Non-Foreign Person Affidavit Forms - Firpta Affidavit
What is a Non-Foreign Person Affidavit? Irs Notice 1445
Pursuant to a federal law, the Foreign Investment of Real Property Tax Act (FIRPTA), a buyer of a real estate from a foreigner is required to withhold some amount as tax and pay the amount to the Internal Revenue Service (IRS) at the close of escrow. Sec. 1445 provides that when a sale of a U.S. real property interest is made by a foreign person, the buyer is required to deduct and withhold a tax equal to ten percent of the amount realized from the sale of property. An exemption to this rule is a foreign residence affidavit, also called non-foreign person affidavit.
A non-foreign person affidavit is a sworn statement under Internal Revenue Code (IRC 1445). A non-foreign person affidavit is made by a seller of a real property stating that s/he is a non-foreign seller as defined by the Internal Revenue Code Section 26 USC 1445. The non-foreign affidavit is required to afford the buyer with guarantee that the seller is not a foreign person. A non-foreign certificate liberates the buyer from his/her requirement to withhold the tax.
Generally, foreign persons are exonerated from tax on gains from sale of U.S. real property interests. However, under FIRPTA, foreign persons are subject to a non-resident tax called foreign withholding tax for capital gain obtained from disposition of U.S. real property.
To be legally valid, non-foreign affidavit forms must be signed by the seller and notarized. A valid non foreign affidavit is an exemption from withholding and legally protects the buyer even if the seller turns out to be fraudulent and tries to evade payment of tax.
Apart from non-foreign real estate affidavits, there are other exemptions where withholding of tax is not required. Buyers can use a real property tax exemption without a non-foreign affidavit under other provisions of FIRPTA rules. A buyer is not required to deduct and withhold any amount relating to a disposition if:
- A real estate property is purchased to be used use as a principal residence of the buyer and the price is $300,000 or less. FIRPTA provisions define a principal residence as a residence in which the buyer will live for over fifty percent of the time in each of the next two consecutive years.
- An interest is acquired in a domestic corporation that trades non publicly and the corporation furnishes an affidavit stating that interests in corporation is foreign property interest and not U.S. real property interests.
- A buyer receives a certified declaration from the secretary notifying that the tax will be paid by the seller or there is a tax exemption for such property or seller's unsatisfied withholding liability is otherwise satisfied.
- Shares of a publicly traded corporation are acquired.
A person who fails to exercise his/her duty to withhold tax will be liable for an amount equal to the total payment in the transaction, and sometimes the liability amount will be same as the amount of tax that must have been withheld.