FIRPTA at Closing: Form 8288-B and the Notice of Nonrecognition for Foreign Exchangers

The default is 15% of the amount realized, remitted by the buyer within 20 days

Section 1445(a) puts the duty on the transferee: when a foreign person disposes of a US real property interest, the buyer deducts and withholds 15% of the amount realized. The Instructions for Form 8288 define amount realized as the cash paid, the fair market value of other property transferred and any liability assumed by the buyer, so a sale with an assumed loan withholds on the whole price, not on the cash.

Timing is tight. Reg. section 1.1445-1(c)(1) requires the buyer to report and pay over the tax by the 20th day after the transfer on Forms 8288 and 8288-A, and a buyer who fails to withhold is liable for the tax, interest and penalties. The IRS stamps Copy B of Form 8288-A and sends it to the seller for the credit.

The reduced 10% rate and the $300,000 exception in section 1445(b)(5) and (c)(4) apply only when the buyer will use the property as a residence, so they rarely help a sale of rental or commercial property.

The notice of nonrecognition works only for a simultaneous, fully deferred exchange

Reg. section 1.1445-2(d)(2) excuses withholding when the seller gives the buyer a signed notice, under penalties of perjury, that a nonrecognition provision applies, with the seller's name, identifying number and address, a brief description of the transfer and a summary of the law and facts. The buyer mails a copy to the IRS with a cover letter by the 20th day after the transfer.

Two exceptions remove the notice. Under paragraph (d)(2)(ii) the buyer may not rely on it when the seller qualifies for nonrecognition on part but not all of the gain, or when the buyer has reason to know the claim is wrong. Paragraph (d)(2)(iv) then states that the notice does not apply to simultaneous exchanges that do not qualify in their entirety, or to non-simultaneous exchanges where the transferee cannot determine that the exchange has been completed by the time it must file Form 8288. In those cases the transferee is excused only upon the timely application for and receipt of a withholding certificate.

A deferred exchange through an intermediary is not complete on day 20, so the notice route is closed; the IRS exceptions page points everything else to a withholding certificate.

Form 8288-B: file on or before the transfer date, with every TIN

Form 8288-B (Rev. December 2025) is the application. Line 7a is the box for a transferor who is exempt from US tax or to whom nonrecognition treatment applies, and Reg. section 1.1445-3(b)(6) says an application for a like-kind exchange must include information substantiating the requirements of section 1031, with the IRS free to ask for more.

Every party's US taxpayer identification number must appear, and an application that is not substantially complete, including one without a specific or estimated transfer date, is rejected. The form goes to the Ogden address on the instructions, and the IRS withholding certificates page says the IRS generally acts within 90 days after receipt of a complete application.

The date matters more than anything else. Reg. section 1.1445-3(b)(6) excuses the withholding agent from paying within 20 days only if the application is submitted prior to or on the date of transfer, and Reg. section 1.1445-1(c)(2) requires the seller to notify the buyer before the transfer that the application is in, with the seller's name, address, TIN, a description of the property and the filing date.

Escrow mechanics while the certificate is pending

With the application on file, the buyer withholds 15% but need not pay it over until the 20th day after the IRS mails the certificate or a denial. The amount sits with the buyer or, by agreement, in a separate escrow. Interest and penalties apply if the application was filed mainly to delay payment.

Hypothetical. A foreign owner sells a $2,000,000 building. The buyer withholds $300,000; the intermediary receives the remaining proceeds and the exchange proceeds on 85% of the money. If the certificate issues inside the 180-day exchange period and the escrow releases to the intermediary, the $300,000 can buy replacement property. If it issues after the exchange closes, the release comes to the seller as cash, and cash received after the exchange is boot under the rules on leftover cash. Run your own numbers with your CPA and intermediary before closing.

Budget the replacement to close without the escrowed 15%, since the clocks explained on when the 45-day clock starts do not wait for the IRS.

Boot, a failed exchange and the refund path

Boot breaks the full-nonrecognition claim. When part of the gain will be recognized, line 7b of Form 8288-B, a certificate based on the seller's maximum tax liability, is the right basis: the IRS computes tax on the recognized gain and the buyer withholds that amount instead of 15% of the price. What counts as boot is on what boot is in a 1031 exchange.

If the exchange fails, the application is denied and the buyer remits the withheld amount within 20 days of the denial. The seller then files a US return reporting the sale and credits the stamped Form 8288-A. Reg. section 1.1445-3(a) also allows a certificate obtained after the transfer to authorize a normal or early refund, which is the route when more was withheld than the final tax.

State overlays and DST replacement for foreign exchangers

FIRPTA sits on top of state withholding. Hawaii applies its own 7.25% and certificate, covered on Hawaii HARPTA and Form N-289; the full list is on which states withhold at closing. One regime does not excuse the other.

Replacing into a Delaware Statutory Trust does not change the FIRPTA analysis on the sale, but it changes the ongoing picture: distributions, future sales and the trust's own reporting for foreign holders are on foreign investors and DST 1031 issues, and the residency questions are on doing a 1031 exchange while living abroad.