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Tuesday, September 27, 2005

IRS Warns Taxpayers Regarding Evasion of FIRPTA Withholding Requirements

The IRS is warning real estate and tax professionals of the withholding tax and filing requirements for two transactions in which a foreign person disposes of a U.S. real property interest:

Option Transactions. Under U.S. tax law, a foreign person that sells or exchanges a U.S. real property interest must report the gain on a U.S. tax return, and the buyer of the U.S. real property interest must withhold and pay to the IRS 10 percent of the gross amount paid to the foreign person. A U.S. real property interest includes options or contracts to acquire land or land improvements and leaseholds of land or land improvements. The disposition of such an option or contract by a foreign seller is reportable on the foreign seller's U.S. tax return and is subject to a 10 percent withholding tax payable by the buyer to the IRS. Under U.S. tax law, the buyer must determine if the seller is a foreign person. If the seller is a foreign person and the buyer fails to withhold, the buyer can be held liable for the withholding tax.

The IRS has become aware of instances in which foreign persons have acquired options or entered into contracts to purchase U.S. real property interests and sold the options or assigned the contracts before such instruments are exercised or executed and title to the underlying property is taken. Buyers of the options or contracts are failing to withhold and remit to the IRS the required 10 percent from the proceeds of the sale.

Transfer to a Shareholder. The IRS is also aware of potentially abusive transactions where a foreign corporation arranges a sale of its U.S. real property interest to a buyer and then transfers its U.S. real property interest to its foreign individual shareholder. The foreign shareholder then sells the U.S. real property interest to the buyer. The foreign shareholder takes the position that, because he or she, rather than the corporation, is selling the property, some or all of the gain inherent in the foreign corporation's U.S. real property interest is subject to a maximum capital gains rate of 15 percent. That is, the foreign shareholder claims that the transfer of the U.S. real property interest by the foreign corporation to the shareholder does not result in any tax (if the foreign corporation had directly sold the U.S. real property it would have been subject to tax at a rate as high as 35 percent).

The shareholder's position is incorrect. Generally, the foreign corporation (and not the foreign individual shareholder) is taxed on all of the gain inherent in the U.S. real property interest. The transaction is treated as a taxable sale of the U.S. real property interest by the corporation, either because the corporation is making a distribution to the foreign shareholder of the U.S. real property interest (which would constitute a deemed sale of such interest at the corporate level) or because the corporation is viewed as selling the entire U.S. real property interest directly to the buyer. In cases where the foreign corporation is treated as making a distribution of the U.S. real property, the foreign corporation is also subject to a withholding tax of 35 percent on the gain in the property, unless it qualifies for reduced withholding.


Rolo said...

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killtheblogspam said...

Suicide Spammers Alert

Boca Raton, Florida – Nov 22, 2005 -- Most of us agree that “spamming” is a growing problem on the internet. But now it looks as if the spammers are shooting themselves in the foot. They seem to be committing mass suicide. Because, by using spamming software to “automate” their competitive efforts, they are raising their hand in the cyber classroom and identifying themselves as … well … spammers worthy of internet contempt.

Many of these “spammers” are small-time entrepreneurs searching for a spotlight in a medium (the internet) which is being bought and paid for by Big Guys with oversized ad budgets. In other words, the small-time entrepreneurs see the “spamming software” as a way of competing with the swollen internet expenditures of Fortune 500 companies.

Now comes news that it may not be working for the little guys. They may be making themselves even smaller by identifying themselves to the large search engines such as Google, AltaVista, AllTheWeb, Teoma and Yahoo!

Let me share with you my own experience with Blog Submitter Pro V.Search. It’s a popular, heavily-marketed “spam machine” which posts comments to blogs, either automatically or semi-automatically, depending on a user’s settings. And, yes, I bought it because I am one of those small-time entrepreneurs looking for attention in a cyberspace bought and paid for by Big Guys with oversized ad budgets.

On Nov 8th 2005, I began pointing Blog Submitter software to one of my real estate sites. At the time, my site “ranking” on major search engines was reasonable, but not great.

I purchased Blog Submitter Pro after many months of trying to claw my way up the cyberspace ladder on a peanut-sized budget. Prior to using the software, my site popularity numbers were: Google: 27 links … AltaVista: 589 links … AllTheWeb: 584 links … Teoma: 30 links … Yahoo!: 595 links and MSN: 10 links.

I have run Blog Submitter Pro V.Search quite a bit between then and now. Some glitches appeared, but overall I felt it was an OK piece of software … or at least a clever one. The fact that it would often post repeatedly to the same blog was a serious problem, but I still felt the program was delivering a shot at cyber stardom. My blogger “comments” were well thought out, and they posted accurately. They were innocuous and unobtrusive messages. An example or two of my typical comments:

Hi. After suffering through the tree-busting, home-wreaking destruction of Hurricane Wilma, and being away from the Internet for well over a week because Adelphia broadband blew away in the wind, it’s nice to read things like your blog. Even though I really am searching for information on Boca Raton Real Estate, which I might be able to use on my Boca Raton real estate site ... thanks for the read.

Or this:

Blog-skipping is the latest cybersport … sort of like skipping stones across the water … see how many blogs you can ripple through before your fingers stiffen up. It’s an amusing break from working on my Boca Raton real estate site . Your blog has slowed me down a little, because I enjoyed the read. Still … off I cyberskip to the next site :o)

I had a minimum of ten such messages whenever I turned on Blog Submitter Pro V.Search, validated by ten different sets of “credentials” (blogs I have at, proving I’m a fellow blogger and kindred internet spirit).

My messages were posted on thousands of blog sites, and the sites were then automatically “pinged” to let the search engines know a post had been made. Then the search engine would come and look at the post and it would be “fooled” into thinking that the site which the post pointed to – my site – was a worthwhile, busy entity in cyberspace.

The first hint of a letdown came when three of my credentials (blogs I have at were tagged by the Blogger folks as “SPAM BLOGS” … a DIRECT result of using Blog Submitter Pro V.Search software.

Didn’t take them long to figure out I was a dreaded spammer. And that, sadly, turns out to be the GOOD news.

My site popularity ranking on major search engines (the result of many months of hard work prior to using Blog Submitter Pro) was, in my opinion, badly damaged. The exact numbers as of this writing are: Google: 27 links (as before) … AltaVista: 61 links (a drop of 528 links) … AllTheWeb: 61 links (a drop of 533 links) … Teoma: 30 links (as before) … Yahoo!: 78 links (a drop of 539 links) and MSN: 91 links (an increase of 81 links).

I attribute this damage directly to the use of Blog Submitter Pro V.Search software. I expect my rankings on Google and Teoma to slide on the next update from their search engines (which seems to happen about once a month). I am sure the increase in MSN will also seriously reverse.

To say I am disappointed in the software would be a gross understatement. I am only glad that I had the foresight to use it on a single website, and not on all of my websites. I will continue to use it on the damaged site to see if it continues to hurt, rather than help. And I will report back to anyone interested. The site in question is

My e-mail is

Good luck, folks. I think, with this software, we are well on the road to identifying and, ultimately, watching the suicide of a lot of spammers. And I intend to use the software itself to propagate the message. Poetic justice rules. Spread the word.