Just got off the phone with an Escrow Officer who was happy we sorted out a FIRPTA exemption for a deal that was falling apart at closing this morning. When the Escrow Officer initially called me, she was concerned that Seller in a transaction closing today is Foreign; Buyer was insisting on withholding fifteen percent (15%) to cover FIRPTA, and Seller wanted to back out of the sale because Seller needed to bring in cash to cover closing costs and FIRPTA withholding. I spoke with Seller who stated he has lived in the U.S. for the past ten years, Seller has an Individual Tax Identification Number (ITIN), files US tax returns, and has a valid Mexican passport with an expired US entry visa, and no immigration status.
It turns out that the Seller's ITIN had expired, but Seller has been filing US tax returns to report self-employment income. I checked with IRS, the ITIN expired two years ago and needs to be renewed for Seller to get tax refunds waiting on the ITIN renewal. I checked with US Customs & Border Protection who have records of the Seller's travel history; Seller meets the Substantial Presence Test (SPT), and Seller is considered a U.S. tax resident exempt from FIRPTA withholding.
We wrote up our findings explaining Seller's facts as verified with government agencies and why Seller is exempt from FIRPTA, and we prepared a Certificate of Non-Foreign Status (CNS) using the facts provided by IRS and USCBP. Seller signed the Certificate of Non-Foreign Status which satisfied the Title Company. Buyer however was still hesitant to accept the CNS and asked their lawyer to call me. Buyer's lawyer called and asked me to explain why Seller is exempt from the Foreign Investment Real Property Tax Act.
After speaking with Buyer's Attorney and going over the Substantial Presence Test rules as well as other facts used to determine Seller is indeed considered a US person and exempt from FIRPTA, Buyer's Attorney, Realtor, and the Buyer were all satisfied they could accept the Seller's Certificate of Non-Foreign Status.
As an added bonus for Seller, we prepared an ITIN renewal application and Seller should be getting the tax refunds that were held up because the ITIN had expired.
The important take away here is this: just because you think the Seller is Foreign and subject to FIRPTA does not mean that FIRPTA necessarily applies. Often Seller's aren't certain of their U.S. tax residency status. It took us about four hours to get everything verified, sorted out and certified; the transaction closed the same day we took the initial call.
My firm Tax Solutions - FIRPTA Consulting offers services https://www.global-taxsolutions.com/tax-services/firpta/ that include free answers to your questions regarding FIRPTA or other federal tax matters no matter what State you may be in. Call us (281) 578-1040 or visit us https://www.global-taxsolutions.com/ or send an email to info@taxss.com we are here to help you close today! Although we are based in Texas, being federally licensed, we work with Buyers, Seller, Realtors and Title Companies across the United States. www.taxss.com
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