The Unexpected IRS Bill Homebuyers Face After Buying from Foreign Sellers

Buying a home is supposed to be a moment of accomplishment. 

For some buyers, however, that relief is shattered months later when an unexpected letter from the IRS arrives claiming they owe tens of thousands of dollars in federal tax.

The most confusing part?

They did nothing wrong.

This scenario is becoming increasingly common in cases involving FIRPTA, a federal tax law that many buyers have never heard of – until it’s too late.

What Is FIRPTA?

FIRPTA stands for the Foreign Investment in Real Property Tax Act. 

It is a federal law designed to ensure that the IRS collects tax when foreign sellers dispose of U.S. real estate.

When a non-U.S. person sells property located in the U.S., FIRPTA generally requires that 10% to 15% of the gross sales price be withheld at closing and sent to the IRS. 

That withholding is not the final tax. It is a prepayment toward whatever tax the foreign seller ultimately owes.

Because foreign sellers may leave the country after a sale, FIRPTA allows the IRS to secure payment upfront.

However, FIRPTA doesn’t protect the buyer if something goes wrong.

So, if the required FIRPTA withholding is not properly sent to or credited by the IRS – whether because it was never remitted, misapplied, or returned to the seller – the IRS may treat the buyer as owing the missing amount, which can amount to tens or even hundreds of thousands of dollars. 

How FIRPTA Withholding Is Supposed To Work

In a typical transaction involving a foreign seller, here’s what happens:

1) The buyer purchases U.S. real estate

2) The title or settlement company withholds 10-15% of the sales price

3) That amount is remitted to the IRS shortly after closing

4) The foreign seller later files a U.S. tax return to calculate the actual tax owed and may receive a refund

In theory, this process happens seamlessly behind the scenes.

In reality, it does not always work that way.

Why Buyers End Up With IRS Bills

Under FIRPTA, the buyer is legally responsible for making sure the withholding is properly collected and sent to the IRS, even though the buyer typically relies on a title company, aka an escrow agent, to handle the process.

This legal responsibility exists even though the buyer does not control the funds and does not personally submit the payment.

When mistakes occur, they often involve one of the following issues:

• Withholding that was never sent to the IRS
• Funds that were misapplied or credited incorrectly
• Checks that were returned to the seller instead of remitted
• Paperwork errors that leave no clear record of payment

In most FIRPTA transactions, the escrow agent does their part correctly. They timtely remit the FIRPTA withholding check to the IRS, as required, within 20 days of closing. 

The problem usually arises on the foreign seller’s side. 

Very often, foreign sellers do not yet have a U.S. tax identification number (SSN or ITIN) at the time of closing, or they have never filed a U.S. income tax return before. As a result, the withholding check is submitted without a valid taxpayer ID on the accompanying FIRPTA forms—Form 8288 and Form 8288-A.

When the IRS receives a payment that it cannot match to a specific taxpayer, the funds are not automatically credited to the real estate transaction. Instead, the payment and accompanying FIRPTA forms may remain unmatched in the IRS system, effectively disconnected from both the foreign seller and the sale itself. As a result, the IRS is unable to issue a stamped Form 8288-A, or approval on Form 8288-B if applicable, to the seller even though the withholding was timely paid at closing.

Compounding the issue, when the IRS later attempts to locate the required FIRPTA withholding and cannot associate it with a taxpayer, it does not pursue the foreign seller, who may already be overseas and outside easy reach. 

Instead, the IRS turns to the party it can easily identify and contact: the buyer. Under FIRPTA, the buyer is treated as the responsible withholding agent, and the IRS will issue collection notices directly to the buyer, even when the buyer properly paid the withholding through escrow.

Buyers are often shocked to receive IRS bills for $80,000, $100,000, or more, tied to a home they purchased in good faith.

At that point, calling the title company alone rarely resolves the issue. That’s because the matter has already entered the IRS system and correcting it requires navigating multiple IRS departments and reconciling incomplete or missing records.

How Attorney Sammy Kim Helps Buyers Resolve FIRPTA Cases

Attorney Sammy Kim regularly represents buyers who receive IRS notices related to FIRPTA withholding failures, often months or even years after closing.

These cases are rarely straightforward. 

Resolution typically involves:

• Investigating what happened at closing and reviewing previously submitted documents
• Tracing missing or misapplied FIRPTA withholding payments
• Coordinating with title companies and settlement records, and sometimes tax returns
• Communicating with the specific IRS divisions handling FIRPTA matters
• Correcting erroneous assessments
• Working to remove penalties tied to withholding errors the buyer did not cause

Because FIRPTA is a federal issue, these cases often involve buyers across multiple states, even when the original transaction occurred elsewhere.

Attorney Kim connects the dots the IRS system does not automatically connect and advocates for buyers who never should have had this problem in the first place. She has helped foreign sellers receive refunds from the IRS and assisted domestic buyers clear their IRS account by removing related taxes, penalties and interest.

What To Do If You Receive An IRS FIRPTA Notice

If you have received an IRS notice related to FIRPTA withholding, it is important to act quickly and carefully. These cases are fixable, but timing, documentation, and proper strategy matter.

Contact the Law Offices of Sammy Kim to discuss your case before the issue escalates further.

Frequently Asked Questions About IRS FIRPTA Cases

Why am I responsible if I didn’t know the seller was foreign?

Under FIRPTA, the buyer bears legal responsibility for ensuring withholding occurs, even if the buyer relied entirely on a title company and had no knowledge of the seller’s tax status.

Can the IRS really collect the withholding under FIRPTA from me?

Yes. The IRS has authority to pursue the buyer for unpaid FIRPTA withholding if it cannot confirm the payment was received.

What if the title company made the mistake?

Title company errors are common in FIRPTA cases, but the IRS still issues notices to the buyer. Resolving the issue typically requires correcting records and tracing payments, even if it was the title company’s fault.

Is this a common problem?

It is more common than most buyers realize, particularly in transactions involving international sellers. Attorney Sammy Kim has handled multiple FIRPTA-related cases involving buyers across different states.

Can an IRS FIRPTA problem be fixed?

Yes. With proper representation, many buyers are able to resolve FIRPTA assessments, correct IRS records, and eliminate balances tied to withholding errors they did not cause. Foreign sellers can finally receive a refund from the IRS after filing their U.S. tax returns, if the FIRPTA withholding paid at closing exceeds their actual U.S. tax liability.