Taxation & Estate Planning

LATE FILING RELIEF FOR FIRPTA TAX AND WITHHOLDING ISSUES

By Charles Rubin

Code Section 897 imposes U.S. income tax on foreign persons disposing of U.S. real property interests (including the disposition of interests in U.S. corporations owning significant real property interests - USRPHC's). Code Section 1445 imposes withholding obligations on buyers and transferees of such U.S. real property interests (USRPIs).

Sections 897, 1445, and the regulations thereunder provide for various exceptions to tax and withholding, provided that documentation is provided to the buyer/transferee, and where required, to the IRS, in a timely manner. If such documentation is not timely provided and filed, the parties can seek relief through a private letter ruling (with concomitant ruling fees and professional fees). The IRS has now provided a mechanism to obtain late filing relief on many of these issues without the submission of a private letter ruling request.

The late filings covered by these new rules are those provided in Treas.Regs. §§ 1.897-2(g)(1)(ii)(A), 1.897-2(h), 1.1445-2(c)(3)(i), 1.1445-2(d)(2), 1.1445-5(b)(2), and1.1445-5(b)(4). These provisions relate to the provision of:

a. documentation that stock being transferred is not stock in a USRPHC (relating to both tax under Section 897 and withholding under Section 1445); and

b. documentation advising that a nonrecognition provision of the Internal Revenue Code applies to the transfer of a USRPI.

Upon application, the IRS will advise the taxpayer whether relief is granted within 120 days. Relief will be granted if the taxpayer had "reasonable cause" for the nonfiling.

Rev. Proc. 2008-27, 2008-21 IRB, 05/13/2008

Full post as published by Rubin on Tax on May 14, 2008 (boomark / email).