FIRPTA Law In Oregon
There has been a lot of discussion in my Facebook groups about the recent changes to the FIRPTA Law in Oregon. Looking over all my blog posts, I realize I have never posted any information about it here, although I have written about it in my Jung's Journal - Real Estate Newsletter, to my clients. Starting January 2019, there have been some changes made within Oregon when you are buying or selling real estate in regards to FIRPTA.
What follows is a summary from Phil Querin, Querin Law, LLC, to give you some more information/background. Check with your real estate agent, or me, in addition to your title company regarding what needs to be done whether buying or selling your home.
FIRPTA Oregon & IRS LAW
A Wrong-Headed Law? Most people have never heard of the Foreign Investment in Real Property Tax Act, commonly known as “FIRPTA” – unless they have been involved in the “disposition” (i.e. sale/purchase) of U.S. real property from a “foreign person”.
The FIRPTA law says that if the seller is a “foreign person”, the “transferee” – i.e. the buyer, is the “Withholding Agent” that is legally responsible for collecting the tax and forwarding it to the IRS. Any lay person could be forgiven for thinking it is wrong-headed to make the buyer responsible for their seller’s tax liability. But this has been the law for nearly 40 years. And that’s not all. The IRS says:
Huh? It’s true! The premise is that the seller may not be in the country at the time of closing, or may be long gone by the time the IRS finds out. So while this may sound harsh, it’s likely the only way to administer a law that attempts to tax foreign nationals when they dispose of U.S. real estate – short of having an IRS agent attend every real estate closing.
FIRPTA Primer. What follows is the Readers Digest version of FIRPTA.
The “What Ifs?” So how does one go about determining if the seller is a “foreign person”? If the seller is an individual, the easiest way is to ask for their social security number. If the seller is a business entity, you can ask for the employer identification number.
The FIRPTA Affidavit. The only fail-safe protection is to have the seller sign a “FIRPTA Affidavit” – also known as “Affidavit of Non Foreign Status”. This simple form, containing a certification under oath that the seller is not a “foreign person” and disclosing the transferor’s name, U.S. taxpayer identification number and home address (or office address, in the case of an entity), will insulate the buyer so long as the buyer does not have actual knowledge that it is untrue, i.e. that the seller is a “foreign person”. (Note that the buyer’s real estate agent can be held liable to the extent of their commission if they have actual knowledge that the seller is a foreign person, and there has been no withholding.)(Go to this link for sample Affidavit form.)
The more complicated issue with the Affidavit is retention; who is to hold it for the required 5-year period? Since it contains the seller’s social security number (or employer identification number), sellers are understandably reticent to permit their buyer to have this information, for fear of it getting into the wrong hands and resulting in identity fraud.
In an effort to address the issue, a law was enacted to permit someone other than the buyer hold the Affidavit. Thus, was created the “Qualified Substitute” rule, which contemplated that the title company or attorney closing the transaction would serve in that capacity. However, in Oregon at least, several title companies quietly demurred, leaving the task to the buyer. This may be changing, however, and more companies have recently been coming around, as they see the competition promoting their services as a Qualified Substitute.
Buyer Tip. If there is any concern about whether FIRPTA could apply to your transaction, make sure your title company will serve as the Withholding Agent to pay the mandatory tax to the IRS (if FIRPTA applies), or serve as the Qualified Substitute (if it does not apply).
Source: Phil Querin
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