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An escrow transaction closed February 12, 2013. The escrow officer did not send the check for the FIRPTA withholding until April 17, 2013. The sale price for the subject property was $2,250,000. The amount withheld was $225,000.
According to the Internal Revenue Service (IRS), withholding on the transfer of real estate is due within 20 calendar days of the closing. The funds were received by the IRS 45 days late. The penalties assessed for the late payment were as follows:
| Failure to file |
$20,250.00 |
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| Failure to pay |
$ 2,250.00 |
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| Interest |
$ 1,086.80 |
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| TOTAL |
$23,586.80 |
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The escrow officer could not file an escrow loss using the Escrow Loss and Recovery system, since the amount of the loss exceeded $5,000. Instead, she had to open a claim with the claims department to address the escrow loss caused by the penalties. The claim was paid under the category of Improper Settlement Procedures and charged back to the escrow branch dollar–for–dollar because the escrow officer's failure to follow procedure caused the loss.
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MORAL OF THE STORY
When the principals to a transaction instruct the settlement agent to deduct 10% of the gross sale price and pay it as FIRPTA withholding to the IRS, it is imperative the check be sent within 20 calendar days of the closing and by some traceable means. Both FedEx® and UPS® will deliver to the IRS without a known street address. Simply address the package to the post office box address shown on Form 8288–A.
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