The closer decided parts of her duties were to prepare IRS Forms 8288 and 8288–A on behalf of the buyer and seller. The transaction involved two buyers. She listed both buyers as the withholding agent (each on their own Form 8288–A). She sent the payment along with the forms to the IRS.

The IRS received the payment and credited the payment to one of the buyers listed as a withholding agent, then promptly issued a penalty notice to the other in the amount of $34,717.42. The buyer contacted the closer demanding she fix it.

She had no idea what she had done wrong or how to fix it. She contacted the IRS on several occasions (holding on the phone for as long as an hour) and finally contacted National Escrow Administration. An escrow administrator asked her to send over copies of what had been sent to the IRS.

The administrator explained there should never be more than one withholding agent. Listing two names on the forms always results in a penalty notice. The national escrow administration team could not intervene to straighten the matter out because the closer failed to obtain a completed 8821 Tax Authorization Form from the buyers at closing (authorizing the company to work on their behalf if their remittance had been applied incorrectly).

Eventually the buyers signed and sent the 8821 to the closer. The national escrow administrator contacted the FIRPTA Processing Unit in Philadelphia and they are processing the request to remove the penalties based on the proof of timely payment and a written explanation that the forms were completed incorrectly.

Because we do not know what we do not know, it is imperative the buyers and sellers take responsibility for completing and remitting the forms. Had the buyers completed the forms incorrectly, they would have no one to be mad at except themselves.

As settlement agents we are not expected to know tax law; certified public accountants are expected to know the tax law. Make sure the principals seek advice from their income tax preparer when completing the IRS Forms 8288 and 8288–A.