Foreign Investment in Real Property Tax Act (FIRPTA)

The Foreign Investment in Real Property Tax Act (FIRPTA) was amended by the Deficit Reduction Act of 1984. This amendment added Section 1445 to Chapter 3, Subchapter A, of the Internal Revenue Code of 1954. Section 1445 requires the withholding of tax on dispositions of certain U.S. Real Property Interests (USRPI) by a foreign seller.

Before FIRPTA, Nonresident aliens and foreign corporations were generally exempt from income tax on capital gains to the extent that they were not effectively connected with a U.S. trade or business.

IRC 897 provides rules for the taxation, on sales or other dispositions of U.S. real property interests (including installment sales, exchanges, foreclosures, and deeds in lieu of foreclosure of U.S. real property interests), of nonresident alien individuals and foreign corporations. Gains (or losses) from the disposition of U.S. real property interests are treated as income effectively connected with a U.S. trade or business. In addition, Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REIT) with foreign investors are subject to the FIRPTA rules under IRC 1445 and IRC 897. Consequently, income tax is imposed on the net gains at marginal income tax rates. FIRPTA also imposed withholding tax provisions to ensure the collection of tax. Refer to IRM 3.21.261.1.1, Form 8288 Background and IRM 3.21.25 , Miscellaneous Tax Returns for more information.

Verify Form 8288-A credit indicator sheet for credit claimed. Only one box must be checked. If not attached, forward to the FIRPTA unit.

Review the account on IDRS due to the possibility of an erroneous duplicate credit (TC 766) for the same amount as a payment.