Winter Park Home Magazine - Issue 3 - 2009

SURPRISE! A Hidden Federal Lien
by Frank L. Pohl, Attorney At Law
Partner, Pohl & Short, P.A., Winter Park

There is a significant hidden federal tax lien that may attach to real property conveyed by a foreign Seller. It may not turn up in a search of the public records and, ultimately, impose an obligation on the Buyer to pay a portion of the Seller's income tax obligation.

Congress passed the Foreign Investment in Real Property Tax Act ("FIRPTA") in 1980. This law was enacted to enable the federal government to prevent foreign sellers from escaping the income taxes on transfers of real property situated in the United States. Foreign nationals were routinely collecting proceeds from a sale, and not reporting the income/profit generated by the sale of that property. Under FIRPTA, the Seller is obligated to pay 10% of the gross sales price to the Internal Revenue Service, unless the Seller can provide proof that either no taxes or a lesser amount is owed on the transfer. The Act further provides that if the 10% is not paid, or otherwise satisfactorily addressed by the seller, a lien for 10% of the sales price automatically attaches to the real property. As a result, a Buyer could be obligated to pay the IRS 10% of the gross sales price of the property. More.....