Firpat q

[Mdlle8899]

If a local llc owned by a non US permanent resident but is tax resident, and that llc sells a house under llc's title, will that llc need to pay firpat withholding tax? 

[KimberW]

A single-member LLC that has not elected to be treated as a corporation is a "disregarded entity" -- meaning that it is the status of the single member that determines whether a transaction in the LLC's name is subject to FIRPTA withholding or not. If the single member is subject to FIRPTA withholding, then the LLC is as well.

In your question, you asked about someone who is not a permanent resident, but is resident for tax purposes. Someone can be considered to be resident for tax purposes for any given year if that person meets the substantial presence test (more info here: Tax Tips for Resident and Non-Resident Aliens). When a person is considered to be a resident either because of permanent residency status or because they meet the substantial presence test, then that person is considered a United States person for purposes of FIRPTA. Someone who meets the substantial presence test can issue an affidavit saying that they are a non-foreign person.

FIRPTA withholding is not required for any "United States person". For purposes of FIRPTA, the following are considered to be United States persons [I.R.C. §§7701(a)(30)]: 

1. a citizen or resident of the U.S.;
2. a domestic partnership;
3. a domestic corporation;
4. any estate, where its income derives from within the U.S. or such income is effectively connected with the conduct of a trade or business within the U.S.; and,
5. a trust, where such trust allows for a U.S. court to exercise primary supervision over its administration and at least one U.S. person has the authority to control all its substantial decisions.

If you as an individual are subject to FIRPTA because you don't meet the substantial presence test, you could create a domestic LLC with more than one member (which would be considered a partnership) or you could have your domestic LLC make an election to be treated as a corporation. Partnerships and corporations are not subject to FIRPTA and would be able to issue a non-foreign person affidavit.

There are exceptions (or reduced rates) to FIRPTA withholding for personal residences. We have an excellent article with more information about this from the buyer's perspective -- which will help you understand what to expect as the seller. What Is FIRPTA Withholding? 

Finally, it isn't your LLC that would pay or withhold the FIRPTA taxes. It is the buyer of the property that is required to withhold the proper amount of tax. These funds will be paid over to the IRS and will be a "credit" to your account with the IRS. It will be used to offset any taxes due that you may owe when you file your tax return. If it turns out that too much was withheld, the difference would be refunded to you.

Thank you for participating in this event!

-- Kimber W