If you’re involved in the sale of U.S. real estate where the seller is a foreign person, FIRPTA withholding likely applies—and failing to follow the rules can result in costly penalties from the IRS.
At Cao & Associates, CPA, we’ve worked with buyers, sellers, escrow agents, and real estate professionals to ensure FIRPTA compliance and avoid unnecessary fines. Here's what you need to know if you’re facing or concerned about FIRPTA-related penalties.
⚖️ What Is FIRPTA?
FIRPTA stands for the Foreign Investment in Real Property Tax Act, which requires buyers to withhold up to 15% of the gross sales price when purchasing U.S. real property from a foreign seller. This withholding is sent to the IRS as a prepayment of the seller’s potential capital gains tax.
🚫 What Happens If You Don’t Comply?
The buyer (not the seller) is legally responsible for collecting and remitting the FIRPTA withholding to the IRS. If they fail to do so, the IRS may assess:
1️⃣ Full Withholding Liability
The IRS can hold the buyer personally liable for the full 15% withholding amount—even if it was never collected from the seller.
2️⃣ Interest Charges
Interest will accrue from the date the withholding should have been paid until the amount is settled with the IRS.
3️⃣ Late Filing Penalties
If required forms (8288 and 8288-A) are not filed on time, the IRS can charge up to $260 per form for each late or incorrect submission.
4️⃣ Penalties for Escrow Agents or Brokers
If a closing agent knowingly disregards FIRPTA requirements, they may also be penalized or investigated by the IRS.
🧾 Key Forms Involved
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Form 8288 – Used by the buyer to report and remit the withholding to the IRS.
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Form 8288-A – IRS-stamped proof of withholding that the seller needs to claim a refund or credit.
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Form 8288-B – Used to request a reduced withholding or exemption in advance.
Failing to file these correctly—or at all—can delay refunds and increase exposure to IRS action.
🔎 Common Mistakes That Lead to Penalties
❌ Buyer assumes FIRPTA doesn’t apply without verifying the seller’s status
❌ ITIN not obtained on time for the seller
❌ Buyer doesn’t send withholding to IRS within 20 days after closing
❌ Closing agent fails to flag FIRPTA applicability
❌ Seller doesn’t file a U.S. tax return to claim a refund
✅ How We Help Prevent Penalties
At Cao & Associates, CPA, we guide clients through every step of the FIRPTA process:
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Verify seller status and determine withholding requirements
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Assist with ITIN application and tax forms
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Prepare and file Forms 8288, 8288-A, and 8288-B correctly
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Help sellers file U.S. tax returns to recover over-withheld funds
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Represent clients in FIRPTA audits or IRS correspondence
Whether you're a buyer, seller, or agent, our goal is to protect you from unexpected IRS penalties and streamline the process.
📞 Don’t Risk FIRPTA Penalties — Get Expert Help Today
If you’re unsure whether FIRPTA applies—or worried about a missed step—we’re here to help. A short consultation could save you thousands.
📧 Email: info@caoandassociates.net
📱 Call or Text: 425-230-7538 / 425-336-8675
We provide bilingual services in English and 中文 and support international clients globally.
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