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The closer cut the check and sent it to the IRS with no other documentation. The disbursement was not attached to Forms 8288 or 8288–A, no taxpayer identification number was written on the face of the check. Nothing! The IRS received the check, which was written on the title company's trust account, so the IRS credited the payment to the title company's taxpayer identification number.
The seller filed their tax return, expecting to receive a refund of most of the FIRPTA withholding remitted the previous year by the closer. The IRS had no record of the payment, since they had credited the payment to the title company's taxpayer identification number.
As a result, the seller hired a Certified Public Accountant (CPA) who specializes in FIRPTA Withholding matters. The accountant worked for many, many hours with the IRS to have the payment credited to the proper taxpayer identification number.
At one point the CPA contacted the closer, informing him of his failure to send in the Forms 8288 and 8288–A with the check. The closer quickly prepared the forms and sent them to the IRS listing the title company as the withholding agent, not the buyer, as required by the IRS. This prompted a penalty notice to the title company (the withholding agent) which has to be paid for failing to timely file the forms.
The seller's CPA was able to clear up the situation for their customer, but the seller and CPA felt the title company was responsible for paying the CPA's bill. The CPA remitted the bill (thousands of dollars) and the title company filed a loss and paid the bill, since admittedly the payment was mishandled by the closer.
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MORAL OF THE STORY
If the buyer and foreign seller in a transaction desire to have 10% of the seller's proceeds deducted and paid to the IRS at closing in compliance with FIRPTA, they need to provide the escrow holder with detailed written instructions to do so. The instructions need to address the following:
- The amount to deduct and remit to the IRS;
- Buyer's written agreement to provide completed Forms 8288 and 8288–A to escrow holder to forward with the remittance; and
- Buyer's and seller's written agreement to each provide completed Forms 8821; and
- Seller's authorization to send the package by some traceable means at their expense; and further
- Instructions for filing the 1099–S for the foreign seller.
Those detailed instructions can be found in your escrow production system and attached to escrow technical memorandum #120–2010, entitled "FIRPTA Tax Withholding." The Company has launched a Web based training module entitled "FIRPTA Compliance" to take the guesswork out of processing a closing involving federal withholding.
In addition, the company has launched a "FIRPTA for Real Estate Agents" module to make customers aware of the process involved with FIRPTA withholding. Both modules can be found on the company's intranet at home.fnf.com under escrow administration Web page.
The "FIRPTA for Real Estate Agents" module can be delivered on a USB portable drive to employees and agents who want to view the module with their customers outside of the office. Request the module on a USB portable drive by sending an email to settlement@fnf.com.
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