Reporting and paying tax on U.S. real property interests


Two forms are generally used for reporting and paying the tax required to be withheld on the dispositions of U.S. real property interests by foreign persons to the Internal Revenue Service (IRS):

Buyers (transferees), who are generally the withholding agents, must use Forms 8288 and 8288-A to report and pay to the IRS any tax withheld on the acquisition of U.S. real property interests from foreign persons. These forms must also be used by corporations, partnerships, estates, and trusts that must withhold tax on distributions and other transactions involving U.S. real property interests. The U.S. Taxpayer Identification Number (TIN) of both the seller (transferor) and the buyer (transferee) must be included on the forms (refer to the "Requirement for Taxpayer Identification Numbers (TIN’s)" section below).

For partnerships disposing of U.S. real property interests, the manner of reporting and paying over the tax withheld is the same as discussed under Reporting and paying tax on partnership withholding.

For publicly traded trusts and real estate investment trusts, Forms 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, must be used for reporting and paying over tax withheld on distributions from dispositions of U.S. real property interests. Use Income Codes 24, 25, and 26 on Form 1042-S for transactions involving these entities.

Form 8288

The tax withheld on the acquisition of a U.S. real property interest from a foreign person is reported and paid using Form 8288. Form 8288 also serves as the transmittal form for copies A and B of Form 8288-A.  Generally, transferees must file Form 8288 by the 20th day after the date of the disposition.

If an application for a withholding certificate is submitted on Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests, to the IRS before or on the date of a disposition and the application is still pending with the IRS on the date of disposition, the statutory withholding tax must be withheld, but does not have to be reported and paid immediately to the IRS. The amount withheld (or lesser amount as determined by the IRS) must be reported and paid within 20 days following the day on which a copy of the withholding certificate or notice of denial is mailed to the transferee by the IRS.

If the principal purpose of applying for a withholding certificate is to delay paying over the withheld tax to the IRS, the transferee will be subject to interest and penalties. The interest and penalties will be assessed beginning on the 21st day after the date of transfer and ending on the day the payment is made.

Form 8288-A

The transferee must prepare a Form 8288–A for each person from whom tax has been withheld, attach copies A and B of Form 8288–A to Form 8288, and keep Copy C for their records.

IRS will stamp copy B of Form 8288-A and send it to the transferor, the person subject to withholding. The transferor must file a U.S. income tax return and attach the stamped Form 8288–A to receive credit for any tax withheld.

CAUTION! A stamped copy B of Form 8288–A will not be provided to the transferor if the transferor's TIN is not included on that form. In this case, to get credit for the withheld amount, the transferor must attach to its U.S. income tax return substantial evidence of withholding (for example, closing documents) and a statement that contains all the required information shown on Forms 8288 and 8288–A including the transferor's TIN.

Application for reduced rate of withholding

A reduced rate of withholding may be allowed upon the submission and acceptance of Form 8288-B or correctly completed statement. Refer to Applications for FIRPTA withholding certificates for more information as well as to Revenue Procedure 2000-35.  For situations where withholding may not be required, refer also to Exceptions from FIRPTA withholding.

Requirement for Taxpayer Identification Numbers (TIN’s)

Treasury Decision 9082 (effective November 4, 2003) requires all transferees and foreign transferors of U.S. real property interests to provide their TIN’s, names and addresses on withholding tax returns, applications for withholding certificates, notice of non-recognition, or elections under sections IRC 897(i) when disposing of a U.S. real property interest.

If you are a nonresident alien individual and you do not have a TIN, but are eligible for an ITIN, you can apply for an ITIN by attaching the completed Form 8288-B to a completed Form W-7, Application for IRS Individual Taxpayer Identification Number, and forwarding the package to the IRS at the address given in the Form W-7 instructions.

If the transferor sends Forms 8288 and 8288-A to the IRS for processing but does not list a TIN on the forms and does not attach a Form W-7, the IRS will process the forms, but will not date stamp Form 8288-A "Copy B Mailed" or forward it to the foreign transferor. Instead, the IRS will mail Letter 3794 SC/CG to the foreign transferor, instructing the transferor to apply for an ITIN by filing Form W-7.

Refer to ITIN guidance for foreign property buyers/sellers for more information.

Form 1099-S, Proceeds from Real Estate Transactions

Generally, the real estate broker or other person responsible for closing the transaction must report the sale of the property to the IRS using Form 1099-S, Proceeds from Real Estate Transactions. For more information about Form 1099-S, refer to the Instructions for Form 1099-S, and the general instructions for certain information returns (Forms 1097, 1099, 1098, 3921, 3922, 5498, and W-2G)PDF.

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