))

    • Demonstrate that it is a USRPHC (Treasury Regulation 1.897–8(b))

    • Contain general information with regard to the foreign corporation (1.897-3(c)(1)(i)): Name, Address, Identifying number, and Place and Date of Incorporation

    • Identify the Tax Treaty and Article under which the foreign corporation is seeking nondiscriminatory treatment (1.897-3(c)(1)(ii))

    • Describe the USRPI (1.897-3(c)(1)(iii)), dates acquired, adjusted basis, fair market value on date of election, or book value if not a U.S. real property holding corporation under 1.897-2(b)(2)

  2. In addition, the following statements must be attached to the election request:

    • Waiver of Treaty Benefits (1.897-3(c)(2)): A statement that the electing foreign corporation is waiving treaty benefits with respect to any gain or loss from the disposition of a USRPI during the period in which the election is in effect.

    • Consent to be Taxed (1.897-3(c)(3)): A binding agreement to treat as though it was a domestic corporation, any gain or loss that is recognized upon the disposition of any USRPI during the period in which the election is in effect AND the disposition of any property that is acquired in exchange for a USRPI in a nonrecognition transaction.

    • Interest-holders' consent to election (1.897-3(c)(4)): From each person that holds an interest in the corporation, a signed consent to the making of the election and a waiver of U.S. treaty benefits (1.897-3(c)(4)(i)), and a list that describes and identifies each interest holder's interest. State type, amount and fair market value as of election date.

    • Corporation's retention of interest-holders' consent (1.897-3(c)(4)(i)) : A corporation need not comply with 1.897(c)(4)(i) if it complies with the following requirements: 1. The corporation must place a legend on each outstanding certificate for shares of its stock that reads substantially as follows: "[Name of corporation} has made an election under section 897(i) of the United States Internal Revenue Code to be treated as a U.S. corporation for certain tax purposes, and any purchaser of this interest may therefore be required to withhold tax at the time of purchase." The corporation must certify that the foregoing requirement has been met. 2. The corporation must include with its election a statement that the corporation has received both a signed consent to the making of the election and a waiver of U.S. treaty benefits with respect to gain or loss from the disposition of an interest in the corporation from each person who holds an interest in the corporation on the date the election is made. 3. The corporation must include with its election a list that describes the interest in the corporation held by each interest-holder. The list need not identify the interest-holders by name, but must set forth the type, amount, and fair market value of the interests held by each. 4. The corporation must include with its election an agreement that the corporation will retain all signed consents and waivers for a period of three years from the date of the election and supply the documents within 30 days of a request.

    • Statement regarding prior dispositions (1.897-3(c)(5)) stating: That no interest in the corporation was disposed of during the shortest of; the period from 6/19/1980 through the election date; or, the period from the date on which the corporation first holds a USRPI through the election date OR the five-year period ending on the date of election.

      Exception:

      If a corporation is unable to state that no such dispositions have been made, it may make the 897(i) election ONLY if it states that it has complied with the requirements of 1.897-(d)(2) (Election after disposition of stock).

21.8.5.4.3  (10-01-2009)
897(i) Election with Payment

  1. An Election after Disposition of Stock (1.897-(d)(2)) may be made after a disposition, if the requirements of either 1.897-3(d)(2)(i) or 1.897-3(d)(2)(ii) are met.

    • 1.8973(d)(2)(i) - Payment of any tax which would have been imposed upon all persons who had disposed of interests. Such payment must be made by the later of the date the election is made, or the date on which payment of such taxes would otherwise have been due. The taxpayer must also include any interest that would have accrued, had tax actually been due with respect to the disposition. When a payment is made by a present holder of an interest, the basis of the person's interest shall be increased to the extent of the amount paid.

    • 1.897-3(d)(2)(ii) - Each person that acquired an interest in the electing corporation took a basis in the interest that was equal to the basis of the interest in the hands from which the interest was acquired, increased by the sum of any gain recognized by the transferor (seller) of the interest and any tax paid under chapter 1 by the person that acquired the interest, if such interest was acquired after 6/18/80.

    • Adequate proof of basis: The corporation must establish the basis and amount gain realized by all persons.

  2. Anti-abuse rule (1.897-3(e)) - A corporation that is otherwise eligible for an 897(i) election, may do so only by complying with the requirements of Treasury Regulation 1.897-3(e)(2) during the period described in Treasury Regulation 1.897-5(c)(5):

    • Prior to receipt of USRPI by electing corporation, the stock in such corporation (or in any corporation controlled by such corporation) was acquired in a transaction in which the transferee (buyer) of such stock, obtained an increase in basis in the stock over the adjusted basis of the stock of the transferor (seller); AND

    • The full amount of gain realized by the transferor (seller) was not subject to U.S. tax; AND

    • The electing corporation received the USRPI in a transaction to which IRC § 897(d)(1)(B) or IRC § 897(e)(1) applies providing for nonrecognition of gain.

    • Recognition of gain. A corporation which is otherwise eligible to make an election under Section 897(i), may do so only by complying with the requirements set out in the Reg. 1.897-3(e)(1) (Anti-Abuse Rule). Such amount must be paid only if the stock of the electing corporation would have constituted a USRPI had it made the election before the acquisition. Such amount must be paid by the later of the date of the election OR the date on which such tax would otherwise be due. Also, must include any interest that would have accrued had tax actually been due with respect to the disposition.

    • Definition of control. For purposes of the anti-abuse rule, a corporation controls a second corporation if it holds 80 percent or more of the total combined voting power of all classes of stock entitled to vote; AND holds 80 percent or more of the total number of shares of all other classes of stock of the second corporation.

  3. If the election was signed by someone other than an appropriate corporate officer, a valid Power of Attorney (POA) must be attached.

    Note:

    Forward Form 2848, Power Of Attorney, to the Centralized Authorization File (CAF) Unit for input to IDRS and/or assignment of a CAF number.

  4. The approved taxes and interests paid are NON-REFUNDABLE.

21.8.5.4.4  (12-13-2011)
Direct Receipt Instructions

  1. An application for an IRC § 897(i) election must be mailed to:

    Ogden IRS Campus
    Accounts Management
    PO Box 409101
    Ogden, UT 84409

  2. These applications are hand carried to the FIRPTA Processing Unit within the Campus.

  3. The case is assigned to a tax examiner, who performs the duties of perfecting the application.

  4. The tax examiner determines whether to request more information using the Checklist Letter 3495 SC/CG, issue acceptance acknowledgment Letter 3496 SC/CG, or reject the application using IDRS Letter 3064C, to the foreign corporation.

21.8.5.4.5  (12-13-2011)
Reviewing for Completeness

  1. The IRS "must" either issue the acceptance acknowledgement Letter 3496 SC/CG within 60 days of receipt of the IRC § 897(i) Election application, correspond for more information using Checklist Letter 3495 SC/CG, or issue a rejection of the election using IDRS Letter 3064C.

    Note:

    When additional information is required to process the election request, the IRS must immediately contact the applicant, or duly authorized agent, in order to meet the 60 day response time frame.

    • Completely review the application for all required information. If information is missing, correspond with the applicant, or duly authorized agent, by using checklist Letter 3495 SC/CG.

    • The checklist is also provided to assist you in reviewing the election application for completeness under IRC § 897(i).

    • After receiving the requested information, incorporate it with the original application.

    • After final determination has been made, issue acceptance acknowledgement Letter 3496 SC/CG to inform the applicant, or their duly authorized agent of the approval.

    Reminder:

    Due to the nature of the application, an "Acceptance or Rejection" letter must be issued within "60 days" from the initial receipt date. The Checklist Letter 3495 SC/CG and Acceptance Letter 3496 SC/CG can be accessed using the hot links in this subsection to use the fillable pdf file. A copy of the letter should be printed for the applicant and a copy should be retained with the IRS file.

  2. All IRC § 897(i) Elections must be retained in record storage with a destruction date of 10 years from the date of record storage.

21.8.5.4.6  (12-13-2011)
The 897(i) Elections Package

  1. Assemble the election application package to include the following in the order referenced:

    • FIRPTA Input Document

    • Information Checklist

    • Application

    • Any other documents enclosed, such as a Power of Attorney (POA), etc.

      Note:

      Forward Form 2848, Power Of Attorney, to the Centralized Authorization File (CAF) Unit, for input to IDRS and/or assignment of a CAF number.

21.8.5.5  (10-01-2008)
Notices that Transferor (Seller) is Not Subject to FIRPTA Withholding

  1. IRC § 897 and IRC § 1445 generally require that the transferee (buyer) of a U.S. real property interest withhold 10 percent of the amount realized by a foreign person. In some cases, withholding equal to 35 percent of the gain realized by the transferor (seller) is required. A U.S. real property interest is any interest in either:

    • Real property located in the U.S. or the U.S. Virgin Islands

    • A domestic corporation, unless it is shown that the corporation was not a U.S. real property holding corporation (USRPHC) during the previous 5 years (or during the period in which the transferor (seller) held the interest, if shorter)

    • Certain personal property associated with the use of real property

21.8.5.5.1  (05-20-2008)
Exceptions to FIRPTA Withholding

  1. Withholding is not required if a U.S. real property interest is disposed of in a nonrecognition transaction. A nonrecognition transaction generally includes any transaction afforded nonrecognition treatment by the operation of a nonrecognition provision of the IRC, or if under the provisions of a tax treaty, the transferor (seller) is not required to recognize a gain.

  2. Withholding is also not required if a foreign person disposes of an interest in a domestic corporation and that corporation establishes it is not a USRPHC under Treasury Regulation 1.897-2.

  3. Withholding is not required if the property is not a U.S. real property interest. To determine whether an interest in real property or a domestic corporation constitutes a U.S. real property interest, see Treasury Regulation § 1.879-1 and 1.879-2.

  4. Withholding is not required if one or more individual transferees (buyers) acquire the U.S. real property interest for use as a residence and the amount realized on the transfer is $300,000 or less. See Treasury Regulation § 1.1445-2(d)(1).

  5. A transferee is not required to withhold if, prior to or at the time of the transfer, the transferor provides a written notice to the transferee that:

    • States that the transferor is not a foreign person;

    • Sets forth the transferor’s name, identifying number, and home address; and

    • Is signed under penalties of perjury. See Treasury Regulation § 1.1445-2(b).

21.8.5.5.1.1  (05-20-2008)
Required Transferor (Seller) Actions

  1. The transferor (seller) must provide a notice to the transferee (buyer) that the transferor (seller) is not required to recognize a gain or loss with respect to nonrecognition transactions under IRC § 1445(a). The transferee (buyer) must provide a copy of this notice to the IRS within 20 days of the transfer.

  2. The entity required to withhold must provide notice to the IRS within 20 days of the transfer with respect to nonrecognition transfers under IRC § 1445(e).

  3. The transferor (seller) must obtain a statement from the domestic corporation that it is not a USRPHC no later than the date, including extensions, on which the tax return for reporting the disposition is due with respect to transfers under IRC § 1445(a) of interests in domestic corporations that are not USRPHCs. The domestic corporation must mail a statement to the IRS within 30 days after it provides the statement to the foreign transferor (seller).

  4. The transferor (seller), or its fiduciary, must obtain a statement from the domestic corporation that it is not a USRPHC and the domestic corporation must mail a notice of the statement to the IRS within 30 days after it provides the statement to the foreign transferor (seller) with respect to transfers under IRC § 1445(e) of interests in domestic corporations that are not USRPHCs.

21.8.5.6  (02-25-2010)
Requests for Relief from Late Filing Late Notices of Nonrecognition

  1. Rev. Proc. 2008-27 provides a simplified method to request relief if there was reasonable cause for the failure to timely file the statements and notices under the Required Transferor (Seller) Actions. See IRM 21.8.5.5.1.1.

21.8.5.6.1  (10-01-2014)
Form of Request

  1. The request for relief is a completed statement or notice and an explanation detailing why the failure to timely file was due to reasonable cause. The documents will state Filed Pursuant to Rev. Proc. 2008-27. The documents are filed with the IRS at
    Ogden Service Center
    P.O. Box 409101
    Ogden, UT 84409.

  2. Required elements:

    • A notice or statement required under sections 1.897-2(g)(1)(ii)(A), 1.897-2(h), 1.1445-2(c)(3)(i), 1.1445-5(d)(2), 1.1445-5(b)(2), or 1.1445-5(b)(4) was not filed with the relevant person or the IRS, and

    • With respect to a completed statement or notice required to be filed with the IRS under sections 1.897-2(h), 1.1445-2(d)(2), or 1.1445-5(b)(2) as applicable, the taxpayer must attach an explanation describing why the taxpayer's failure to timely file the statement or notice was due to reasonable cause. Additionally, within the explanation, the taxpayer must provide that they obtained from an appropriate person the statements or notices required under sections 1.897-2(g)(1)(ii)(A), 1.1445-2(c)(3)(i), 1.1445-2(d)(2)(i)(A), or 1.1445-5(b)(4)(iii)(A), as applicable.

21.8.5.6.1.1  (02-25-2010)
Processing Request for Relief

  1. Acknowledge receipt of the request for relief using Letter 96C. The reply date is 120 days from the date Letter 96C is input. If we do not notify the taxpayer again within 120 days, we deem the taxpayer established reasonable cause. If 120 days passes, follow the procedures for Reasonable Cause Established. See IRM 21.8.5.6.1.2

  2. Review the request using reasonable cause criteria discussed in IRM 20.1.1.3.2, Reasonable Cause. Situations that may constitute reasonable cause include:

    • Miscommunication between the taxpayer's tax advisors

    • Circumstances beyond the taxpayer's control

    • Reasonable reliance on a paid professional who gave erroneous advise on the filing requirement, and

    • Unavoidable delay in obtaining a necessary signature

  3. Inform the taxpayer of our determination on the request for relief using Letter 3064C.

21.8.5.6.1.2  (05-20-2008)
Reasonable Cause Established

  1. If the taxpayer has established reasonable cause, use an open paragraph stating, "We have reviewed your request for relief as described in Revenue Procedure 2008-27. We have accepted your request for relief and determined there was reasonable cause for the delay in filing the notice with the IRS under either section 1.897-2(g)(1)(ii)(A), 1.897-2(h), 1.1445-2(c)(3)(i), 1.1445-2(d)(2), 1.1445-5(b)(2), or 1.1445-5(b)(4)."

21.8.5.6.1.3  (05-20-2008)
Reasonable Cause Not Established

  1. If the taxpayer has not established reasonable cause, use an open paragraph stating,

    "We have reviewed your request for relief as described in Revenue Procedure 2008-27. You have not established reasonable cause for failing to timely file the required notice or notices under either section 1.897-2(g)(1)(ii)A, 1.897-2(h), 1.14452(c)(3)(i), 1.1445-2(d)(2), 1.1445-5(b)(2), or 1.1445-5(b)(4). "

    " If you have additional information, please resubmit your request with the new material and a copy of this letter to the address above. If you disagree with this determination, you can request relief by following the letter ruling procedures described under sections 301.9100-1 through 301.9100-3."

Exhibit 21.8.5-1 
8288-B Withholding Certificate / Letter Menu

Transferor/Seller Transferee/Buyer
3307 (Zero/Exempt - TIN for Refund)
3308 (Reduced MTAXL - TIN for Refund)
3309 (Zero/Exempt - Generic)
3310 (Reduced MTAXL - Generic)
3311 (Reduced NOL)
3312 (Reduced Installments)
3313 (Rejected - RFMI not Recd)
3314 (Rejected - MTAXL >10 percent)
3315 (Filed 8288-B Late)
3319 (RFMI)
3320 (Interim Letter)
3793 (No TIN 8288-B)
3309 (Zero/Exempt - Generic)
3310 (Reduced MTAXL - Generic)
3312 (Reduced Installments)
3313 (Rejected - RFMI not Recd)
3314 (Rejected - MTAXL >10 percent)
3316 (Rejected - Generic)
3318 (Filed 8288-B Late)
3319 (RFMI)
3320 (Interim Letter)
3497 (Reduced - Generic)
3793 (No TIN 8288-B)

Exhibit 21.8.5-2 
Glossary

Glossary
AUSPC Austin Submission Processing Campus
DOT Date of Transfer
EMTAX Estimated Maximum Tax Liability
FMV Fair Market Value
FIRPTA Foreign Investment in Real Property Tax Act of 1980
IDRS Integrated Data Retrieval System
INTLWebApps International Web Applications
ITIN Individual Taxpayer Identification Number
JGTRRA Jobs and Growth Tax Relief Reconciliation Act of 2003
MTAX Maximum Tax Liability
NOL Net Operating Loss
OAMC Ogden Accounts Management Campus
RFMI Request For More Information
TAS Taxpayer Advocate Service
TIN Taxpayer Identification Number
TP Taxpayer
Transferor Seller
Transferee Buyer
USRPHC U.S. Real Property Holding Corporation
USRPI U.S. Real Property Interest

More Internal Revenue Manual