Non-Foreign Affidavit Under IRC 1445
Non-Foreign Affdavit
Under Internal Revenue
Code 1445
Law Summary
Description: Under Federal law, (the Foreign
Investment in Real Property Tax Act (FIRPTA)(26 USC 1445) and the regulations
thereunder (26 CFR Parts 1 and 602)), a buyer of real estate is required
to withhold a tax from the sale of real property to a foreign person unless
an exemption applies. An exemption from withholding is provided for
individuals who purchase property for use as their principal residence
for $300,000 or less. Principal residence is defined to mean that the buyer
will reside there for more than 50% of the time in each of the next two
years. If you have a duty to withhold and you fail to do so, you
can be liable for an amount equal to your compensation in the transaction
and in some cases for the amount of tax that should have been withheld
The affidavit is needed to provide the buyer with assurance that the seller
is not a foreign person.
The general rule and exemptions as stated in Sec. 1445, Withholding
of tax on dispositions of United States real property interests, prodives:
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(a) General rule
Except as otherwise provided in this section, in the case of any
disposition of a United States real property interest (as defined in section
897(c)) by a foreign person, the transferee shall be required to deduct
and withhold a tax equal to 10 percent of the amount realized on the disposition.
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(b) Exemptions
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(1) In general
No person shall be required to deduct and withhold any amount under
subsection (a) with respect to a disposition if paragraph (2), (3), (4),
(5), or (6) applies to the transaction.
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(2) Transferor furnishes nonforeign affidavit.
Except as provided in paragraph (7), this paragraph applies to
the disposition if the transferor furnishes to the transferee an
affidavit by the transferor stating, under penalty of perjury,
the transferor's United States taxpayer identification number and that
the transferor is not a foreign person.
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(3) Nonpublicly traded domestic corporation furnishes affidavit that
interests in corporation not United States real property interests.
Except as provided in paragraph (7), this paragraph applies in
the case of a disposition of any interest in any domestic corporation
if the domestic corporation furnishes to the transferee an affidavit by
the domestic corporation stating, under penalty of perjury, that -
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(A) the domestic corporation is not and has not been a United States
real property holding corporation (as defined in section 897(c)(2)) during
the applicable period specified in section 897(c)(1)(A)(ii), or
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(B) as of the date of the disposition, interests in such corporation
are not United States real property interests by reason of section 897(c)(1)(B).
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(4) Transferee receives qualifying statement
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(A) In general
This paragraph applies to the disposition if the transferee receives
a qualifying statement at such time, in such manner, and subject to such
terms and conditions as the Secretary may by regulations prescribe.
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(B) Qualifying statement
For purposes of subparagraph (A), the term ''qualifying statement''
means a statement by the Secretary that -
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(i) the transferor either -
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(I) has reached agreement with the Secretary (or such agreement has
been reached by the transferee) for the payment of any tax imposed by section
871(b)(1) or 882(a)(1) on any gain recognized by the transferor on the
disposition of the United States real property interest, or
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(II) is exempt from any tax imposed by section 871(b)(1) or 882(a)(1)
on any gain recognized by the transferor on the disposition of the United
States real property interest, and
(ii) the transferor or transferee has satisfied any transferor's
unsatisfied withholding liability or has provided adequate security to
cover such liability.
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(5) Residence where amount realized does not exceed $300,000
This paragraph applies to the disposition if -
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(A) the property is acquired by the transferee for use by him as a
residence, and
(B) the amount realized for the property does not exceed $300,000.
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(6) Stock regularly traded on established securities market
This paragraph applies if the disposition is of a share of a class
of stock that is regularly traded on an established securities market.
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(7) Special rules for paragraphs (2) and (3)
Paragraph (2) or (3) (as the case may be) shall not apply to any
disposition -
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(A) if -
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(i) the transferee has actual knowledge that the affidavit referred
to in such paragraph is false, or
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(ii) the transferee receives a notice (as described in subsection (d))
from a transferor's agent or a transferee's
agent that such affidavit is false, or
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(B) if the Secretary by regulations requires the transferee to furnish
a copy of such affidavit to the Secretary and the transferee fails to furnish
a copy of such affidavit to the Secretary at such time and in such manner
as required by such regulations.
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