At an escrow office across town, the closer decided it was her responsibility to complete the IRS Forms 8288 and 8288–A (copies A, B and C) rather than trouble the buyer to complete them. The buyers were a husband and wife.

The closer listed both their names on the 8288 as the transferee and then completed two sets of the Form 8288–A – one set in the husband's name and one set in the wife's name. She completed their taxpayer identification numbers on each form. The closer thought she was doing a really thorough job!

The transaction closed in April 2013 and the payment was remitted timely. In October 2013 the wife received a penalty notice from the IRS for the full amount of the withholding shown on her form 8288–A plus penalties and interest, for non–payment and late payment. The penalty notice exceeded $50,000.

When the IRS received the payment, they applied the full amount to the husband's taxpayer identification number and showed the wife still owed the amount shown on her form. You see, there should ALWAYS be only one withholding agent, NEVER two. Keep in mind, the closer completed the IRS forms as a "courtesy" trying to provide good customer service.

Needless to say, the wife was not happy when she received the penalty notice. It took months to get the issue resolved on her behalf. This is just one of many reasons why the buyer needs to be responsible for obtaining their own tax advice and for completing their own forms.

Learn From Others
Due to their geographic location, Fidelity's Tampa, Fla. office handles an inordinate amount of sale transactions involving foreign sellers. As a result of the horrible experiences they have had processing FIRPTA withholding, they sought out a Certified Public Accountant (CPA) who specializes in FIRPTA withholding. Then, they put the following procedures in place:

• Once the closer is notified a transaction will involve a foreign seller, the closer refers the buyer and seller to the Certified Public Accountant (CPA) to discover whether or not withholding is due.
• The CPA reviews the transaction to see if it or the seller themselves might be exempt from withholding.
• If the CPA determines no withholding is due, the buyer signs a Waiver of Settlement Agent Responsibility, instructing the closer to not deduct any withholding at closing.
• If it is determined withholding is due, the CPA prepares the necessary forms and forwards them to the closer.
• The buyer and seller provide instructions to the closer to deduct the amount of the withholding from the proceeds due the seller at closing and send the remittance via overnight delivery at their expense, along with the forms provided by the CPA.

The CPA charges around $250 for the services. And as a result of this new process the operation has stopped suffering losses — of customers and money. In fact, their customers thank them for referring them to someone who actually knows the tax law and can provide them the competent tax advice.