FIRPTA Tax Blog
By Michael W. Brooks, Esq.
michael@directsllp.com
The IRS Had Not Been Issuing ITIN’s for Months, But Just Now, in Late July 2020, the IRS Has Finally Resumed Issuing ITIN’s
At DIRECTS, as of the beginning of July, not one of the hundreds of clients for whom we applied for an ITIN had been issued one since the IRS stopped issuing ITIN’s in March. Again, obtaining an ITIN is an absolute prerequisite for any foreign seller who wants a refund of their 15% withholding tax (unless they have a US social security number, which is unlikely). ITIN’s are processed out of the IRS office in Austin, Texas. The IRS employees left that office (for virus concerns) in March and were scheduled to come back in June (and presumably some did, however the IRS employees who issue ITIN’s apparently did not). What’s been happening in the IRS office in Austin since the “reopening” in June? Since then, at least 29 employees at the Austin campus have been confirmed as testing positive for the virus. In late June, the union that represents the IRS employees was calling on the agency to shut down its Austin, Texas, campus for safety reasons. However, on July 7, 2020, we received information from the IRS National ITIN Director that the IRS ITIN operation out of Austin Texas had resumed. And sure enough, starting in the week of July 20th, we received over 50 ITIN’s for clients for whom we had applied back in March and early April. So we are happy to report the ITIN operation does appear to be back up and running in Austin, Texas, after an over three month cessation of work for virus concerns. They are still catching up for ITIN’s applied for in April through June, but they are working again. Let’s hope they can keep at it despite all the health concerns currently in Texas, because again, if these ITIN’s are not processed and issued by the IRS, the foreign investor of US real estate will not receive a refund.
The IRS Has Not Issued an 8288-B/ Withholding Certificate in Months
Remember 8288-B withholding certificates are a terrific way for foreign sellers to obtain a quick refund of the 15% withholding tax (usually) in a matter of three or four months after the close. But unfortunately in 2020, we’re finding out that three to four months is turning into we have no idea how long it will take. We have many current outstanding withholding certificate applications which we filed with the IRS in 2020 (and even a handful from late 2019) where we have heard nothing from the IRS since the end of March. These applications are reviewed by an IRS office in Ogden, Utah, which also supposedly was re-opened in June. Despite those reports we have yet to receive any approved withholding certificates from the IRS since late March, and we are now almost in August. With the virus once again raging in the western states (including Utah), it may be difficult for the IRS to resume 8288-B application reviews anytime soon. The typical three to four-month wait for a withholding certificate may be closer to nine months to a full year wait this year, we just don’t know. For now, we must wait patiently for our many 8288-B applications to be approved by the IRS.
In Summary, for Very Obvious (and Legitimate) Reasons, 2020 is Proving to be a Very Difficult Year for the Refund of the Withholding Tax of Foreign Investors of US Real Estate
For foreign investors who sold US real estate in the last 18 months, the honest message is the refund of the 15% withholding tax is going to take a long time (maybe a very long time). If they sold the real estate in 2019 and they have already filed a tax return in 2020 for the IRS refund (or have yet to file the tax return for the refund), there really is no telling how long the refund will take in 2020. Under the current conditions, we think anybody who sold in 2019 might be lucky if they obtain their refund at any point in calendar year 2020 (yes, December 2020 might be a good result). It seems absolutely plausible, given the unrelenting pandemic and the huge back-up which already exists, that refunds for some (or many) tax returns filed will not be issued until 2021. And if a foreign person is entering into a sale in the later part of 2020 and they wish to consider the 8288-B/ withholding certificate (in-year refund) option, that route looks very dicey now as well. Since we have yet to receive any withholding certificates from the IRS in the last four months, it’s hard to advocate this approach at the moment either.