FIRPTA Tax Blog
It’s November 2026, you sold your California house for $1,200,000 in April 2025 and $180,000 was submitted to the IRS at the closing because you are a non-US seller, and you made no profit on the sale; have you received your $180,000 refund yet in November 2026? From what I see, there’s a good chance the answer is no. The IRS has had control of your $180,000 withholding tax for 18 months, and you still don’t have it back. Why? Below I list most frequent and current (this year’s) reasons for inefficiencies and downright challenges in retrieving (the often very large) withholding tax refund of the non-US person. How does the IRS still have my $180,000 after a year and a half in 2026? Let’s take a look….
1) Reason #1 the IRS Still Has Not Provided Your Refund in 2026- The IRS now has a greatly reduced staff. Over the last two years the IRS workforce has been reduced by approximately 25%. Even in 2026, the IRS refund process is still largely up to individuals working on the refund process (yes, it still largely comes down to an issue of manpower). The FIRPTA refund process, where the refunds are also typically very large amounts, is very much up to the work of individual IRS employees (not computers, not AI….people running the IRS refund process). Less people working on these matters invariably leads to longer wait times and more problems generally in the refund process. It’s harder to call the IRS now (wait times are far longer), as we must do at DIRECTS almost daily for our clients’ refunds, because there are fewer IRS people to answer the calls. The IRS employees who do answer the phone often know surprising little about the FIRPTA/ withholding tax process (it seems many of the more experienced employees left the IRS in the last couple years). Fewer IRS employees…more problems obtaining refunds (and in a timely manner), it’s that simple.
2) Reason #2 the IRS Still Has Not Provided Your Refund in 2026- The IRS issued you an Identity Verification Letter. About 40% of our clients in 2026 (filing their 2025 tax returns for sales of US real estate in 2025) received Identity Verification Letters. Complying with these Identity Verification Letters is often cumbersome, challenging and slow. It will require our client to register an on-line account at the IRS.gov website (and this is not necessarily the easiest thing to do for some clients….it will require for example the careful scanning (into the computer) of various identity documents). And what if your home country regulates the internet, and you cannot simply access IRS.gov from your home (you may need a VPN)? The process will also require a client to provide documents with a specific address on them (some clients may not have these). It may require an English speaking translator to speak with an IRS representative virtually. If all this cannot be achieved remotely with the client (who is likely back in their home country during this process, often China or Canada for our clients at DIRECTS), the non-US person may have to fly to the US and join us for an in person meeting at an IRS taxpayer assistance center to establish identity. Simply being issued this Identify Verification Letter (even if one is quickly able to navigate the proving identity process), will delay the refund often for months. Sometimes many months…
3) Reason #3 the IRS Still Has Not Provided Your Refund in 2026- You did not open a US Bank Account. The IRS will no longer issue refunds in the form of paper checks. In order to obtain a refund, a non-US person will have to open a US bank account. Now often our client does have a US bank account already (they did own real estate in the US), but if they never did open a US bank account and they live in their home country (maybe they live in China and haven’t been in the US for years), they will find it can be very difficult to open a US bank account while not physically in the US. It’s possible in some countries (it may take a high minimum deposit), but it’s also likely our non-US client simply will not be able to open us a US bank account abroad. There are a couple work-arounds for this problem, but a possible required trip to the US to open a US account cannot be ruled out. No US bank account, no $180,000 refund for our non-US person who sold US real estate in 2025.
4) Reason #4 the IRS Still Has Not Provided Your Refund in 2026- You have a crazy refund case with unusual facts, and the IRS simply cannot process your refund (the “SOS case”). There are so many places these FIRPTA withholding tax refund efforts can go wrong. The paperwork which goes into the IRS at closing (the IRS Forms 8288 and 8288-A) needs to be prepared immaculately. Errors on these forms prepared at the close of the transaction which accompany the withholding tax into the IRS may lead to major delays (even possibly a delay of years). Non-US persons must obtain ITIN’s (US Individual Taxpayer ID Numbers) quickly. Without having an ITIN at the right time, the IRS will have difficulty processing the foreign seller’s refund. Finally I would add it’s important for the professional who is overseeing the closing (e.g., an escrow officer, title officer, attorney…) write certain specific information on the withholding tax check itself. The IRS has a habit of misplacing the withholding tax check, and sometimes the IRS cannot “locate the check” (even though it has clearly cashed the check) without certain information about the parties and the transaction physically written on the check (in the memo section). Without the closing professional writing this information on the check, the IRS sometimes cannot identity it has the withholding tax, and therefore will not issue the refund. Hard to believe something which might have last had meaning in say the 1970’s (what was written on a check) can make the difference between receiving or not receiving (or at a minimum waiting a long time to receive) a large check of $180,000 from a real estate sale a year and a half ago. But that’s what cases can sometimes come down to- what’s written in the memo section of a withholding tax check.
At DIRECTS in 2026 (and going into 2027) we continue to process withholding tax refunds by the hundreds each year, usually (but not always) for a real estate sale by a non-US seller of real estate in California, often having to overcome some or all of the obstacles listed above.