FIRPTA Tax Blog
By: Michael W. Brooks (President DIRECTS)
The revised IRS Forms 8288 and 8288-A became effective January 1, 2023. The Form 8288 and 8288-A are extremely important forms in any non-seller (of US real estate) transaction. Proper preparation of these forms can mean the difference in a non-US seller receiving their refund a handful of months after sale (if the forms are prepared properly), to maybe years after the sale or maybe even never receiving it all (which absolutely can happen if there are big mistakes on the forms which bury the withholding tax/refund in bowels of the IRS). And with 15% of the sale price being withheld at the time of close, the refund amount held by the IRS is often in the hundreds of thousands of dollars. Finally, these forms are extremely important to avoid penalties being assigned by the IRS (to the buyer). Again, THESE FORMS ARE IMPORTANT. Let’s take a look at the ley changes to the Form 8288, most of which are in the introduction and Part I of the revised Form 8288.
How Does Part I of the New Form 8288 differ from Part I of the Old Form 8288?
• All the basic information about the withholding agent and the transaction generally (other than the withholding tax information) are now required on the new Form 8288 in a beginning section above Part I. The heading of this first section is “Withholding Agent Information”. The instructions to the Form 8288 define the term withholding agent as “the buyer or other transferee who acquires a USRPI (US real property interest) from a foreign person.” That means the name of the buyer (not the escrow or title company) and the buyer’s information must be listed on Line 1.
• Lines (3) and (4) represent a pretty significant change. New Form 8288 Line (3) requests the “Date of transfer” and Line (4) requests the “Date of withholding certificate or date of distribution”. The prior version of the 8288 only requested the “Date or transfer”, so this new Line (4) requesting “Date of withholding certificate or date of distribution” is newly added language. What is the IRS looking for here? This new language is designed to tackle the previously thorny issue of what is the proper date of transfer when the seller made an 8288-B application (and escrow/title agreed to hold the withholding tax pending approval from the IRS), and the withholding certificate is either approved (and requires a reduced amount of withholding), or the withholding certificate is rejected and all withholding tax must be sent into the IRS. Under the old Form 8288, the date the IRS wanted to see on the Date of transfer line after a withholding certificate was issued (or rejected) was not the date of closing, it was the date of the withholding certificate or date of the rejection letter (this was always a very confusing point on the old Form 8288…if we at DIRECTS were preparing the 8288 in this scenario we would write (squeeze) on the Date of transfer line: “date of transfer- (date) / date of withholding certificate- (date)”. That method seemed to work pretty well on the old Form 8288 (we never had any trouble with our finessed hybrid method). Under the new Form 8288, however, the proper reporting is much clearer. On Line (3) of the new Form 8288, the “Date of transfer” is the date of closing (simple). And for most foreign seller transactions Line (4) (Date of withholding certificate or date of distribution) should blank. But, to the extent escrow or title (or another party) has agreed to hold the withholding tax, pending an IRS ruling on an 8288-B/ withholding certificate application, new Line (4) becomes relevant. The date of the withholding certificate is the date on the IRS withholding certificate letter assuming the withholding certificate letter still requires some withholding. If the withholding certificate is approved and the withholding certificate letter requires no withholding tax, then no 8288 and 8288-A (or tax) is submitted to the IRS and this issue is obviously moot. The other date that you might have to put on the new Line (4) is the date of the IRS rejection letter (if the withholding certificate application is ultimately rejected by the IRS and all the withholding tax you are holding must be sent into the IRS.
The remaining additions/ changes to the Form 8288 and largely cosmetic, although new IRS code sections and forms have been added may require input on the form (IRC Section 1446(f) and Form 8288-C in the form). Generally, these new additions cover what I think are fairly remote/ unlikely scenarios, so I will not go into detail on these new additions here.
I will give my impressions to the revised Form 8288-A (which carries over most of the changes which were made to the Form 8288, but not all…which is too bad) in a Part II of this blog post.