Articles Posted in FIRPTA Withholding Taxes

For a month, the US federal government has been shut down, which generally means many federal workers have not been working in October 2025. But some federal workers have continued to work during the last month (even though they have not been paid), because they have been deemed “essential” and therefore these workers have not been allowed not to work (pay or no pay) during the shutdown. So where does the IRS (a department of the US Treasury) fit into all of this? Can you currently call the IRS to check on your refund? Are they still processing IRS refunds during the shutdown? Are they still processing ITIN’s during the shutdown? Is the IRS still receiving and processing withholding tax payments for foreign seller transactions (via the forms 8288 and 8288-A’s) during the shutdown? Remember these forms and the withholding tax must be submitted to IRS within 20 days of the closing (or major IRS penalties could ensue), so somebody at the IRS has to be receiving and processing these forms and the withholding tax payments even during a shutdown, right? It’s hard to answer any of this with certainty, but below I will review our experience (at DIRECTS) with respect to the refunds of non-US sellers of US real estate over the month of October 2025 (the first month of what may become the longest federal government shutdown in US history).

Can You Call the IRS to Discuss the Status of Your Refund Right Now?

You may be surprised to learn that the IRS has been fielding phone calls during the month of October 2025. You (or we on your behalf) will probably wait a long time on hold (expect over an hour or even two), and you may call and the IRS outgoing phone message says they are too busy to take your call at that time, but the bottom line is the IRS has been fielding phone calls during October (even though the federal government has been shut down). Some IRS employees are working! Keep in mind, these are IRS representatives who will merely give you an update on your refund status. These are not processors of the tax returns (generally) who you speak to on the phone, they are IRS representatives who can communicate to you the status of your withholding tax refund. If there has been a delay, they might be able to tell you why the refund has not been processed (maybe it’s something we can cure). There were prior shutdowns (in 2018 for example) where I recall the IRS phones just being dead, and during the pandemic year of 2020 there were many months where the IRS simply stopped working, but so far during the shutdown of October 2025 that has not been the case. Basically if you’re patient, and you’re satisfied (at least for the moment) with merely knowing the status of your refund via an IRS representative, we have been able to contact the IRS and get an update on the status of our clients’ refund during in October 2025.

 Executive Order 14247

President Trump’s Executive Order 14247 (“EO 14247”) was issued on March 25, 2025. EO 14247 provides that, starting September 30, 2025, “the Secretary of the Treasury shall cease issuing paper checks for all Federal disbursements inclusive of intragovernmental payments, benefits payments, vendor payments, and tax refunds,” So as of October 1, 2025, the IRS will no longer issue tax refunds in the form of paper checks (for the most part taxpayers will receive refunds going forward via electronic payments transferred to the US bank accounts of each taxpayer). This may present a real challenge for some foreign individuals seeking IRS refunds however, as it is not always so simple for a non-US person to open a US bank account. This issue will be of great concern to foreign sellers going forward, but not necessarily will it be of great concern to escrow companies.

What should be of great concern to escrow companies is that EO 14247 also states “as soon as practicable, and to the extent permitted by law, all payments made to the Federal Government shall be processed electronically.”  So just as the IRS will no longer issue tax refunds via paper checks, it also will no longer accept tax payments in the form of paper checks.  It’s not entirely clear by the text of the EO 14247 when the requirement that all payments made to the federal government be made electronically becomes effective, but many commentators following EO 14247 assume this requirement also takes effect on September 30, 2025.  EO 14247 further directs compliance plans be issued by the various federal government agencies to assist the government and the public in transitioning off of paper checks (going out and coming in), but no compliance plans has been made public by the Treasury Department or the IRS (or any other federal government agency/ department) thus far (leaving critical implementation questions somewhat unanswered).

About a couple years ago we started seeing the IRS issue (in volume) IRS Notice CP5071 (“CP5071”) or IRS Notice 5071C to non-US persons who sold US real estate who were seeking their withholding tax refunds. In 2025, around three out of every ten of our (DIRECTS) clients (30%!!!) are receiving the CP5071 (identify verification notice), and these notices are really delaying our clients’ refunds. Remember, non-US persons who sold US real estate are typically expecting IRS refunds of tens or hundreds of thousands of dollars (occasionally they’re entitled to refunds in the millions of dollars), so the prospect of delaying these refunds by months or even longer (delays of over a year are easily within the realm of possible outcomes) can be very troublesome for the non-US person(s) eagerly awaiting for their large refunds. Let’s examine again: what’s going on with these (very frequently issued) identity verification notices, and why are they so difficult for the non-US individual person to satisfy?

The IRS Will Not Even Look at the Tax Return Until the Identity Verification Requirement is Satisfied

If the IRS determines it requires the taxpayer to verify his or her identity, it will not even look at the tax return until the taxpayer first verifies the identity. So the identification verification element starts a delay which could last months. The tax return basically sits at the IRS, unreviewed, until the taxpayer’s verifies their identity. And it could be months before the non-us person/ taxpayer even realizes the IRS is waiting for their identity verification. Between the time it takes for the IRS to generate a letter to the taxpayer to the time the taxpayer actually receives the CP5071 letter (non-US persons receiving mail from the IRS is a whole other non-certain topic which can delay the refund process further) it could easily be a period of several months. Plus as we review again below, verifying one’s identity is often not a simple process, and only after finally satisfying the verification requirement will the IRS actually commence its review of the substantive return (and as we’ve mentioned in many other blog posts, the IRS withholding tax refund process itself is full of pitfalls and potential delays; this is process itself which could take months). Simply being unlucky enough to receive an identity verification notice means the non-US person waiting for the large IRS refund probably added months to a refund process which was already likely to take several months.

In February 2025 the IRS terminated approximately 7,000 (mostly recently hired) employees (leaving the IRS with approximately 90,000 employees). But now in March 2025 news reports suggest the IRS will commence terminating an even larger number of employees. As recently reported by the Associated Press, “the IRS is drafting plans to cut its workforce by as much as half through a mix of layoffs, attrition and incentivized buyouts.” Cut its workforce by half? From 90,000 to 45,000 employees? Wow. This sounds drastic, and from my perspective, given the antiquated system the IRS currently uses to provide withholding tax refunds, this could dramatically slow the refund process down. Let’s see why below.

The Amount of the Average Real Estate Withholding Tax Refund Is So Much Greater than the Typical Generic Tax Refund

If you’re a reader of this blog, you’ll note in prior blog posts I’ve walked through in varying degrees of detail how the IRS processes withholding tax refunds for non-US sellers of US real estate. It’s a highly outdated process (in my opinion) requiring IRS employees to match a non-US person to a (often very large) withholding tax check and IRS forms submitted to the IRS (usually in the calendar year before the tax return as filed…although sometimes the withholding tax check was submitted to the IRS two or more years before the tax return is filed). I summarize the non-US person real estate withholding tax process again below. Keep in mind as I walk through this again- the IRS process (as it exists today) of providing real estate withholding tax refunds requires the availability and attentiveness of human beings. The notion of cutting the number of IRS employees in half seems to me like a big threat to the refund process (a process which is already slow and fragile). And in this area the size of the refunds is typically huge. We are not talking about a $1,500 tax refund for a typical US IRS Form 1040. Foreign sellers of US real estate are often entitled to tens or hundreds of thousands of dollars in IRS refunds (we sometimes see refunds in the millions). What will happen when the IRS has only half the number of employees to process refunds in the amount of hundreds of thousands of dollars owed to foreign sellers of US real estate?