FIRPTA Withholding in Cross-Border M&A: Rules for Foreign Sellers of US Real Property

It sits inside our cross-border M&A legal guide and connects to the work on our M&A services page.

Start With Foreign Status and the Interest Being Sold

Two scoping facts decide whether a withholding calendar even applies. One is who the transferor is. The other is what exactly changes hands. The IRS FIRPTA withholding page says a foreign person's disposition of a US real property interest is generally subject to withholding of 15% of the amount realized.

Confirming the seller's foreign status

Foreign status belongs on the front end of diligence. Cross-border sellers often hold through layers, so counsel identifies the actual transferor named on the deed, assignment or share transfer and collects the data that supports its status. The same IRS page notes that a business entity can be a withholding agent in its own dispositions, so both sides of the table read the entity chart. The IRS exceptions page explains that a nonforeign seller statement carries identifying data and a perjury certification. If a buyer knows a certificate to be false, that fact goes to tax counsel before closing.

Scoping the interest

The IRS describes US real property interests as including direct interests and certain interests in domestic corporations. Whether a given share sale, asset sale or entity interest falls inside that description depends on the exact entity and transaction, so tax counsel makes that determination with the facts in hand. The deal team helps by listing every asset and equity interest being transferred, tagging any that could be direct real property or domestic corporate interests, and sending the list with the structure chart.

Default Withholding Is a Collection Step Against the Seller's Tax

The IRS frames withholding as collection against tax. The 15% figure is a default amount held back at closing, and the seller's final US tax result is settled through its own filings, where the stamped copy of Form 8288-A supports the credit. The IRS also states that failure to withhold can leave the buyer liable.

Forms, Copies and Why Each One Exists

Form 8288 and Form 8288-A

Form 8288 is the return the transferee uses to report and pay the withheld tax. Form 8288-A is the statement that identifies the transferor and the transferee, each with a taxpayer identification number, so the IRS can match the payment to a seller. Per the IRS reporting page, the preparer completes a Form 8288-A for each person withheld from. Copies A and B accompany Form 8288, and the transferee keeps Copy C. The IRS stamps Copy B and sends it to the seller, who uses it to claim the tax credit.

Form 8288-B and taxpayer identification numbers

Form 8288-B is the application for a withholding certificate. It asks the IRS to determine a reduced or eliminated withholding amount, and the IRS exceptions page confirms that a certificate may have that effect. The IRS reporting page separates two tasks that often get blended together. Filing a withholding application and applying for an ITIN are distinct requirements, and a missing TIN can prevent the seller from receiving its stamped copy. Collect each seller's TIN information early, and start any ITIN process on its own track.

Three Calendars That Change the Payment Date

The reporting page describes three date paths. Counsel selects the path from facts that exist at closing.

Ordinary calendar

Per the IRS reporting page, Form 8288 and the tax payment are generally due by the 20th day after the disposition. The funds-flow statement should place the withheld amount in a position where the buyer or its agent can pay on time.

Timely pending application

Under the same IRS reporting page, a Form 8288-B application submitted on or before the date of disposition and still pending on that date changes the picture. The statutory withholding is retained, and reporting and payment are deferred. Retained means someone holds the funds under a written arrangement. The IRS exceptions page confirms that a certificate may reduce or eliminate withholding and that a pending application by itself does not authorize release to the seller. Keep the pending amount retained unless valid grounds for release are established under the certificate or another applicable legal exception.

Certificate or denial calendar

After the IRS decides, the IRS reporting page directs the transferee to report and pay the withheld amount, or the lesser amount the IRS determines, within 20 days following the day the IRS mails a copy of the certificate or notice of denial to the transferee. The trigger is the mailing day, so the buyer designates a monitored mailing address and logs the mailing date when mail arrives. The same page adds a caveat for delay. An application submitted principally to delay payment triggers interest and penalties from the 21st day after the transfer until payment.

Closing-Calendar Decision Table

The table below turns the IRS date rules into a working checklist for a closing team. Tax counsel confirms the branch for the specific transaction, and the IRS pages linked above remain the authority for each date.

Read it at signing and again before closing, because a branch can move once an application is filed or a document arrives.

Escrow and Funds-Flow Contract Responsibilities

The IRS requires the statutory withholding to be kept and does not prescribe an escrow document. The items below are contract drafting recommendations that assign each moving part to a named party.

• A separate funds-flow line showing the withheld amount apart from seller proceeds, so the money is visible and available on the due date.
• A named holder of any retained funds when an application is pending, with written terms that tie any release to the seller to the IRS certificate or another applicable legal exception plus documented lawful instructions, and direct payment to the IRS when the IRS denies the application or leaves the amount unchanged.
• A notice clause that designates the transferee's mailing address and requires prompt sharing of any certificate or denial, since the 20-day clock runs from the IRS mailing day.
• A seller covenant to deliver TIN information, identifying data and cooperation on any application.
• Instructions for the closing agent on who prepares and files Forms 8288 and 8288-A and who confirms payment.
• An allocation of interest and penalties if a party's delay causes them, drafted with tax counsel.

Exceptions Depend on Conditions and Documentation

The IRS exceptions page ties each exception to conditions and required notice or documentation, so an assertion by the seller starts the analysis and tax counsel finishes it. The residential buyer-use exception has its own detailed requirements and sits in a different setting from a commercial cross-border acquisition, so counsel confirms every condition before anyone relies on it. For transaction-specific exceptions and instructions, tax counsel can follow a repeatable process.

• Identify the transferor and gather support for its foreign or nonforeign status.
• List each exception or certificate route that could fit those facts.
• Match every condition of a candidate exception to a document in the file.
• Record the resulting withheld amount and calendar branch in writing.

Documents Counsel Needs

A complete file shortens the determination. Assemble this checklist before asking tax counsel to pick a branch: the entity and ownership structure chart, drafts of the transaction agreement and funds flow, the deed, assignment or share transfer documents, each seller's identity and TIN data, any nonforeign seller statement, any application for a withholding certificate with IRS correspondence, asset schedules showing real property and entity interests, the escrow agreement and the executed closing statement. IRS mailing records belong in the file after closing so the certificate or denial calendar can be proven.

State Rules and Specialist Review Sit on a Separate Track

Federal FIRPTA analysis addresses the federal withholding calendar. A state tax specialist reviews whether any state where the property sits has its own withholding, forms and deadlines. Treaty positions, entity structuring and other tax elections also go to independent US tax counsel for transaction-specific analysis, using the IRS pages as the baseline.

Assessment Handoff

Acquisition Stars coordinates M&A transaction documents and works with independent US tax counsel on FIRPTA determinations. Our role is turning the tax counsel determination into transaction documents. Bring the checklist package above plus the target closing date and the status of any withholding application. Once independent tax counsel returns a written branch decision, withheld amount and calendar entries, the deal team writes them into the purchase agreement, the escrow release conditions and signed closing instructions, each with a named owner.

The closing-calendar table works well as a worksheet. Before any deadline, fill in the actual decision, the documents that support it and the person who owns each step. Narrow lawyer involvement at structural decision points works best on the front end, when owners are clear and the documents can still change. The worksheet is a reader tool to adapt to your own deal. Questions about the broader deal sequence connect back to the cross-border M&A legal guide.

Sources for this guide

• IRS, Reporting and Paying Tax on U.S. Real Property Interests
• IRS, FIRPTA Withholding
• IRS, Exceptions from FIRPTA Withholding

Frequently Asked Questions