EVETTE DAVIS: I see it's the top of the hour. And for those of you just joining us, welcome to today's webinar, Foreign Investment in Real Property Tax Act or FIRPTA. We're glad you're joining us today. My name is Evette Davis and I am a Stakeholder Liaison with the Internal Revenue Service. And I will be your moderator for today's webinar, which is slated for 75 minutes. Before we begin, if there is anyone in the audience that is with the media, please send an email to the address on the slide. Be sure to include your contact information and the news publication you're with. Our media relations and Stakeholder Liaison staff will assist you and answer any questions you may have. As a reminder, this webinar will be recorded and posted to the IRS Video Portal in a few weeks. This portal is located at the www.irsvideos.gov. Please note, continuing education credits or certificates of completion are not offered if you view an archived version of our webinars on the IRS Video Portal. 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Now this is very important folks, please do not enter any sensitive or taxpayer specific information in that ask questions box. Again, welcome. And thank you for joining us. Let me make sure you're in the right place. Today, our Large Business and International Division will share information related to the Foreign Investment in Real Property Tax Act, also referred to as FIRPTA, it's kind of like say, FIRPTA. This webinar is scheduled for approximately 75 minutes. Let me introduce today's speakers, Bob Driscoll is a manager in the Withholding and International Individual Compliance group in our Large Business and International Division. Joining Bob are two international revenue agents, Andy Daxon and Chris Galanto. And with that, let's begin our discussion. Hey, Bob. I think I'll turn it over to you. BOB DRISCOLL: Thank you, Evette. And welcome everyone. Today, we're going to cover several topics related to FIRPTA. We'll go over the general withholding requirements under FIRPTA. Identify the basic transaction subject to FIRPTA, define U.S. real property interest, identify the FIRPTA withholding forms. And lastly, we'll point out some resources you can find on IRS.gov. First, let's review the elements of a typical FIRPTA transaction. There are three necessary components, a disposition, a seller transfer or who is a foreign person, and a U.S. real property interest being disposed of. In a simple FIRPTA transaction, the foreign seller and a buyer agree on a sales price for the U.S. real estate. The USRPI pictured above. Examples of real estate include a home, a condo, land, a commercial building. On the day of closing, the buyer receives the real estate, but the seller doesn't get 100 percent of the agreed sales price. Instead, the buyer withholds 15 percent from the sales price sends the withheld tax to the IRS. So the foreign seller only gets 85 percent of the agreed sales price at closing. This is the base case FIRPTA scenario. There are many possible withholding scenarios in a FIRPTA transaction that we will explain today. And now I'll turn it over to Chris to describe in much more detail the three components of a FIRPTA transaction. CHRIS GALANTO: Thank you, Bob. So, first, let's define a foreign person. A foreign person is a non-resident alien, essentially an individual who is a non-U.S. citizen, is not a green card holder, and is not a resident under the substantial presence test or can also be a foreign corporation incorporated outside the U.S. to be a foreign partnership set up under non-U.S. laws. It could be a foreign trust, a trust not meeting both the court and control test. It could be a foreign estate, or any other person that is not a U.S.

person as defined in Section 7701. Second, you have a disposition. A disposition is defined for FIRPTA purposes as any disposition for any purpose of the code including sales or exchanges, liquidations and redemption. Section 1031 like-kind exchanges, involuntary conversion, gifts, et cetera. This was may be found in Treasury regulation 1.897-1G. Third and lastly, a U.S. real property interest is any ownership interest other than an interest as a creditor, in real property or in a domestic corporation that is a U.S. real property holding corporation.

Additionally, for withholding purposes, an interest in a partnership is considered a USRPI if 50 percent or more of the value of the gross partnership assets are USRPIs and 90 percent or more of the value of gross partnership assets consist of USRPI, cash and cash equivalents. Types of ownership include the ownership, co-ownership, lease hold, timeshare, life estates, remainders, reversionary, and certain production payments described in Section 636. These may be found in Treasury Regulation 1.897-1(d)(2)(i). Real property can be put into three categories, one, land and unsevered products of land; two, improvements to the land; and three, personal property associated with the real property. A U.S. real property holding corporation is a domestic corporation that has U.S. real property interest and the fair market value of those USRPIs are 50 percent or more of the fair market value of the USRPIs plus fair market value of a foreign owned real estate, plus fair market value of business assets owned by the corporation. Now, let's look at the withholding requirement. Generally when a foreign person disposes of a U.S. real property interest, the buyer or transferee is required to withhold 15 percent of the amount realized.

From 1980 until 2015, the general withholding rate was 10 percent of the amount realized. In December of 2015, the PATH Act was passed, which increased the general rate of withholding to 15 percent for those transactions that occurred 60 or more days after the date the PATH Act was enacted. That date was December 18, 2015. The PATH Act reduced the rate of withholding to 10 percent on dispositions of USRPIs that are used as residences by the buyers where the amount realized is greater than $300,000 but no more than $1 million. This can be, this can also be found in Treasury Regulation 1.1445-1(b)(2). A foreign corporation is generally required to withhold 21 percent of the gain recognized on the distribution of a USRPI to a foreign or U.S.

person. For informational purposes, entities such as Real Estate Investment Trusts are generally required to withhold 21 percent of distributions attributable to gains from USRPIs. Note that withholding on the disposition of a USRPI held by a partnership, whether domestic or foreign, with foreign partners is accomplished under IRC 1446. Since the disposition is considered to be ECI, Effectively Connected Income, the gain or loss is included in the computation of the partnership's effectively connected income and withheld upon under IRC 1446 and reported on Form 8804 and 8805. So this slide shows a typical real estate transaction to which FIRPTA is subject to and the flow of funds and services formed by the parties involved. You have a buyer, a closing agent and a seller. The buyer or buyer's bank transfer the proceeds to the closing agent who assists in settling the transaction by providing certain services for the transaction.

In the closing agent's normal function, they collect and distribute the money, prepare required forms including Form 8288 and 8288-A, if the seller is identified as a foreign person through the documents provided to the closing agent by the seller or by the seller's real estate agent. If the seller is determined to be a foreign person, the closing agent withholds the required amount of FIRPTA withholding from the sales proceeds and places it in escrow. It completes the Form 8288 and 8288-A for the buyer. It provides them to the buyer for the buyer's signature and mails the forms and the tax withheld to the IRS on behalf of the buyers. Evette, can we stop here for a polling question? DAVIS: We sure can, Chris. OK, audience our first polling question is generally, IRC 1445(a) requires what percentage of withholding on the amount realized on dispositions of USRPI or U.S. Real Property Interests? Is the correct answer, A, 21 percent?

B, 10 percent? C, 30 percent? Or D, 15 percent? Take a moment, think about what Chris just talked to us about. And click the radio button that best answers this question. I'll give you just a few more seconds to make your selection. And I'll begin the countdown now, 5, 4, 3, 2 and 1. OK, so we're going to close the polling now, and we'll share the correct answer on the next slide. And the correct response is D, 15 percent. Now, what the, what percentage of you got this one correct? OK, so it looks like 79 percent got this correct, Chris, can you kind of go back and just kind of explain to the audience why the correct answer is 15 percent? GALANTO: Sure, if you remember the PATH Act of 2015 increased the general rate to 15 percent from 10 percent. So now, the correct answer for the general percentage is 15 percent. DAVIS: Aha. So we got to remember the change from that PATH Act. OK, awesome, awesome. All right, Chris, I think I'm going to stick with you for the next slide. Got it? GALANTO: Yes, thanks, Evette. As provided earlier, the buyer or transferee is generally required to withhold 15 percent of the amount realized on the disposition of USRPI. The amount withheld is generally due to the IRS within 20 days of the date of the disposition or transfer. The buyer or transferee uses the Form 8288, which is titled U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests, to report the amount realized and the tax withheld to the IRS. The buyer or transferee also complete copies A, B and C of the Form 8288-A, the Form 8288-A is the statement provided to the seller or transferor showing the disposition, amount realized, and tax withheld.

The buyer or transferee is required to file the Form 8288 copies A and B of Form 8288-A with the payment for the amount withheld with IRS and generally within 20 days of the date of disposition. The IRS processes the Form 8288, the payment of withholding and Copy A of the Form 8288-A. If all the required information is reported on Form 8288-A, copy B of the Form 8288-A is stamped by the IRS and sent to the seller or transferor. If all of the required information is not contained on Form 8288-A, the IRS will try to contact the seller who obtained the missing information. If the missing information is not provided, a stamped Copy B of Form 8288 is not sent to the seller. In certain situations, the buyer or transferee, the seller or transferor or other authorized person may request a Certificate of Withholding from the IRS for a reduced rate of withholding or even eliminate withholding all together on the disposition of the USRPI. In certain situations, this request is made on Form 8288-B. As noted at the bottom of the slide, a TIN is required for the buyer or transferee and the seller or transferor. If the buyer or seller is a non-resident alien individual who is required to have a TIN but it's not eligible to attain an SSN, you must apply for IRS Individual Taxpayer Identification Number or an ITIN. If you do not have a TIN and are eligible for an ITIN, you can apply for an ITIN by attaching the completed Form 8288-B to a completed Form W-7 and forwarding the package to the IRS at the address given in the form W-7 instruction. Get Form W-7 the application for IRS Individual Taxpayer Identification Number for more information. So, who is required to file the FIRPTA forms under the law? The Form 8288 which is the withholding tax return for a FIRPTA transaction is required to be filed by the withholding agent, which is the buyer or transferee.

Code section 1445 and the related regulations provide that the buyer or transfer is the withholding agent. Additionally, the directions for the Form 8288 specifically provide that the party's name, address and identifying numbers that should be entered on line one and part one, as the party responsible for withholding is the buyer or other transferee responsible for withholding under Section 1445(a). Do not enter the name, address, an identifying number of a title company, mortgage company, etcetera, unless it happens to be the actual buyer or transferee. The Form 8288-A is the information returned for the FIRPTA transaction and should be attached to the Form 8288 once filed. As with the Form 8288 the withholding agent needs to be, the withholding agent information needs to be properly completed. That is the buyer or transferee should be listed as the withholding agent, not the closing agent who is involved in the transaction. A Form 8288-B or withholding certificate request may be filed by either the buyer or transferee, the seller or transferor, or a designated representative. The information regarding the buyer or transferee and the seller or transferor should be properly completed on the form. Again, unless a closing agent happens to be the actual buyer or transferee the closing agent should not be listed as the partner responsible for withholding. As provided in the last slide, the Form 8288 and the Form 8288-A are required to be filed by the buyer or transferee, who is the withholding agent under law. However, these forms are also completed by withholding agents involved in the transaction as a courtesy for the buyer or transferee who is the withholding agent. When this occurs, the Form 8288 and 8288-A have to be completed correctly to the proper party is identified as the withholding agent. That is the party responsible for withholding. This party is the buyer or transferee not the closing agent who is completing the forms as a courtesy for the buyer or transferee. The directions for the Form 8288 specifically provide that the party's name, address, and identifying number that should be entered on line one in part one as the party responsible for withholding is the buyer or other transferee responsible for withholding under Section 1445(a). Do not enter the name, address, and identifying number of a title company, mortgage company, etcetera unless it happens to be the actual buyer or transferee. As the buyer or transferee, the seller or transferor or a designated representative may file the Form 8288-B for particular transaction. It is important that the information regarding the buyer or transferee and the seller or transferor be properly completed. That is, unless the closing agent happens to be the actual buyer or transferee or the seller or transferor, the closing agent should not be listed as the party responsible for withholding. Now I'll turn it over to Andy to discuss withholding certificates. ANDY DAXON: Thanks, Chris. Well, Chris just mentioned the Form 8288-B, this form is one way to request a withholding certificate. A withholding certificate as a document provided by the IRS that contains the IRS' approval for reduced or eliminated withholding under Section 1445. A withholding certificate generally may be issued by the IRS in cases where reduced withholding is appropriate. Where the seller is exempt from U.S. tax or an agreement for the payment of the tax is entered into with the IRS. A withholding certificate that is obtained prior to a transfer notifies the buyer that reduced withholding is required or that no withholding is required at all. The withholding certificate that is obtained after a transfer has been made may authorize a normal refund or an early refund. As Chris mentioned earlier, a buyer, a seller or an authorized agent may request the withholding certificate. Here, you can see a list of some references for information on withholding certificate. In addition to the instructions of the Form 8288-B, the references include the 1445 regulations, specifically the dash 3 and 6 regs, Revenue Procedure 2000-35, which provides the detailed process for the application and Publication 515, which provides additional detail to taxpayers on the application process. When a withholding certificate is applied for, the reason for the application is required to fall into one of six category. Categories 1, 2, and 3 are contained on Form 8288-B on line 7a, 7b and 7c respectively. And these include Category 1, which are applications that claim that the seller is entitled to a non-recognition treatment or is exempt from tax. A non-recognition example would include a like-kind exchange transaction subject to Section 1031, an exemption example may include the seller being an integral part of, or a controlled entity of a foreign government or the seller is entitled to a treaty exemption. Category 2, applications are based solely on the calculation that the seller's maximum tax liability. That is that the seller's maximum tax liability owed for the year is less than the tax required to be withheld under Section 1445 on the disposition. Category 3, these are applications for withholding certificates under the special installment sale rules. Generally, the buyer is required to fully satisfy the withholding obligation based on the amount realized. However, when the applicant supplies the computation as described under category 2 earlier, the gain under the installment method can result in reduced withholding. Additional requirements are listed in Revenue Procedure 2000-35.

Now the other three categories are not listed on the From 8288-B and require a statement to be prepared and provided to the IRS. Again, take a look at revenue procedure 2000-35. And those three categories are Category 4, which are applications for withholding based on an agreement for the payment of the tax. The following information should be included in the application to establish the seller's maximum tax liability, or the amount otherwise required to be withheld.

And these include a signed copy of the agreement proposed by the applicant. And two, a copy of the security instrument proposed by the applicant. Category 5, which are applications for blanket withholding certificate, a statement to the effect that a blanket withholding certificate is in effect which excuses withholding with respect to multiple dispositions of property interests by the seller during a period of no more than 12 months, it should be noted that only a seller may request a withholding certificate using Category 5. And Category 6, which are applications for withholding certificates based on any other basis. For this category, the same information required for Category 4 must be included, along with a description of the non-conforming security and a memorandum of law and facts establishing that the proposed security is valid and enforceable and adequately protects the government's interest. After receiving a request for reduced or eliminated withholding under Section 1445, the IRS is required to provide a response within 90 days of the receipt of the application as to whether to grant or deny the request.

This however, depends upon whether the Form 8288-B or statement contains not only the required information, but enough information so that the determination may be paid as to whether a reduced or eliminated withholding amount is applicable. If the application is complete, and there's enough information provided, so a determination may be made, the IRS may reduce the withholding required, may eliminate withholding all together or may deny the application. If the IRS allows reduced withholding or eliminates the withholding, a withholding certificate will be issued to the requestor and the withholding agent, and the withholding agent will be notified. If the IRS denies the request for a withholding certificate, the IRS will notify the requestor by sending Letter 3313 informing them the application has been denied. The IRS will also send Letter 3316 to the withholding agent to notify them that the request for withholding certificate was denied and that the withholding agent is required to file the Form 8288, 8288-A and remit to the IRS the required withholding. If the IRS does not receive the Forms 8288 and 8288-A and the payment of the withholding within 90 days, the IRS sends the withholding agent the Letter 3543 requesting the information again. If the forms and tax is not received within the next 90 days from the date of the letter 3543, the withholding agent may be referred for examination. And these procedures are detailed in IRS Section 21.8.5.4.10. If the application is not complete, or that there's not enough information for a determination to be made, the IRS may request additional information from the requestor or deny the request. If the Form 8288-B, where the application is complete, and the IRS issues a withholding certificate or a denial letter to the requestor and notifies withholding agent prior to or on the date of the disposition, the following should occur. The withholding agent withholds based upon the amount determined in the withholding certificate. If the withholding is reduced to zero, the withholding agent is not required to withhold at closing, and therefore, it's not required to file the Forms 8288 and 8288-A. If they're withholding is reduced, but not eliminated, the withholding agent withhold using the amount designated in the withholding certificate, remits the tax withheld to the IRS with the Forms 8288 and 8288-A and a copy of the withholding certificate by the 20th day after the date of the disposition. If the withholding certificate is denied, withholding agent withholds at the statutory rate and remits the tax withheld to the IRS with the Forms 8288 and 8288-A. If the withholding certificate or denial letter are not issued prior to or on the day of the disposition, the withholding agent withholds at the required statutory rate at closing and holds a tax in escrow until the IRS rules on the application. Again, if the IRS rules that the withholding should be eliminated, no Forms 8288 or 8288-A are required to be filed by the withholding agent and the tax withheld at closing is refunded to the seller. If the IRS rules withholding should be reduced, the withholding agent files the Forms 8288 attaching Form 8288-A and a copy of the withholding certificate with the IRS and remits the required withholding noted on the withholding certificate to the IRS by the 20th day after the date of the withholding certificate. The closing agent then reimburses the seller for the difference between the original tax withheld at closing and the tax noted on the withholding certificate and submitted to the IRS. If the IRS rules the application is denied, the withholding agent files the Form 8288 attaching the Form 8288-A and the denial letter too with the IRS and remits the required tax withheld for the 20th day after the date of the denial letter. We will now hear from Bob about some common mistakes made on the Forms 8288, 8288-A, Bob. DRISCOLL: Thanks, Andy. Here are some of the common mistakes we see with respect to Forms 8288 and 8288-A. First, incomplete or inaccurate buyer information, maybe entering the closing agents TIN or name in place of the buyer or not including a copy of the withholding certificate when IRS has agreed to a lower withholding rate. Without complete and correct information IRS cannot post returns or tax to the correct taxpayer account. The closing agent is just performing its normal duties to assist in closing the transaction. It almost never acts as a true agent for either buyer or seller.

Therefore, only the buyer's information should be included in the withholding agent section.

Third, filing the Forms 8288 and 8288-A, but not remitting the required withholding tax. In this case, IRS must contact the buyer and IRS not allowing the seller to claim the withheld tax as a credit against its tax. Here are some additional common mistakes we have seen, either sending in the required withholding with no Forms 8288 and 8288-A or with only the Form 8288-A. This leads to the IRS not be being able to post the withholding to the correct withholding agents account.

Second, not filing the Forms and remitting the required tax to be withheld after receiving a denial letter from the IRS with respect to a withholding certificate. Now let's look at some of the common mistakes we see with Form 8288-B. As with Forms 8288 and 8288-A, submitting Form 8288-B with incomplete or inaccurate buyer information. We often see the closing agent's information reported in the withholding agent section. This causes issues when either the request is denied, or even when a reduced amount of withholding is allowed, but the form has the wrong TIN. Second, requester's not providing enough information so that a determination may be made. Third, requester's not providing additional information timely when requested. If you few more common mistakes we see with Form 8288-B. One, closing companies refunding amounts withheld or closing to the seller prior to receiving a withholding certificate. And two, listing the closing agent as both withholding agent and buyer. Let's look more closely at Form 8288-B. Line 1, enter the sellers name, street address and TIN. If there is co-ownership with multiple sellers of the same property, attach additional sheets giving the required information for each seller for Section 1445(e) withholding transactions. Enter the required information for each foreign person for whom you are requesting reduced withholding. And there must be a TIN for each seller. Line 2, enter the buyer's name street address and TIN, If there are multiple buyers, attach additional sheets giving the required information about each one. Do not enter the closing agents on Line 2. Line 4a, enter the name of the withholding agent. The withholding agent will almost always be the buyer. For distributions under Section 1445(a), the withholding agent could be a trustee, executor or other authorized person. Line 4b, if the buyer has an agent, usually an attorney in the buyer's agent applies for the withholding certificate on behalf of the buyer, the buyer's agent enters its TIN here. Otherwise, enter the buyers TIN. Evette, I think this is a great time to pause for our second polling question. What do you think? DAVIS: Thanks, Bob. Yes, I think you're correct. Hey, folks, so here's our second polling question.

What form is required to be filed to reduce or eliminate withholding on distributions by foreign person of U.S. real property interest? Is it, A, Form 8288-B? B, Form W-8BEN-E? C, Form 8288-A or D, Form 8804-C? All right folks, just take a moment look at the question. I'll give you just a few more moments to look over it, a few seconds to make your selection. And I'll start the countdown now 5, 4, 3, 2, 1. OK, let's get 100 percent guys. OK, we're going to stop the polling now. And we'll share the correct answer on the next slide. And the correct answer is A, Form 8288-B. Let's see what percentage of you responded correctly? Oh, man. OK, 63 percent of you responded correctly to that. Now, Andy, I know you talked in more detail about this or Bob.

Can one of you kind of give us an explanation as to why From 8288-B is the correct answer?

DAXON: Yes, A is the correct answer. The Form is titled application for withholding certificate. The other three forms are not in any way an application. So again, remember that if you're using it as referred to in Revenue Procedure 2000-35, there are six categories for which a taxpayer can apply for the withholding certificate. The withholding certificate of course is used to reduce or eliminate withholding at the time of disposition. So for the first three categories, which are the most common, you want to use this Form 8288-B. For Categories 4, 5 and 6, you simply have the taxpayer send in a document that outlines all the information that is similar to the information spelled out on the 8288-B in order to apply for that reduced or elimination of withholding. DAVIS: Right, great. Thank you so much. Thank you, thank you for the explanation. OK, Bob, I'm going to turn it over to you. It looks like you're going to talk about the need for a transferor's TIN, is that correct? DRISCOLL: That's correct, Evette. If the seller does not have a TIN or if the seller does not provide the buyer's TIN, the buyer is payment. Buyer should mail, everything to the address shown in the Where to File section of the still required to complete Forms 8288 and 8288-A and mail the forms along with any required Form 8288 instructions. If Forms 8288 and 8288-A do not contain the sellers TIN, the IRS will attempt to contact the seller to obtain the seller's TIN. IRS will not send a stamp copy a Form 8288-A to the seller when IRS doesn't have the seller's TIN. When the seller goes to file his income tax return, the seller will not get credit for the tax withheld because there wasn't an IRS stamped copy of the Form 8288-A attached to the return. For non-resident alien individual NRA who is not eligible for a Social Security Number, the NRA must obtain an Individual Taxpayer Identification Number, or ITIN. Now if the buyer is a non-resident alien does not have an SSN or an ITIN, the buyer should still complete the Forms 8288 and 8288-A and mail the forms along with any payment to the address shown in the Where to File section of the Form 8288 instructions.

Additionally, the buyer should mail in a separate package, a completed Form W-7 application for IRS Individual Taxpayer Identification Number with the required supporting documentation and copies of the Forms 8288 and 8288-A to the address given in the Form W-7 instructions. Now let's discuss one more additional form that comes into play when real estate is disposed of. Form 1099-S, Proceeds from Real Estate Transactions. Up to this point, we have stressed that any closing agent information name, address, TIN, etcetera should never appear on Forms 8288 or 8288-A or on the check that is mailed into the IRS. Well Form 1099-S is different. Generally, the person responsible for closing or settling the transaction is required to file Form 1099-S with the IRS. Therefore, the closing agent's information should appear in the boxes where the green arrows point to. Those titled Filer's Name, address etcetera and filer's TIN. What types of transactions are reported on Form 1099-S? They include transactions consisting in whole or in part of the sale or exchange for money, indebtedness, property, or services of any present or future ownership interest in one, improved or unimproved land, including air space. Two, inherently permanent structures including any residential, commercial or industrial building.

Three, a condominium unit and its appurtenant fixtures and common elements including land.

Four, Stock in a cooperative housing corporation, as defined in IRC 216; and five, any non-contingent interest in standing timber. A sale or exchange includes any transaction properly treated as a sale or exchange for federal income tax purposes. Even if the transaction is not currently taxable, for example, a sale of a main home may be a reportable sale, even though the transfer may be entitled to exclude the gain under Section 121. The yellow highlighted area of the form is box 5 which we, Check here if the transferor is a foreign person, non-resident alien foreign partnership foreign state or foreign trust. If the seller is one of these foreign persons, the box that the red arrow is pointing to should be checked. Again, for purposes of this form a foreign person includes a non-resident alien, a foreign partnership, a foreign state or a foreign trust. Chris went into more detail on the different types of foreign persons earlier in the presentation. So, what are the seller's responsibilities? Section 897 treats the disposition of a USRPI by a foreign person as effectively connected income regardless of whether the seller is engaged in a U.S. trade or business. Therefore, the seller is required to file an income tax return as the seller is determined to be engaged in a trade or business in the U.S. even when disposition results in a loss. For a non-resident alien, they would file a Form 1040-NR, U.S.

Non-resident Alien Income Tax Return and report the disposition on Schedule D and/or Form 4797 as required. If the seller received the IRS stamp Copy B of the Form 8288-A, the seller attaches it to the Form 1040-NR, and reports the withholding reported on the form. If the seller does not have the IRS stamp Copy B of Form 8288-A, seller may attach the copy of the buyer provided, and the closing statement from the disposition and any additional records to show withholding actually took place closing. Andy is going to walk you through an example. Andy ? DAXON : Thanks, Bob. So let's review an example of a FIRPTA disposition that hopefully brings these ideas all together. So here we have FP seller who is a foreign citizen and resident of Chile, and a foreign person for U.S. tax purposes under the code. So on October 31 2019, FP seller enters into an agreement to sell her condominium in Miami, WA Buyer for $1.5 million. FP seller has a basis of $1.4 million in the condominium. On November 1, 2019, FP seller files Form 8288-B with the IRS claiming her tax liability is going to be less than the 15 percent withholding required on the $1.5 million but not realized, and that withholding is $225,000. The seller provides copies of the Form 8288-B to both the buyer and to the closing agent. The seller projected her gain on the disposition to be $100,000 based upon the amount realized again of $1.5 million and her adjusted basis of $1.4 million and projected the tax on the disposition to be $25,000. The seller provided she has no other U.S. source, effectively connected income or non-effectively connected income for 2019. On November 15, 2019, the sale of FP seller's condominium closed with the help of closing agent LLC. Closing agent LLC withholds the $225,000 which is the 15 percent of the $1.5 million sales price or amount realized at closing as required under Section 1445. On January 29, 2020, the IRS allows the reduced withholding amount of $25,000 and mails the withholding certificate to FP seller and WA Buyer. On February 10, of 2020 closing agent LLC prepares Forms 8288 and 8288-A for seller reporting WA Buyer as the withholding agent and reports withholding of $25,000 and WA Buyer signed the Form 8288 as a withholding agent. February 16 of 2020, closing agent LLC mails the Forms 8288, 8288-A, a copy of the withholding certificate and payment of $25,000 to the IRS on behalf of WA buyer and issues FP seller the remaining $200,000 of tax withholding that was held in escrow at closing. On March 15, closing agent LLC files Form 1099-S for the sale of the condominium. On June 15 of 2020, FP seller files her 2019 Form 1040-NR reporting $100,000 gain the $25,000 of tax on that gain and the $25,000 of withholding and attaches Copy B of the Form 8288-A she received from the IRS. So now let's look at the forms that are required to be filed based upon the information provided in this example. First, we look at the Form 8288-B. The seller knew her total tax liability was going to be far less than the statutory withholding required under Section 1445 on the $1.5 million amount realized or sale price on the disposition of the condo. She did not want to wait until the subsequent year to receive a refund of the tax over withheld. So she requested a withholding certificate using the Form 8288-B. Again, as discussed earlier, it is extremely important that area 4 of the form contains the withholding agent's information and not the closing agent or title company etcetera's information unless they are acting solely on behalf of the buyer or are the actual buyer themselves. Generally again as Bob provided earlier, the withholding agent is the buyer. Again, it is important to provide a complete and accurate Form 8288-B, as well as attaching any additional information so that a determination may be made with respect to the request for a withholding certificate. If the form is not complete and accurate, this will lead to delays in the IRS determination within the 90-day period whether the withholding certificate should be granted or not. As provided here, the seller reported the amount realized of $1.5 million and adjusted basis of $1.4 million and claimed her total maximum tax liability for 2019 year is going to be less than the required withholding under Section 1445 by checking box 7b which as provided earlier corresponds to a Category 2 request. Here we see a sample withholding certificate that would have been issued to FP seller, our taxpayer. The most important information on the certificate includes first, the date of the withholding certificate which is highlighted in yellow. As this will determine the due date of the Form's 8288 and 8288-A if they required to be filed. Again, if it is determined that no tax us due, the Forms 8288 and 8288-A are not required to be filed. The second is the amount of withholding which is highlighted in the blueish/green color. In this case it shows $25,000. This is the amount that the withholding agent is required to submit to the IRS with the Forms 8288 and 8288-A prior to the 20th day of the date after the date of the withholding certificate. Here you see the Form 8288 due based upon the withholding certificate we just looked at. Again, the form should be completed accurately with the buyer's information. As you see here, the total amount withheld is $25,000 which is reported here on box 6. The Form 8288-A is required to be filed with the Form 8288. Again, ensure that the correct information is used for the withholding agent. Here you see that the Form 8288-A reports the $25,000 of withholding required to be withheld for the withholding certificate and is shown on the Form 8288. Here we see the form 1099-S that Bob talked about, and that would have been filed for the disposition of the Miami condominium. Please note box 6 which was added to Form 1099-S for the years 2017 and forward. This helps identify whether the seller as a foreign person or not. In this case, it is checked as FP seller, a citizen and resident of Chile. As the disposition of the U.S. Real Property Interest is considered effectively connected income, the seller is required to file an income tax return and report the disposition. In this case, the gain of $100,000 is eventually reported on Line 14 of the Form 1040-NR, whether it was initially reported on Form 4797, Schedule D or both. Here we see the second page of the Form 1040-NR. Note that the seller reported the gain and the tax due on the gain. In this case the tax due again is $25,000. The seller also reported the amount withheld and the disposition that was shown on the stamped Copy B of the Form 8288-A provided to the seller by the IRS. Again, note that if the stamped Copy B of the Form 8288-A provided by the IRS is not attached to the Form 1040-NR, there may be issues and delays with the IRS allowing the withholding claim. So, it is important to have all the seller's information including TIN or Taxpayer Identification Number on the Form 8288 and 8288-A when the forms are filed with the IRS.

That concludes the example and I think we may have time for another polling question. Evette, do we have another polling question? DAVIS: Why, yes, we do, Andy . OK, audience, our third polling question is, which of the following is a common mistake on the Forms 8288 and Form 8288-A? Is it, A, incomplete or inaccurate information for the buyer or transferee? Is it B, withholding tax payments not sent with Form 8288? Is it C, not filing forms after withholding certificate request is denied? Or D, all of the above? OK, folks, we can get 100 percent on this and just take a moment, review the questions, think about it, I believe Bob is the one who gave us some common mistakes that were made. And click the radio button that best answers this question. I'll give you just a few more seconds to make your final selection, and we'll count down and 5, 4, 3, 2, 1. OK, we're going to stop the polling now. And let's share the correct answer on the next slide. OK, and the correct answer or response is D, all of the above. Now let's see what percentage of you responded correctly. Whoa, all right, we're up to 94 percent.

This is awesome, folks, awesome. Thanks so much, Andy , Bob, Chris , you guys are rocking it.

Now, Chris , I'll turn it over to you. GALANTO: OK, thanks, Evette. Now, you're going to go through some of our frequently asked questions. All these questions and more can be found on IRS.gov by searching FIRPTA. So the first frequently asked question we see here talks about when two spouses jointly dispose of a USRPI can the U.S. spouse report 100 percent of the sale while the foreign spouse reports 0 percent of the sale in order to avoid FIRPTA withholding. And nope, they cannot do that. Each spouse would have to report their portion of the sale and therefore the foreign spouse would be subject to FIRPTA withholding on their portion. Since it is jointly owned, it would be 50/50 split between the two spouses. This FAQ also addresses when the sellers are not related and there are multiple foreign sellers. The withholding has to be allocated among the foreign sellers. Failure of the foreign sellers to provide an allocation of the withholding by the 10th day from the date of transfer, the buyer will have to divide the withholding evenly among the foreign sellers. Our second FAQ is about when a disposition happens in one year, but the date of disposition on the Form 8288-A is the subsequent year. This generally happens when a withholding certificate request was filed, but the IRS did not make a determination until the subsequent year. So what year would the seller report the sale on their income tax return? The seller or transferor should always, always report the sale on their income tax return in the year of the disposition. Now I'll turn it over, Bob for the next two frequently asked questions. DAVIS: Bob, are you there? Are you still on mute, Bob? DRISCOLL: Thanks, Chris . The third FAQ asks, when a foreign person assigns the rights to purchase a USRPI to a third person before the contract's closing date, is that subject to withholding under FIRPTA? Yes, the amount realized for the sale of the rights to purchase a USRPI is subject to withholding under FIRPTA. In the example a foreign person sold their rights to purchase as USRPI for $30,000 to another individual. The buyer would be required to withhold 15 percent on the $30,000 and remit to the IRS on Form 8288 and 8288-A. The fourth FAQ, how is it determined that a USRPI will be used as a personal residence and therefore have a reduced rate of withholding or be exempt from withholding based on the amount realized? The buyer or buyers have to determine whether they have definite plans to reside at the property for at least 50 percent of the days the property is used by anyone during the first two 12 month periods following the transfer date.

Vacant days are not taken into account in this calculation. Days that brothers, sisters, spouses, ancestors, lineal descendants, reside at the property count in the calculation. I will now turn it back to Chris to discuss our next two FAQs. GALANTO : Hey, thanks, Bob. So our fifth FAQ is related to our last question and talks about, how can a seller be sure that no withholding will be done when the disposition is exempt from tax, as the amount realized is under $300,000 and the buyer was used the property as a personal residence? So the seller should make sure that all the parties are well informed. This includes making sure that the buyer and closing agent are aware of the exception and that the buyer informs the closing agent that they plan to use it as a personal residence. Our sixth FAQ is, how can seller living outside the U.S.

ensure their withholding certificate is provided timely by the IRS to their closing company?

This can be done by putting the closing company's information in Box 5 of the Form 8288-B, as this will have the IRS send the correspondence regarding the withholding certificate to the closing company. Now, Bob will take us through our last FAQ. DRISCOLL: Thanks, Chris . Our last FAQ is, how long does the IRS have to act on a withholding certificate if the seller has to apply for an ITIN with the withholding certificate? Typically, IRS will act on a withholding certificate application within 90 days of receipt, assuming all necessary information was provided. The ITIN is processed within 10 days of receipt normally. It is important when a Form W-7 is submitted for an ITIN that a completed Form 8288-B is included with the package. See the instructions to Form W-7 for more information. Evette, do we have time for one more polling question? DAVIS: Why? Yes, we do, Bob . Thank you so much. OK, audience, we're in the homestretch and our final polling question is, you have foreign seller A realizing $250,000 on a property sale to buyer B. Buyer B plans to use the property as their primary residence. So Buyer B is required to withhold the following amount under IRC 1445(a)? Is the answer, A, $25,000? B, zero dollars? C, $37,500? Or D, $52,500? Think about what was just said, take a moment and click the radio button that best answers this question. We had some great examples and they talked about this particular question in that example. So I'll give you just a few more seconds to make your final selection. And the countdown begins now, 5, 4, 3, 2, 1. OK, we're going to stop the polling now. And let's share the correct answer on the next slide. And I see the correct response is B, zero. Now let's see what percentage of you responded correctly to this question. OK, Bob, looks like we got 51 percent responding correctly to this question.

Can you just kind of tell them why the answer is zero? Bob or Chris . DRISCOLL: Yes, yes, Evette. This was explained back on FAQ four. And remember these FAQs are on IRS.gov. The buyer or buyers have to determine whether they have definite plans to reside at the property for at least 50 percent of the days, the property is used by anyone either within or without the family during the first two 12-month periods following the transfer date. Vacant days when no one is occupying the property are taken into account in the calculation. You take into account days that your brothers or sisters, spouses, fathers and mothers, lineal descendants do reside at the property. And that's how you make the determination and you have something, you should write something, I would suggest that you write something down on a piece of paper to document how you came up with those calculations. And that's how you would show those and to be able to document that, that you actually used that as a residence along these guidelines. DAVIS: OK, so it looks like in that particular question, primary residence is the key term that they're looking at overall, OK. Good stuff. OK, Bob, it looks like you have some resources you want to share with our attendees, is that correct? DRISCOLL: I do, Evette. The first one is Publication 515 Withholding of Tax on Non-resident Aliens and Foreign Entities. Secondly, Publication 519, the U.S. Tax Guide for Aliens. And on IRS.gov under the International Taxpayers section, I would recommend in the search box when you get to IRS.gov, type in FIRPTA withholding, and that will bring you to the relevant pages on the information that we've been discussing in this webinar. On IRS.gov, you will also find Practice Units that have been developed by LB&I Technical Specialists on different topics related to FIRPTA withholding. Evette, that's all we have. I'll turn it back over to you. DAVIS: Thanks so much again, Bob. OK, hello again, folks. It's me, Evette Davis, and I'll be moderating the Q&A session. Before we start on the Q&A session, I do want to thank everyone for attending today's presentation on Foreign Investment in Real Property Tax Act, which is FIRPTA. Earlier I mentioned that I do want to know what questions you have for our presenters. Here is your opportunity. If you haven't put questions in, there's still time so go ahead and click on the drop-down arrow next to the Ask Question field and type in your question, then click Send. Fortunately, Bob, Chris and Andy are staying on with us to answer your question. One thing before we start, we may not have time to answer all the questions submitted.

However, let me assure you we will answer as many as time will allow. If you're participating to earn a certificate and related continuing education credits, you will qualify for one credit by participating for at least 50 minutes from the official start of the webinar which means the first few minutes of chatting before the top of the hour does not count towards that 50 minutes.

Now let's go ahead and get started so that we can get in as many questions as possible. All right, so the first question that we have, I'm going to go to you, Bob, when is the 10 percent withholding rate applicable on dispositions? DRISCOLL: Yes, Evette. The 10 percent rate came in with the PATH Act. And it applies to dispositions under 1445(a) usually where there's direct ownership of the USRPI and the foreign person sells that interest. The 10 percent rate came into effect for dispositions occurring after February 16, 2016. That's when that new 10 percent rate came into effect. And it applies to residences, properties that the buyer uses a residence and the amount realized is greater than $300,000 but no more than $1 million. So it's in between there for the, the under $300,000, as we just discussed just recently in the webinar, if that's the amount realized there will be no withholding when the property is going to be used as a residence when you get to $300,001 up to $1 million, the withholding rate is 10 percent. DAVIS: OK, that was one of those questions, great. Thank you so much, Bob. OK, Chris , let me go to you. May a non-resident alien exclude any gain on the disposition of a U.S. real property interest under IRC 121? GALANTO: Thanks, Evette. Yes, a non-resident alien is eligible to exclude any gain under IRC 121 as long as they meet the required eligibility test, the NRA could also request a withholding certificate from the IRS to reduce the withholding if they are entitled to an IRC 121 exclusion. DAVIS: Awesome. OK, thank you so much for that explanation, Chris . OK, Andy , looks like it's your turn. Let me pick on you for a moment. Is FIRPTA withholding applicable if the buyer and the seller are non-resident alien? DAXON: Sure, Evette.

The answer to this question is, yes. As Chris provided earlier, the components of a FIRPTA transaction which generally require withholding under Section 1445. Are one, a seller who's a foreign person, two a disposition and three, a U.S. real property interest being disposed of.

Therefore, if a foreign person disposes of a U.S. real property interest withholding under Section 1445 is generally required. Withholding under Section 1445 does not depend upon whether the buyer is a U.S. person or a foreign person. So, therefore, there is no exception or exemption to withholding if the buyer is a foreign person. DAVIS: Wow, OK. Good stuff, good stuff. OK. Thank you so much. OK, let me go back to Bob. This one is for you. Let's see. It says, is there a requirement to withhold even if it is known that the seller will have a loss on the disposition of the U.S. Real Property interest? Is there a requirement to withhold?

DRISCOLL: Evette, under Section 1445, there is no automatic exemption from withholding if the seller expects to have a loss on the disposition. When there is no automatic exemption from withholding, the buyer is still required to withhold tax at the statutory rate on the amount realized. In order to reduce the amount withheld at closing, the seller would have to file a request for a withholding certificate on Form 8288-B, which would probably file, would fall under Category 2 in this case, it requests that the withholding amount be reduced or eliminated. DAVIS: Wow, OK. Thank you for that explanation, Bob. I really appreciate it. Oh my goodness, this time has gone by so fast, folks. OK, audience and I am so sorry but that's all the time we have for questions. And I want to take a moment to thank Bob, Chris , and Andy , for a great webinar, for sharing their knowledge and their expertise and for answering some of your questions. But before we close the Q&A session, Bob, what key points do you want the attendees to remember from today's webinar? DRISCOLL: Yes, Evette. Here are some takeaways we want you to remember after today's FIRPTA webinar. When does FIRPTA apply? It applies when a foreign person sells U.S.

real estate. The buyer is required to withhold 15 percent from the sales price. There are exceptions that reduce the withholding rate. Taxpayers can also apply to IRS for a withholding certificate to reduce or eliminate the FIRPTA withholding. Second point, if you are the buyer, you are required to file Forms 8288 and 8288-A and pay the withholding tax to IRS within 20 days of the closing. Even if the closing company is helping you to complete the forms and send in the payment, you, the buyer are responsible to make sure everything is filed and paid correctly. Two more final points, if you plan to apply for a withholding certificate to reduce or eliminate FIRPTA withholding tax. First, make sure that all information on Form 8288-B is correct and that the form includes the TIN for both the buyer and the seller. And finally, make sure that any information on lines 4a through 4b is the buyer's information. No information about the closing agent should appear on the Form 8288-B or any other FIRPTA form that you send to IRS. Thank you, Evette, and back and back to you. DAVIS: Thanks so much, Bob. OK, audience we are planning additional webinars throughout the year. To register for an upcoming webinar, please visit IRS.gov keywords, search Webinars, and select the Webinars for Tax Practitioners or Webinars for Small Businesses. And when appropriate, we will be offering certificates and CE credit for upcoming webinars. So we invite you to visit our video portal at www.irsvideos.gov. There you can view archived versions of our webinars. Now continuing education credits or certificates of completion are not offered if you view an archived version of any of our webinars on the IRA Video Portal. Again, a big thank you to our speakers for a great webinar, for sharing their expertise and answering your questions, and I also want to thank you, our attendees, for attending today's webinar. If you attended today's webinar for at least 50 minutes from the official start time of the webinar, you will qualify for one possible CE credit. Again, the time we spent chatting before the webinar started does not count toward those 50 minutes. If you are eligible for continuing education from the IRS and you registered with your valid PTIN, your credit will be posted to your PTIN account. If you're eligible for continuing education from California Tax Education Council, your credit will be posted to your CTEC account as well. Also, if you're registered through the Florida Institute of CPAs, your participation will be provided directly to them. If you qualify and have not received your certificate and or credit by October 1, please email at CL.SL.Web.Conference.Team@IRS.gov. The email address is also shown on the slide as well. So if you're interested in finding your local Stakeholder Liaison, you may send us an email using that same address shown on this slide. And we will send you their information. We would appreciate if you take just a few minutes to complete a short evaluation before you exit. And if you'd like to have more sessions like this one, let us know. If you have thoughts on how we can make them better, please let us know that as well. If you have requests for future topics on webinars, or pertinent information that you'd like to see in an IRS Fact Sheet or Tax Tip or FAQ, on IRS.gov then please include that suggestion in the comments section of the survey. Click the survey button on your screen to begin if it doesn't come up, then make sure you disabled your pop up blocker. It's been a pleasure to be with you here today.

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