This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
Picture a closing checklist for the sale of a family-owned Florida business — a company that owns its warehouse, a founder whose family has been in Tampa for three generations. Buyer’s counsel circulates the deliverables list, and near the top, between the good standing certificate and the payoff letters, sits an item the seller has never heard of: a FIRPTA certificate of non-foreign status. The seller’s first reaction is usually some version of “why do I have to swear I’m not foreign — you’ve met me.” The answer has nothing to do with anyone’s actual doubts about the seller. It has to do with who the IRS comes after when withholding doesn’t happen.
The withholding obligation runs against the buyer, not the seller
The Foreign Investment in Real Property Tax Act works through a blunt collection device. Under 26 U.S.C. § 1445(a), when a foreign person disposes of a United States real property interest, the transferee — the buyer — must deduct and withhold 15 percent of the amount realized. Not 15 percent of the gain. Fifteen percent of the gross price allocable to the real property interest, off the top, remitted to the IRS. A buyer that fails to withhold when withholding was required is personally liable for the tax, plus interest and penalties, even though the underlying income tax was always the seller’s.
That is why the certificate shows up in every deal, including deals between two obviously domestic parties. Section 1445(b)(2) gives the buyer a safe harbor: withholding is excused if the transferor furnishes an affidavit, under penalty of perjury, stating the transferor’s U.S. taxpayer identification number and that the transferor is not a foreign person. The buyer isn’t asking because it suspects anything. It’s asking because the statute makes the buyer the collection agent by default, and the affidavit is the statutory off-ramp. Refusing to sign one doesn’t preserve any leverage — it just forces the buyer to withhold.
Stock deals bring section 897(c) into play
Founders tend to assume FIRPTA is a real estate closing issue that has nothing to do with selling a company. In Florida, that assumption fails more often than almost anywhere else. Section 897(c) defines a United States real property interest to include not just land and buildings but stock in a United States real property holding corporation — a corporation whose U.S. real property interests make up 50 percent or more of the combined value of its real property and business assets, tested over a five-year lookback. Think about what actually gets sold in this state: hotels, marinas, self-storage operators, RV parks, agricultural operations, restaurant groups that own their corners. A Florida operating company that owns its real estate can cross the 50 percent line without anyone thinking of the business as a real estate company.
In a stock sale, the clean path is usually a certification that the stock is not a United States real property interest — a statement made under the Treasury regulations, backed by section 1.897-2(h) procedures, that the corporation is not and has not been a real property holding corporation during the relevant period. In deals where the target plainly holds significant Florida real estate, that certification takes actual analysis, not a form pulled from the last deal. The asset-versus-stock structure decision changes which certificate is needed and who signs it, and the allocation work connects directly to the real property diligence the buyer is running anyway.
The certificate is a safe harbor, so the form has to be right
Because the affidavit is what stands between the buyer and personal liability, buyers are entitled to be picky about it, and sellers should expect that. The certification must identify the transferor correctly, recite non-foreign status, include the transferor’s TIN, and be signed under penalty of perjury. The most common drafting miss involves disregarded entities. If the selling entity is a single-member LLC that is disregarded for tax purposes, the LLC is not the transferor in the eyes of the statute — its regarded owner is, and the certificate has to come from and describe that owner. A certificate signed by a disregarded entity in its own name protects nobody. First, identify the tax transferor. Second, confirm its classification. Third, have the certificate track that answer, not the state-law deed or assignment.
Florida practice adds a mirror-image wrinkle on the buy side. The same closings that generate FIRPTA certificates now routinely generate affidavits under Florida’s foreign-principal land statute, and the two travel together in the closing set even though they run in opposite directions — one about the seller’s federal tax status, one about the buyer’s eligibility to hold certain Florida land under section 692.213. Counsel who conflate them tend to produce affidavits that answer the wrong question.
When the seller actually is foreign, plan the mechanics early
None of this makes a foreign seller unsellable. It changes the closing arithmetic. If withholding applies, the buyer remits the withheld amount with Forms 8288 and 8288-A within 20 days after closing, and the seller claims the withheld tax as a credit on its U.S. return — often recovering a large piece of it, because 15 percent of gross usually exceeds the actual tax on the gain. A seller who doesn’t want to wait for a refund cycle can apply for a withholding certificate on Form 8288-B before closing, asking the IRS to bless a reduced amount tied to the actual expected tax; deals are commonly structured with the withheld amount held in escrow pending that determination rather than remitted immediately. And where the target is a partnership rather than a corporation, the analysis shifts to the parallel 10 percent withholding regime for transfers of partnership interests — a different section, a different form set, and a different set of certifications, which is exactly why the tax status of every seller belongs on the diligence list at the letter-of-intent stage, not the week of closing.
The takeaway
The FIRPTA certificate is the rare closing deliverable that is simultaneously trivial and load-bearing. For a domestic seller it costs five minutes and a signature, and it relieves the buyer of a 15 percent withholding obligation the buyer would otherwise have to honor on pain of personal liability. For a real-estate-heavy Florida target, the stock-sale version takes real analysis under section 897(c). For a genuinely foreign seller, it reshapes the funds flow. In all three cases the certificate works only if someone figured out, early, who the tax transferor actually is. A disciplined M&A process answers that question in diligence, so the closing table isn’t where anyone learns the word “USRPHC” for the first time.
If you are selling a Florida company that owns its real estate — or buying one and wondering what to do with the withholding rules — feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
