How to Fix FIRPTA Withholding Problems After a Real Estate Closing

When the IRS Can’t Match Your Payment – and How to Correct It

For most homebuyers, FIRPTA isn’t on their radar during a real estate closing. 

But when a property is purchased from a foreign seller, this federal tax rule requires that a portion of the purchase price be withheld and sent to the IRS.

In most cases, the withholding is 10% to 15% of the entire sales price and is treated as a prepayment of the seller’s potential tax liability. The seller later files a U.S. tax return to determine the actual tax owed and claim any refund.

Although this process is typically handled at closing, buyers are held legally responsible if the IRS does not receive those funds. 

In many FIRPTA cases, the problem is not that the withholding was never paid. It’s that the IRS cannot connect the payment to the transaction.

From the buyer’s perspective, this is one of the most frustrating scenarios:

• The funds were withheld at closing
• The check was sent to the IRS
• Everyone assumed the matter was handled

And yet, months later, the IRS sends a Form 8288 FIRPTA notice claiming the withholding was never paid.

This disconnect happens more often than most buyers, and even real estate professionals, realize. 

The Hidden Problem: “Unmatched” FIRPTA Payments

When a FIRPTA payment is submitted, it must be properly documented so the IRS can link three things together: 

1. The payment
2. The foreign seller
3. The specific real estate transaction

If any of those pieces are missing or incorrect, the IRS may receive the money but fail to credit it.

The result? The payment sits in the IRS system as “unmatched,” and the buyer gets treated as if withholding never occurred.

Why FIRPTA Payments Go Unmatched

The most common reason is missing or incorrect taxpayer identification.

At the time of closing, many foreign sellers do not yet have a U.S. taxpayer identification number (ITIN) or have never filed a U.S. tax return before. 

As a result, Forms 8288 and 8288-A may be submitted without a valid ITIN, with incomplete seller information, or with errors in how the transaction is reported. 

When that happens, the IRS cannot assign the payment to a taxpayer account.

Other common causes include:

• Clerical errors on Forms 8288 / 8288-A
• Mismatched names or property details
• Checks submitted without complete supporting documentation
• Separate processing of payment and forms that never get linked internally

Even when the withholding was timely and properly sent, these breakdowns prevent the IRS from recognizing it.

What Happens Next: The IRS Looks to the Buyer

When the IRS cannot match the payment, it does not assume the issue is administrative. Instead, it treats the situation as a withholding failure.

FIRPTA places legal responsibility on the buyer as the withholding agent, even if the buyer relied entirely on a title company. 

So, when the IRS cannot verify the withholding, it issues a notice to the buyer assessing 10%-15% of the purchase price, plus potential penalties and interest. 

From the IRS’s perspective, there is no confirmed payment tied to the transaction. From the buyer’s perspective, the payment already happened.

Fixing that gap requires reconstructing the transaction in a way the IRS system can recognize.

How to Fix an Unmatched FIRPTA Payment

These cases are fixable, but they are rarely simple. Resolution typically involves rebuilding the paper trail and resubmitting information in a way the IRS can process correctly.

1. Reconstruct the Original Filing

Start by gathering:

• Closing disclosure (HUD-1 or Closing Disclosure)
• Wire confirmations or check copies
• Copies of Forms 8288 and 8288-A
• Any correspondence with the title company

The goal is to confirm whether the payment was actually sent and what information was included (or missing). 

2. Resolve Missing or Incorrect ITIN Issues

If the foreign seller did not have an ITIN at closing, this must be addressed. That may involve:

• Directing them to apply for an ITIN (Form W-7)
• Linking the ITIN to the original FIRPTA transaction
• Coordinating with the seller’s eventual U.S. tax filing (Form 1040-NR)

Without a valid taxpayer ID, the IRS cannot reliably match it to the seller’s account or the real estate transaction.

3. Correct or Refile Forms 8288 and 8288-A

In many cases, the original forms must be corrected or resubmitted.

That may include:

• Fixing seller identification details
• Reissuing Form 8288-A so it can be stamped by the IRS
• Aligning the forms with the payment already received

The objective is to give the IRS a clean, matchable record.

4. Trace and Reassociate the Payment

Even when the IRS has the funds, they may be sitting in a “suspense account” for unidentified payments.

Resolving that requires:

• Working with the specific IRS unit that handles FIRPTA withholding
• Providing documentation that ties the payment to the transaction
• Requesting internal tracing and reassociation of funds

This step often involves multiple IRS departments and follow-up.

5. Respond Strategically to the IRS Notice

At the same time, the buyer’s own IRS account must be addressed.

That may involve submitting a structured written response, demonstrating that withholding was made, requesting removal of the assessment, and seeking penalty abatement based on reasonable cause.

Timing and coordination matter, and a fragmented response can delay resolution.

Why FIRPTA Cases Require Coordination

What makes FIRPTA unmatched-payment cases particularly complex is that they often involve multiple parties:

• The buyer (legally responsible under FIRPTA)
• The foreign seller (whose tax account must be linked)
• The title or escrow company (who handled the funds)
• The IRS (across different processing units)

Each piece of the puzzle may exist but not in a way the IRS system can connect automatically. The resolution process is about connecting those pieces.

Get Help Fixing a FIRPTA Withholding Issue

If you’re facing a FIRPTA issue where withholding was paid but not recognized, the problem is usually not the payment itself. It’s the paperwork and how the IRS system processes it.

The good news is that these cases can be corrected. But they require careful documentation, coordinated filings, and direct engagement with the appropriate IRS channels.

Attorney Sammy Kim regularly helps buyers resolve FIRPTA cases where payments were made but not properly credited by the IRS.

These cases require more than simply calling the IRS or contacting the title company. They require a structured approach to reconstructing the transaction and correcting the record.

If you’ve received a FIRPTA notice from the IRS, contact the Law Offices of Sammy Kim to evaluate your options and begin the resolution process.

Frequently Asked Questions About Fixing FIRPTA Withholding Problems

Can the IRS really ignore a FIRPTA payment it already received?
The IRS does not ignore it, but if it cannot match it, it cannot credit it. Until that happens, the buyer may still be treated as liable.

Will getting the seller to file a tax return help resolve a FIRPTA notice?
Yes. A properly filed Form 1040-NR can help connect the withholding to the seller’s account, especially once an ITIN is in place.

What if the seller is unreachable or won’t file?
Although the seller’s tax filing can help complete the process, the IRS does not require the seller’s participation to resolve every FIRPTA issue. With proper documentation, it may still be possible to trace and credit the withholding. That said, these cases are more complicated and often require a more structured approach to resolve.