FIRPTA Withholding Tax question

[naf917]

In July I closed on a DVC resale contract through The Timeshare Store. The sellers were from the UK and I am a US citizen living in the US. Today I received a notice from the IRS indicating that I owe FIRPTA Withholding Tax. From what I can find out about this it seems to apply to non-US citizens but still I got the bill and it is too late to call and talk to an accountant or the IRS directly and this is driving me nuts.

Does this tax have to be paid by the buyer of a resale contract that is a US citizen?

Has anyone else gotten this bill from the IRS?

Any help or guidance that you can provide would be greatly appreciated.

 

[sgtslovak]

Check out this IRS website. It looks like you have to withhold 10% in case the foreign seller doesn't pay the tax. How you get it refunded when he does pay the tax, I'm not sure. I'll see if I can find out more for you.
http://www.irs.gov/businesses/small/international/article/0,,id=105000,00.html
Chris

 

[drusba]

I am not overly familiar with FIRPTA except that I know that you as the buyer are required to withhold 10% of the sale price if buying US property from a foreign resident, and that is done to assure that the foreign seller pays any required US tax. There are numerous exceptions and I do not know whether your transaction would qualify for one. The Timeshare Store should have known of the issue because I believe it is also responsible to assure the withholding is done if an exception does not apply.

 

[tiggerrr]

Keep in mind that I am neither a lawyer nor a tax accountant in the US, but I am a foreign owner that would be affected by this law.

Here are the bullet points from my understanding of the FIRPTA law:

The law is in place to ensure that Non US Residents pay tax on transactions within the United States. Since there is no real way to force a non-resident to file a tax return, the government imposes a 10% withholding requirement on the US BUYER. This is an amount that is to be withheld from the final purchase price and remitted to the IRS instead of the seller.

For example, if you, as a US resident, bought a DVC contract from a foreign party for $20,000, you would pay $2,000 to the IRS and $18,000 to the buyer (of course, and agent like TSS will also take their commission out of the $18,000).

You as a buyer are now done. If the seller believes that they have been overtaxed, they can file a US tax return for the true tax amount (basically the capital gains tax). The refund goes to the seller because the excess amount withheld is their money - withheld from the sale price. Of course, if they have held the property for many years with significant appreciation, the 10% withholding might be cheap and no return will be filed.

The law is clear that you as the buyer are personally responsible for withholding the tax, but there are implications for any agent or broker involved in the transaction, so I would have a conversation with a tax lawyer or accountant and have a followup with TSS to see whether they submitted the tax withholding on your behalf.

 

[naf917]

Thank you for your replies in helping me better understand this situation. As some of you pointed out I was responsible for the 10% for tax purposed.

Luckily the closing company withheld the 10% to pay the tax to the IRS. I should have a photocopy of the canceled check in a few day to send to the IRS to resolve this issue.

I am glad the people smarter than me were involved in this transaction and knew all the applicable laws. Thank you Timeshare Closing Services.

 

[hayesdvc]

*** continues to tell me they are waiting on the FIRPTA agent to supply the necessary documentation in order to process my closing. In reading these threads, why would *** simply not be withholding 10% of the proceeds and move on with the closing?

Who is *** waiting on to supply the necessary documentation?

Another unexpected roadblock !

 

[drusba]

Wow, you just ressurected an almost nine year old thread. The modern process of a resale covered by FIRPTA is for the foreign seller to apply for and get a tax identification number during the resale process and then at closing the 10% is temporaily put in an escrow and the form needed to show actual taxes owed by the seller is submitted and the government then usually issues acceptance of the amount shown on that form so that the tax owed rather than the 10% is actually turned over to the government.

What the agent is likely waiting on is for the government to issue the tax ID number. Sometimes it takes an inordinate amount of time for the government to do so. To be sure, you may want to contact the broker to confirm what it is waiting for.