FIRPTA and Disregarded Entities: 15% Withholding and Form 8288-B

When a foreign person sells U.S. real estate through a single-member LLC, FIRPTA withholding for a disregarded entity works as if the LLC weren’t there: the buyer must withhold 15% of the gross sale price, and any certification of non-foreign status has to come from the LLC’s owner rather than the LLC itself.¹ The deed may show a Wyoming or Delaware LLC as seller, but federal tax law looks straight through it to the foreign owner. That mismatch is where deals go wrong, and the cost of getting it wrong falls on the buyer.

Why the LLC Disappears at Closing

A single-member LLC that hasn’t elected corporate tax treatment is a disregarded entity for federal purposes. Its income, deductions, and liabilities flow through to its sole owner as though the LLC doesn’t exist.² Foreign investors like the structure because it provides state-law liability protection without adding a federal tax return.

Treasury Regulation 1.1445-2(b)(2)(iii) is explicit that 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.”³ The owner is treated as the transferor and must personally provide the certifications or affidavits.

If everyone at the table treats the LLC as the seller and collects a non-foreign affidavit signed by the entity, that affidavit has no legal effect. It has to come from the owner. When the owner is foreign, no valid non-foreign affidavit can be issued, and full withholding applies.

Who Carries the Risk

FIRPTA puts the withholding obligation on the buyer. If the buyer fails to withhold, the IRS can assess the full tax against the buyer, plus interest and penalties.⁴ Using a title company doesn’t shift the liability, and neither does relying on documentation that looked correct at the time.

The exposure reaches individuals. 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 lists FIRPTA withholding under Section 1445 among the categories eligible for the trust fund recovery penalty.⁵

The buyer’s diligence has to look through the LLC to identify its owner. The regulation requires the owner of the disregarded entity to provide the certificate of non-foreign status, and any domestic entity providing such a certificate must also affirm it is not itself a disregarded entity.³ If the owner is foreign, the only paths forward are full withholding or a withholding certificate from the IRS.

Using a Qualified Substitute

To keep the seller’s taxpayer identification number away from the buyer, the title company or closing attorney often acts as a qualified substitute. That role is filled by the person responsible for closing the transaction (other than the seller’s agent) or the buyer’s agent.⁶ The substitute holds the original certification and gives the buyer a statement, under penalties of perjury, confirming it is in their possession.

If the qualified substitute has actual knowledge that a certification is false and fails to notify the buyer, the substitute becomes personally liable, capped at the compensation received from the transaction.⁶

The 15% Mechanics

The default rate is 15% of the amount realized, meaning the total sale price, not the gain.¹ On a $2 million property, the buyer withholds $300,000 at closing whether the seller made or lost money on the investment.

Both parties need taxpayer identification numbers. Treasury Decision 9082 requires all parties to provide their TINs on the withholding forms.⁷ A foreign seller without an SSN can apply for an ITIN on Form W-7.⁸ Without a valid TIN or ITIN, the IRS cannot properly credit the withheld amount to the seller, and any refund is delayed.

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. Forms and payment must reach the IRS by the 20th day after the date of the transfer, which is typically the date the deed is recorded.⁹

Form 8288-A comes in three copies. Copies A and B go to the IRS with Form 8288. Copy C stays with the buyer. The IRS stamps Copy B and mails it to the foreign seller at the address on the form.⁹ That stamped copy is what the seller later attaches to a U.S. income tax return to claim credit or a refund. The buyer is not required to furnish Form 8288 or 8288-A directly to the seller.

Exceptions and Why They Rarely Help

Several exceptions exist, but each one narrows when the seller is a disregarded entity with a foreign owner.

Residence exception. No withholding is required if the buyer is an individual acquiring the property for use as a personal residence, the price is $300,000 or less, and the buyer or a family member plans to live at the property for at least 50% of the days it is occupied by anyone during each of the first two 12-month periods after closing. Vacant days don’t count. The exception fails whenever the buyer is itself an entity.⁶
Non-foreign affidavit. A signed certification, under penalties of perjury, stating the seller is not a foreign person, with name, U.S. TIN, and address. In a disregarded entity deal, this has to come from the owner, and it is not available when the owner is foreign.³
Withholding certificate. The IRS issues a certificate authorizing a reduced (or zero) withholding based on the seller’s estimated tax liability.⁶

For sales above $300,000, or when the buyer isn’t an individual, the full 15% applies unless a withholding certificate provides otherwise.

Cutting the Withholding With Form 8288-B

The 15% often far exceeds the seller’s actual tax liability, especially when the property has appreciated only modestly or the adjusted basis is high. The seller can apply for a withholding certificate on Form 8288-B to reduce the amount the buyer must remit.¹⁰

The application has to show the maximum tax liability on the sale: adjusted basis (original purchase price plus improvements, minus depreciation claimed) subtracted from the expected sale price, with the applicable rates applied. 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%.¹¹

Supporting documents should include the signed purchase agreement, a draft settlement statement, and records establishing basis. A valid TIN or ITIN has to be in place before filing. Applications filed without one are returned, adding months to a slow process.⁸ If the seller doesn’t yet have an ITIN, Form W-7 should be filed well before the anticipated sale.

Timing and Escrow

The IRS says it will normally act on a complete application within 90 days.⁹ Real timelines run longer. Form 8288-B must be submitted on or before the date of the disposition to stop the 20-day remittance clock.¹² If the application is pending at closing, the buyer does not have to remit immediately; the withheld funds must be reported and paid within 20 days after the IRS mails its approval or denial.

During that wait, the buyer typically places the full 15% in escrow. The escrow agreement should say what happens under each outcome: if the certificate is granted, the reduced amount goes to the IRS and the excess returns to the seller; if it’s 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 to 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.¹²

A certificate can also authorize reduction to zero when the seller shows no tax will be owed, such as a loss sale or a treaty exemption. Whatever the approved amount, the buyer still files Form 8288 and attaches a copy of the approved certificate.

What Happens When Buyers Get It Wrong

The penalty structure stacks.

Failure to file (Section 6651). If Form 8288 isn’t filed on time, the penalty is 5% of the unpaid tax for each month or partial month the return is late, up to 25%.¹³
Failure to deposit (Section 6656). Late deposits of the withheld tax draw 2% for deposits up to 5 days late, 5% for 6 to 15 days late, and 10% for deposits more than 15 days late. After the IRS sends a delinquency notice and 10 days pass without payment, the penalty rises to 15%.¹⁴
Trust fund recovery penalty (Section 6672). A responsible person who willfully fails to collect and pay over the tax faces a personal penalty equal to the full amount that should have been withheld.⁴

Interest accrues on the unpaid withholding from the 21st day after the transfer until paid. A buyer who fails to file and also fails to deposit takes both the Section 6651 and Section 6656 penalties at the same time, plus interest.

Getting the Money Back After Closing

The 15% is a deposit against the seller’s actual tax on the gain, not a final tax. Sellers who held property for several years and have a substantial adjusted basis often find the withheld amount well above the true capital gains tax.

To claim a refund, the seller files a U.S. income tax return, Form 1040-NR for nonresident individuals or Form 1120-F for foreign corporations, and attaches the stamped Copy B of Form 8288-A received from the IRS.⁹ The return reports the sale, calculates the gain, and applies the correct rates. Any excess over the tax owed is refunded.

The IRS pays interest on overpayments at 7% per year, compounded daily, as of early 2026, with the rate adjusted quarterly.¹⁵ Refund processing runs several months, and sellers who lacked a TIN before closing face longer waits still. Filing Form 8288-B before the sale, rather than waiting to claim the refund after, remains the fastest way to keep cash from sitting with the IRS.

1
Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
2
Internal Revenue Service. Limited Liability Company (LLC)
3
eCFR. 26 CFR 1.1445-2 – Situations in Which Withholding Is Not Required
4
eCFR. 26 CFR 1.1445-1 – Withholding on Dispositions of U.S. Real Property Interests
5
Internal Revenue Service. IRM 8.25.1 – Trust Fund Recovery Penalty (TFRP) Overview and Authority
6
Internal Revenue Service. Exceptions From FIRPTA Withholding
7
Internal Revenue Service. ITIN Guidance for Foreign Property Buyers and Sellers
8
Internal Revenue Service. Format for Applications
9
Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026)
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Internal Revenue Service. About Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
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Internal Revenue Service. Topic No. 409 Capital Gains and Losses
12
Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests
13
Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax
14
Office of the Law Revision Counsel. 26 USC 6656 – Failure to Make Deposit of Taxes
15
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026