ROFR on contract sold by non-US seller

[marisabuzz]

Out of curiosity, does Disney buy back contracts sold by non-US sellers (Canadian, UK, wherever)? How do they go about withholding the 15% FIRPTA on that sale?

 

[njprb]

Interesting question which could explain my recent ROFR experience. I had a 175pt BCV $93./pt Dec UY taken by ROFR 2-3 weeks ago; US Seller. Next day submitted almost the same contract; 200pts BCV $93./pt Dec UY passed ROFR 2 days ago; International seller (Canadian). Maybe they don't want to get involved with the tax situation and the IRS.

 

[supersnoop]

Out of curiosity, does Disney buy back contracts sold by non-US sellers (Canadian, UK, wherever)? How do they go about withholding the 15% FIRPTA on that sale?

They'd handle it the same way any other closing company would handle it.

 

[KristiLyn99]

Interesting question which could explain my recent ROFR experience. I had a 175pt BCV $93./pt Dec UY taken by ROFR 2-3 weeks ago; US Seller. Next day submitted almost the same contract; 200pts BCV $93./pt Dec UY passed ROFR 2 days ago; International seller (Canadian). Maybe they don't want to get involved with the tax situation and the IRS.

I certainly hope that a non-US seller helps your odds in passing ROFR. Our contract went to Disney yesterday and it is from a UK seller. I have my fingers crossed it passes.

 

[CarolMN]

Interesting question which could explain my recent ROFR experience. I had a 175pt BCV $93./pt Dec UY taken by ROFR 2-3 weeks ago; US Seller. Next day submitted almost the same contract; 200pts BCV $93./pt Dec UY passed ROFR 2 days ago; International seller (Canadian). Maybe they don't want to get involved with the tax situation and the IRS.

Or maybe they were looking for a particular unit # and the 200 pointer fit. I seriously doubt the owner's citizenship makes any difference at all to the ROFR decision..

 

[marisabuzz]

I'm curious if any non-US sellers on this board had their contracts taken by Disney.

My guess is Disney as a business withhold the tax and then submit it to the IRS? I would imagine so, but I don't how that works for businesses.

 

[supersnoop]

I'm curious if any non-US sellers on this board had their contracts taken by Disney.

My guess is Disney as a business withhold the tax and then submit it to the IRS? I would imagine so, but I don't how that works for businesses.

The legal requirement is for the buyer to send the form and 15% of the money to the IRS. The title company does that for most folks. I think Disney handles their own closings, but I'm sure their lawyers would advised them on sending the form and money. It really shouldn't be too complicated.

 

[marisabuzz]

Yes the seller will send the form and the money via title company, but from what I understand, the buyer needs to supply their SSN to withhold the tax? Am I mistaken there?

 

[supersnoop]

Yes the seller will send the form and the money via title company, but from what I understand, the buyer needs to supply their SSN to withhold the tax? Am I mistaken there?

I misspoke. It's the buyer's responsibility to send the funds and form. I've edited my post.

The seller has to provide their SSN for IRS purposes, or obtain an ITIN. Then, they can file a tax return to get the rest of their proceeds, if applicable.

 

[Friendlyadvice2]

I misspoke. It's the buyer's responsibility to send the funds and form. I've edited my post.

The seller has to provide their SSN for IRS purposes, or obtain an ITIN. Then, they can file a tax return to get the rest of their proceeds, if applicable.

You still don't have it correct. The buyer has to supply their SSN, because if the international seller (via the title company) doesn't file and/or pay what they're supposed to, then the IRS will come back on the buyer; hence the reason the BUYER has to provide their SSN. This is one of the reasons most brokers will announce up front that the contract is owned internationally because most buyers don't want to provide their SSN or be on the hook for a lax title company/seller.

 

[Friendlyadvice2]

Yes the seller will send the form and the money via title company, but from what I understand, the buyer needs to supply their SSN to withhold the tax? Am I mistaken there?

You are correct.

 

[CMNJ]

You still don't have it correct. The buyer has to supply their SSN, because if the international seller (via the title company) doesn't file and/or pay what they're supposed to, then the IRS will come back on the buyer; hence the reason the BUYER has to provide their SSN. This is one of the reasons most brokers will announce up front that the contract is owned internationally because most buyers don't want to provide their SSN or be on the hook for a lax title company/seller.

Are you sure? I thought it was the buyer's responsibility to withhold and remit the payment to the IRS (which is typically handled by the closing company and requires them to obtain your social security number to do so). Then if the seller wished to try to get the withheld tax refunded by the IRS they can file to do so. To do that they need a tax identification # (since they don't have a SS#) and the closing company usually will assist with that paperwork as well. You are correct though that if the closing company does not correctly withhold and submit the tax the buyer is still responsible for paying it to the IRS. This is how the process was explained to me by both brokers and a title company when I was looking into a contract from an international seller. Below is what is on the IRS website.

FIRPTA Withholding
Withholding of Tax on Dispositions of United States Real Property Interests
The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests.

A disposition means “disposition” for any purpose of the Internal Revenue Code. This includes but is not limited to a sale or exchange, liquidation, redemption, gift, transfers, etc. Persons purchasing U.S. real property interests (transferees) from foreign persons, certain purchasers' agents, and settlement officers are required to withhold 15% (10% for dispositions before February 17, 2016) of the amount realized on the disposition (special rules for foreign corporations).

In most cases, the transferee/buyer is the withholding agent. If you are the transferee/buyer you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax. For cases in which a U.S. business entity such as a corporation or partnership disposes of a U.S. real property interest, the business entity itself is the withholding agent.

U.S. Real Property Interest
A U.S. real property interest is an interest, other than as a creditor, in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the U.S. Virgin Islands, as well as certain personal property that is associated with the use of real property (such as farming machinery). It also means any interest, other than as a creditor, in any domestic corporation unless it is established that the corporation was at no time a U.S. real property holding corporation during the shorter of the period during which the interest was held, or the 5-year period ending on the date of disposition (applicable periods).

An interest in a corporation is not a U.S. real property interest if:

1. Such corporation did not hold any U.S. real property interests on the date of disposition,
2. All the U. S. real property interests held by such corporation at any time during the shorter of the applicable periods were disposed of in transactions in which the full amount of any gain was recognized, and
3. For dispositions after December 17, 2015, such corporation and any predecessor of such corporation was not a RIC or a REIT during the shorter of the applicable periods during which the interest was held.

Rates of Withholding
The transferee must deduct and withhold a tax on the total amount realized by the foreign person on the disposition. The rate of withholding generally is 15% (10% for dispositions before February 17, 2016).

The amount realized is the sum of:

• The cash paid, or to be paid (principal only);
• The fair market value of other property transferred, or to be transferred; and
• The amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer.

If the property transferred was owned jointly by U.S. and foreign persons, the amount realized is allocated between the transferors based on the capital contribution of each transferor.

A foreign corporation that distributes a U.S. real property interest must withhold a tax equal to 35% of the gain it recognizes on the distribution to its shareholders.

A domestic corporation must withhold tax on the fair market value of the property distributed to a foreign shareholder if:

• The shareholder's interest in the corporation is a U.S. real property interest, and
• The property distributed is either in redemption of stock or in liquidation of the corporation.

For distributions before February 17, 2016, the corporation generally must withhold 10% of the amount realized by a foreign person. For distributions after February 16, 2016, the rate increases to 15%.

• Exceptions from FIRPTA withholding
• Reporting and Paying Tax on U.S. Real Property Interests
• Withholding Certificates
• Format for Applications
• Road Map to Regulations
• Definitions of terms and procedures unique to FIRPTA

For additional information on the withholding rules that apply to corporations, trusts, estates, and REITs, refer to section 1445 of the Internal Revenue Code and the related regulations. For additional information on the withholding rules that apply to partnerships, refer to discussion under partnership withholding. Also, consult the "U.S. Real Property Interest" section in IRS Publication 515.

FIRPTA documents are processed at:

Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409.

Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.

Page Last Reviewed or Updated: 03-Feb-2017

 

[MouseOfCards]

I would imagine that Disney is a bit less likely to buy back due to foreign seller and the additional steps (including FIRPTA and withholding, potential translation issues, getting docs notarized, and other possible issues/delays). Feel the same way about bankruptcies, divorces, probate, or anything involving court proceedings. We've been in several DVC transactions with foreign sellers or court involvement (these all passed ROFR). Every single one we've been involved with required additional time (some significantly more) or steps that made us seriously think twice about doing it again. Disney, if they don't already, would be wise to steer clear of these contracts as a policy. Just my 2 cents.

 

[Friendlyadvice2]

Are you sure? I thought it was the buyer's responsibility to withhold and remit the payment to the IRS (which is typically handled by the closing company and requires them to obtain your social security number to do so). Then if the seller wished to try to get the withheld tax refunded by the IRS they can file to do so. To do that they need a tax identification # (since they don't have a SS#) and the closing company usually will assist with that paperwork as well. You are correct though that if the closing company does not correctly withhold and submit the tax the buyer is still responsible for paying it to the IRS. This is how the process was explained to me by both brokers and a title company when I was looking into a contract from an international seller. Below is what is on the IRS website.

Quite sure or I wouldn't have posted it. I'm not sure where the confusion lies in my post so I can only assume that you misread it or the context in which it was written. The OP wanted to confirm that the domestic buyer had to submit their SSN and she correct. Typical confusion with FIRPTA usually lies in understanding which party is responsible for paying the tax versus remitting the tax. A simple way to look at it is that the international seller is the party that incurs the tax obligation and is ultimately responsible for paying it while the domestic party is responsible for withholding and remitting the tax on behalf of the seller. The problem arises when the paperwork filed on behalf of the seller, usually via the title company, is prepared incorrectly or the withholding is calculated incorrectly. That's why the IRS requires the buyer to submit their SSN on the form. Since the IRS can't get to the seller to collect the funds, they will now go after the domestic buyer who they can get to. That's why the law is written as it is......the IRS always gets their money!

 

[CMNJ]

I guess I misunderstood the original post as to me is sounded like you were saying the seller remits the tax and simply needed the buyer's SS# to do so and I was saying the buyer was actually the one legally required to submit the tax and paperwork (it comes out of the seller's proceeds but the buyer is ultimately responsible for making sure it is paid). We are both in agreement that having to trust the closing company to do so on the buyer's behalf leaves one open to possible complications and unwanted taxes down the line if not done correctly.

 

[lisaviolet]

I sold a DVC contract that was taken by Disney's ROFR. So yes they do. And I felt that it was a bizarre contract for them to take. Was not sold low. Relatively small contract. Was SSR extremely early in the game. Meaning there was tons of inventory still to sell, even years later. If I can think back it was probably when people were just jumping on the resale bandwagon and they were probably trying to squash the momentum.

FIRPTA, 10% --- 11 years ago, was taken off right away. It was explained to me upfront that it would be done that way. I believe filed by the closing company.