Significant Delays with IRS Tax Identification Numbers for Foreign Investors

real estate title company offers 3 tips for saving time for foreign investors getting tax ids

Sellers and foreign Investors should be prepared to incorporate the potential delay into their business plans.

As of January, foreign investors who plan on incorporating a company to purchase real estate in the United States must now wait six to ten weeks for IRS approval to obtain a tax identification number.  A tax ID number is required to open a bank account for any corporation.

The new delay is a significant change from prior same-day issuance of tax ID numbers after simply filling out a form and faxing it over to the IRS.  Foreign applicants are now required to submit original documentation from issuing agencies and wait for the IRS to confirm their authenticity before issuing identification numbers.  Part of the delay is due to the IRS seeking to identify the true beneficiary of each application, as opposed to only the named agents acting on the applicant’s behalf.

Delay Prevents 400,000 fraudulent returns right away

The IRS is aiming to prevent fraudulent tax returns involving identification numbers and combating increasing identity theft.  During the first two months after enactment, the IRS claims to have prevented close to 400,000 fraudulent tax returns.  

Florida leads the way in foreign real estate transactions

Although the IRS has a duty to fettering out fraud and protect taxpayer dollars by ensuring that  they are being distributed to legitimate recipients, they must appropriately balance such concern with the adverse effects that the new delays will have on business transactions. With Florida being the nation’s top destination for foreign real estate investment, the real estate delays are especially concerning to our state’s recovering real estate markets. There are already many reports of the new delays affecting pending deals and negotiations in the South Florida commercial and residential market. This comes as no surprise considering the fact that 1-in-4 real estate transactions in the United States with a foreign buyer occurs in Florida.

Speed is not the IRS’ forte

Since the IRS boasts such a high number of prevented fraudulent tax returns after the implementation of their new policy, it is doubtful that they will be issuing tax IDs any faster. Anyone that has dealt with the IRS knows that speed is not their top priority. So what can buyers and sellers do to combat the effects to their real estate transaction due to these new delays?

3 ways to combat IRS foreign investor delays in real estate:

  1. Foreign buyers should incorporate and request a tax ID in anticipation of investing in the United States.

  2. Sellers, knowledgeable of the new delays, should inform potential foreign buyers about the delays at the outset of their communications.  

  3. Sellers may want to consider holding off on signing purchase agreements with foreign buyers until they show proof of a tax ID. Many issues can arise when the parties to a transaction have to wait an additional six to ten weeks to close.

Incorporate delay into business plans

Sellers and foreign Investors should be prepared to incorporate the potential delay into their business plans.  Although these new delays have the potential of causing severe damage to a deal, if you are aware of the delays, there are preemptive measures you can take to reduce most or all of the effects.

The following article was written by Roy Oppenheim, esq. and legal blogger for Weston Title & Escrow, Oppenheim Law, and The South Florida Law Blog. Please subscribe here.

 

 

 

 

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