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And last but not least, is the horrifying story about another FIRPTA mishap. In this transaction the seller was subject to FIRPTA Withholding and did not have a taxpayer identification number (TIN). The escrow officer and her assistant held the money after close of escrow in May 2013, instead of sending it right away to the Internal Revenue Service (IRS). They were waiting for the sellers to provide their assigned TINs.
Finally, at the end of December 2013, the escrow officer decided to remit the funds without a TIN, since she had not heard from the sellers. The forms were filled out with the escrow company named as the withholding agent and reflected the escrow company's TIN. The officer sent in a trust check with "no TIN" written on the face.
The check was cashed right away. The following year in March 2014, the Forms 8288 and 8288–A were processed by the IRS and no payment was associated with the Forms, so the IRS notified the withholding agent (the escrow company) that withholding was due in the amount of $105,000.
The escrow officer contacted the IRS and according to the IRS, they had no record of receiving the initial $105,000 payment and the account had gone to collections. The escrow officer supplied the IRS agent with a copy of the cancelled check. The account was put on hold, so that no additional notices would be sent.
The IRS assigned the case to a Hardcore Payment Tracer to locate the $105,000 and apply it to the correct account. The IRS eventually found the payment applied to the escrow company's account. The IRS assessed the following penalties and interest:
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Penalty for filing tax return after the due date
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$23,625.00
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Interest charged for late payment of tax
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4,725.00
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Interest charged for late payment
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2,810.58
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Total
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$31,160.58
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The penalty notice was sent to another office of the escrow company and never directed to the correct office for payment. The bill was left unpaid until October 2014. All of a sudden lenders alerted the escrow company that they could no longer open new orders with them as they had been placed on the Limited Denial of Participation (LDP) list.
An LDP is an action taken by a specific representative of the U.S. Department of Housing and Urban Development (HUD), for failure to comply with the specific standards for a HUD program or for delinquent federal debt.
An LDP excludes lenders from participating in the origination or closing of a mortgage backed by the federal government. The LDP does not just affect the office that failed to timely pay the withholding and not just one escrow officer, but the entire company!
The office scrambled to find out how much was due and to overnight a check in the amount of $31,160.58 to the IRS, so lenders could continue opening new orders with the Company.
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MORAL OF THE STORY
Holding FIRPTA Withholding money while waiting for a foreign seller to obtain a taxpayer identification number is NEVER an option. The withholding amount can be remitted using the buyer's taxpayer identification instead.
A Company check can NEVER be remitted to the IRS, because they automatically credit the payment to the company's TIN, instead of the taxpayer's account. The check for withholding funds must ALWAYS have the buyer or seller's TIN written on the face of the check so it can be properly applied. Otherwise the buyer and seller will need to sign a waiver of liability, releasing the escrow company of any responsibility for a misapplied payment.
The IRS frequently changes the address for a company, based on the latest tax documents received. If your office receives a tax notice that does not affect a transaction your office closed, it should be directed to the National Escrow Administration team via email at settlement@fnf.com.
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