§1445 — Title 26 Internal Revenue Code | U.S. Code

Summary

When a foreign person sells a U.S. real estate interest, the buyer must hold back 15% of the sales amount and give it to the IRS. The buyer does not have to withhold if the seller gives a signed statement with a U.S. taxpayer ID saying they are not a foreign person; if a U.S. company gives a signed statement saying it is not a U.S. real property holding company or its interests are not U.S. real property; if the IRS issues a special statement saying tax is paid, secured, or not owed; if the buyer will use the property as a residence and the price is $300,000 or less; or if the sale is of a class of stock that is regularly traded. If the buyer or closing agent knows a statement is false, or gets a notice that it is false, then the buyer must withhold. Agents who should give required notice but do not can become responsible for withholding, but only up to the amount of their pay from the deal. Withholding cannot be more than the seller’s maximum tax bill; the seller or buyer can ask the IRS to figure that amount or to lower the withholding, and the IRS must act within 90 days on those requests. Special rules also make partnerships, trusts, estates, and some corporations withhold when distributions or transfers give foreign persons taxable gain, often at 15% or at the highest corporate tax rate (or 20% if rules allow). Definitions (one line each): transferor = seller; transferee = buyer; foreign person = anyone who is not a U.S. person (with narrow exceptions set by the IRS); transferor’s maximum tax liability = the largest tax the IRS thinks the seller could owe plus any unpaid withholding; transferor’s unsatisfied withholding liability = previously required withholding that hasn’t been paid; qualified substitute = the person who closes the deal (for example, an attorney or title company) or the buyer’s agent.

Title 26, §1445

Internal Revenue Code — Source: USLM XML via OLRC

(a)Except as otherwise provided in this section, in the case of any disposition of a United States real property interest (as defined in section 897(c)) by a foreign person, the transferee shall be required to deduct and withhold a tax equal to 15 percent of the amount realized on the disposition.

(b)(1)No person shall be required to deduct and withhold any amount under subsection (a) with respect to a disposition if paragraph (2), (3), (4), (5), or (6) applies to the transaction.

(2)Except as provided in paragraph (7), this paragraph applies to the disposition if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor’s United States taxpayer identification number and that the transferor is not a foreign person.

(3)Except as provided in paragraph (7), this paragraph applies in the case of a disposition of any interest in any domestic corporation if the domestic corporation furnishes to the transferee an affidavit by the domestic corporation stating, under penalty of perjury, that—

(A)the domestic corporation is not and has not been a United States real property holding corporation (as defined in section 897(c)(2)) during the applicable period specified in section 897(c)(1)(A)(ii), or

(B)as of the date of the disposition, interests in such corporation are not United States real property interests by reason of section 897(c)(1)(B).

(4)(A)This paragraph applies to the disposition if the transferee receives a qualifying statement at such time, in such manner, and subject to such terms and conditions as the Secretary may by regulations prescribe.

(B)For purposes of subparagraph (A), the term “qualifying statement” means a statement by the Secretary that—

(i)the transferor either—

(I)has reached agreement with the Secretary (or such agreement has been reached by the transferee) for the payment of any tax imposed by section 871(b)(1) or 882(a)(1) on any gain recognized by the transferor on the disposition of the United States real property interest, or

(II)is exempt from any tax imposed by section 871(b)(1) or 882(a)(1) on any gain recognized by the transferor on the disposition of the United States real property interest, and

(ii)the transferor or transferee has satisfied any transferor’s unsatisfied withholding liability or has provided adequate security to cover such liability.

(5)This paragraph applies to the disposition if—

(A)the property is acquired by the transferee for use by him as a residence, and

(B)the amount realized for the property does not exceed $300,000.

(6)This paragraph applies if the disposition is of a share of a class of stock that is regularly traded on an established securities market.

(7)Paragraph (2), (3), or (9) (as the case may be) shall not apply to any disposition—

(A)if—

(i)the transferee or qualified substitute has actual knowledge that the affidavit referred to in such paragraph, or the statement referred to in paragraph (9)(A)(ii), is false, or

(ii)the transferee or qualified substitute receives a notice (as described in subsection (d)) from a transferor’s agent, transferee’s agent, or qualified substitute that such affidavit or statement is false, or

(B)if the Secretary by regulations requires the transferee or qualified substitute to furnish a copy of such affidavit or statement to the Secretary and the transferee or qualified substitute fails to furnish a copy of such affidavit or statement to the Secretary at such time and in such manner as required by such regulations.

(8)No person shall be required to deduct and withhold any amount under subsection (a) with respect to a disposition which is treated as a disposition of a United States real property interest solely by reason of section 897(h)(5).

(9)For purposes of paragraphs (2) and (7)—

(A)Paragraph (2) shall be treated as applying to a transaction if, in connection with a disposition of a United States real property interest—

(i)the affidavit specified in paragraph (2) is furnished to a qualified substitute, and

(ii)the qualified substitute furnishes a statement to the transferee stating, under penalty of perjury, that the qualified substitute has such affidavit in his possession.

(B)The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this paragraph.

(c)(1)(A)The amount required to be withheld under this section with respect to any disposition shall not exceed the amount (if any) determined under subparagraph (B) as the transferor’s maximum tax liability.

(B)At the request of the transferor or transferee, the Secretary shall determine, with respect to any disposition, the transferor’s maximum tax liability.

(C)Subject to such terms and conditions as the Secretary may by regulations prescribe, a transferor may seek and obtain a refund of any amounts withheld under this section in excess of the transferor’s maximum tax liability.

(2)At the request of the transferor or transferee, the Secretary may prescribe a reduced amount to be withheld under this section if the Secretary determines that to substitute such reduced amount will not jeopardize the collection of the tax imposed by section 871(b)(1) or 882(a)(1).

(3)(A)Requests for—

(i)qualifying statements under subsection (b)(4),

(ii)determinations of transferor’s maximum tax liability under paragraph (1), and

(iii)reductions under paragraph (2) in the amount required to be withheld,

(B)The Secretary shall take action with respect to any request described in subparagraph (A) within 90 days after the Secretary receives the request.

(4)In the case of a disposition—

(A)of property which is acquired by the transferee for use by the transferee as a residence,

(B)with respect to which the amount realized for such property does not exceed $1,000,000, and

(C)to which subsection (b)(5) does not apply,

(d)(1)If—

(A)the transferor furnishes the transferee or qualified substitute an affidavit described in paragraph (2) of subsection (b) or a domestic corporation furnishes the transferee an affidavit described in paragraph (3) of subsection (b), and

(B)in the case of—

(i)any transferor’s agent—

(I)such agent has actual knowledge that such affidavit is false, or

(II)in the case of an affidavit described in subsection (b)(2) furnished by a corporation, such corporation is a foreign corporation, or

(ii)any transferee’s agent or qualified substitute, such agent or substitute has actual knowledge that such affidavit is false,

(2)(A)If any transferor’s agent, transferee’s agent, or qualified substitute is required by paragraph (1) to furnish notice, but fails to furnish such notice at such time or times and in such manner as may be required by regulations, such agent or substitute shall have the same duty to deduct and withhold that the transferee would have had if such agent or substitute had complied with paragraph (1).

(B)An agent’s or substitute’s liability under subparagraph (A) shall be limited to the amount of compensation the agent or substitute derives from the transaction.

(3)For purposes of this subsection, the term “transferor’s agent” means any person who represents the transferor—

(A)in any negotiation with the transferee or any transferee’s agent related to the transaction, or

(B)in settling the transaction.

(4)For purposes of this subsection, the term “transferee’s agent” means any person who represents the transferee—

(A)in any negotiation with the transferor or any transferor’s agent related to the transaction, or

(B)in settling the transaction.

(5)For purposes of this subsection, a person shall not be treated as a transferor’s agent or transferee’s agent with respect to any transaction merely because such person performs 1 or more of the following acts:

(A)The receipt and the disbursement of any portion of the consideration for the transaction.

(B)The recording of any document in connection with the transaction.

(e)(1)In the case of any disposition of a United States real property interest as defined in section 897(c) (other than a disposition described in paragraph (4) or (5)) by a domestic partnership, domestic trust, or domestic estate, such partnership, the trustee of such trust, or the executor of such estate (as the case may be) shall be required to deduct and withhold under subsection (a) a tax equal to the highest rate of tax in effect for the taxable year under section 11(b) (or, to the extent provided in regulations, 20 percent) multiplied by the gain realized to the extent such gain—

(A)is allocable to a foreign person who is a partner or beneficiary of such partnership, trust, or estate, or

(B)is allocable to a portion of the trust treated as owned by a foreign person under subpart E of part I of subchapter J.

(2)In the case of any distribution by a foreign corporation on which gain is recognized under subsection (d) or (e) of section 897, the foreign corporation shall deduct and withhold under subsection (a) a tax equal to the highest rate of tax in effect for the taxable year under section 11(b) multiplied by the amount of gain recognized on such distribution under such subsection.

(3)If a domestic corporation which is or has been a United States real property holding corporation (as defined in section 897(c)(2)) during the applicable period specified in section 897(c)(1)(A)(ii) distributes property to a foreign person in a transaction to which section 302 or part II of subchapter C applies, such corporation shall deduct and withhold under subsection (a) a tax equal to 15 percent of the amount realized by the foreign shareholder. The preceding sentence shall not apply if, as of the date of the distribution, interests in such corporation are not United States real property interests by reason of section 897(c)(1)(B). Rules similar to the rules of the preceding provisions of this paragraph shall apply in the case of any distribution to which section 301 applies and which is not made out of the earnings and profits of such a domestic corporation.

(4)A domestic or foreign partnership, the trustee of a domestic or foreign trust, or the executor of a domestic or foreign estate shall be required to deduct and withhold under subsection (a) a tax equal to 15 percent of the fair market value (as of the time of the taxable distribution) of any United States real property interest distributed to a partner of the partnership or a beneficiary of the trust or estate, as the case may be, who is a foreign person in a transaction which would constitute a taxable distribution under the regulations promulgated by the Secretary pursuant to section 897.

(5)To the extent provided in regulations, the transferee of a partnership interest or of a beneficial interest in a trust or estate shall be required to deduct and withhold under subsection (a) a tax equal to 15 percent of the amount realized on the disposition.

(6)If any portion of a distribution from a qualified investment entity (as defined in section 897(h)(4)) to a nonresident alien individual or a foreign corporation is treated under section 897(h)(1) as gain realized by such individual or corporation from the sale or exchange of a United States real property interest, the qualified investment entity shall deduct and withhold under subsection (a) a tax equal to the highest rate of tax in effect for the taxable year under section 11(b) (or, to the extent provided in regulations, 20 percent) multiplied by the amount so treated.

(7)The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations providing for exceptions from provisions of this subsection and regulations for the application of this subsection in the case of payments through 1 or more entities.

(f)For purposes of this section—

(1)The term “transferor” means the person disposing of the United States real property interest.

(2)The term “transferee” means the person acquiring the United States real property interest.

(3)The term “foreign person” means any person other than—

(A)a United States person, and

(B)except as otherwise provided by the Secretary, an entity with respect to which section 897 does not apply by reason of subsection (l) thereof.

(4)The term “transferor’s maximum tax liability” means, with respect to the disposition of any interest, the sum of—

(A)the maximum amount which the Secretary determines could be imposed as tax under section 871(b)(1) or 882(a)(1) by reason of the disposition, plus

(B)the amount the Secretary determines to be the transferor’s unsatisfied withholding liability with respect to such interest.

(5)The term “transferor’s unsatisfied withholding liability” means the withholding obligation imposed by this section on the transferor’s acquisition of the United States real property interest or on the acquisition of a predecessor interest, to the extent such obligation has not been satisfied.

(6)The term “qualified substitute” means, with respect to a disposition of a United States real property interest—

(A)the person (including any attorney or title company) responsible for closing the transaction, other than the transferor’s agent, and

(B)the transferee’s agent.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2017—Subsec. (e)(1). Pub. L. 115–97, § 13001(b)(3)(A), in introductory provisions, substituted “the highest rate of tax in effect for the taxable year under section 11(b)” for “35 percent” and “multiplied by the gain” for “of the gain”. Subsec. (e)(2). Pub. L. 115–97, § 13001(b)(3)(B), substituted “the highest rate of tax in effect for the taxable year under section 11(b) multiplied by the amount” for “35 percent of the amount”. Subsec. (e)(6). Pub. L. 115–97, § 13001(b)(3)(C), substituted “the highest rate of tax in effect for the taxable year under section 11(b)” for “35 percent” and “multiplied by the amount” for “of the amount”. 2015—Subsec. (a). Pub. L. 114–113, § 324(a), substituted “15 percent” for “10 percent”. Subsec. (c)(4). Pub. L. 114–113, § 324(b), added par. (4). Subsec. (e)(3) to (5). Pub. L. 114–113, § 324(a), substituted “15 percent” for “10 percent”. Subsec. (f)(3). Pub. L. 114–113, § 323(b), substituted “any person other than—” for “any person other than a United States person.” and added subpars. (A) and (B). 2013—Subsec. (e)(1). Pub. L. 112–240, § 102(c)(1)(C), substituted “20 percent” for “15 percent” in introductory provisions. Subsec. (e)(6). Pub. L. 112–240, § 102(c)(3), substituted “20 percent” for “15 percent (20 percent in the case of taxable years beginning after December 31, 2010)”. 2008—Subsec. (b)(7). Pub. L. 110–289, § 3024(c)(1), amended par. (7) generally. Prior to amendment, par. (7) related to special rules for paragraphs (2) and (3). Subsec. (b)(9). Pub. L. 110–289, § 3024(a), added par. (9). Subsec. (d). Pub. L. 110–289, § 3024(c)(2)(C), substituted “, transferee’s agents, or qualified substitutes” for “or transferee’s agents” in heading. Subsec. (d)(1). Pub. L. 110–289, § 3024(c)(2)(A), amended par. (1) generally. Prior to amendment, par. (1) related to notice of false affidavit; foreign corporations. Subsec. (d)(2). Pub. L. 110–289, § 3024(c)(2)(B), amended par. (2) generally. Prior to amendment, par. (2) related to failure to furnish notice. Subsec. (f)(6). Pub. L. 110–289, § 3024(b), added par. (6). 2006—Subsec. (b)(8). Pub. L. 109–222, § 506(b), added par. (8). Subsec. (e)(6), (7). Pub. L. 109–222, § 505(b), added par. (6) and redesignated former par. (6) as (7). 2003—Subsec. (e)(1). Pub. L. 108–27 substituted “15 percent” for “20 percent”. 1997—Subsec. (e)(1). Pub. L. 105–34 substituted “20 percent” for “28 percent” in introductory provisions. 1996—Subsec. (e)(3). Pub. L. 104–188 inserted at end “Rules similar to the rules of the preceding provisions of this paragraph shall apply in the case of any distribution to which section 301 applies and which is not made out of the earnings and profits of such a domestic corporation.” 1993—Subsec. (e)(1), (2). Pub. L. 103–66 substituted “35 percent” for “34 percent”. 1988—Subsec. (e)(1). Pub. L. 100–647 inserted “(or, to the extent provided in

Regulations

, 28 percent)” after “to 34 percent”. 1986—Subsec. (b)(3). Pub. L. 99–514, § 1810(f)(2), amended par. (3) generally, substituting “interests in corporation not United States real property interests” for “it is not a United States real property holding corporation” in heading, striking out the comma before “if the domestic corporation” in introductory provisions, inserting subpar. (A) designation and adding subpar. (B). Subsec. (d)(1)(A). Pub. L. 99–514, § 1810(f)(3)(B), substituted “paragraph (2)” for “paragraph (2)(A)”. Subsec. (d)(1)(B)(i). Pub. L. 99–514, § 1810(f)(3)(A), amended cl. (i) generally. Prior to amendment, cl. (i) read as follows: “any transferor’s agent, the transferor is a foreign corporation or such agent has actual knowledge that such affidavit is false, or”. Subsec. (e)(1). Pub. L. 99–514, § 311(b)(4), substituted “34 percent” for “28 percent”. Pub. L. 99–514, § 1810(f)(4), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “A domestic partnership, the trustee of a domestic trust, or the executor of a domestic estate shall be required to deduct and withhold under subsection (a) a tax equal to 10 percent of any amount of which such partnership, trustee, or executor has custody which is— “(A) attributable to the disposition of a United States real property interest (as defined in section 897(c), other than a disposition described in paragraph (4) or (5)), and “(B) either— “(i) includible in the distributive share of a partner of the partnership who is a foreign person, “(ii) includible in the income of a beneficiary of the trust or estate who is a foreign person, or “(iii) includible in the income of a foreign person under the provisions of section 671.” Subsec. (e)(2). Pub. L. 99–514, § 311(b)(4), substituted “34 percent” for “28 percent”. Subsec. (e)(3). Pub. L. 99–514, § 1810(f)(5), inserted “The preceding sentence shall not apply if, as of the date of the distribution, interests in such corporation are not United States real property interests by reason of section 897(c)(1)(B).” Subsec. (e)(4). Pub. L. 99–514, § 1810(f)(6), substituted “section 897” for “section 897(g)”. Subsec. (e)(6). Pub. L. 99–514, § 1810(f)(8), inserted “and

Regulations

for the application of this subsection in the case of payments through 1 or more entities”.

Pub. L. 98–369, div. A, title I, § 129(c)(1),

July 18, 1984, 98 Stat. 660, provided that: “The amendment made by subsection (a) [enacting this section] shall apply to any disposition on or after

January 1, 1985.” Plan

Amendments

Not Required Until January 1, 1989For provisions directing that if any

Amendments

made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

§1445 Withholding of tax on dispositions of United States real property interests

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