BEWARE: Buying A U.S. Timeshare From A Foreign National Without An EIN

I recently wanted to buy a time share on Marco Island, FL. After paying the deposit, the closing papers included an I.R.S. form 8288. Unknown to me, the seller was a foreign national who didn't have a taxpayer ID (EIN). When that condition occurs, the I.R.S. makes the buyer responsible for the seller's taxes.

The title company finally tried to minimize the risk the buyer took on a transaction like this. I suppose most times the title company forwards the taxes to the I.R.S. But what an incredibly vulnerable position that puts the buyer in. If for whatever reason(clerical error), the title company doesn't forward the taxes to the I.R.S., they come after the buyer, not the title company, to immediately pay the taxes plus penalty, with a threat of imprisonment.

I refused to finalize this transaction, lost my deposit, and learned a lesson on buying real estate.

Hope you ask if the seller has a taxpayer ID number.

Jon

Jon:

I'm confused. I have bought and sold over a dozen timeshares in the past few decades. A few of them were from Canadian citizens (I am in the USA). None of my transactions were in the past 6 or 7 years, however.

Not once did the subject of taxes and / or the IRS ever get raised (nor, to my knowledge, was the subject even applicable) in any of my transactions. What on earth does the IRS and / or EIN have to do with privately conducted timeshare transactions, regardless of the nationality of the buyer or seller?

Is this E.I.N. matter perhaps a new requirement that has somehow arisen in very recent years --- maybe under the Patriot Act? If not, I simply cannot make any sense of this at all.

Note: FIRPTA = Foreign Investment in Real Property Tax. (Only the government lawyers could coin that one) BTW, the current 8288 suggests a 15% withholding.

Q: Who is responsible for FIRPTA withholding?

A: The IRS rules place the responsibility for withholding potential income tax due in the amount of 10% of the purchase price on the buyer of the real property from a foreign entity. The real property becomes the security for the IRS to ensure that they receive taxes that are due to them. If the payment is not made by the buyer, the IRS can seize the real property (or other assets of the buyer).

Q: Can’t the buyer assign the responsibility for withholding to the settlement or escrow agent?

A: There are no provisions in the IRS rules for the buyer to assign their responsibility to anyone else, including the escrow or real estate agents. The escrow agent cannot provide legal or tax advice.

Thanks for that info, Jon; very interesting. It seems odd to me that a U.S. citizen buyer would be responsible for the tax, with the seller being a non-U.S. citizen. Government logic, I guess...

You bet. If you go to the I.R.S. website and read a few paragraphs of form 8288, the language is unambiguous. It has a reasonable basis for a greedy government entity. If income tax is owed by a foreign national who doesn't have a taxpayer ID number, the I.R.S. can not collect it from them. So the regulations were changed to put the U.S. taxpayer on the hook.

The first responder to this post questioned this situation between private individuals. I don't see anything in the I.R.S. rules that makes any distinction between individuals and time share companies. The I.R.S. wants the money ASAP.

I was totally blindsided by this. One might think that a stellar timeshare broker would alert any potential buyers to this fact...