FIRPTA Withholding for Foreign Sellers (Forms 8288 & 8288-B): A Practitioner's Guide

FIRPTA does two distinct things through two distinct Code sections, and conflating them is the most common error. IRC §1445 is a collection mechanism: when a foreign person disposes of a U.S. real property interest (USRPI), the transferee (buyer) must withhold a flat percentage of the amount realized and remit it to the IRS. IRC §897 is the substantive tax: it treats the foreign seller's gain on a USRPI as effectively connected income (ECI), taxed at graduated rates on the seller's own return. The withholding is a prepayment credited against — not a substitute for — the §897 tax.

Because §1445 keys off gross consideration rather than gain, the two numbers routinely diverge. The withheld amount can dwarf the actual tax, leaving the seller's cash trapped with the IRS until the return is filed and processed — which is precisely the problem the Form 8288-B certificate (Section 5) exists to solve.

The amount realized is broader than the cash at closing. Under the regulations it is the sum of (a) cash paid or to be paid, (b) the fair market value of any other property transferred, and (c) the amount of any liability assumed by the buyer or to which the property remains subject immediately before and after the transfer. Outstanding mortgage debt is therefore part of the base even though the seller never sees that money.

Assume a foreign individual sells a U.S. rental property. The buyer pays $900,000 in cash and takes the property subject to a $100,000 mortgage that is not paid off at closing. The amount realized is $900,000 cash + $100,000 assumed liability = $1,000,000. At the default rate, the buyer must withhold 15% × $1,000,000 = $150,000, file Form 8288 with Form 8288-A, and remit within 20 days of the transfer (Section 4) unless a timely certificate application defers it.

Now layer in the economics: suppose the seller's adjusted basis is $840,000 and selling expenses are $40,000, so the realized gain is roughly $120,000 — a fraction of the $1,000,000 withholding base. The §897 tax on that gain is far below $150,000, so the seller has massively over-prepaid and must wait for a refund. That gap between gross-base withholding and the modest taxable gain is the textbook trigger for a Form 8288-B reduced-withholding certificate.

For the common fact pattern — foreign-owned U.S. real estate held in a single-member LLC that is disregarded for federal tax purposes — the LLC's name on the deed does not control the FIRPTA analysis. The IRS instructions are explicit: a disregarded entity cannot be the transferor for §1445 purposes. The person treated as owning the assets — the foreign owner — is the transferor.

That look-through has three operational consequences. First, the buyer analyzes the owner's foreign status, not the LLC's, to decide whether to withhold at all. Second, the owner's TIN goes on Forms 8288 and 8288-A, and the withholding credit belongs to the owner, who claims it on the owner's return. Third — and most easily missed — a disregarded LLC cannot furnish the non-foreign affidavit that would otherwise switch off withholding; only a person who is actually a U.S. transferor can certify non-foreign status, and a single-member LLC is not that person.

The practical trap is symmetrical. Local law puts title in the LLC, so closing agents sometimes treat the LLC as a domestic seller and skip withholding — exposing the buyer, who is primarily liable under §1445 if tax should have been withheld and was not. The LLC wrapper does not block FIRPTA; it just relocates the foreign-status question to the member.

Current law builds two residence-based reliefs into the rate itself, but both are narrow and both belong to the buyer's intended use, not the seller's.

If the amount realized is $300,000 or less and the buyer acquires the property for use as a residence, no withholding is required (0%). If the amount realized is more than $300,000 but $1,000,000 or less and the residence condition is met, the rate drops to 10% instead of 15%. Above $1,000,000, the full 15% applies regardless of intended use.

The IRS instructions add the conditions that practitioners forget. The relief applies only when the actual buyer is an individual — not a corporation, partnership, trust, or estate. The “residence” standard looks to the buyer's intent to use the property as a residence for at least half of the days it is in use during each of the first two 12-month periods after the transfer. And the dollar thresholds test the amount realized, so the assumed-liability rule from Section 1 can push a deal over a threshold even when the cash is below it.

The standard §1445 compliance package is Form 8288 (the transmittal and payment voucher the buyer files) with a Form 8288-A attached for each foreign transferor. The transferee files Form 8288 and attaches Copies A and B of Form 8288-A. The hard deadline is the 20th day after the date of transfer, and the buyer remits the withheld tax with the form.

The seller's evidence flows back from this filing. The IRS stamps Copy B of Form 8288-A and mails it to the foreign transferor; that stamped Copy B is the seller's proof of the credit and is what the seller attaches to the return to claim the withholding against the §897 tax. No stamped copy, no clean credit.

The recurring snag is the missing TIN. The buyer must still file Forms 8288 and 8288-A on time even if the seller has no TIN — withholding is not excused by the gap. But the IRS will not release the stamped Copy B to a seller who has no TIN, so the credit stalls until the number is supplied. A foreign individual who needs one applies for an ITIN on Form W-7, which can generally be submitted with the Form 8288-B package (Section 6) so the certificate request and the TIN application move together.

Although §1445 places the legal obligation on the buyer, the closing is usually run by a title company, attorney, or settlement agent — the Form 8288 instructions treat the person responsible for closing (other than the seller's agent) as a qualified substitute. Delegating the paperwork does not shift the buyer's liability if the tax should have been withheld and was not.

Form 8288-B is the principal relief valve when default 15% withholding is economically excessive. Under IRC §1445(c), either the transferor or the transferee may ask the IRS to determine the transferor's maximum tax liability or to approve a reduced amount. The current instructions recognize three grounds: (1) the transferor is exempt or qualifies for nonrecognition; (2) a calculation shows the maximum tax liability is less than the tax otherwise required to be withheld; or (3) the special installment-sale rules described in Rev. Proc. 2000-35 apply.

Timing is the whole game. If the application is filed on or before the date of transfer, the buyer must still withhold, but is not required to file Form 8288 or remit the tax until the 20th day after the IRS mails the withholding certificate or a denial. The statute requires the IRS to act on a covered request within 90 days of receiving it; the instructions phrase this as the IRS normally acting within 90 days after it has all information needed to make a proper determination. If the seller files the application, the seller must notify the buyer in writing on or before the transfer; a late application generally forfeits the deferral and the ordinary 20-day clock resumes.

The installment-sale crossover is where the certificate earns its keep. FIRPTA keys off the full amount realized regardless of the size of any single payment, so a seller-financed deal would otherwise face front-loaded withholding on money not yet received. If the seller is not a dealer and reports gain under §453, the parties can request a certificate that withholds 15% (or a lower IRS-approved amount) on the down payment and on each later payment, instead of a single full-price remittance up front. Rev. Proc. 2000-35 supplies that installment framework; the modern instructions effectively restate it at current 15% rates. Critically, Rev. Proc. 2000-35 also provides that no refund is made on an installment sale unless a withholding certificate is obtained — so early planning matters far more in deferred-payment deals than in ordinary cash closings. See our guide to installment sales for foreign sellers for the seller-side mechanics.

If a certificate is approved after too much has already been remitted, an early refund may be available before the income-tax return is due. The request generally must include the approved certificate and the stamped Form 8288-A. Because the IRS issues an early FIRPTA refund within the same year of withholding, no interest is paid on it — the only saving is the time value of getting the cash back sooner rather than at year-end.

FIRPTA reaches well beyond recorded deeds, and three edges matter most for foreign owners. First, selling stock can trigger FIRPTA. A USRPI includes an interest in a domestic corporation that is or was a U.S. real property holding corporation (USRPHC) — generally one whose U.S. real property is at least 50% of the value of its real property and trade-or-business assets. The clean exit is a non-USRPHC certification: a statement, under penalties of perjury, that the corporation is not and has not been a USRPHC (or that the interest is not a USRPI under the cleansing rule). It can generally be relied on only if dated no more than 30 days before the transfer, and a corporation that gives such a statement on a foreign holder's request must notify the IRS within 30 days or the statement is invalid. Generally no withholding applies to an interest in a foreign corporation, absent a §897(i) election.

Second, classification changes the withholding statute. Once an LLC is not disregarded — i.e., it is classified as a partnership — a sale of a USRPI is handled differently: a domestic partnership disposing of a USRPI generally withholds under §1446, not §1445(e), and transfers of partnership interests can implicate §1446(f). So before applying the §1445 mechanics above, confirm the entity is actually disregarded; a partnership-classified LLC is on a different track.

Third, watch the two-front exposure. FIRPTA is an income-tax regime on lifetime disposition; the estate tax on a nonresident alien is a separate transfer tax at death. A foreign individual who holds U.S. real estate directly (including through a disregarded LLC) can face both FIRPTA on a sale and U.S. estate-tax exposure at death, because U.S.-situated real estate is in the NRA gross estate. That estate-tax front — Form 706-NA, the $60,000 filing threshold, and situs rules — is analyzed in our guide to Form 706-NA estate tax for nonresident aliens; structure planning is usually where the two regimes are reconciled.