Beginning Wednesday, February 17, 2016, the withholding tax rate in Code section 1445(a) will increase to 15% (from the previous rate of 10%) of the amount realized by a foreign person that disposes of a "U.S. real property interest" (USRPI). Section 1445 contains withholding tax rules relating to the Foreign Investment in Real Property Tax Act (FIRPTA).
On or after February 17, 2016, any person (a “withholding agent”) that acquires a USRPI from a foreign person generally will be required to withhold an amount equal to this new rate of 15% of the amount realized by a foreign person, and to use Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests, to deposit that amount with the IRS no later than the 20th day after the acquisition. A withholding agent that fails to timely deposit the required amount generally will be jointly and severally liable for the amount it fails to timely deposit, plus penalties and interest.
To reflect the increase to 15% of the FIRPTA withholding tax rate specified in Code section 1445(a), and other changes to the FIRPTA rules made by the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113 (“PATH Act”), the IRS has issued new versions of Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests (Rev. February 2016), and of the Instructions for Form 8288 (Rev. February 2016).
The Instructions for Form 8288 (Rev. February 2016) discuss the increase in the Code section 1445(a) withholding tax rate, and also discuss other amendments made by the PATH Act to the rules relating to the FIRPTA rules in the Code that may affect filers of Form 8288. For example, these instructions also address the new exemption from FIRPTA tax and withholding for qualified foreign pension funds that was added by Section 323 of the PATH Act, and confirm that a qualified foreign pension fund or any entity wholly owned by such fund is not a foreign person for purposes of FIRPTA withholding reported on Form 8288.
The increase to 15% in the Code section 1445(a) withholding tax rate was made by Section 324 of the Path Act, as signed into law by President Obama on December 18, 2015 (the date of enactment). This increase was made effective for dispositions after a date which is 60 days after the date of the enactment of the PATH Act.
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