ITIN Guidance for Foreign Buyers/Sellers of U.S. Property
Foreign buyers and sellers of U.S. real property interests need Taxpayer Identification Numbers (TINs) to request reduced tax withholding when disposing of the property interest, and to pay any required withholding. Individuals who do not qualify for Social Security Numbers (SSN) may obtain Individual Taxpayer Identification Numbers (ITINs) to meet the requirement to supply a TIN.
The Internal Revenue Service implemented new procedures, effective December 17, 2003, to strengthen controls on ITINs and ensure the numbers are issued for tax administration purposes only. To help your qualifying clients obtain ITINs without undue burden, see the instructions for Forms W-7 and W-7SP and the information below, which describes how the new process impacts FIRPTA (Foreign Investment in Real Property Tax Act) processing.
TINs required for withholding (Forms 8288 and 8288-A)
Treasury Decision 9082 (effective November 4, 2003) requires all transferees (buyers) and foreign transferors (sellers) of U.S. real property interests to provide their TINs, names and addresses on withholding tax returns, applications for withholding certificates, notice of non-recognition, or elections under sections 897(i) when disposing of a U.S. real property interest. The transferee withholds tax under section 1445 and remits it to the Internal Revenue Service 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 (FIRPTA).
TINs required for requests for reduced withholding (Form 8288-B)
A transferor looking to reduce or eliminate the FIRPTA withholding amount must file a Form 8288-B, Application for Withholding Certificate for Disposition by Foreign Persons of U.S. Real Property Interests. Since Form 8288-B requires a TIN, a transferor and/or transferee who does not qualify for an SSN may apply for an ITIN by attaching Form 8288-B to Form W-7 and mailing the documents to Internal Revenue Service, Philadelphia Service Center, ITIN Unit, PO Box 447, Bensalem PA 19020.
Requesting an ITIN to meet FIRPTA TIN requirements
On Form W-7, a request for an ITIN to either pay FIRPTA withholding or request reduced FIRPTA withholding falls under Box h. Other, and is described as Exception 4 on page 3 of the instructions. An individual who meets Exception 4 should check Box h in the section of Form W-7 marked Reason you are submitting Form W-7, and write Exception 4 in the write-in area to the right of the box.
ITIN requests to claim reduced withholding (Form 8288-B)
The IRS will only issue ITINs based on applications that are complete and demonstrate a tax need for the numbers. If the IRS rejects the ITIN application, the attached Form 8288-B will not be processed. The IRS ITIN Unit will notify the applicant by mail that the Form W-7 was not processed and the FIRPTA Unit will also send Letter 3793 SC/CG to the transferee and foreign transferor with instructions to complete Form W-7 and reapply. This letter will include instructions to resolve the issue outlined in the ITIN rejection letter. When reapplying, the applicant must include a copy of Letter 3793 SC/CG with Form W-7 to be considered under Exception 4. If the reason for rejection cannot be resolved, then the transferee must file Form 8288/8288-A and remit the 10% tax.
ITIN requests to pay withholding on Forms 8288 and 8288-A
If a transferor or transferee does not have a TIN, and an amount withheld under section 1445 is due, the transferor should attach a completed Form W-7 to Forms 8288 and 8288-A and send the documents to Internal Revenue Service, Philadelphia Service Center, ITIN Unit, PO Box 447, Bensalem PA 19020 by the 20th day from the date of sale. (The applicant must include supporting documentation, listed in the Form W-7 instructions.) If the forms are complete and demonstrate a tax purpose, the IRS will assign an ITIN, list it on Forms 8288 and 8288-A and forward the forms for processing. IRS will also date stamp Form 8288-A Copy B Mailed and forward it to the foreign transferor.
o 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 ITIN application, 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. The applicant must include supporting documentation listed in the Form W-7 instructions, and must also attach a copy of Letter 3794 SC/CG with Form W-7 to be considered under Exception 4. If an ITIN is assigned, the IRS will list the ITIN on Form 8288-A and forward a date stamped copy to the foreign transferor.
o If the transferor attaches a Form W-7 ITIN application to Forms 8288 and 8288-A, but the IRS rejects the Form W-7 because it is incomplete or does not demonstrate a tax reason for applying, the IRS will continue to process Forms 8288 and 8288-A and mail a Form W-7 rejection letter to the applicant. The IRS will not date stamp Form 8288-A Copy B Mailed or forward the form to the foreign transferor (if it is the foreign transferor whose TIN is missing). Instead, the IRS will mail Letter 3794 SC/CG to the foreign transferor with instructions to complete and file Form W-7. The applicant must include supporting documentation listed in the Form W-7 instructions, and must also attach a copy of Letter 3794 SC/CG with Form W-7 to be considered under Exception 4.
Claiming reduced withholding on a tax return
A foreign person who has an ITIN and is claiming credit for FIRPTA withholding shown on Form 8288-A must complete a federal tax return (1040-NR) using the ITIN assigned, and attach the date stamped Form 8288-A to the return as evidence of FIRPTA withholding.
A foreign person who does not have a TIN (and as a result, will not have a date stamped Form 8288-A from the IRS) and wishes to claim a credit for FIRPTA must request an ITIN. To request an ITIN the foreign person must send the following items to Internal Revenue Service, Philadelphia Service Center, ITIN Unit, PO Box 447, Bensalem PA 19020:
o a federal tax return (Form 1040-NR) for the year of the transfer;
o an original Form W-7;
o the required documentation listed in the Form W-7 instructions; and
o a copy of the settlement statement from the sale that reflects the 10% withholding.
Notice of nonrecognition
When a transferor exchanges a U.S. real property interest, and the exchangequalifies for nonrecognition treatment under the Internal Revenue Code (IRC), the transferor must draft a notice of nonrecognition in accordance with IRC §1445 and include on the notice the transferors TIN, name and address. The transferor must present this notice to the transferee before the date of sale. The transferee must mail the notice of nonrecognition to the IRS no later than 20 days from the date of the exchange. If the notice of nonrecognition does not contain the transferors TIN, name and address, then the transferee cannot rely on the notice and is required to withhold tax.
If the transferor needs to request an ITIN, he must attach a Form W-7 application requesting processing under Exception 4 to the notice of nonrecognition marked DRAFT. The transferor must send these documents to Internal Revenue Service, Philadelphia Service Center, ITIN Unit, PO Box 447, Bensalem PA 19020. If the IRS approves the Form W-7, a notice assigning an ITIN number will be mailed to the transferor. The transferor must finalize his copy of the notice of nonrecognition and present it to the transferee.
If no ITIN is assigned to the transferor because the Form W-7 application is incomplete or does not demonstrate a tax purpose, the IRS will send a letter notifying the applicant and providing additional instructions. The transferee will not be able to rely on the notice of nonrecognition until the transferor obtains a TIN and completes the notice. If the exchange occurs without the transferors obtaining and providing a TIN, the transferee must withhold the FIRPTA tax and file Forms 8288 and 8288-A with the IRS.
IRC §897(i) Election
When a foreign corporation holding a U.S. real property interest wants to be treated as a domestic corporation for FIRPTA reporting, it must submit an election under IRC §897(i). This election must contain the U.S. Employer Identification Number (EIN), name and address of the foreign corporation. To obtain an EIN, the foreign corporation must complete Form SS-4, Application for Employer Identification Number, and apply either by telephone by calling the IRS Tele-TIN Unit at 215-516-6999 (not toll free) or by mailing Form SS-4 to the address listed in the instructions.
