When a foreign person sells U.S. real estate held through a single-member LLC, FIRPTA withholding on a disregarded entity works exactly as if the LLC were not there: the buyer must withhold 15% of the gross sale price and remit it to the IRS, because federal tax law looks through the LLC and treats the foreign owner as the seller.1Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests The deed may show a Delaware or Wyoming LLC as the seller, but the IRS sees the foreign individual or company behind it. That mismatch between what the closing documents say and what federal tax law recognizes is where expensive mistakes happen, and the cost almost always lands on the buyer.
Why the LLC Cannot Sign Its Own Non-Foreign Affidavit
A single-member LLC that has not elected to be taxed as a corporation is a “disregarded entity” for federal tax purposes. Its income, deductions, and liabilities pass through to its sole owner as if the entity did not exist.2Internal Revenue Service. Limited Liability Company (LLC) Foreign investors use this structure often because it gives state-law liability protection without adding a federal tax layer.
Treasury Regulation 1.1445-2(b)(2)(iii) is explicit: a disregarded entity “may not certify that it is the transferor of a U.S. real property interest, as the disregarded entity is not the transferor for U.S. tax purposes, including sections 897 and 1445.”3eCFR. 26 CFR 1.1445-2 – Situations in Which Withholding Is Not Required The certification has to come from the owner. When that owner is foreign, no valid non-foreign affidavit can be issued at all, and the full 15% withholding kicks in.
This is where closings fall apart. If the title company collects a non-foreign affidavit signed in the name of the LLC, that affidavit is legally worthless. Any domestic entity providing a certificate of non-foreign status must also affirm that it is not itself a disregarded entity. Skip that step and the buyer has no protection.
Who Pays When It Goes Wrong
FIRPTA puts the withholding obligation on the buyer. If the buyer fails to withhold, the IRS can assess the full tax against the buyer personally, plus interest and penalties.4eCFR. 26 CFR 1.1445-1 – Withholding on Dispositions of U.S. Real Property Interests A title company handling the closing does not shift that liability. Neither does accepting documents that looked proper at the time.
The exposure can reach individuals inside a buyer entity. Under Section 6672, corporate officers and other responsible persons can face a personal civil penalty equal to the full amount that should have been withheld, and the IRS specifically lists FIRPTA withholding under Section 1445 as eligible for this trust fund recovery penalty.5Internal Revenue Service. IRM 8.25.1 – Trust Fund Recovery Penalty (TFRP) Overview and Authority If the buying company does not pay, the IRS can go after the decision-makers.
Due diligence has to look through the LLC. Who owns it? If the answer is a foreign individual or foreign company, the only paths that avoid full withholding are a withholding certificate from the IRS or one of the narrow statutory exceptions below.
Qualified Substitutes at Closing
Title companies and closing attorneys often act as a “qualified substitute” so the buyer never has to see the seller’s taxpayer ID. A qualified substitute is the person responsible for closing the transaction (other than the seller’s agent) or the buyer’s agent.6Internal Revenue Service. Exceptions From FIRPTA Withholding The substitute holds the original certification and gives the buyer a statement, under penalties of perjury, confirming it. If the substitute has actual knowledge the certification is false and fails to say so, the substitute becomes personally liable, capped at the compensation received from the transaction.
What the Buyer Must Do
The default withholding rate is 15% of the amount realized, meaning the full sale price, not the gain.1Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests On a $2 million sale, that is $300,000 held back at closing regardless of whether the seller made or lost money.
Both sides need taxpayer identification numbers on the withholding forms. A foreign seller without a Social Security Number applies for an Individual Taxpayer Identification Number using Form W-7.7Internal Revenue Service. ITIN Guidance for Foreign Property Buyers and Sellers Without a valid TIN or ITIN, the IRS cannot credit the withheld amount to the seller, which delays any refund.
Forms and the 20-Day Clock
The buyer files Form 8288 (U.S. Withholding Tax Return for Certain Dispositions by Foreign Persons) and attaches Form 8288-A (Statement of Withholding) for each foreign person subject to withholding. The forms and the payment must reach the IRS by the 20th day after the date of the transfer, which is typically the date the deed is recorded.8Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026)
Form 8288-A has three copies. Copies A and B go to the IRS with Form 8288. Copy C stays in the buyer’s records. The IRS stamps Copy B and mails it to the foreign seller at the address shown on the form. The buyer is not required to send the seller a copy of either form directly.
When Withholding Can Be Reduced or Avoided
A handful of exceptions can lower or eliminate withholding, and each has tight conditions.
- Residence exception for sales of $300,000 or less: no withholding if the buyer is an individual acquiring the property to use as a personal residence, and the buyer or a family member plans to live there at least 50% of the days the property is occupied by anyone during each of the first two 12-month periods after closing. Vacant days do not count.6Internal Revenue Service. Exceptions From FIRPTA Withholding
- Non-foreign affidavit signed by the seller under penalties of perjury, with name, U.S. TIN, and address. In a disregarded entity deal, this must come from the owner, not the LLC, and is unavailable when the owner is foreign.3eCFR. 26 CFR 1.1445-2 – Situations in Which Withholding Is Not Required
- Withholding certificate issued by the IRS authorizing a reduced amount, including zero, based on the seller’s estimated tax liability.6Internal Revenue Service. Exceptions From FIRPTA Withholding
The residence exception trips people up in disregarded entity deals because the buyer must be an individual. A corporation, partnership, or trust buying through its own structure does not qualify even under $300,000. Above $300,000, the full 15% applies unless the IRS issues a certificate.
Form 8288-B: Applying for a Reduced Amount
The 15% often far exceeds the actual tax on the gain, especially when the property appreciated modestly or depreciation recapture has already been accounted for. The seller can apply for a withholding certificate on Form 8288-B to lower the amount the buyer must remit.9Internal Revenue Service. About Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
The application has to show the maximum tax liability on the sale, which means an accurate adjusted basis (original purchase price plus improvements, minus depreciation claimed), the expected sale price, and the correct rates. Long-term capital gains for foreign sellers are generally taxed at up to 20%, depreciation recapture on real property at up to 25%, and short-term gains as ordinary income at rates up to 37%.10Internal Revenue Service. Topic No. 409 Capital Gains and Losses Supporting documents typically include the signed purchase agreement, a draft settlement statement, and basis records. A valid TIN or ITIN is required before filing; applications submitted without one are returned.11Internal Revenue Service. Format for Applications
Timing, Escrow, and a Trap
The IRS says it will normally act on a complete application within 90 days.8Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026) Backlogs and incomplete filings stretch that. To keep the 20-day remittance clock from forcing the buyer to send the full 15% before the IRS rules, Form 8288-B must be submitted on or before the date of the disposition.12Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests If the application is still pending at closing, the withheld funds must be reported and paid within 20 days after the IRS mails its approval or denial.
During the wait, the buyer typically places the full 15% in escrow. The escrow agreement should spell out what happens on each outcome: if the certificate is granted, the reduced amount goes to the IRS and the excess returns to the seller; if denied, the full amount goes to the IRS. One warning from the IRS: if the primary purpose of filing Form 8288-B is to delay payment rather than seek a legitimate reduction, the buyer will owe interest and penalties running from the 21st day after the transfer through the date payment is finally made. Regardless of the approved amount, the buyer still files Form 8288 and attaches a copy of the approved certificate.
Penalties That Stack
FIRPTA penalties come from multiple sections and run concurrently.
- Failure to file Form 8288 on time (Section 6651): 5% of the unpaid tax for each month or partial month the return is late, up to 25%.13Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax
- Failure to deposit the withheld tax on time (Section 6656): 2% for deposits up to 5 days late, 5% for 6 to 15 days late, 10% for more than 15 days late, and 15% once 10 days have passed after an IRS delinquency notice without payment.14Office of the Law Revision Counsel. 26 USC 6656 – Failure to Make Deposit of Taxes
- Trust fund recovery penalty (Section 6672): a personal civil penalty equal to the full withholding amount against responsible individuals who willfully fail to collect and pay over the tax.5Internal Revenue Service. IRM 8.25.1 – Trust Fund Recovery Penalty (TFRP) Overview and Authority
Interest accrues on the unpaid withholding from the 21st day after the transfer until payment. A buyer who both misses the filing and misses the deposit faces both the 6651 and the 6656 penalty at the same time, plus interest.
How the Foreign Seller Gets Excess Withholding Back
The 15% is not a final tax. It is a deposit against whatever the seller actually owes on the gain. Sellers who held for several years with a solid basis typically find that 15% of gross proceeds far exceeds the real capital gains tax.
To claim a refund, the seller files a U.S. income tax return (Form 1040-NR for nonresident individuals, Form 1120-F for foreign corporations) and attaches the stamped Copy B of Form 8288-A received from the IRS.8Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026) The return reports the sale, calculates the actual gain, and applies the correct rates. Anything withheld in excess of the tax owed comes back as a refund.
Refund processing takes months, and sellers who did not get a TIN before closing wait longer. Filing Form 8288-B before the sale, rather than waiting to claim a refund after, remains the fastest way to avoid parking a large sum with the IRS for the better part of a year.