The Foreign Investment in Real Property Tax Act (“FIRPTA”) authorizes the IRS to tax foreign persons on the sale or disposition of a U.S. real property interest (“USRPI”). FIRPTA generally imposes a withholding obligation on the purchaser of a USRPI. That is, the purchaser is required to withhold tax on the payment for the property, although withholding may be reduced under certain circumstances.
Rates of Withholding
- The cash paid, or to be paid (principal only);
- The fair market value of other property transferred, or to be transferred; and
- The amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer.
- The shareholder’s interest in the corporation is a U.S. real property interest, and
- The property distributed is either in redemption of stock or in liquidation of the corporation.