banner
article4photo
byline
in this issue
article1
article2
article3
article4

The seller filed an 8288–B "Application for Withholding Certificate." This means escrow needs to have the principals sign the FIRPTA Holdback agreement and the buyer STILL needs to complete the 8288 and 8288–A (which are held in the closed file along with 10% of the gross sales price pending the decision by the IRS whether they will grant the seller a reduction or waiver of the withholding).

Instead, immediately after closing the operation sent the 8288, 8288–A and the funds to the IRS. Fast forward and the seller is granted a reduction in the withholding amount. Only $5,800 was due. The seller was expecting the closer to issue them a refund in the amount of $14,950. Problem was the closer did not have the money.

She and her manager explained to the seller what happened. The seller was not happy, but decided to file a tax return to obtain the refund. When the tax return was filed, the IRS responded by indicating they did not receive the payment. The seller went back to the closer.

The closer provided proof that the payment was sent in, when it was delivered to the IRS and gave a copy of the negotiated check. Turns out the check was credited to the buyer's TIN.

The closer did not follow the policy and procedure described in Tech Memo 120–2010. Procedures which have been put in place in order to prevent errors like this one. Procedures that (when not followed) create huge problems for our customers.

What procedures were not followed? The check remitted did not reference the buyer's name, the seller's name or their ITIN numbers. In addition, the office failed to obtain a completed 8821 from each buyer and seller.

To make matters worse, the buyer received a notice from the IRS indicating he owes $21,000 plus penalties and interest. Why? The IRS did not know which account to credit the payment to because the check did not include a name and U.S. TIN.

Our company does have a dedicated representative at the IRS who is supposed to assist us with FIRPTA issues. Lisa Tyler is the person designated on behalf of our Companies to contact this representative. Sometimes this representative assists with errors in postings of the payment. In this case, we were lucky – the representative was able to find the payment and post it.

In the meantime, the seller was furious and wanted the $14,950 back. The escrow officer's manager explained the payment had not been credited properly, but should be at the time of the conversation. Unfortunately the correction takes about a week to show up in the IRS system.

A week later the seller called again. The payment still did not appear as a credit. Lisa Tyler contacted the IRS who admitted the payment was credited to the buyer's taxpayer identification number as the withholding agent, not the seller. She said she would correct it, but it would take another week to appear on the seller's taxpayer identification number. A week later, the credit was still not there.

Lisa contacted the IRS, yet again. The IRS agent explained she was unable to move the payment to the seller's account because when she did, it caused a penalty to the buyer. This was beyond her pay grade and she had to escalate the issue to someone else. She had no idea when it would be corrected.

Although many of the mistakes made were made by the IRS, the first mistake was made by the escrow officer who sent the funds in before the IRS issued a Withholding Certificate.

Remember, at the beginning of this story the seller filed IRS Form 8288–B Application for Withholding Certificate. The buyer and seller both signed our FIRPTA Holdback instructions, which meant they and the closer agreed to hold the funds until a decision is made by the IRS. Once the Withholding Certificate is received, only the actual amount due is remitted to the IRS and it is not due until 20 days after the Withholding Certificate is issued. Had the closer held the funds, the seller would already have their $14,950.

 

 
SHARE  
 
 
footer_line
 
stop fraud! share
 
footer_line
 
 
FNF Home