What Happens If FIRPTA Is Not Withheld? (2026 Consequences Guide)

When U.S. property is sold by a foreign person, FIRPTA generally requires the buyer to withhold 15% of the gross sale price and send it to the IRS.

But what happens if that withholding does not occur?

In this 2026 guide, we explain who becomes liable, what penalties may apply, and what foreign sellers and buyers should understand before closing.

If you are new to FIRPTA rules, start here:
FIRPTA Explained (2026): Complete Guide for Foreign Sellers of U.S. Property.

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Who Is Responsible for FIRPTA Withholding?

Under FIRPTA rules, the buyer (transferee) is legally responsible for:

• Withholding 15% of the sale price
• Filing Form 8288 and 8288-A
• Sending payment to the IRS

Even if a closing agent prepares documents, the buyer remains legally liable.

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What Happens If the Buyer Fails to Withhold?

If FIRPTA withholding is not made when required:

• The IRS can hold the buyer personally liable for the tax.
• The IRS may assess interest and penalties.
• The buyer may be responsible for the amount that should have been withheld — even if the seller has already received full proceeds.

This can create serious financial exposure for the buyer.

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Example Scenario

Sale price: $900,000
Required FIRPTA withholding (15%): $135,000

If the buyer fails to withhold:

• The IRS may demand $135,000 from the buyer.
• Interest may accrue from the date of transfer.
• Additional penalties may apply.

This liability exists even if the seller leaves the United States.

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Does the Seller Have Any Responsibility?

The primary legal obligation belongs to the buyer.

However, sellers may still have tax reporting obligations.

If the seller is required to file a U.S. tax return and does not do so, the IRS may pursue tax liability separately.

Failure to withhold does not eliminate the seller’s obligation to report the sale.

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What If the Buyer Relied on the Seller’s Certification?

In some cases, FIRPTA does not apply because:

• The seller is not a foreign person.
• The $300,000 primary residence exception applies.

If the seller provides a valid certification of non-foreign status, and the buyer reasonably relies on it, withholding may not be required.

However, if the certification is false, penalties may apply.

For details on exceptions, see:
FIRPTA Primary Residence $300,000 Exception Explained (2026).

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Can the IRS Go After the Seller Instead?

Yes.

Even if the buyer fails to withhold, the IRS may still pursue:

• The seller for unpaid tax
• The buyer for withholding liability

Both parties may face consequences in certain circumstances.

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What About State Withholding?

Some states have separate real estate withholding requirements.

Failure to comply with state-level withholding rules may create additional penalties beyond FIRPTA.

Sellers and buyers should confirm both federal and state obligations before closing.

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How to Avoid FIRPTA Withholding Errors

To reduce risk:

• Confirm the seller’s tax residency status early
• Review FIRPTA rules before listing property
• Ensure proper completion of Forms 8288 and 8288-A
• Consider Form 8288-B if reduced withholding is justified
• Work with escrow professionals familiar with cross-border transactions

For a step-by-step explanation of reporting forms, read:
Form 8288 & 8288-A Explained (2026 Guide).

For reducing withholding before closing, see:
Form 8288-B Explained (2026 Guide).

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Frequently Asked Questions

Is the buyer always responsible for FIRPTA withholding?
Yes, under federal law the buyer is primarily responsible.

Can the buyer be sued by the IRS?
The IRS may assess tax, interest, and penalties against the buyer if withholding was required and not made.

What if the seller later pays the tax?
The IRS may still hold the buyer liable for failure to withhold.

Does failing to withhold eliminate tax liability?
No. The underlying tax obligation may still exist.

Can this issue be corrected after closing?
In some cases, corrective filings may be made, but professional guidance is strongly recommended.

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Final Thoughts

Failure to comply with FIRPTA withholding rules can create serious financial exposure — particularly for buyers.

Because liability may extend beyond closing, both parties should understand FIRPTA before transferring property.

Advance planning and proper documentation reduce risk significantly.

If you are preparing to sell U.S. property as a foreign national, begin with the complete FIRPTA overview here:
FIRPTA Explained (2026): Complete Guide for Foreign Sellers of U.S. Property.

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