Income Tax Return Deduction Refund Concept

By: Michael W. Brooks, Esq.

Probably the trickiest area in the whole of FIRPTA is just who is a foreign seller to begin with.  Foreign seller- 15% withholding tax gets sent into the IRS; US seller- no 15% goes into the IRS.  Stakes are pretty high it seems….

First, remember it is the seller himself (or herself) who tells escrow (or title, or an attorney, depending on where in the US the sale is taking place) whether he or she is a foreign seller; it all starts with the seller and the seller’s declaration on the Certification of Nonforeign Status. It’s probably fair to assume the seller generally does not want to be considered a foreign seller (the seller does not want the 15% withheld and sent into the IRS at the time of closing). The seller probably wants to complete and sign the Certification of Nonforeign Status (and avoid the withholding), if that was proper. But completing the Certification of Nonforeign Status is not without its downside. Any person completing the Certification of Nonforeign Status is telling the IRS that they are a US person for tax purposes. US persons for tax purposes are legally required to complete their IRS 1040’s annually and on that IRS form 1040 they must declare their worldwide income (non-US persons for tax purposes need only file US income tax returns in any year in which they earn income in the US, plus they need only declare their US sourced income…big difference from having to inform the IRS as to your worldwide income in a given year). US persons for tax purposes are also required to annually disclose their non-US bank accounts (if they have any) via their annual FBAR (Report of Foreign Bank Accounts) filing, and if they don’t do that the IRS can impose heavy penalties. Non-US persons for tax purposes have no annual FBAR obligation. So it’s probably safe to say that, except for the required 15% withholding tax at closing on a real estate transaction, most persons would prefer to be considered a non-US tax person, and not a US tax person for tax purposes. So completing the Certification of Nonforeign Status is a big deal, and comes with a significant potential downside for those who are simply trying to avoid sending in the withholding tax to the IRS.

By: Michael W. Brooks, Esq.

And it drags on… this Coronavirus. And the Coronavirus continues to be a drag on the departments and services provided by the United States government. The government and services of the State of California continue to have major difficulties as well. Plus, we hear stories form our clients around the world on how backed up government services and departments continue to be in their home country. So it’s not just us in the United States having all the trouble, if that makes us feel better. It’s everywhere. Fine, but how are the government services doing which we at DIRECTS (Domestic and International Real Estate Closing Tax Services) must concern ourselves with? Specifically, how are the IRS and FTB doing in their vital roles relating to real estate transactions (and of course we at DIRECTS really care about real estate transactions entered into by non-US persons/ entities)? It’s still a slog. Let’s take a look.

8288-B/ Withholding Certificate Applications

By: Michael W. Brooks, Esq.

Earlier posts informed you that IRS employees in offices throughout the United States left their offices in April 2020, and only came back to work in July. We can now give you an update on where the IRS is at processing tax returns, 8288-B withholding certificate applications and ITIN applications. In general, the news is that the IRS came back to work in July 2020 (with a four-month backlog of work waiting for them), but many of those returning IRS employees are now working from home.  In general, they have gone through the backlog pretty well (probably as well as can be expected in many instances), but problems still remain.  Below we give you an overview of where we’re are at at DIRECTS in terms of the IRS processing the work of our 2019/ 2020 clients. First, an update on the current state of affairs at the IRS, from our view…

The Biggest Problems Now at the IRS is that They Are Not Cashing All the Withholding Tax Checks

作者: Michael W. Brooks (税务律师/DIRECTS董事长) 和 Angela Li, MBA


作者: Michael W. Brooks (税务律师/DIRECTS董事长) 和 Angela Li, MBA

根据我们今年早些时间的博客,我们通知了外国房地产投资者由于美国新冠病毒爆发的原因,国税局员工在3月底离开了他们的办公室并停止了审阅任何外国人提交的纸质报税和美国人提交的纸质报税。现在的问题是,至今4个多月过去了,国税局的员工回到他们的办公室并开始他们的工作了吗?根据我们最新的信息,外国房地产投资者的退税面临着越来越大的问题。第一,我们怎么确定国税局只是4个多月没有工作呢?我们公司DIRECTS (国内/国际房地产交易税务服务公司)为外国房地产投资者准备卖房时的所有税务文件。我们帮助外国售房者申请ITIN’s (美国纳税人身份号),这个税号是必须申请的,如果外国售房者想要拿回售房时国税局征收的按照房屋售价15%的预扣税。我们帮助外国房地产投资者申请退还15%联邦预扣税-通过在售房时提交的8288-B预扣税快速退还申请或在售房后的次年为外国售房者提交报税并退还15%联邦预扣税和3.33%的加州预扣税。通过为现有的一千多名外国客户办理各种税务申请,我们几乎每天都会收到国税局的各种信件。然而,自2020年4月到2020年7月底,我们公司(DIRECTS) 位于加州Arcadia, Irvine和Palm Desert的3个办公室没有收到过任何国税局的信件。直至2020年8月初,我们终于开始收到国税局的信件了(意味着国税局员工真正回到办公室了)。

By Michael W. Brooks, Esq.

The IRS Had Not Been Issuing ITIN’s for Months, But Just Now, in Late July 2020, the IRS Has Finally Resumed Issuing ITIN’s

By Michael W. Brooks, Esq.

Following up on our previous posts earlier this year, where we informed you the IRS employees in offices throughout the United States left those offices in late March, due to concerns about the virus (and stopped processing any foreign seller tax returns and paper tax returns for US taxpayers as well), we can tell you three and one-half months later that the IRS employees who process foreign seller issues and paper tax return refunds have still not returned to their offices to continue this work. While there have been numerous news reports about the IRS employees returning to their offices in June (and those reports were true in terms of answering phone calls and general operations), in terms of processing any paper tax returns (and issuing any refunds associated with such returns) and performing any function for foreign sellers of US real estate (we’ll go over those below), the IRS has not returned to work, and there appears to be no end in sight as to when they will actually return to their jobs (although just on July 7 we did receive an email from the IRS about the resumption of ITIN services). Detailed below is what we know, and at the end our thoughts on how realtors and escrow officers should address this big (and growing bigger) problem.

作者: Michael W. Brooks (税务律师/DIRECTS 董事长)

Angela Li (DIRECTS国际税务部经理)

即使几个星期前国税局 “要求” 超过一万名员工回去工作,但是很多国税局员工仍然不愿意回去。4月27日,国税局要求他们执行 “关键任务 “的员工复工。这个要求距离之前国税局要求他们的员工离开办公室有一个月。3月底,为了防止新冠病毒的传播,国税局让全国大约七万五千名员工回到家中。大约四万四千名在家中工作,而大约三万名仍然继续领工资但是不用工作。4月27日,国税局甚至以奖励津贴的方式吸引员工回来办公室,但是这个小额的奖励津贴作用不大,许多国税局员工仍然拒绝回到办公室。由于国税局不能保证每个办公室都能提供口罩((有一些办公室可以),员工在当前疫情严重的情况下担心着自己的安全。

Despite the IRS “ordering” over 10,000 employees back into IRS offices a couple weeks ago, it appears many IRS employees have respectfully declined to follow this IRS directive. Recall on April 27, the IRS ordered its “mission critical” employees back into the IRS offices. This request for employees to return to the IRS offices came only about a month after the IRS ordered most of its employees out of the IRS offices. In late March, the IRS, which employs around 75,000 people across the country, sent many workers home as a precaution against the spread of Coronavirus. Around 44,000 started working from home, with around 30,000 or so continuing to be paid but not working. And then on April 27th, the IRS “ordered” around 10,000 employees (presumably amongst the group not already effectively working from home) to go back into the IRS offices, however a closer look at that “order” reveals the IRS merely requested the employees to go back to work in various IRS offices, and tried to tantalize them back into the offices with incentive pay.  Not surprisingly, the offer of a little extra incentive pay does not appear to have done the trick, and apparently many IRS employees declined this order/request. Of course it didn’t help that the IRS did not even have face masks (at all its offices…it did have them at some) to give to its employees for their safety in this terrible time of Coronavirus.

Now over two weeks after the April 27 “order”,  it appears that the IRS still needs many more “volunteers” to return to work in their IRS offices. It’s unclear if the IRS is offering extra incentive pay (above what they offered in the first go-around, which was reported to be a bump of between 10% to 25% of base salary for the near-term) to further entice the employees who have decided not to return. But my guess is even extra incentive pay is unlikely to do the trick for many IRS employees. IRS Commissioner Chuck Rettig told congressional staff late last month that 100 IRS employees had contracted Coronavirus, and four had died. Would an IRS employee (or anyone for that matter) really want to go back into a cramped IRS office when they were already being paid their full salary (and in many cases not actually being required to work for their full salary) during the Coronavirus pandemic? Compliments to them if they do, but I doubt many are retuning (even with incentive pay). The IRS is probably going to have to order them back into their offices (a real order, not a request) in order to complete all the tax refund work in 2020, and such an order may not be easy to issue or enforce.

Our work at DIRECTS focuses exclusively on foreign sellers of US real estate and their tax refunds from 2019 (or earlier) sales of US real estate, or withholding certificate applications for 2020 sales, or procuring ITIN’s (Individual Taxpayer ID Numbers) for the foreign sellers. Although we assist foreign investors selling real estate throughout the entire United States, the majority of the foreign sellers we assist are selling US real estate in California (for example Los Angeles, San Gabriel Valley, Orange County and the Palm Springs area are big hotspots for foreign investment in real estate). We rely heavily on two IRS offices (in particular) to function at high efficiency. The most important IRS office for FIRPTA (foreign seller tax) work is the IRS office located in Ogden, Utah, where the IRS’ “FIRPTA Unit” is located. This is the office that reviews our withholding certificate (8288-B) applications. The other office we rely heavily upon is the IRS office in Austin, Texas, where the IRS processes both ITIN requests and tax return/ withholding tax refund requests. Both offices appear to be having significant challenges in terms of bringing back employees into the IRS offices, largely because of local conditions and/or local stay-at-home ordinances. You can see the challenge for the IRS higher officials looking to get the refunds back on track- how can we order our employees back in the offices when local stay-at-home orders (see for example the May 8th Austin, Texas stay-at home order, which was extended despite the State of Texas lifting its stay-at-home order on May 1st) are keeping the general population at home for safety reasons?

Following up on DIRECTS’ most recent blog post, where I discussed the concerning issue of IRS employees who had become frightened to go into the (cramped) IRS offices and do work which I really believe can only be accomplished in their offices, the story has taken a profound and potentially confrontational turn. Starting Monday (April 27), the IRS has ordered its “mission critical” employees back into the IRS offices. To reassure the employees (I guess), the IRS is requiring PPE to be utilized at all times within the IRS offices, but the IRS may not be able to provide such PPE to the employees. A leaked IRS internal memo suggests the employees consider “utilizing cloth face coverings fashioned from household items or made at home from common materials at low cost” if they have no other PPE available. Ugh. The head of the Treasury Employees Union stated “the initial wave [of employees returning to the IRS offices] will include about 10,000 employees at 10 locations who will be opening taxpayer correspondence, handling tax documents, taking taxpayer telephone calls and performing other functions related to the filing season.” At least some employees are being offered incentive pay, and (at this point) the employees are not being forced to return (they are permitted to turn down the order to return to the office). Many IRS employees had been permitted to work from home recently (given the current health crisis ravaging the country), but from the what we’ve been seeing recently at DIRECTS, working at home does not lead to the speediest of results from the IRS. Nobody has been able to call the IRS for about a month, and mail sent to the IRS “has been piling up in trailers”, according to the Wall Street Journal.

The issue of whether the IRS employees work from the actual IRS offices is of particular interest to us at DIRECTS (Domestic and International Real Estate Closing Services), because we focus on non-US sellers of US real estate, who are always awaiting large tax refunds this time of year, plus our 2020 foreign sellers  who are applying for ITIN’s and applying for 8288-B/ withholding certificates are very much interested in speedy IRS compliance as well. Our FIRPTA-related work requires the IRS employees to be in their offices and on their game, there is no doubt in my mind. This push by the IRS has been prompted by the need to inject the stimulus checks into the economy, but really the IRS needs its employees back in the offices for all reasons, including processing tax returns and issuing refund checks (such as the large refunds typically due non-US sellers from the prior year). We have seen the time for the IRS to process refunds, ITIN’s and 8288-B withholding certificates really start to drag sharply in the last month, so for us this (push back into the IRS offices) really is needed.

Is this the end of it; the IRS employees are just going to go back to the IRS offices, no problem? I doubt it. As of Monday, they are not actually required to go back in (it appears to be just a request from the IRS officials). What if there are not many IRS employees who agree to simply return to the the IRS offices?  Plus members of Congress have already begun openly complaining that the employees are not being given PPE by the IRS. Moreover, I have no doubt these people are scared. One incident of Coronavirus in one over-stuffed IRS processing center and this could become a huge mess. It might not even take an incident for this to become a huge mess.

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