1. Introduction

Those who engage in buying and selling real property are often asked by real estate agents and escrow companies to fill out tax withholding and reporting paperwork relating to their transactions.  Those who are nonresident aliens often have a difficult time deciding how to complete this paperwork in a way that accurately describes and protects their status.  This memorandum of law will describe:

1. The state and federal laws applicable to income tax withholding and reporting of real estate sales.
2. The forms used for state and federal tax withholding and reporting of real estate sales.
3. Tactics for filling out real estate withholding and reporting forms useful to those who are “nontaxpayers” not subject to the Internal Revenue Code Subtitle A.
4. Tools and techniques for educating title companies, escrow companies, and buyers so that they will cooperate with you in lawfully avoiding income tax withholding and reporting of real estate sales.

2. FIRPTA Requirements

The Federal Investment in Real Property Transfer Act (FIRPTA)  is found at 26 U.S.C. §897, which says the following:

26 U.S. Code § 897 – Disposition of investment in United States real property

Note the following about the above FIRPTA act:

1. The act refers only to real property located in the “United States”, which is defined in 26 U.S.C. §7701(a)(9) and (a)(10) and includes no part of any state of the Union.

TITLE 26 > Subtitle F > CHAPTER 79 > Sec. 7701.  [Internal Revenue Code]

Sec. 7701. – Definitions

(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof— 

(9) United States 

The term ”United States” when used in a geographical sense includes only the States and the District of Columbia. 

(10) State

The term ”State” shall be construed to include the District of Columbia, where such construction is necessary to carry out provisions of this title.

_______________________________________________________________________________________

TITLE 4 – FLAG AND SEAL, SEAT OF GOVERNMENT, AND THE STATES

CHAPTER 4 – THE STATES

Sec. 110. Same; definitions

(d) The term ”State” includes any Territory or possession of the United States.

2. The rules of statutory construction forbid adding anything to the definition of “United States” above, or assuming anything not expressly spelled out:

“Expressio unius est exclusio alterius.  A maxim of statutory interpretation meaning that the expression of one thing is the exclusion of another.  Burgin v. Forbes, 293 Ky. 456, 169 S.W.2d 321, 325; Newblock v. Bowles, 170 Okl. 487, 40 P.2d 1097, 1100.  Mention of one thing implies exclusion of another.  When certain persons or things are specified in a law, contract, or will, an intention to exclude all others from its operation may be inferred.  Under this maxim, if statute specifies one exception to a general rule or assumes to specify the effects of a certain provision, other exceptions or effects are excluded.”

[Black’s Law Dictionary, Sixth Edition, p. 581]

“When a statute includes an explicit definition, we must follow that definition, even if it varies from that term’s ordinary meaning. Meese v. Keene, 481 U.S. 465, 484-485 (1987) (“It is axiomatic that the statutory definition of the term excludes unstated meanings of that term”); Colautti v. Franklin, 439 U.S. at 392-393, n. 10 (“As a rule, `a definition which declares what a term “means” . . . excludes any meaning that is not stated'”); Western Union Telegraph Co. v. Lenroot, 323 U.S. 490, 502 (1945); Fox v. Standard Oil Co. of N.J., 294 U.S. 87, 95-96 (1935) (Cardozo, J.); see also 2A N. Singer, Sutherland on Statutes and Statutory Construction § 47.07, p. 152, and n. 10 (5th ed. 1992) (collecting cases). That is to say, the statute, read “as a whole,” post at 998 [530 U.S. 943] (THOMAS, J., dissenting), leads the reader to a definition. That definition does not include the Attorney General’s restriction — “the child up to the head.” Its words, “substantial portion,” indicate the contrary.” 

[Stenberg v. Carhart, 530 U.S. 914 (2000)]

3. The term “domestic” is in reference to the term “United States”, which in turn implies the District of Columbia or the Virgin Islands.

TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter N > PART II > Subpart D > § 897

897. Disposition of investment in United States real property

(c) United States real property interest

For purposes of this section—

(1) United States real property interest

(A) In general

Except as provided in subparagraph (B), the term “United States real property interest” means—

(i) an interest in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the Virgin Islands, and

(ii) any interest (other than an interest solely as a creditor) in any domestic corporation unless the taxpayer establishes (at such time and in such manner as the Secretary by regulations prescribes) that such corporation was at no time a United States real property holding corporation during the shorter of—

4. Federal law may not be enforced within a state of the Union:

“It is no longer open to question that the general government, unlike the states, Hammer v. Dagenhart, 247 U.S. 251, 275 , 38 S.Ct. 529, 3 A.L.R. 649, Ann.Cas.1918E 724, possesses no inherent power in respect of the internal affairs of the states; and emphatically not with regard to legislation.“ 

[Carter v. Carter Coal Co., ,298 U.S. 238, 56 S.Ct. 855 (1936)]

________________________________________________________________________________________

“The difficulties arising out of our dual form of government and the opportunities for differing opinions concerning the relative rights of state and national governments are many; but for a very long time this court has steadfastly adhered to the doctrine that the taxing power of Congress does not extend to the states or their political subdivisions. The same basic reasoning which leads to that conclusion, we think, requires like limitation upon the power which springs from the bankruptcy clause. United States v. Butler, supra.”

[Ashton v. Cameron County Water Improvement District No. 1, 298 U.S. 513, 56 S.Ct. 892 (1936)]

5. FIRPTA limits itself to only “nonresident alien individuals”.  No one else is covered by the act.

6. One can be a “nonresident alien” without also being a “nonresident alien individual”.

7. The terms “individual” and “nonresident alien individual” are defined as follows:

26 C.F.R. 1.1441-1 Requirement for the deduction and withholding of tax on payments to foreign persons.

(c ) Definitions

(3) Individual.

(i) Alien individual.

The term alien individual means an individual who is not a citizen or a national of the United States. See Sec. 1.1-1(c).

(ii) Nonresident alien individual.

The term nonresident alien individual means a person described in section 7701(b)(1)(B), an alien individual who is a resident of a foreign country under the residence article of an income tax treaty and Sec. 301.7701(b)-7(a)(1) of this chapter, or an alien individual who is a resident of Puerto Rico, Guam, the Commonwealth of Northern Mariana Islands, the U.S. Virgin Islands, or American Samoa as determined under Sec. 301.7701(b)-1(d) of this chapter. An alien individual who has made an election under section 6013 (g) or (h) to be treated as a resident of the United States is nevertheless treated as a nonresident alien individual for purposes of withholding under chapter 3 of the Code and the regulations thereunder.

8. The definition of “nonresident alien individual” above does not include a person born within or domiciled within a state of the Union mentioned in the Constitution.  Instead, it only includes people born within or domiciled within federal territories and possessions referred to in the Buck Act as follows:

TITLE 4 > CHAPTER 4 > § 110

§ 110. Same; definitions

As used in sections 105–109 of this title—

(d) The term “State” includes any Territory or possession of the United States.