What to Do When the IRS Sends a Form 8288 FIRPTA Withholding Notice

A Step-by-Step Checklist for Homebuyers Who Bought A Home From A Foreign Seller

You thought the home-buying transaction was complete. 

The keys were handed over. The seller moved on. The closing funds were disbursed. Everything seemed complete.

Then months later, an IRS letter demands 10% or 15% of the entire purchase price, plus penalties and interest, from you, the buyer.

That is how many buyers first learn about the Foreign Investment in Real Property Tax Act (FIRPTA) and the unexpected IRS liability that can arise after buying from a foreign seller. You called your realtor and the title company who handled the transaction, but they cannot tell you why the IRS is after you, not the seller. It seems unfair. 

Most buyers assume FIRPTA compliance is handled entirely by the title company or closing attorney. However, under federal tax law, the buyer is legally designated as the withholding agent and can be personally liable if withholding was not properly handled.

If you’ve already received a FIRPTA withholding notice from the IRS, it is now an enforcement matter and how you respond will determine what happens next. 

Below is a step-by-step checklist to protect yourself.

Step 1: Do Not Ignore the Notice

FIRPTA notices may reference Forms 8288 or Form 8288-A.

The notice may:

• Assess 10% or 15% of the gross purchase price (depending on the sales price and residence exception rules) 
• Add failure-to-withhold penalties
• Add interest accruing from the date of closing

Because FIRPTA withholding is based on the gross sales price, not the seller’s profit, the amount assessed can be substantial, particularly in higher-value transactions. IRS notices that remain unresolved for a period of time may be assigned to an IRS Revenue Officer for enforced collection action.

Even if the amount appears incorrect, ignoring the notice can trigger escalating penalties and potential collection enforcement.

Calendar the response deadline immediately.

Step 2: Gather Your Closing Documents

Before contacting the IRS, assemble:

• The Closing Disclosure or HUD-1, showing FIRPTA withholding
• Any non-foreign affidavit signed by the seller
• Wire confirmations 
• Correspondence with the title company or closing attorney
• Copies of Forms 8288 or 8288-A, if filed
• Copy of the FIRPTA withholding check submitted to the IRS after closing

Many FIRPTA cases turn on what occurred, or failed to occur, at closing.

If a valid certification of non-foreign status existed, that can materially affect your liability.

Documentation often drives the outcome in a FIRPTA matter.

Step 3: Confirm Whether Withholding Was Actually Required

Under FIRPTA, buyers must generally withhold 10% or 15% of the gross purchase price when acquiring U.S. real estate from a foreign seller, depending on the sale price and whether the property qualifies for a residence exception.

In certain cases involving a purchase price of $300,000 or less and intended personal residence use, withholding may not be required.

However, exceptions may apply, including:

• A valid non-foreign affidavit was provided
• The property qualified for the $300,000 residence exception
• A withholding certificate reduced the required amount

In some cases, the IRS notice stems from a missing form rather than a true withholding obligation.

Determining this distinction is critical before responding. 

Many buyers are surprised by how large the FIRPTA withholding amount can be. FIRPTA withholding is not the seller’s final tax bill. It is only a deposit sent to the IRS. Because the withholding is calculated on the gross purchase price, it is often much larger than the seller’s actual tax after accounting for cost basis and selling expenses.

Step 4: Do Not Contact the IRS Without a Strategy

FIRPTA is treated as a withholding failure, similar in seriousness to payroll tax noncompliance.

The IRS can pursue the buyer directly in any of the following scenarios even if the FIRPTA withholding was actually submitted but has not yet been properly recognized or matched by the IRS:

• The seller left the United States
• The seller did not submit tax returns on the capital gain income
• The seller may have filed Form 1040-NR but the withholding was not credited
• The buyer relied entirely on professionals at closing

A premature call to the IRS may unintentionally confirm facts before your exposure is fully evaluated.

Because FIRPTA cases move through IRS compliance and collections channels, experienced IRS controversy representation can materially affect the outcome.

An experienced tax attorney can help:

• Evaluate whether the assessment is legally valid
• Determine whether the required documents were properly submitted. If not, organize and submit necessary documentation to the appropriate IRS department
• Coordinate with the seller’s tax filings if relevant
• Structure a strategic written response

Early, structured communication with the appropriate IRS unit is far more effective than reactive explanations. Form 8288 and Form 8288-A are handled by specific IRS departments where trained agents are handling the matters. Calling the main IRS collection department may not be helpful.

Step 5: Evaluate Resolution Options

Depending on the facts, possible solutions may include:

• Demonstrating a valid exemption from withholding
• Showing the seller satisfied U.S. tax liability, which may reduce exposure but does not automatically eliminate buyer liability under the statute
• Seeking penalty abatement for reasonable cause
• Filing corrective documentation
• Negotiating interest adjustments in limited circumstances

Each FIRPTA case is fact-specific. The right resolution depends on timing, documentation, and how the transaction was structured.

Why FIRPTA Notices Often Feel Unfair

Many buyers never realize the seller is considered a “foreign person” under federal tax law.

Most assume FIRPTA compliance is handled entirely by title professionals.

Yet under the statute, the buyer is designated as the withholding agent. Congress structured FIRPTA this way because the buyer controls the closing funds and acquires the U.S. property from which the IRS seeks to ensure tax compliance. Once a foreign seller leaves the country, collecting the tax directly from the seller can be difficult.

The IRS does not need to prove negligence. It only needs to prove that withholding was required and did not occur.

That is why an informed response matters.

Address a FIRPTA Notice Before It Escalates

If you have received a FIRPTA withholding notice, do not delay.

Penalties and interest continue to accrue. Ignored notices can result in liens or enforced collection.

Attorney Sammy Kim has successfully represented many homebuyers facing FIRPTA assessments by developing structured responses to the IRS, and pursuing penalty relief for affected clients.

If you are dealing with unexpected FIRPTA liability after a real estate closing, contact The Law Offices of Sammy Kim to evaluate your next steps.

Frequently Asked Questions About FIRPTA Withholding Notices

What is FIRPTA?

FIRPTA stands for the Foreign Investment in Real Property Tax Act. It requires buyers to withhold 10% or 15% of the gross purchase price, depending on the sales price and applicable residence exception rules, and remit it to the IRS.

Why is the IRS contacting me instead of the seller?

Under FIRPTA, the buyer is legally designated as the withholding agent. If required withholding did not occur or was unmatched with the seller or the real property transaction, the IRS can pursue the buyer directly. It is common for foreign sellers not to have a U.S. taxpayer identification number, such as a Social Security Number or an ITIN (Individual Taxpayer Identification Number), at the time of closing. So, the title company could not indicate a tax ID when submitting the FIRPTA withholding.  

What if the seller already paid U.S. tax on the sale?

That may help in resolving the matter, but it does not automatically eliminate buyer liability. The FIRPTA withholding check may be sitting somewhere within the IRS waiting to be matched with the seller’s account and the real estate transaction. Proper documentation and coordinated filings are required, so the IRS can recognize and adjust the tax assessment.

Can FIRPTA penalties be reduced?

In many cases, yes. If you reasonably relied on professionals at closing or can demonstrate previously submitted withholding, core documents, or reasonable cause, penalty abatement may be available.

How long does it take to resolve a FIRPTA notice?

Resolution timelines vary depending on documentation and IRS processing backlogs. Prompt, strategic response improves the likelihood of a favorable outcome.