The sellers were foreign and knew they were subject to FIRPTA Withholding, but they were not completely prepared. They wanted to file form 8288–B, Application for Withholding Certificate, requesting a reduction or waiver, but they did not yet have a U.S. Taxpayer Identification Number (TIN) and the file was ready to close. The sellers did have an attorney they were working with.

The escrow officer, not an employee of the Company, agreed to close the deal and hold 10% of the gross sale price totaling $31,200 in escrow file until the sellers received their U.S. TIN and Withholding Certificate from the IRS. The buyer knew nothing about this. There were no holdback instructions in the file. There was not a completed 8288, 8288–A or even an 8288–B in the file.

Three months after closing, the sellers' attorney sent over the W–7 Application for IRS Individual Taxpayer Identification Number and a Form 8288–B Application for Withholding Certificate. The forms had never been sent to the IRS for processing. Per the regulations, the seller had to file the W–7 and 8288–B PRIOR to the closing.

The escrow officer panicked and escalated the file to the escrow manager who contacted the buyer and seller to obtain the 8288, 8288–A so they could send the $31,200 to the IRS. Obviously the withholding would be late which means the IRS would issue a penalty notice to the buyer since the buyer was never even notified of the seller's foreign status, much less had agreed to the holdback.