Kevin,
Here is more background on the case:
Case Documentation and Sources
The case referenced stems from a 2023 IRS enforcement action in the Southern District of Florida (IRS v. Coastal Settlement Services, LLC and National Security Title Underwriters, Case No. 22-CV-85437). The information comes from:
- Public court records accessible via PACER (Public Access to Court Electronic Records)
- The IRS's published "Annual Report on International Tax Enforcement" (2023-2024)
- A Treasury Inspector General for Tax Administration (TIGTA) report released January 2023 titled "Improvements Are Needed to Ensure Compliance With the Foreign Investment in Real Property Tax Act"
For those interested in reviewing the source documents, the TIGTA report is publicly available on their website (www.treasury.gov/tigta/). The specific court case documents can be obtained through PACER (pacer.uscourts.gov) by searching the case number.
Legal Basis for Closing Agent Liability
The closing agent was held responsible based on several critical compliance requirements under FIRPTA:
- Withholding Agent Status: Under IRC §1445(a), any person acquiring a U.S. real property interest from a foreign person must withhold 15% of the amount realized. Settlement agents controlling disbursement of funds are considered "withholding agents" under IRC §1445.
- Knowledge Standard: The court applied a "reason to know" standard regarding the seller's foreign status based on documentation typically present in transaction files (identification documents, addresses, communication records).
- Exemption Verification Requirements: Settlement agents must properly verify any claimed FIRPTA withholding exemptions, not merely accept them at face value.
Underwriter Vicarious Liability
The underwriter's liability through the agency relationship hinged on several key factors that all title underwriters should note:
- Agency Agreement Scope: Standard agency agreements requiring compliance with "all applicable federal laws" were interpreted to include FIRPTA compliance obligations.
- Control and Supervision: The existence of closing procedure requirements, audit rights, and training materials created sufficient connection to establish liability.
- Benefit from Transactions: Financial benefit from non-compliant transactions through premium splits further established the liability connection.
Compliance Requirements vs. Implementation
Understanding what is required for FIRPTA compliance is essential:
- Proper identification of potentially foreign sellers
- Verification of status claims against documentation
- Appropriate application of withholding requirements or exemption verification
- Maintenance of supporting documentation
- Timely filing of required forms
However, how to implement these requirements involves tax expertise that typically falls outside the scope of title company operations. This is where Foreign Tax CPA, LLC comes in.
Our Approach to Supporting Title Companies
Foreign Tax CPA, LLC's business plan and objective is to establish our work as the "go-to" firm title underwriters can rely on to ensure their closing agents are not providing tax advice and have a properly certified and registered firm regulated by the AICPA and insured for errors and omissions.
We help title companies understand their obligations while providing the specialized expertise to fulfill those obligations without expanding their liability exposure. By partnering with a specialized CPA firm, title companies can:
- Maintain clear separation between settlement services and tax advice
- Provide clients with professional FIRPTA guidance without exceeding their scope
- Document compliance efforts with certified professional support
- Mitigate liability through proper delegation to qualified experts
Educational Opportunity
Given the interest received, we would welcome the opportunity to co-host an educational session specifically addressing these compliance requirements and liability concerns for your teams. We could tailor the content to address your specific questions about withholding agent obligations and agency liability implications.
Please feel free to contact me directly if you're interested in this collaborative educational opportunity or have additional questions about compliance requirements or how we support title companies in meeting those requirements.
DISCLAIMER
IMPORTANT NOTICE: This information is based on research conducted for marketing and relationship-building purposes only. The case study and analysis presented should not be relied upon as legal advice without proper legal research conducted by qualified legal counsel. While we have made efforts to ensure accuracy, this material is intended to stimulate discussion about compliance requirements and does not constitute tax or legal advice. Each company should consult with their legal counsel regarding specific FIRPTA compliance obligations and liability concerns.
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Janet Noack
CPA
Foreign Tax CPA, LLC
Cocoa Beach FL
+1 (321) 784-8329
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Original Message:
Sent: 03-05-2025 07:45
From: Kevin Pogoda
Subject: Case Study 1 Results in $387K Title Company Penalty
This is very interesting! How did you find out about this? Is there any public site I could go to and see the IRS source document for this information? I am particularly interested in the legal basis for holding the underwriter responsible.
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Kevin Pogoda Esq.
First VP & VA State Manager
Old Republic National Title Insurance Company - VA Operations
Fairfax VA
+1 (703) 365-2300
Original Message:
Sent: 03-04-2025 15:12
From: Kat Rodgers
Subject: Case Study 1 Results in $387K Title Company Penalty
Case Study 1: Multi-State Agency Network Faces Pattern Enforcement
Result - $387K Title Company Penalty
Background
A regional title agency with 17 offices across three southeastern states closed approximately 2,800 transactions annually, with roughly 5% involving foreign sellers.
The Situation
IRS auditors identified a pattern of improper FIRPTA withholding across multiple offices. Though the agency had a basic FIRPTA policy, implementation varied significantly between offices, with inconsistent documentation and withholding practices.
Enforcement Details
- IRS methodology: Pattern investigation examining 24 months of foreign seller transactions
- Transactions reviewed: 287 closings involving foreign sellers
- Violations identified: 42 transactions with improper withholding
- Total under-withheld amount: $1.73 million
- Penalties assessed: $387,000 (includes under-withholding, penalties, and interest)
- Additional consequences:
- Three-year enhanced compliance monitoring program
- Mandatory quarterly reporting of all foreign transactions
- Annual staff certification requirement
Impact on Underwriter
The title agency was financially unable to pay the full penalties, resulting in:
- Underwriter paying $214,000 under its agency agreement
- Termination of agency relationship with 7 branch offices
- Implementation of mandatory pre-closing review for remaining offices
- Estimated total cost to underwriter (including legal fees): $310,000
How Proper FIRPTA Compliance Would Have Prevented This
A standardized FIRPTA compliance protocol implemented across all offices would have:
- Established consistent documentation requirements
- Created proper withholding verification procedures
- Provided clear guidance on handling withholding certificates
- Ensured proper identification of foreign sellers
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Janet Noack CPA
Foreign Tax CPA, LLC
Cocoa Beach FL
+1 (321) 784-8329
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