Real estate save by foreigner - TIN needed?

[STEPHAN]

What is the name of your state? FL

A family member is selling a property. He has never lived in the US, has no tax ID, and has never done any ID tax returns.

I understand the title company needs to withhold funds for taxes at the closing. The purchase was 78K in 2013, and the sales price will be around 199K.

I believe he can recover some funds by filing a tax return.

Does he need a TIN? Should he file one now? I saw someone getting one earlier, and it took forever.

 

[Taxing Matters]

He needs a TIN to file a tax return to report the income he earned from the sale. Since he ineligible for a SSN, that means he must get an ITIN. The information on how to do that is found here: https://www.irs.gov/individuals/how-do-i-apply-for-an-itin

 

[adjusterjack]

Should he file one now?

Yes.

That way he has it when it's time to file his return.

What has he done with the property in the past 9 years?

 

[davew9128]

Yes.

That way he has it when it's time to file his return.

It doesn't work that way. He has to file for it WITH his tax return. You can't on a standalone basis apply for an ITIN and have one issued to you like you were applying for an EIN as a business.

 

[STEPHAN]

What has he done with the property in the past 9 years?

He used it as a vacation home for a few years before he got very sick. Not been here in 5+ years.

 

[Zigner]

It doesn't work that way. He has to file for it WITH his tax return. You can't on a standalone basis apply for an ITIN and have one issued to you like you were applying for an EIN as a business.

That's one way of doing it, but not the only way. https://www.irs.gov/individuals/how-do-i-apply-for-an-itin (this is the same link that was shared by @Taxing Matters above) describes two additional ways. Of course, for the purposes of this thread, those additional options would not apply.

HOWEVER there are also the exceptions included in the Form W-7 instructions, specifically exception #4 which is related to "Third-Party Withholding—Disposition by a Foreign Person of U.S. Real Property Interest". (https://www.irs.gov/instructions/iw7#en_US_202112_publink54092gd0e1358)

The OP's relative can (and should) apply for the ITIN in the tax year that the withholding/reporting takes place.

 

[davew9128]

That's one way of doing it, but not the only way. https://www.irs.gov/individuals/how-do-i-apply-for-an-itin (this is the same link that was shared by @Taxing Matters above) describes two additional ways. Of course, for the purposes of this thread, those additional options would not apply.

I'm a CAA. It's extremely rare that someone approaches me for an ITIN based on FDAP withholding.

 

[Zigner]

I'm a CAA. It's extremely rare that someone approaches me for an ITIN based on FDAP withholding.

But is IS an alternative.

 

[LdiJ]

I'm a CAA. It's extremely rare that someone approaches me for an ITIN based on FDAP withholding.

When I was a CAA I don't think that I ever saw that happen. The withholding shown on the document received was generally considered to be adequate proof of withholding when the tax return was filed. I can however see the advantage of having the withholding already showing up under the ITIN.

 

[davew9128]

When I was a CAA I don't think that I ever saw that happen. The withholding shown on the document received was generally considered to be adequate proof of withholding when the tax return was filed. I can however see the advantage of having the withholding already showing up under the ITIN.

I agree but the problem is that processing times for a W-7, even certified by a CAA, are getting to the point where its not worth the effort to do anything other than prepare the application for processing and attachment to a 1040/1040NR as the case may be. Unless someone needs it early in the tax year (and REALLY needs it), I try to discourage it. Especially if they are physically outside the US.

 

[LdiJ]

I agree but the problem is that processing times for a W-7, even certified by a CAA, are getting to the point where its not worth the effort to do anything other than prepare the application for processing and attachment to a 1040/1040NR as the case may be. Unless someone needs it early in the tax year (and REALLY needs it), I try to discourage it. Especially if they are physically outside the US.

Processing times for just about anything that isn't electronic has become totally extreme over the last couple of years. I have had people waiting over a year for an amended return to be processed, and the same for paper original returns. Even responses to CP-2000 letters are taking 6 or more months to be reviewed.