What If the Buyer Fails to Withhold FIRPTA?

Under FIRPTA, the primary obligation to withhold and remit the tax belongs to the buyer — not the seller and not the closing agent. But in DVC resale transactions, the closing agent always handles the withholding on the buyer's behalf. What happens when something goes wrong?

The Buyer Is Legally Responsible

FIRPTA makes the buyer the withholding agent. If a buyer pays a foreign seller without withholding the required 15%, the IRS can collect the tax directly from the buyer. The buyer who failed to withhold becomes personally liable for the unpaid amount, plus interest and penalties. This is why buyers in DVC transactions always use title companies that handle FIRPTA compliance — the personal financial risk of failing to withhold is significant.

The Closing Agent Acts as the Buyer's Agent

In practice, the closing agent (title company) handles the withholding, files Form 8288, and remits the funds to the IRS on behalf of the buyer. If the closing agent makes an error — failing to withhold, withholding the wrong amount, or missing the 20-day filing deadline — liability can extend to the closing agent as well as the buyer.

What Can Go Wrong as a Seller

As the seller, your main concern is making sure you correctly disclose your non-US status. If you certify to the closing agent that you are a US person when you are not, you have misrepresented your status and the withholding will not be applied. The IRS may then pursue the buyer for the unpaid withholding, which could delay your proceeds or result in the buyer pursuing you for indemnification.

Protecting Yourself

Disclose your foreign status honestly at the start of the transaction. Make sure the closing agent explicitly acknowledges they are handling FIRPTA compliance. Request copies of Form 8288 and Form 8288-A from the closing agent after closing. These documents confirm the withholding was properly filed and the funds were submitted to the IRS — which you need for your tax return anyway.