Thomas C. Roberge & Company

SALES OF U.S. REAL ESTATE

INVOLVING A FOREIGN DECEDENT

ON TITLE AT THE TIME OF DEATH

March 3, 2008

By Susan Inez Poskus, CPA

Thomas C. Roberge & Company

St. Petersburg and Sarasota

Telephone: (727) 822-9393

Contact: Info@RobergeCo.com

The Internal Revenue Service has special, stringent rules for sales of U.S. real estate if a foreign person was on the title to the property at the time of his or her death. Basically, clear title cannot be conveyed nor can the heirs receive the sales proceeds until certain statutory procedures are complied with. Failure to adhere to these rules creates personal liability to anyone involved with the transaction who has receipt or control over the sale proceeds. This includes the buyer, the realtor taking the deposit on the contract, the title insurance company and the closing agent completing the sale and disbursing the funds.

These rules also apply where a surviving spouse is currently selling Florida real estate, which he or she jointly owned with a deceased spouse at the time of that spouse’s death – even if the spouse passed away several years before. There is a common misconception by Florida attorneys that property jointly owned by husband and wife as tenants by the entirety automatically passes to the surviving spouse. While this may be true under Florida law, it does not relieve the federal tax lien on the property under the Internal Revenue Code.

The surviving spouse is now (even at this date many years later) still personally liable for the Federal estate tax if it was not paid when due. The buyers, realtors and closing agent are also potentially liable (to the extent they have cash under their control even for a moment) for any unpaid estate tax (plus interest and penalties) as a “Statutory Executor” if a Transfer Certificate is not obtained from the Internal Revenue Service before closing the sale. This group is liable as a Statutory Executor since they, at various times, control the funds.

Remember, a foreign decedent only receives a $60,000 exemption from the federal estate tax compared to a $2 million exemption for a U.S. decedent!

Assume that you have John and Mary Smith, Canadian citizens and residents. They purchased a Florida condominium on February 2, 1995 as tenants by the entirety. John passed away on June 16, 2005. A federal estate tax return was never filed. Though title passes to the surviving spouse under Florida law, the federal estate tax lien still exists and is not removed until a Transfer Certificate is issued, a federal estate tax return is filed, and the IRS issues a Closing Letter for the estate.

Let’s further assume that in July 2008 Mary plans to sell the condominium. You must obtain a Transfer Certificate before you can close the sale in July 2008. Failure to obtain the requisite certificates can result in you being held liable for any tax shortfall by the IRS.

We have the experience and expertise in obtaining tax certificates from the IRS so the sale can proceed timely and in an orderly manner, so the real estate professionals can receive their fees at closing with no fear of IRS involvement and the heirs can receive what is rightfully theirs.

It is in everyone’s best interests to contact us at (727) 822-9393 or (941) 952-5848 as early as possible once you are aware that this type of situation exists.

Internal Revenue Service Circular 230 Disclosure – You are hereby advised that any tax advice contained in this newsletter is not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or to support the marketing of any tax transactions or matters addressed herein.