Regulations: Increased FIRPTA withholding tax rate under section 1445(a)

Increased FIRPTA withholding tax rate

The Treasury Department and IRS today released for publication in the Federal Register final and temporary regulations (T.D. 9751) to reflect changes made with respect to the increased withholding tax rate under section 1445(a) on amounts 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).

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As explained earlier this week in TaxNewsFlash-United States, the increase in the section 1445(a) withholding tax rate was made by a provision in the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). That measure increased the withholding tax rate in section 1445(a) to 15% (from the previous rate of 10%) of the amount realized by a foreign person that disposes of a USRPI. 

Today’s regulations [PDF 207 KB] reflect these changes. Also, the preamble explains that the regulations update certain mailing addresses listed in regulations under sections 897 and 1445. 

Taxpayers are required to use the revised mailing address beginning after February 19, 2016 (the publication date in the Federal Register). The regulations state that the IRS will not assert penalties against taxpayers that use the mailing address previously specified in the regulations on or before a date that is 120 days after the February 19 publication in the Federal Register. The preamble states that any prior timely filings made pursuant to the regulations under sections 897 and 1445 that were mailed to the address specified in the Instructions for Form 8288 under the heading “Where To File,” instead of the address previously specified in the regulations, have been accepted by the IRS.

Today’s release requests comments on certain other aspects of the PATH Act that apply to dispositions of, and distributions with respect to, USRPIs.

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