As you know, procuring ITIN’s for non-US citizen/residents is essential when these individuals sell (or rent) US/California real estate. Starting in 2015, the IRS has made an already challenging process even more cumbersome. In 2016, the IRS plans to add yet another layer of complexity.
2015 Change- Form 8288’s Now Really Must be Included in ITIN Applications
If you’ve ever read through the W-7 Instructions (Application for ITIN’s), where a foreign person needs an ITIN due to 3rd party withholding on a disposition of US real estate, you’ll note there has always been a requirement that an IRS Form 8288 be included (showing the amount withheld at the close). But prior to 2015 at DIRECTS we were able to routinely obtain ITIN’s for our clients without submitting the Form 8288’s. This was a real advantage since the other requirements of the W-7 (the certified passport (we are permitted by the IRS to certify foreign passports at DIRECTS), the estimated closing statement, the sales contract) all could be sent into the IRS at the beginning of escrow. This meant there was a good chance we could get our client the ITIN (assigned by the IRS) before the closing date. This allowed the foreign seller to avail him or herself of the reduced California withholding if applicable (the 12.3% x the appreciation or no withholding for a loss sale…either usually better than the default of 3.3% x the gross sales price requirement), since the seller must have an ID number in place at close to take advantage of those options). In addition, some escrow companies want the ITIN in place as of the close date for the purposes of the IRS Form 1099. But under the new interpretation of the rule (requiring an 8288 with the W-7), it would really be impossible to have an ITIN by the close since the 8288 is not completed typically until right at the close.