The FIRPTA Withholding Obligation

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Jason B. Freeman

Jason B. Freeman

Managing Member


Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

Section 1445 of the Internal Revenue Code generally imposes a withholding obligation on purchasers (i.e., the “transferee”) with respect to a seller’s disposition of a “U.S. real property interest” (USRPI).  Under section 1461, the transferee/purchaser is liable for withholding tax on the disposition.  Withholding is a mechanism to collect the tax that is imposed by the Foreign Investment in Real Property Tax Act (“FIRPTA”).  Notably, though beyond the scope of this article, the FIRPTA statute and regulations contain several exceptions to the withholding requirement, and in certain circumstances, allow a transferee to obtain a withholding certificate to reduce the withholding agent’s withholding liability.

The FIRPTA regulations impose liability on any person required to withhold who fails to do so.  The regulations provide that:

Every person required to deduct and withhold tax under section 1445 is made liable for that tax by section 1461. Therefore, a person that is required to deduct and withhold tax but fails to do so may be held liable for the payment of the tax and any applicable penalties and interest.

[I]f a transferee is required to deduct and withhold tax under section 1445 but fails to do so, then the tax shall be assessed against and collected from that transferee. Such person may also be subject to any of the civil and criminal penalties that apply. Corporate officers or other responsible persons may be subject to a civil penalty under section 6672 equal to the amount that should have been withheld and paid over.

Generally, the transferee must withhold a tax on the total amount that the foreign person realizes on the disposition. The withholding rate is generally 15% (10% for dispositions prior to February 17, 2016).  Note that a foreign corporation that distributes a U.S. real property interest to its shareholders must withhold a tax equal to 21% of the gain it recognizes on the distribution.

For these purposes, the amount realized is the sum of:

If the property transferred was owned jointly by U.S. and foreign persons, the amount realized should be allocated between the transferors based on the capital contribution of each transferor.


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