FIRPTA Tax Blog
About a couple years ago we started seeing the IRS issue (in volume) IRS Notice CP5071 (“CP5071”) or IRS Notice 5071C to 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
Note 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 by 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).
Why is Satisfying the Identity Verification so Challenging?
The non-US person required to verify their identity to receive their refund will be required to create an account at IRS.gov. Sounds simple right? It may be a lot a harder for some than it sounds. In regard to creating an online account of any nature, for some (for example some of our elderly clients) it might be very challenging to create any online IRS account. Next, in our experience many persons who receive the IRS Notice CP5071 (or 5071C ) are not physically in the United States when they are required to verify their identification. Why is this challenging? Well, creating an IRS online account will require receiving emails from the IRS in order to establish the account. What if in this person’s country the internet is blocked (or partially blocked), so the person cannot communicate directly with the IRS website and therefore cannot create an IRS account? (China comes to mind as a country with this issue…and there are many, many Chinese persons who buy and sell US real estate, but they may not be able to establish an IRS.gov account in their home country of China, because of China’s limiting the internet access to its citizens). The Chinese individual seeking to create an online IRS account might have to travel to Hong Kong (where the internet is not regulated as much), or utilize a VPN while in China, simply so they can access IRS.gov and create an IRS account. Next, the non-US person seeking to verify their identity will have to produce several identifcation documents which display their name as shown on the tax return and the documents which accompanied the withholding tax into the IRS (producing official documents which show the individual’s name can be very tricky; if there are any differences in the names used by the individual (between the name as used for the real estate purchase and sale versus the name used by the individual on the requirement identification documents). Finally, in order to create an online account (and to verify one’s identity) it is very likely the non-US person will be required to participate in a brief video call with an IRS representative (again, this will require unfiltered internet access so people in some countries may not be able to complete that call without leaving the country and going to a country which does not limit internet access. But there could be other problems with the required interview with the IRS representative (the IRS might have a translator available for certain languages). What if our international client doesn’t speak English; will they be able to create an IRS online account (one suggestion is that the foreign individual hire a translator to sit next to them for the call (and they would translate between the IRS agent and the non-US person who’s identity is being verified), but that may not work entirely because there are some questions the IRS agent may insist are answered only by the taxpayer (and not allow the translator to speak when the IRS asks certain questions))?
There are several other hurdles that we at DIRECTS see with the IRS identity verification process. We are participating in almost daily identity verification efforts with our clients, overseeing our client’s efforts to verify their identity to the satisfaction of the IRS. What we typically do is have a video call with our client, who often resides half way around the word. We will look over their shoulder as they attempt to verify identity on the computer, and then via a virtual call with an IRS agent. We “stick with” our clients identification verification until they have successfully verified the identification, and then we oversee the IRS’ processing of our client’s refund (and “stick with” the refund process until the client’s receive their full expected refund). But mastering the client verification of identity process with the IRS has become an integral part of obtaining the IRS refund generally (so many foreign sellers of US real estate are required to jump over this hurdle of late).