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  • Daniel Gray CPA US Tax Services Toronto Canada

Unplug the IRS FIRPTA Refund Backup


It seems like more and more taxpayer refunds from US property sales are held up at IRS. Some of the delays can be prevented by an understanding of the IRS process because IRS employs a finite process and when that process isn’t followed, no refund ensues.

For example, if seller does everything correctly but buyer’s title company doesn’t properly complete the 8228 form they file with IRS that will spoil things for the buyer.

The required IRS process is that the withholding agent (a Title company may be filing reporting the withholding agent buyer) files a properly completed (8288 and) 8288-A with IRS, then IRS puts the withholding dollar amount on the account of the withholding agent (NOT on the account of the seller – so when speaking to IRS and/or reading IRS notices pay close attention to which party IRS has credited the payment for an 8828 return). Then, when the taxpayer files the withholding tax refund claim return (1040NR for individual/foreign trust/estate OR 1120-F for foreign corporation), IRS verifies it by pulling up its record from the withholding agent account, and then can instruct IRS accounting department to issue the refund. If there is a problem on IRS account at this point IRS won’t be able to issue the refund.

This aspect can be unbeknownst and may thus bewilder any of: sellers, IRS agents, CPAs who are reviewing perfect refund claim tax returns, IRS acknowledging both that all required documentation was received and that the withheld funds are indeed recorded by IRS. But if something has gone awry on the “front-end”, i.e., the buyer’s initial 8288/8288-A filing, then IRS cannot retrieve “verification”, the magic spice it needs to empower it to transfer that payment to seller as a refund (IRS refers to seller’s role as “on the back-end”) and will not issue the refund credit.

Here’s a short list of other items to check why a refund may be held up. Do you have any to add?

  1. Tax year of payment not aligned with tax year of refund claim

  2. Money received acknowledged by IRS but on wrong account

  3. Receipt not acknowledged by IRS

  4. Foreign trust 1040NR has ended up processing inside an IRS individual tax department and that department, seeing n tax return form typically filed by an individual, requests an SSN, which isn’t appropriate for an EIN bearing foreign trust.


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