FIRPTA, FinCEN & Cash Reporting: Don’t Make the IRS Your New Best Friend!
In today’s tightly-regulated real estate market, a FIRPTA withholding misstep, a missed FinCEN filing, or improper cash reporting can quickly turn a routine transaction into an expensive compliance headache. Understanding key players and essential requirements helps you cut through the complexity. Here’s what you need to know.
What (or Who) are FIRPTA and FinCEN?
Who (or what) are these acronyms referring to, and how do they impact real estate transactions?
Foreign Investment in Real Property Tax Act (FIRPTA) was enacted in 1980. FIRPTA gives foreign investors a Taxpayer Identification Number (TIN), with which they can pay taxes (or have taxes withheld) on properties they sell in the U.S. The PATH Act (passed in 2015) changed the withholding rate of FIRPTA from 10% to 15% on properties that sold for more than $1 million, among its many provisions (Source: National Association of Realtors).
The Financial Crimes Enforcement Network (FinCEN) is a division of the U.S. Treasury Department. It’s their mission to “safeguard the financial system from illicit activity, counter money laundering and the financing of terrorism, and promote national security through strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence.”
Legality = Complexity
FIRPTA and FinCEN are there to protect parties in real estate transactions from money laundering and other financial crimes. But because those crimes are complicated, the protections against them are, too. For example, cash payments over $10,000 trigger IRS reporting, and it’s got to be done right. Buyers, sellers and realtors need to know how aggregation rules work, what counts as “cash,” and how to avoid costly mistakes.
Change is Inevitable
FinCEN and FIRPTA aren’t just complicated, their rules and regulations can change dramatically in just a few months (depending on the presiding judges, and economic climate, among other things). An experienced Escrow and TItle Attorney has the up-to-the-minute knowledge you need to keep your real estate transactions smooth and legal, and the latest tools and technology to keep your data and assets protected.
If you’re a realtor, buyer, or seller wondering how FIRPTA and FinCEN may shape planned real estate transactions, BNT can help. Our Kentucky and Tennessee Title Attorney understands the real-world demands of a range of transactions and how to avoid related pitfalls, Keep your deals on track, book a consultation with our team today.
