2026-07-03
In an interesting recent case, JRS Development, LLC v. Alaa Jwaad, foreign owners of undeveloped land in Tennessee entered into a contract to sell the land. The contract contained a provision advising the foreign sellers that they would be subject to FIRPTA withholding tax at closing. FIRPTA generally requires a purchaser of a U.S. real property interest from a foreign person to withhold a tax equal to 15% of the total amount realized from the disposition. Code §1445(a).
As the closing for the sale approached, the seller's attorney reminded the sellers that 15% of the purchase price would be withheld for the IRS. The sellers indicated to their attorney that they didn't want to "pay that 15% tax." and "If there is not [an] alternative to the 15% tax, we won't proceed with the sale." The sellers refused to sign the closing documents, and the sale did not go through.
The buyers sued the sellers for specific performance (where a court orders a party to fulfill their obligations as outlined in the contract). The Tennessee trial and appellate courts held for the buyer, and the sellers were required to transfer the real estate subject to the 15% FIRPTA withholding tax.