Rudolph “the Red-Nosed Reindeer” is selling his spring retreat in sunny Sarasota, Florida to Santa Claus for $295,000. As many know, Santa is a resident of the North Pole which is not technically affiliated with the United States. Rudolph and Santa used the standard FRBAR Contract prepared by Realtor Hermey the Elf. Pursuant to Paragraph 10(i) under the FRBAR Contract, Rudolph disclosed that he is a “foreign person”.
As closing nears, Rudolph contacted his Attorney, Yukon Cornelius, to review the contract and prepare the closing paperwork. Attorney Cornelius informed Rudolph that since the sales price is below $300,000 he may not have to withhold 15% of the amount realized (in this case its based off the purchase price) if an exemption to the withholding applies. Attorney Cornelius asked Rudolph to meet with Santa to see if Santa (or a member of his family) has definite plans to reside at the property for at least 50 percent of the number of days the property is in use during each of the first two 12-month periods following the purchase. Attorney Cornelius explained that if Santa can sign an affidavit confirming the same he would not have to withhold $44,250 and thereafter remit to the Abominable Snowman aka IRS. Not wanting to play any reindeer games, Rudolph quickly flew off to the North Pole to meet with Santa.
Over some milk and cookies, Rudolph presented the affidavit prepared by Attorney Cornelius to Santa. Upon first glance, Santa spit out his milk and exclaimed: “Santa Claus is coming to town but I just do not know when and how long we will reside on the property.” Santa noticed that Rudolph was taken back by his decision given the fact that his red nose went dim. Santa quipped that “you better watch out, you better not cry, better not pout, I’m telling you why, Santa Claus is not gonna take on any additional liability by signing an affidavit that is not required under the contract!” Santa suggested to Rudolph that the funds be withheld and remitted to the Abominable Snowman aka IRS to resolve the issue.
Although not happy about Santa’s decision, Rudolph understood that Santa was right (isn’t he always?!). There is no requirement in the FRBAR contract that requires a Buyer to sign an affidavit confirming the Buyers intended use of the property to provide an exemption from the required withholding. Rudolph realized that had he reached out to his real estate attorney for language to be included in the contract prior to signing, he could have avoided this issue.
The good news is the deal closed late Christmas Eve via air mail but unfortunately, Rudolph is still waiting on the Abominable Snowman aka IRS to deliver the remainder of his funds.
As always, if you have any questions about Santa, Rudolph, Hermey the Elf, or questions about transactions involving foreign sellers, we urge you to consult with your local real estate attorney. If you have questions about the Abominable Snowman, we suggest that you to consult with your local tax attorney or accountant.
Berlin Patten Ebling, PLLC
Article Authored by Jamie A. Ebling firstname.lastname@example.org
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