1) FIRPTA is a requirement of the IRS for withholding of 10% of the contract price at closing from the FOREIGN Seller of US real property. It is the BUYER who has to withhold this (or most realistically, the Buyer's agent (not us - but the title company or attorney handling the closing).

2) If this 10% is not withheld at closing and it is later discovered that the Seller was in fact foreign and should have had the 10% withheld, then the IRS will come to the Buyer to pay this money (in addition to the title company) .

3) The 10% is withheld by the title company for up to one week, pending proof from the Seller's Accountant that an application has been made to the IRS for an exemption certificate. For this reason, anyone taking a listing from a foreign Seller should make sure the Seller starts this process as soon as the listing is taken, to give the Accountant time to work on it. We have had this done in less than a week, but that was for an emergency rush measure, so don't do that unless it's an emergency.

If the title company gets this proof in time before closing, they will then hold onto the money until the IRS gives them authorization to release it to the Seller (usually about 60 days). If they DON'T get this proof in time before closing, then they are obligated to remit this to the IRS, who will keep it for at least one year! It cannot be returned to the Seller by the IRS until the Seller sends in their following year's tax return, to prove they have no tax liability. You DON'T want that to happen!

4) In order for the title company to be able to withhold this 10% from the Seller (on behalf of the Buyer), both the Seller AND the Buyer must have an ITIN (Individual Taxpayer Identification Number) from the IRS. It is THIS that is causing the problems for us, because if both the Seller and the Buyer
already have a number (let's say we are dealing with a Buyer who already owns another house), then there is no need to send in a W7 application. It is merely then a matter of giving their tax ID # to the title company.

However, in most cases, our Buyers are first time Buyers here and do not have a number.

5) The W7 is the form used to apply for this number. When applying for this number for the purposes of buying a house from a foreign Seller, the box to check off is "h" "other", with the explanation "Exception 4". There is NO OTHER box to check!!!!!!! The Buyer must also have a notarized copy of their passport. Every person taking title must have their own application. The ORIGINAL application form has to go TOGETHER WITH A FORM 8288-B, to the IRS.

6) The Form 8288-B is prepared by the Seller's Accountant and cannot be prepared until the title company is known and there is an effective contract. For that reason, either the Seller and Buyer have to use the same Accountant to prepare the application, or else the two different Accountants have to coordinate with each other.

7) If you have not applied for your tax ID number yet, we can recommend an accountant. The charge is usually only around $25.00.

8) If the Seller is a US citizen or legal permanent resident, then there is no FIRPTA issue. This means that the Buyer has no obligation to withhold anything and therefore doesn't even need an ITIN for closing.

9) If the Buyer is buying from a non-foreign Seller, then the Buyer CANNOT apply for an ITIN at this time. The only way they can get an ITIN in that case is to wait until they file their first year's income tax return and they can file the W7 at that time (however, the box to check will no longer be "h", but now "b", but they MUST file their tax return along with this application.

10) The reason that some Listing Agents and Property Management companies want a copy of the Buyer's W7, is just to verify that this has been done, to avoid any problems at closing. They themselves don't do anything with it.