{"id":3930,"date":"2012-05-31T10:54:18","date_gmt":"2012-05-31T17:54:18","guid":{"rendered":"http:\/\/rmlsweb.wordpress.com\/?p=3930"},"modified":"2012-05-31T10:54:18","modified_gmt":"2012-05-31T17:54:18","slug":"new-to-rmls-foreign-investment-in-real-property-tax-act-firpta","status":"publish","type":"post","link":"https:\/\/rmlscentral.com\/v1\/2012\/05\/31\/new-to-rmls-foreign-investment-in-real-property-tax-act-firpta\/","title":{"rendered":"New To RMLS\u2122 — Foreign Investment in Real Property Tax Act (FIRPTA)"},"content":{"rendered":"
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Written By Phil Querin, <\/em><\/strong>Querin Law, LLC<\/em><\/strong> – PMAR Legal Counsel<\/em><\/strong><\/em><\/p>\n

Upon closing of a real estate transaction in the U.S., a Federal law, known as the Foreign Investment in Real Property Tax Act (“FIRPTA”), may require that escrow withhold a portion of the seller\u2019s proceeds if the property is located within the United States and seller is a “foreign person.” A “foreign person” includes a non-resident alien individual, foreign corporation, foreign partnership, foreign trust and foreign estate (hereinafter \u201ca foreign entity\u201d).\u00a0 The amount deducted from seller’s proceeds is ten percent (10%) of the gross sales price and is required to be remitted to the Internal Revenue Service (\u201cIRS\u201d).<\/p>\n

The buyer<\/strong> may become responsible for payment if FIRPTA applies and escrow is not instructed to withhold the funds.\u00a0 This means that if a transaction closes and funds are distributed to the seller, who was legally a \u201cforeign person,\u201d the buyer may be on the hook.\u00a0 There are some instances in which the real estate agents may become liable as well.\u00a0 <\/em><\/p>\n

Here are the major FIRPTA exclusions: (a) The sale price is $300,000 or less; (b) The property is to be used by buyer as a residence; and, (c) The buyer is an individual and not a foreign entity.<\/p>\n

Under the OREF Residential Real Estate Sale Agreement (\u201cSale Agreement\u201d), the seller represents that he\/she is not<\/span> a \u201cforeign person\u201d (i.e. their \u201cNon-FIRPTA Status\u201d).\u00a0 If the seller is unsure about their legal status, he\/she should first confer with their tax counsel or a CPA before entering into the real estate transaction. If FIRPTA is applicable, the Sale Agreement recommends that buyer and seller agree to execute and deliver such instruments, affidavits or statements, as may be requested by escrow to carry out the provisions of FIRPTA.<\/p>\n

In addition, the Sale Agreement contains the following:<\/p>\n

Buyer has no knowledge, information, or belief that Seller is a foreign person or that this transaction is subject to FIRPTA.\u00a0 Seller acknowledges that <\/strong>Buyer, Listing and Selling Licensees, their respective Firms, and Escrow, its agents, employees and representatives shall have the absolute right to rely upon Seller\u2019s representation of Seller\u2019s Non-FIRPTA Status at Section 12, above.\u00a0 This right of reliance shall continue through the Closing Date and thereafter, unless Seller has disclosed otherwise in a written counter-offer to this Sale Agreement.\u00a0 If at any time during this transaction, it is determined that Seller\u2019s representation of Seller\u2019s Non-FIRPTA Status was incorrect, for any reason, Seller and Buyer hereby appoint and instruct Escrow to act as the Qualified Substitute for purposes of preparing the necessary paperwork, withholding the necessary funds, and remitting the same to the IRS.\u00a0 Seller and Buyer acknowledge that if FIRPTA applies to this transaction, Escrow\u2019s role as a Qualified Substitute may result in a delay in closing this transaction.\u00a0 Unless otherwise provided in this Sale Agreement or any subsequent signed written agreement between Seller and Buyer, confirmation of Seller\u2019s Non-FIRPTA Status is not a contingency in this transaction.<\/strong><\/p>\n

The reason that the Sale Agreement goes to such great lengths regarding FIRPTA is because commencing with the listing of real property, there was no vetting of the seller\u2019s FIRPTA status.\u00a0 This has recently changed, thanks to RMLS\u2122\u2019s cooperation in dealing with this issue.\u00a0 The RMLS\u2122 Listing Agreement will now contain the following required field:<\/p>\n

16. FIRPTA. In general, the sale or other disposition of a U.S. real property interest by a foreign person is subject to income tax withholding under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). A “foreign person\u201d includes a non-resident alien individual, foreign corporation, foreign partnership, foreign trust and foreign estate. If<\/strong><\/p>\n

FIRPTA applies, the buyer or other qualified substitute may be legally required to withhold this tax at closing. In order to avoid closing delays, SELLER is requested to initial one of the two statements: <\/strong><\/p>\n

______ \/ ______ SELLER warrants and represents to BROKER and BROKER\u2019S Firm that SELLER is not a foreign person under FIRPTA.<\/strong><\/p>\n

______ \/ ______ SELLER is a foreign person under FIRPTA.<\/strong><\/p>\n

Date of BROKER\u2019S signature<\/strong><\/p>\n

BROKER Signature<\/strong><\/p>\n

FIRM NAME<\/strong><\/p>\n

Date of PRINCIPAL BROKER\u2019S signature<\/strong><\/p>\n

PRINCIPAL BROKER Signature<\/strong><\/p>\n

Phone<\/strong><\/p>\n

Conclusion<\/strong><\/em>
\nNow, listing agents will be the initial point of contact on the FIRPTA issue.\u00a0 This is a good thing, as it will now permit all Realtors\u00ae to be aware, at the commencement of the transaction<\/em>, that there may be some federal tax withholding requirements imposed on the seller as a part of the closing.\u00a0 In such instances, company policy and managing brokers should mandate that the transactional file be properly flagged, and that escrow be immediately notified that the parties request that it handle all FIRPTA compliance obligations.\u00a0 Caveat: Escrow will not do this automatically, and in most cases, the standard closing documents provide that the escrow company is exempted from handling FIRPTA compliance matters.\u00a0 So, be aware that if they are not asked, they will not undertake the responsibility.\u00a0<\/em><\/strong><\/p>\n

Phil\u00a0has served as legal counsel for the Portland Metropolitan Association of REALTORS\u00ae<\/sup>\u00a0\u00a0for the past 20 years,\u00a0and serves on the PMAR Brokerage Risk Management Committee.\u00a0 Phil is also legal counsel to the OREF Forms Committee.<\/em><\/p>\n

\u00a92012 Phillip C. Querin, QUERIN LAW, LLC<\/p>\n

Photo Credit<\/em><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The buyer may become responsible for payment if FIRPTA applies and escrow is not instructed to withhold the funds. This means that if a transaction closes and funds are distributed to the seller, who was legally a \u201cforeign person,\u201d the buyer may be on the hook. There are some instances in which the real estate […]<\/p>\n","protected":false},"author":1,"featured_media":3934,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"episode_type":"","audio_file":"","cover_image":"","cover_image_id":"","duration":"","filesize":"","date_recorded":"","explicit":"","block":"","filesize_raw":"","spay_email":"","jetpack_publicize_message":"","jetpack_is_tweetstorm":false},"categories":[18],"tags":[],"series":[],"episode_featured_image":"https:\/\/rmlscentral.com\/v1\/wp-content\/uploads\/2012\/05\/barbados.jpg","episode_player_image":"https:\/\/rmlscentral.com\/v1\/wp-content\/plugins\/seriously-simple-podcasting\/assets\/images\/no-album-art.png","download_link":false,"player_link":false,"audio_player":false,"episode_data":{"playerMode":"dark","subscribeUrls":{"apple_podcasts":{"key":"apple_podcasts","url":"","label":"Apple Podcasts","icon":"apple-podcasts.png"},"google_play":{"key":"google_play","url":"https:\/\/play.google.com\/music\/m\/Iinki5xppiud4zt7r4evlggzzcy?t=Real_Talk_with_RMLS","label":"Google Play","icon":"google-play.png"},"google_podcasts":{"key":"google_podcasts","url":"","label":"Google Podcasts","icon":"google-podcasts.png"}},"rssFeedUrl":"https:\/\/rmlscentral.com\/v1\/feed\/podcast","embedCode":"

New To RMLS\u2122 — Foreign Investment in Real Property Tax Act (FIRPTA)<\/a><\/blockquote>\n