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US Property sales & 8288 withholding filing

October 27, 2016

Two forms are generally used for reporting and paying the tax to the IRS regarding the acquisition of U.S. real property interests.

  • Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests

  • Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests

Transferees (aka buyers) must use Forms 8288 and 8288-A to report and pay to the IRS any tax withheld on the acquisition of U.S. real property interests. These forms must also be used by corporations, partnerships, estates, and trusts that must withhold tax on distributions and other transactions involving U.S. real property interests. You must include the U.S. TIN of both the transferor (aka seller) and transferee on the forms.

 

The tax withheld on the acquisition of a U.S. real property interest from a foreign person is reported and paid using Form 8288. Form 8288 also serves as the transmittal form for copies A and B of Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests. Generally, you must file Form 8288 by the 20th day after the date of the transfer.

 

If an application for a withholding certificate is submitted on Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests, to the IRS before or on the date of a transfer and the application is still pending with the IRS on the date of transfer, the correct withholding tax must be withheld, but does not have to be reported and paid immediately. The amount withheld (or lesser amount as determined by the IRS) must be reported and paid within 20 days following the day on which a copy of the withholding certificate or notice of denial is mailed by the IRS.

 

If the principal purpose of applying for a withholding certificate is to delay paying over the withheld tax to the IRS, the transferee will be subject to interest and penalties. The interest and penalties will be assessed beginning on the 21st day after the date of transfer and ending on the day the payment is made.

 

IRS will stamp Copy B and send it to the person subject to withholding. That person must file a U.S. income tax return and attach the stamped Form 8288–A to receive credit for any tax withheld.

 

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.

 

Thus, a stamped copy of Form 8288–A will not INTIALLY AS A RESULT OF BUYER'S FILED 8288 FORMS be provided by IRS to the transferor if the transferor's TIN is not included on that form. In this case, to get credit for the withheld amount, contact us for assistance in preparing the required substitute documentation that the transferor must attach to its U.S. income tax return substantial evidence of withholding.

 

Alternatively, seller can obtain a stamped copy to attach to seller's tax return if seller applies for ITIN and once the transferor receives the ITIN number they write it on the letter 3794 SC/CG and mail it back to the Ogden IRS office.  The Ogden IRS office will document the ITIN number on Form 8288-A Copy B, date stamp "Copy B mailed" on it, and mail it out to the transferor.

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