The individual transferor of a U.S. real property interest must file a Form 1040NR, along with Schedule D, Form 6251, and Form 8288-A to meet tax obligations. If the transferor is a corporation, a Form 1120F with appropriate schedules and Form 8288-A will be required.
If the foreign person or entity uses the real property interest to produce income in the U.S., IRC Section 871 imposes a 30% tax rate (or a tax treaty rate if lower). This income is treated as “income not effectively connected with a U.S. trade or business.” However, the foreign person/entity can make an election under IRC Section 871(d) to treat the income as effectively connected with a U.S. trade or business, subject to graduated tax rates. The required income tax return will be Form 1040NR (for individuals) or Form 1120F (for corporations), along with the appropriate schedules. Additionally, Form W-8ECI must be filed with the payer to identify income as effectively connected.
If an agent knows or should have known that a transferor’s certification is false or that the transferor is a foreign corporation, they must notify the transferee or will be liable for the tax. The agent’s liability is limited to the amount of payment received from the transaction.
An agent is someone who represents the transferor or transferee during negotiations or settlements. Certain clerical and administrative tasks do not make someone an agent (e.g., receipt/disbursement of payments, document recording).
A Withholding Agent is personally liable for the full amount of FIRPTA withholding, plus penalties and interest. A withholding agent is typically the person who has control or custody of the income subject to withholding and is responsible for ensuring proper FIRPTA withholding is conducted.
