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How can FIRPTA responsibilities be assigned?

We are set to purchase a senior housing development in California. The funds for the purchase will be placed in escrow with a local bank. As part of their escrow services, can they agree to handle our FIRPTA withholding? Why or why not?

  • Getech Law LLC
    May 19, 2018

    I think you should be able to ask for that.

  • Farazad Investments
    May 18, 2018

    You need to request this from the escrow company whether it provides such service or not.

  • Greenberg Traurig, LLP
    May 20, 2018

    FIRPTA is a tax payable by foreign investors upon the sale of U.S. real estate. Nothing with respect to FIRPTA would be required on purchase. There are ways to mitigate FIRPTA on sale that must be put in place at the time of purchase. The most commonly used is a domestically controlled REIT, which only works if you intend to own less that 50 percent of the property and a domestic partner would own the controlling interest (hence the "domestically controlled") terminology. I strongly suggest you speak to a big four accounting firm and/or global law firm with high-level, cross-border tax experience to advise you of the options that work best for you in setting up a tax efficient structure. Our law firm has done this often for Chinese real estate investors and the solution is not necessarily a "one size fits all."

  • SPC Advisors, LLC
    May 25, 2018

    I'm not a tax expert. I would, however, imagine that the local bank could agree to be responsible for withholding and payment of FIRPTA taxes. It will be important to both you and the seller that the amount withheld is paid to the government. You will want a written agreement from the bank specifying its assumption of the obligation and how it will act on your behalf. You will also want copies of all submissions by the bank. The payment is ordinarily controlled by the tax matters partner. I have not heard of a bank agreeing to take on such duties.