Informese de los Nuevos requerimientos del Organismo de impuestos de USA (IRS)
Obtenga el ITIN (International Taxpayer Identification Number)

Las nuevas regulaciones del IRS obligan a todos los individuos extranjeros, corporaciones, sociedades, etc, deben adquirir del IRS un "Numero de Identificacion Tributaria Internacional" (ITIN) antes de presentar cualquier solicitud, aplicacion o cualquier otro documento, o presentacion de impuestos con el gobierno. En caso de presentar estos documentos sin el Numero de Identificacion (ITIN), las presentaciones seran rechazadas como "incompletas" provocando demoras innecesarias, en algunos casos penalidades y multas por no poder presentar documentos or impuestos a tiempo.

Intl. Taxpayers Need Tax ID for Transactions

(December 9) -- A new Internal Revenue Service rule went into effect in November that would require non-U.S. taxpayers (individual or organization) to obtain a taxpayer identification number (TIN) when selling a property.

This requirement will better enable the IRS to match their withholding forms and other tax-related material to their tax return. The non-U.S. seller will either have had to obtain, or apply for, a TIN by settlement. This provision may impact the timing of some settlements involving Non-U.S. taxpayers but does not change or add to the overall responsibilities of real estate professionals.

On Aug. 5, the IRS published regulations requiring Taxpayer Identifying Numbers in real property dispositions where the seller is a non-U.S. individual or organization. Under the Foreign Investment in Real Property Tax Act (FIRPTA), the purchaser is required to withhold taxes from the non-U.S. taxpayer equal to 10 percent of the amount realized if no TIN is provided. The final regulations now require the non-U.S. taxpayer to provide their TIN on withholding certificates, and other notices and elections under the portion of the tax code that governs foreign investments. Furthermore, the IRS now requires that the withholding application contain all TINs of the parties involved in a sales transfer of real property. While these regulations were published in August, the section pertaining to TINs did not become effective until Nov. 3, to permit non-U.S. sellers who currently own property to obtain a TIN, if necessary.

To learn more about the new IRS rules, go to the Taxpayer Identification Numbers article on the IRS' International Taxpayer section.

IRS tightens rules for foreign property owners

Sunday, September 14, 2003

By RAYMOND J. BOWIE, Special to the Daily News

Planning ahead is a wise admonition that will become all the more critical in real estate transactions involving foreign nationals in the near future. Foreign owners of U.S. real estate must prepare now for new IRS rules that may block their essential tax filings, delay their transactions, cause them to miss tax deadlines and incur substantial legal and financial penalties.

The IRS has for years harbored an obsessive concern that somewhere, somehow, some foreign national is not paying his or her fair share of taxes on income earned in the United States. Driven by this concern, the IRS recently announced tighter new rules effective Nov. 3 requiring that foreign nationals obtain U.S. taxpayer identification numbers in advance in order to lease, sell or finance U.S. real estate without punitive tax consequences. The new IRS regulations mandate that all foreign individuals, corporations, partnerships and trusts must first acquire from the IRS an "international taxpayer identification number" (ITIN) before filing any other document, application or tax return with the government. If filed without an ITIN, the foreign national's paperwork will be rejected as incomplete.

The new rules mark a departure from current IRS rules where a foreign national lacking a tax identification number could still file required tax documents, noting only that an ITIN had at the time been "applied for." Currently, the tax identification number was ultimately required only when the foreign national was required to file his tax return. Necessary preliminary tax filings were, however, still accepted for processing while the application for the ITIN remained pending.

The big problem anticipated with the new rules is that the IRS is notoriously slow processing the applications for taxpayer identification numbers from foreign nationals. The instructions to the application form (IRS Form W-7) state it takes four to six weeks following application to assign an ITIN, but many tax professionals say the time is more like three months minimum. If under the new rules foreign nationals cannot even file other tax forms without an ITIN, foreign nationals now risk missing essential tax filing deadlines and incurring legal and financial penalties.

Nowhere are the consequences of this greater than in the realm of real property leasing, financing and selling by foreign nationals, a major part of the real estate market in Florida as well as locally here in Naples.

Foreign nationals can freely buy U.S. real estate for their own personal use as a residence, either in their own names or through corporations, other entities or trusts, without having to report the purchase to any government agency. But thereafter, almost anything other than purely personal use of the property requires some or other filing with federal, state or local government agencies. Things really get sticky when foreign nationals seek to lease or sell U.S. real estate.

Under a 1980 tax law called the Foreign Investment in Real Property Act (FIRPTA), all rents, sales proceeds or other income received by a foreign national from U.S. real property are subject to withholding for U.S. income taxes and the paying party is made legally responsible for the withholding for taxes. This law makes anyone who pays a foreign national for purchasing, renting or mortgaging real estate a tax collection agent of the IRS, imposing penalties for failing to withhold funds for payment of the foreign national's taxes.

As a general rule, when any U.S. real property interest is sold by a foreign national, the buyer and the buyer's closing agent are both required to report the sale to the IRS and collect from the foreign seller 10 percent of the gross sales price for payment of taxes. Likewise, foreign nationals who rent U.S. property are subject to tax withholding on all rent and similar payments made by their tenants, with the burden placed on the tenant or property manager who pays the rent to withhold 30 percent from each payment for taxes. And when a foreign person loans money on U.S. real estate and receives mortgage payments, the person making loan payments to a foreign lender must as a general rule withhold for taxes 30 percent of all interest paid.

The amounts withheld are not necessarily the amount of tax that the foreign national actually owes on the property sale, rental or mortgage interest. Rather, these amounts are remitted to the IRS as "advance deposits" pending the future filing of tax returns by foreign nationals, at which time their actual tax liability is determined. If the actual tax due is less than the amounts previously withheld for taxes, the foreign national receives a refund of the difference. The intent of FIRPTA is to prevent foreign nationals from making profits from selling, leasing or financing U.S. real estate and expatriating the proceeds before they can be taxed in this country.

There are several exemptions that help temper these tax withholding rules somewhat. In the sale of real estate by a foreign seller, for example, there are three popular exemptions:

First, if the sales price is $300,000 or less and the buyer will use the property as a personal or family residence at least 50 percent of the time the property is occupied over two consecutive 12-month periods following closing.
Second, if the foreign seller held the property for business or investment and acquires a replacement property meeting the requirements of a tax-deferred property exchange under the U.S. tax code.
Third, if prior to closing the foreign seller applies for and subsequently obtains a "withholding certificate" from the IRS, the foreign seller's tax liability can be determined in advance and an amount less than 10 percent of the sales price can be remitted in payment.

It's in taking advantage of these exemptions that foreign nationals will encounter the greatest difficulties under the new IRS rules requiring tax identification numbers in advance. Most foreign property owners unfortunately only become aware of the FIRPTA requirements sometime after they have already signed a lease to rent or a contract to sell their property. In the past, this has not always been fatal because the IRS would accept withholding applications, elections to be taxed on net rental income, tax-deferred exchange treatment and similar tax filings without a tax number having been already assigned, as long as one was applied for.

However, under the new rules effective for real estate closings after Nov. 3, this will no longer be the case and any filing by a foreign national without a tax number will be rejected.

The consequences of this are serious. If a foreign seller cannot file for a withholding certificate prior to closing on the sale of his property, the entire 10 percent the purchase price withheld for taxes under FIRPTA will actually have to be remitted to the IRS and the foreign seller will have to wait until he files his tax return for the year of the sale in order to recover any amounts exceeding his actual tax liability. The same would be true of the 30 percent tax withholding from rents or mortgage interest. And if withholding certificates cannot be obtained in a timely manner, tax-deferred property exchanges by foreign nationals may also be impaired.

In order to prepare for the new rules, any foreign property owner without an "international taxpayer identification number" should apply for an ITIN immediately, using IRS Form W-7. It does not matter whether the foreign owner is currently planning or engaged in selling, leasing or financing the property, since sooner or later the ITIN will be needed and when it is needed, it may be too late at that time to secure it in a timely manner.

And in the future, foreign nationals buying U.S. real property will need to be counseled and assisted, as a standard part of the purchase and closing process, in obtaining an ITIN from the IRS at the time the property is first purchased. Because planning ahead is more than just a wise admonition; it is indeed the name of the game in coping with the new IRS rules.

Raymond J. Bowie. is a Naples area attorney and civil-law notary, Board Certified in Real Estate Law, who has practiced law for 23 years in Florida, Virginia and New York, specializing in real estate transactions, representing buyers and sellers in contracts, closings, title insurance, tax-deferred exchanges, land trusts and mortgage financing. He is also a licensed real estate broker, mortgage broker and real estate instructor. Bowie invites real estate-related questions or suggestions for columns to be addressed to him, c/o Real Estate Editor, Naples Daily News, 1075 Central Avenue,
Naples, Fla. 34102.

International Taxpayer .

ITIN

An ITIN, or Individual Taxpayer Identification Number, is a tax processing number only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a Social Security Number (SSN). It is a 9-digit number, beginning with the number "9", formatted like an SSN (NNN-NN-NNNN).

Form W-7, IRS Application for Individual Taxpayer Identification Number, is used to apply for an ITIN.

To obtain an ITIN, you must complete IRS Form W-7, Application for IRS Individual Taxpayer Identification Number. The Form W-7 requires documentation substantiating foreign/alien status and true identity for each individual. You may either mail the documentation, along with the Form W-7, to the Philadelphia Service Center, present it at IRS walk-in offices, or process your application through an Acceptance Agent authorized by the IRS. If you are not currently in the United States, refer to Obtaining an ITIN from Abroad.

Form W-7(SP) Solicitud de Nmero de Identificacin Personal del Contribuyente del Servicio de Impuestos Internos (Fill-in PDF) is available for use by Spanish speakers.

Acceptance Agents are entities (colleges, financial institutions, accounting firms, etc.) who are authorized by the IRS to assist applicants in obtaining ITINs. They review the applicant's documentation and forward the completed Form W-7 to IRS for processing. Refer to How to Become an Acceptance Agent for IRS ITIN Numbers for more information.

For more information on ITIN's, see Publication 1915, Understanding Your Individual Taxpayer Identification Number (PDF).

NOTE: You cannot claim the earned income credit using an ITIN.