FIRPTA Tax Blog
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).
How Will Individuals Make Electronic Payments to the IRS?
Currently the Treasury Department maintains the Electronic Federal Tax Payment System (EFTPS), which is a free service that allows individuals and businesses to pay federal taxes electronically. But many commentators familiar with EFTPS say that establishing an EFTPS account is not a simple and straightforward process at all. They note, for example, that establishing an EFTPS account requires a valid U.S. Taxpayer Identification Number, a U.S. mailing address, and potentially may require ten plus business days (or even more) to receive a PIN by mail. So “quickly” establishing an EFTPS account for individuals may not be so quick or simple at all.
Foreign Seller Transactions Require the Timely Payment of IRS Withholding Taxes (not later than 20 Days after the Day of Transfer). The Penalties for Late Payments in this Area are Exorbitant.
With the September 30 effective date for EO 14247 around the corner, escrow companies should now contemplate their role in overseeing the payment of the mandatory IRS withholding taxes for real estate sales where the seller is a non-US person. In sales of real estate by non-US persons, IRC Section 1445 (and IRS Form 8288) requires generally that 15% of the sale price be transmitted to the IRS not later than 20 days after the date of transfer. The regulations and the instructions to IRS Form 8288 clarifies that the buyer of the real estate (where the seller is a non-US person) is the “withholding agent”, and is therefore the party responsible for paying the withholding tax. Penalties (which will be assigned to the buyer) for not timely paying this withholding tax are exorbitant. They start at 5% of the required withholding amount and quickly rise to a maximum of 25% of the failed withholding amount. For example, in a sale of US real estate by a non-US person for $1,200,000, $180,000 must be transmitted to the IRS not later than 20 days after the day of transfer. If for whatever reason the buyer made the withholding tax payment six months after the date of the sale (as opposed to within 20 days of the date of the sale), the buyer would owe the IRS a penalty of $45,000 (25% of $180,000) plus interest- a huge penalty for the failure to timely comply with rules.
Can Escrow Continue to Play its Vital Role in Making the IRS Withholding Tax Payments on Behalf of the Buyer to the IRS? What Happens if it Cannot?
Even though the buyer is responsible for the timely payment of the withholding tax, as a practical matter many escrow companies traditionally assumed the responsibility of mailing the withholding tax payment to the IRS. This custom made sense for all parties and likely prevented many a buyer (of real estate from a non-US seller) from receiving a most unwelcome IRS penalty for failure to timely pay the required withholding tax of 15% of the gross sale price. But that was when an escrow company could simply pop a check into the mail. If the escrow company can no longer “make the payment” to the IRS on behalf of the buyer (because the buyer must wait until his or her EFTPS account is established and that could take several weeks), and the buyer must make his or her own payment to the IRS of the withholding tax, there exists the potential of significant IRS chaos in the typical sale by a non-US person. The buyer in these transactions is very likely unfamiliar with their IRS withholding tax obligations and IRS required timelines as a withholding agent in the sale by a non-US person, and this could lead to the buyer to extremely high dollar penalties. Theoretically EO 14247 could lead to buyers purposely avoiding buying properties from non-US sellers (for fear of exposing themselves to excessive IRS penalties in an area they simply don’t understand). For the escrow company, a requirement of the buyer establishing an EFTPS account and directing the withholding tax payment themselves could significantly disrupt and delay closing dates, and maybe put the reputation of the escrow company at stake, and even lead to law suits of the escrow company by a buyer who became subject to massive IRS penalties.
In the alternative, if the escrow company could continue to make the IRS Form 8288 withholding tax payments (on behalf of the buyer) within the EFTPS payment system (perhaps by using an account opened by the escrow company without having to the wait for the buyer to set up his or her EFTPS account), there should be very little change in the current outcomes (which are largely managed without much difficulty by most escrow companies)…this result would be ideal. At first blush, it does appear that EFTPS contemplates and allows some scenarios where a third party (such as a payroll company) is allowed to make tax payments on behalf of an individual. So is it possible for an escrow company to make the withholding tax payments on behalf of the buyer within the EFTPS system? Further investigation and research is required to determine how EO 14247 and the EFTPS will impact the current process by which escrow administers the withholding tax required in foreign seller withholding tax cases. The research and analysis must take place quickly, as the September 30, 2025 deadline quickly approaches.