IRS Provides a Simplified Method for Late Filing Relief

By Tracy Watkins, J.D., LL.M.

Editor: Greg A. Fairbanks, J.D., LL.M.

A common scenario faced by many taxpayers under the Foreign Investment in Real Property Tax Act, P.L. 96-499 (FIRPTA), relates to the failure to rebut the general presumption found in Sec. 897 that a domestic corporation is a U.S. real property holding company (USRPHC). For example, assume that a foreign parent sells the stock of a domestic corporation to a third party in a taxable transaction and that the domestic corporation has never held any U.S. real property interest (USRPI). If the detailed requirements of FIRPTA are not met in a timely manner, the presumption that the domestic corporation is a USRPHC applies, and Sec. 1445 generally imposes a withholding tax liability on the third party transferee, in addition to possible interest and penalties. Further, taxpayers often will transfer a USRPHC or USRPI in transfers that qualify for nonrecognition but fail to file the appropriate statements or notices required under Secs. 897 and 1445.

In Rev. Proc. 2008-27, the IRS has provided a simplified method to request relief for certain late filings under Secs. 897 and 1445. Prior to the effective date of the revenue procedure (i.e., requests for relief after June 26, 2008), a taxpayer seeking relief had to request a private letter ruling under Regs. Sec. 301.9100-3. The revenue procedure streamlines the relief process and eliminates the user fee.

Specifically, the revenue procedure provides a simplified method to request relief for failure to file the statements and/or notices required by Regs. Secs. 1.897-2(g)(1)(ii)(A) (statement from a corporation), 1.897-2(h) (notice requirements applicable to corporations), 1.1445-2(c)(3)(i) (non-USRPI statement provided), 1.1445-2(d)(2) (USRPI transferred in a nonrecognition transaction), 1.1445-5(b)(2) (withholding obligations for specific entities on nonrecognition transactions), and 1.1445-5(b)(4) (property transferred is not USRPI).

A taxpayer is eligible for relief for certain late filings if the statement or notice was not provided to the relevant person or the IRS by the specified deadline and the taxpayer has reasonable cause for the failure to make a timely filing. The revenue procedure provides that the taxpayer must file a completed statement or notice with the appropriate person or the IRS, as applicable. Moreover, with respect to a completed statement or notice required to be filed with the IRS under Regs. Secs. 1.897-2(h), 1.1445-2(d)(2), or 1.1445- 5(b)(2), as applicable, the taxpayer must attach an explanation describing why the taxpayer's failure to timely file the statement or notice was due to reasonable cause. In addition, within the explanation, the taxpayer must provide that it filed with, or obtained from, an appropriate person the statements or notices required under Regs. Secs.1.897-2(g)(1)(ii)(A), 1.1445-2(c)(3)(i), 1.1445-2(d)(2)(i)(A), or 1.1445-5(b)(4)(iii)(A), as applicable.

If the IRS denies a taxpayer relief under Rev. Proc. 2008-27 for certain late filings, the taxpayer may seek relief by requesting a private letter ruling under Regs. Sec. 301.9100-3.


Greg A. Fairbanks, J.D., LL.M., is a tax manager with Grant Thornton LLP in Washington, DC.

For additional information about these items, contact Mr. Fairbanks at (202) 521-1503 or

Unless otherwise noted, contributors are members of or associated with Grant Thornton LLP.

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