Withholding And Reporting Requirements
The U.S. Tax Code gives the Internal Revenue Service authority to prescribe regulations regarding annual information returns concerning the ownership of United States real property interests by foreign persons. The Internal Revenue Service is not now exercising this authority. Therefore, no such information returns are currently required. As explained below, however, reporting is required in connection with the sale or exchange of a United States real property interest.
The purchaser/transferee of a United States real property interest from a foreign person transferor is required to withhold 10 percent of the total amount realized by the transferor if the disposition occurs on or after January 1, 1985 and no exemption applies. The purchaser/transferee must then file Forms 8288 and 8288-A with the Internal Revenue Service and the tax withheld must be paid over. These forms require information regarding the names and addresses of the transferor and transferee, a description of the United States real property interest, the date of the transfer, the amount realized by the transferor, and the amount withheld by the transferee.
The withholding of tax by the purchaser/transferee does not excuse the foreign person transferor from filing a U.S. tax return with respect to the income arising from the disposition. Form 1040NR or Form 1120F, as appropriate, must be filed and any tax due must be paid by the filing deadline generally applicable to such persons. Any tax withheld is credited against the amount of income tax computed on the return.
An exemption from the above requirements may be available in a variety of circumstances, including situations where a foreign person transferor receives a withholding certificate from the Internal Revenue Service indicating that the transferor is exempt from U.S. tax or that the transferor has entered into an agreement with the Internal Revenue Service for the payment of tax.
The purchaser/transferee of a United States real property interest from a foreign person transferor is required to withhold 10 percent of the total amount realized by the transferor if the disposition occurs on or after January 1, 1985 and no exemption applies. The purchaser/transferee must then file Forms 8288 and 8288-A with the Internal Revenue Service and the tax withheld must be paid over. These forms require information regarding the names and addresses of the transferor and transferee, a description of the United States real property interest, the date of the transfer, the amount realized by the transferor, and the amount withheld by the transferee.
The withholding of tax by the purchaser/transferee does not excuse the foreign person transferor from filing a U.S. tax return with respect to the income arising from the disposition. Form 1040NR or Form 1120F, as appropriate, must be filed and any tax due must be paid by the filing deadline generally applicable to such persons. Any tax withheld is credited against the amount of income tax computed on the return.
An exemption from the above requirements may be available in a variety of circumstances, including situations where a foreign person transferor receives a withholding certificate from the Internal Revenue Service indicating that the transferor is exempt from U.S. tax or that the transferor has entered into an agreement with the Internal Revenue Service for the payment of tax.