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  • When an Agent Could Be Liable for Taxes From a Foreign Seller

When an Agent Could Be Liable for Taxes From a Foreign Seller

April 27, 2018 | Texas REALTORS® Staff
older man at desk concentrating on paperwork

The Foreign Investment in Real Property Tax Act requires buyers in certain transactions involving foreign sellers to withhold funds for federal taxes. Does either agent have liability in such a transaction where the seller falsely certifies that he is not a foreign seller?

Possibly. If an agent knows that a certification is false and fails to notify the buyer of this knowledge, that agent will be responsible for paying the tax to the IRS. This payment is limited to the amount of commission that the agent earned in the transaction.

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JennyDonaldClaude HumbertStevan KoyeAndres De Pina Recent comment authors
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Raul Giorgi
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Raul Giorgi

TAR and TREC for years have been treating this topic like the “white elephant in the room”. It’s long past due that both TREC and TAR provide better education and tools (perhaps a promulgated form) so that license holders do not feel awkward about inquiring and disclosing “Foreign Seller” status. The truth is most agents do not want to touch the topic for obvious reasons, especially having to do with the emphasis given in our profession about equal housing laws. Actually, few if any, agents have the required expertise to determine the correct foreign status, because most agents are not… Read more »

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4 years ago
Lilly Hughes
Guest
Lilly Hughes

More education on the topic would be helpful.

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4 years ago
Andres De Pina
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Andres De Pina

Well said, Raul. With the best interest of our clients in mind, we should always share what information is available and encourage clients to seek experts in the matter. It’s the client ultimately who makes the decision. Education is the key.

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4 years ago
Stevan Koye
Guest
Stevan Koye

This is an excellent point. It almost feels as if this is a scare tactic for agents and brokers and yet it seems as if a random email newsletter update would include more than just a “possibly” without giving us any tangible education.

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4 years ago
Gregory Knapp
Guest
Gregory Knapp

‘United States Person’ is a tax agent for non-resident aliens or alien corporations. Read Income Tax: Shattering The Myths by Dave Champion!

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4 years ago
Curious reader
Guest
Curious reader

Why on earth this is any agents responsibility to make this determination, not the title office owner/lawyer who knows the law especially immigration and nationality, the notory who has training about the documentation ??

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4 years ago
maria
Guest
maria

AGREE 100%

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4 years ago
Doris Snipp
Guest
Doris Snipp

Let’s see. It says, I am not an attorney, engineer, inspector, etc. Maybe we need to add neither am I an IRS agent nor know anything about immigration rules. This can be put in the Title Company’s lap. Nor do I want lessons on how to be one.

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4 years ago
John Cox
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John Cox

Amen to the above comment.

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4 years ago
James bullington
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James bullington

Don’t ask don’t tell. It worked in the army for 30 years. Just another example of trec as a useless organization. Realtors have to be responsible for every little thing envolving real estate transactions and problems with the home. Its no longer “buyer beware”. “Its realtor beware”. I’m glad I’m retiring in 3 years.

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4 years ago
REBECCA GONZALEZ
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REBECCA GONZALEZ

I agree. We should bring this up to our brokers

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4 years ago
maria
Guest
maria

Good answer. Title Co should ask Seller . The way they are asked if they have liens that seem to be in their name.

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4 years ago
Lilly Hughes
Guest
Lilly Hughes

That’s the nail on the head.

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4 years ago
Randy Smith
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Randy Smith

Paragraph 20 of our contract; we talk about it each and every day in our classrooms at champions school of real estate.

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4 years ago
Rick Reyna
Guest
Rick Reyna

I strongly feel the title company carries a great amount of responsibility in determining and veryfying this matter. They are the ones handling the money and handling sensitive info like ID’s & SS #’s.

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4 years ago
Anna Lee Trinidad
Guest
Anna Lee Trinidad

Realtors are not attorneys and cannot give legal advice.

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4 years ago
maria
Guest
maria

100 % correct

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4 years ago
Jolie Williams
Guest
Jolie Williams

Thank you for mentioning FIRPTA! Most agents are unaware of it, as was I until a Seller refused to close with my buyer due to the 15% being withheld. by the title company on behalf of my Buyer. TREC is not saying an agent is responsible for informing their clients of this (although if you have a non citizen client you may want to tell them as you don’t want them being shocked at Closing.). An agent is only responsible if and only if they know their clients are not US Citizens and their clients do not disclose this information.… Read more »

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4 years ago
Lilly Hughes
Guest
Lilly Hughes

I don’t believe citizen/non-citizen is the defining characteristic. What if you are a permanent resident ie green-card holder?

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4 years ago
Jenny
Guest
Jenny

Agreed. IRA has specific methodology to determine ” Residential Alien” and ” Nonresidential Alien”. I couldn’t find the definition of ” Foreign person” from TREC’s perspective so far. Maybe someone can give me some clues.

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4 years ago
maria
Guest
maria

Is there a certain Disclosure we can give to ALL sellers and buyers regarding this withholding. That would make it easier and

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4 years ago
Candice Lee
Guest
Candice Lee

I think the purpose of this article is just disclose the seller (either a husband or wife) is a “foreign person” . And be sure to notify buyers. I sold a condo with a husband who is not a U.S. citizen (due to Texas’ community law), and still got like 6 bids in 2016. I think what matter more is the location and the value of the property. Plus the IRS gives out exemption to FIRPTA tax. Your Title Company and CPA are versed in this area. If not, you need to find one that is.

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4 years ago
Marc Enzi
Guest
Marc Enzi

My firm handles FIRPTA from start to finish making it as easy as ordering an appraisal. If you would like us to put on a FIRPTA presentation, give my office a call 281-578-1040 Tax Solutions http://www.taxss.com | info@taxss.com

Reply
4 years ago
R Potts
Guest
R Potts

From atty website 3. WHO IS A “FOREIGN PERSON”? FIRPTA defines a “Foreign Person” by defining who is not a Foreign Person, so it is important to understand the following definitions: a. A “Foreign Person” is defined as any person other than a “United States Person.” b. A “United States Person” is any of the following: (i) a U.S. Citizen; (ii) a resident alien who has a Green Card; (iii) a resident alien who meets the Substantial Presence Test; (iv) a domestic (U.S.) corporation, partnership or other legal entity (except a “Disregarded Entity” as defined by IRS Regulations), trustee or… Read more »

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4 years ago
Claude Humbert
Guest
Claude Humbert

I’d like to comment on some of the points that have been made so far: 1. Regarding Education: Article 11 of the Code of Ethics deals with Competence and we should expect that Realtors engaging in “International Real Estate” be familiar with the rules guiding this transaction. The CIPS course provide such education as well as HAR, TAR and NAR at specific classes, seminars or conferences. Many title companies are also regularly offering specific classes on FIRTPA. Besides, as mentioned by Randy Smith, paragraph 20 of the TREC contract mentions the tax liability so everyone should be aware of this.… Read more »

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4 years ago
Donald
Guest
Donald

Paragraph 20. FEDERAL TAX REQUIREMENTS: If Seller is a “foreign person,” as defined by applicable law, or if Seller fails to deliver an affidavit to Buyer that Seller is not a “foreign person,” then Buyer shall withhold from the sales proceeds an amount sufficient to comply with applicable tax law and deliver the same to the Internal Revenue Service together with appropriate tax forms. Internal Revenue Service regulations require filing written reports if currency in excess of specified amounts is received in the transaction. The key wording: “or if Seller fails to deliver an affidavit to Buyer that Seller is… Read more »

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4 years ago

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