We at DIRECTS spend each day working to help non-US persons obtain refunds of IRS mandated withholding taxes from US real estate sales. It is (often) not a simple process, not easy work, and there are frequently large refunds at stake. In our efforts, we are frequently required to call the IRS (and often the state of California as well) to check on the status on languishing refunds. Often the IRS will require us to resubmit certain paperwork (maybe resubmit the entire tax return) in order for them to process the refund, and this can the delay the refund for months. Or they might tell us the foreign seller’s ITIN recently expired, and this too will cause us a delay of months (maybe several months). So with this background we were not thrilled to see the IRS issue of several IRS Notices 5071C to our clients in 2024 (with respect to their 2023 IRS Form 1040-NR). These are “identify verification” notices, and they are not easily handled, and the IRS will not issue one penny in refund until the non-US person successfully verifies their identity to the IRS’s satisfaction. The IRS just added another (substantial) hurdle to foreign sellers attempting to obtain withholding tax refunds.
What is the IRS Notice 5071C?
So we at DIRECTS submit a tax return to the IRS (requesting a refund of (all or some…depending on the foreign seller’s net profit on the real estate sale) of a non-US seller’s withholding tax), and instead of sending our client the refund, the IRS sends a notice which states that the IRS needs our client/ taxpayer to “verify your identity and your tax return.” Uh ok, how do we do that? The Notice 5071C directs the taxpayer to “sign in or create a new online account at IRS.gov”. Wait, I’m a non-US person who’s owed a $250,000 refund from the IRS and I’m first required to sign in an create a new online account at IRS.gov? What if I don’t speak English? What if I’m not comfortable with computers and creating “online accounts”? What if I live in a country where I cannot connect to the IRS website because the internet is restricted by my home country (a real issue for many of our clients)? If I can’t do this, do I lose my $250,000 (yes, the foreign taxpayer must verify their identity to obtain any refund)? Further, the Notice 5071C directs us that the IRS requires the taxpayer to provide a government issued photo identification (which means our non-US taxpayer will have to be ready to scan into the computer government issued identification). Again, what if our non-US individual/client is not used to computers and has no idea how to “scan” anything into the computer? And basic scanning into the computer is hardly the end, the foreign seller of real estate will have several more hurdles to overcome to verify their identity and obtain the refund (assuming they can read the notice in English and properly access and use the IRS website). What else must non-US persons do to prove their identity: