Gilbert v. United States, 998 F. 3d 410 – Court of Appeals, 9th Circuit 2021
FIRPTA and the FDAP rules require the transferee—or buyer—in taxable transactions with a foreign entity to deduct, withhold, and pay a prescribed amount to the Internal Revenue Service (IRS). 26 U.S.C. § 1472; 26 U.S.C. § 1445(a). Congress specifically enacted FIRPTA to prevent foreign investors engaging in real property transactions in the United States from avoiding United States taxes. Brian S. Masterson, 2 Tucker on Tax Planning Real Estate Trans. § 22:3 (updated 2021). The pre-tax withholding requirement ensures that funds to pay the required taxes are collected up front. And the requirement obligates the buyer to facilitate enforcement and collection. 26 C.F.R. 1.1445-1(b); see also John R. Wilson, 2 Transnational Business Transactions § 10:31 (updated 2020) (“The key to enforcing FDAP taxes is to make one or more U.S. persons (or at least foreign persons over whom the U.S. has effective jurisdiction) responsible and liable for the collection and payment of the taxes.”); id. § 10:64 (updated 2020) (“FIRPTA contains an elaborate withholding regime to enforce its provisions.”). Indeed, the party required to make the withholding is liable for any miscalculation. 26 U.S.C. § 1461; Del Com. Properties, Inc. v. Comm’r, 251 F.3d 210, 213 (D.C. Cir. 2001).