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New Tax Regulations Attack Family Business Planning

New Tax Regulations Attack Family Business Planning

As you know, the Internal Revenue Service closely scrutinizes transfers between family members of stock, units, and partnership interests (“Stock”) in any corporation, limited liability company, or partnership that is family-owned (a “Family Business”).  The Service has announced proposed regulations that eliminates the use of valuation discounts that would otherwise decrease the estate and gift tax value of such Stock when transferred by sale or gift to family members.  If you are considering a gift or sale of Stock in a Family Business, you may want to consider taking action right away to implement your planning.

When Stock in a Family Business is transferred between family members, valuation discounts are commonly applied for, among other things, lack of marketability and lack of control.  The lack of marketability discount is based on the fact that a Family Business cannot easily be sold on the open market and is not publicly traded; so, the true value of the Stock is actually worth less than a pro rata portion of the total value of the underlying assets.  The lack of control discount is based on the fact that a non-voting interest or a minority interest that does entitle the owner to a vote (but not unilateral control of the entity) is worth less to an arm’s length purchaser than if they could control the entity.  These discounts are designed to reflect the true economics of a Family Business from the view point of a third party purchaser.

Valuation discounts have been an effective tool to reduce or eliminate federal estate and gift taxes on transfers of Stock in Family Businesses for many years.  The Service, however, has long sought to limit the benefit of this tool.  This has been especially true when the Service determines that the Family Business in question has no legitimate “business purposes.”  The proposed regulations address the Service’s concerns by eliminating all discounts.  We expect attorneys, accountants, appraisal experts, and other planners to comment in the next ninety (90) days about the validity and public policy implications of the proposed regulations.  However, the very real possibility is that the proposed regulations will be effective when the final version is published, which might occur in as little as one hundred and twenty (120) days.

The new regulations do basically two (2) things.  First, when valuing Stock in a Family Business certain restrictions on liquidation rights are disregarded when such rights lapse after a transfer (for instance if the General Partner of a partnership dies) or if after a transfer the restrictions may later be removed by the transferor or the transferor’s family.  Second, any lapse of voting or liquidation rights is deemed to be a transfer to the other family member/owners in the Family Business.  Both rules only apply if one (1) or more members of the family has control of the Family Business both before and after the transfer or lapse.  Control may occur when certain voting or equity thresholds are met; furthermore, ownership by a particular family member will be attributed to related family members, making it hard not to pass the threshold of control.  In plain English, this means that valuation discounts will no longer be available for transfers of Stock in a Family Business to family members.

Existing Family Businesses would not be “grandfathered” under the proposed regulations.  Only gifts or sales completed prior to thirty (30) days after the effective date of the final regulations would be exempt from the new rules.  It is also very likely that regardless of how broad or narrow the final regulations may be, the ultimate validity of the regulations will be determined through taxpayers litigating this issue in the Tax and Federal Courts.  Therefore, once the new regulations are made final, we may not have any certainty in this area for the next several years while legal battles are fought with the Service.

Because of the uncertainty of the new proposed regulations, we recommend that our clients who may be inclined to transfer Stock in a Family Business, whether by gift, sale, or both, consider all of their planning options as soon as possible to determine if they should go ahead with some transfers prior to the issuance of the final regulations.  We would be happy to sit down with you and discuss all of your planning options.

The Panama Papers: How They May Impact You Legally and Taxwise

The Panama Papers: How They May Impact You Legally and Taxwise

In April 2016, over 11.5 million documents, some dating as far back as the 1970’s, were hacked from the Panamanian law firm Mossack Fonseca and released to the worldwide media. The papers include detailed information for over 214,500 offshore entities. Much of the information would normally be considered attorney client communications. These “Panama Papers” have disclosed that some U.S. taxpayers may have tax liabilities and possible criminal exposure.

The U.S. Justice Department has initiated a criminal investigation into these offshore tax schemes and the use of “shell” foreign entities to conceal the offshore holdings by both individuals and corporate entities. This may result in foreign banks turning over any records relating to the Mossack Fonseca firm. Of course, as these documents are analyzed, they may lead to others who were not clients of Mossack, but simply dealt with or were involved with their clients. These events further emphasize that owners of offshore companies and bank accounts must act immediately to identify and mitigate risks of criminal and tax sanctions.

The IRS as of this date has not announced whether taxpayers disclosed in the “Panama Papers” will be eligible for Offshore Voluntary Disclosure Program (OVDP) protection.  Taxpayers who have reason to think they or their entities may be disclosed in the” Panama Papers” should immediately seek counsel to explore possible legal and tax exposures.

Regardless of any involvement with the “Panama Papers”, anyone with an offshore entity, bank account or other offshore interests or holdings, should consider a review of their obligations to file various forms with the IRS, including Foreign Bank Account Reports (FBAR), Foreign Trusts Reports (3520 and 3520-A), Interest in a Foreign Corporation (5471), to mention just a few. The OVDP is an opportunity to resolve many of these issues. However, as it recites, it could be discontinued at any time. Further, the penalties to be paid under the program have been periodically increased as the IRS has determined that there is greater public awareness of these requirements. Waiting will not make these issues go away.

ShuffieldLowman’s four downtown offices are located in Orlando, Tavares, DeLand and Daytona Beach.  The firm is a 37 attorney, full service, business law firm, practicing in the areas of corporate law, estate planning, real estate and litigation.  Specific areas include, tax law, securities, mergers and acquisitions, intellectual property, estate planning and probate, planning for families with closely held businesses, guardianship and elder law, tax controversy – Federal and State, non-profit organization law, banking and finance, land use and government law, commercial and civil litigation, fiduciary litigation, construction law, association law, bankruptcy and creditors’ rights, labor and employment, environmental law and mediation.

Community Associations Should Consider  Splitting of Ledgers When an Owner Files Bankruptcy

Community Associations Should Consider Splitting of Ledgers When an Owner Files Bankruptcy

Many homeowners associations and condominium associations struggle with the manner in which a bankruptcy filing by one of its owners should impact the ledger that is maintained by the association for the property owned by the owner that files the bankruptcy case. I often see associations fail to maintain a ledger, or other account information, which will allow the association to distinguish between: (a) the amounts that came due before the filing of the owner’s bankruptcy petition (often referred to as the “Pre-Petition Amounts Due”); and (b) the amounts that came due after the filing of the owner’s bankruptcy petition (often referred to as the “Post-Petition Amounts Due”). The best way to maintain records that distinguish between the Pre-Petition Amounts Due and the Post-Petition Amounts Due is to separate a ledger for an owner that files bankruptcy into two ledger parts. One part would reflect the Pre-Petition Amounts Due and the other part would reflect the Post-Petition Amounts Due.

The ledger for the Pre-Petition Amounts Due (the “Pre-Petition Ledger”) would reflect the amounts due, itemized by type of charge, as of the date of the filing of the owner’s bankruptcy petition. That ledger balance would increase, after the bankruptcy filing, by the addition of any interest charges or late fees associated with the unpaid assessments listed on the Pre-Petition Ledger and by the addition of any attorney’s fees or legal costs associated with collection efforts relating to the recovery of the Pre-Petition Amounts Due. The ledger for the Post-Petition Amounts Due (the “Post-Petition Ledger”) would include all future accruing assessments after the date of the bankruptcy filing, as well as interest charges or late fees associated with the unpaid assessments listed on the Post-Petition Ledger. That ledger would also include any attorney’s fees or legal costs associated with collection efforts relating to the recovery of the Post-Petition Amounts Due. Once the bankruptcy case ends, the owner’s split ledgers can typically be re-combined into a single ledger.

It is important for an association be able to separate the Pre-Petition Amounts Due from the Post-Petition Amounts Due for a number of reasons. Several of those reasons are discussed below.

First, when a payment is received for an account in which the owner is in bankruptcy, the association will need to apply it to either the Pre-Petition Amounts Due or the Post-Petition Amounts Due. The “side of the ledger” to which the payment will need to be applied will depend upon a number of factors, including whether the payment was made by the owner or the bankruptcy trustee and, in the event of a Chapter 13 filing, the manner in which the association’s claim is to be treated in the owner’s bankruptcy plan. If there is a single ledger that is maintained, there would be no clear way to distinguish the payments made toward the Pre-Petition Amounts Due from the payments made toward the Post-Petition Amounts Due.

Second, in a Chapter 7 case that results in a bankruptcy discharge and in which the association did not have a recorded lien at the time of the filing of the bankruptcy petition, the association will typically need to write-off all Pre-Petition Amounts Due. That task is far easier if the association splits its ledgers or otherwise maintains records which will allow it to easily determine which amounts were included in the Pre-Petition Amounts Due.

An association can continue to seek recovery of post-petition assessments from an owner who files a Chapter 7 case and obtains a bankruptcy discharge. See 11 USC §523(a)(16). However, if an association does not split its ledgers, it may find it difficult to determine the amount of post-petition assessments and other charges that can be demanded as part of the Post-Petition Amounts Due.

Third, if the owner files a Chapter 13 case, he might present a bankruptcy plan that provides for payment of all Pre-Petition Amounts Due, with the payment of all Post-Petition Amounts Due being made outside of the plan. That owner might also present a plan that calls for any lien held by the association which secures the Pre-Petition Amounts Due, to be “stripped away”, with the owner remaining liable for paying all Post-Petition Amounts Due. In either instance, if there is a single ledger that is maintained, there may be no clear way to distinguish those amounts that are being claimed under the Pre-Petition Amounts Due from those amounts being claimed under the Post-Petition Amounts Due.

The penalty for not maintaining accurate information can be severe. An association that seeks to recover debt that has been discharged in bankruptcy or that seeks to recover pre-petition debt (subject to limited exceptions) directly from an owner who is a debtor in an active bankruptcy case, may be liable for monetary damages and/or attorney’s fees for violating the “discharge injunction” or the “automatic stay” provisions of the Bankruptcy Code. See 11 USC §105(a), § 362(a), and §524(a).

At least one bankruptcy court’s written opinion has recognized the need for an association to maintain separate accounting records to differentiate the Pre-Petition Amounts Due from the Post-Petition Amounts Due. In the case of In re Moreno, 479 B.R. 553, 567 (Bankr. E.D. Cal. 2012), the court granted sanctions against an association for its attempt to collect amounts which had been discharged in bankruptcy. In that case, the court noted: “once the Debtor filed for bankruptcy protection, the Association should have started a new and separate accounting to properly track the post-petition debt that would be covered by §523(a)(16).” The court further noted that the association’s attempt “to divide the discharged [pre-petition] portion of the Debtor’s account from the post-petition portion of her account by simply drawing a line across the Accounting [on the date of the bankruptcy filing]” did not result in a proper determination of the post-petition amounts due as that caused post-petition interest to be improperly calculated on both the unpaid pre-petition debt (which was discharged) and the unpaid post-petition debt.  479 B.R. at 567-68.

An association that fails to either split its ledgers into a Pre-Petition Ledger and a Post-Petition Ledger or to take other steps to maintain separate accounting records to distinguish the Pre-Petition Amounts Due from the Post-Petition Amounts Due is likely to encounter greater difficulties in determining the amounts that are due from owners who file bankruptcy. Also, the failure to take the needed steps to maintain separate accounting records can result in an association being subject to sanctions from a bankruptcy court in the event the association seeks to collect amounts which are no longer recoverable.

ShuffieldLowman’s four downtown offices are located in Orlando, Tavares, DeLand and Daytona Beach.  The firm is a 34 attorney, full service, business law firm, practicing in the areas of corporate law, estate planning, real estate and litigation.  Specific areas include, tax law, securities, mergers and acquisitions, intellectual property, estate planning and probate, planning for families with closely held businesses, guardianship and elder law, tax controversy – Federal and State, non-profit organization law, banking and finance, land use and government law, commercial and civil litigation, fiduciary litigation, construction law, association law, bankruptcy and creditors’ rights, labor and employment, environmental law and mediation.

Who Can a Trustee Turn to for Advice?

Who Can a Trustee Turn to for Advice?

Trustees are required to administer a trust in good faith, in accordance with the terms and purposes of the trust, and the interests of its beneficiaries. There are, however, many aspects of trust administration that can leave even sophisticated trustees searching for advice. The Florida Legislature recognized there are situations in which a trustee must rely on an expert in order to fulfill his or her fiduciary duty when it enacted the Florida Trust Code. Florida Statute Section 736.0816(20) provides that:

A trustee may: Employ persons, including, but not limited to, attorneys, accountants, investment advisers, or agents, even if they are the trustee, an affiliate of the trustee, or otherwise associated with the trustee, to advise or assist the trustee in the exercise of any of the trustee’s powers and pay reasonable compensation and costs incurred in connection with such employment from the assets of the trust, and act without independent investigation on the recommendations of such persons.

Because it provides that a trustee may act on an advisor’s recommendation without independent investigation, Section 736.0816(20) should provide a trustee with immunity from mistakes made by his or her advisors. Indeed, prior to the enactment of the Florida Trust Code, the Third District Court of Appeals found that a substantively identical provision of the Florida Probate Code, Florida Statute Section 733.612(21), shielded personal representatives from liability resulting from errors made by their accountants. See Wohl v. Lewy, 505 So.2d 525 (Fla. 3rd DCA 1987). Personal representatives and trustees are held to the same standard of care and, as a result, Section 736.0816(20) should shield a trustee from liability for a mistake made by an advisor.

Nevertheless, a recent decision by the Fifth District Court of Appeals casts doubt on whether a trustee can rely on an advisor’s recommendation. In Harrell v. Badger, 171 So. 3d 764 (Fla. 5th DCA 2015) a trustee hired an attorney to decant a testamentary trust into a special needs trust. The trustee’s attorney did not, however, follow the requirements of Florida Statute Section 736.04117 in decanting the original testamentary trust. The Trustee argued that, like the personal representative in Wohl, he relied on his professional advisor’s recommendations and therefore should not be liable for the improper decanting. The court rejected that argument.

In light of the decision in Harrell, it is unclear to what extent a trustee may rely on Section 736.0816(20) for protection from liability for erroneous legal, accounting and other negligent professional advice. Unlike personal representatives who are protected by Section 733.612(21), the Harrell decision suggests that trustees are “de facto” insurers of the professionals they hire. Accordingly, trustees should carefully consider who they hire to render them legal and other professional advice.

ShuffieldLowman’s four downtown offices are located in Orlando, Tavares, DeLand and Daytona Beach.  The firm is a 34 attorney, full service, business law firm, practicing in the areas of corporate law, estate planning, real estate and litigation.  Specific areas include, tax law, securities, mergers and acquisitions, intellectual property, estate planning and probate, planning for families with closely held businesses, guardianship and elder law, tax controversy – Federal and State, non-profit organization law, banking and finance, land use and government law, commercial and civil litigation, fiduciary litigation, construction law, association law, bankruptcy and creditors’ rights, labor and employment, environmental law and mediation.

U.S. Tax and Transactional Issues Relevant to Foreign Owners of U.S. Real Estate and Parties to the Sale Thereof; PART II – What are the U.S. Tax Implications?

U.S. Tax and Transactional Issues Relevant to Foreign Owners of U.S. Real Estate and Parties to the Sale Thereof; PART II – What are the U.S. Tax Implications?

PART II — What are the U.S. Tax Implications?

Prospective foreign purchasers of real estate situated in the U.S. should pay careful attention to the U.S. tax ramifications of their acquisition. In particular, the manner in which rental income or sale proceeds are taxed, the impact of repatriation of those profits, and transfer tax consequences, e.g., taxes on the transfer of property to heirs, warrant special consideration.  In addition, there is a somewhat onerous tax withholding requirement imposed on buyers when U.S. real estate is acquired from sellers who are foreign persons, which withholding requirement is elaborated on in Part I of this article.

In many ways the tax consequences of the ownership of U.S. real estate hinge upon the manner in which the real estate is held, i.e., titled in the individual name of the foreign person or owned indirectly by the foreign person through some form of business entity or trust. In addition, the U.S. taxation of foreign persons may be modified by an applicable bi-lateral treaty between the applicable foreign jurisdiction and the U.S.

Depending on the manner in which the foreign person owns the real estate, tax planning in this area generally implicates a combination of some or all of the following goals:

  1. An attempt to minimize taxation of operating income;
  2. The avoidance of a double tax on corporate profits;
  3. To ensure sale proceeds qualify for long-term capital gains tax treatment;
  4. The avoidance of transfer taxes, e.g., estate and gift taxes;
  5. An attempt to minimize withholding;
  6. To avoid taxation of the same income by both the U.S. and foreign tax authority; and
  7. An attempt to minimize tax reporting in the U.S.

In most cases it is impossible to achieve all of these objectives, so the planning needs to be specifically tailored to the particular facts and circumstances of each case.

For example, if a foreign person owns U.S. real estate directly in his or her individual capacity, then the gross rental income attributable to such real estate is subject to a flat 30% tax via withholding unless the foreign person elects “net basis” taxation, in which latter case the graduated income tax rate brackets for individuals apply (up to 39.6%) to net rental income taking account of certain expense deductions allowable depending on the use of the property (personal or business).  If the U.S. real estate is held by the foreign person for more than one year, then the long-term capital gains tax rate (20%) is applicable to the gain on sale. In the case of personal use property, the foreign person and family members can enjoy the use of the property without imputation of rental income but if the “net basis” election is made then deductions are limited to real property taxes and qualified mortgage interest. The big disadvantages of direct ownership by a foreign person are (i) exposure to U.S. estate tax (applies at 40%) in the event of the death of the foreign owner; (ii) that a gift of U.S. real estate by a foreign person is subject to U.S. gift tax without the benefit of the lifetime gift tax exemption available to U.S. persons; and (iii) to ensure the collection of U.S. tax upon the sale of the U.S. real estate, the foreign owner will be exposed to the Foreign Investment in Real Property Tax Act (“FIRPTA”), which, subject to certain exceptions discussed in Part I of this article, requires the buyer to withhold an amount generally equal to 10% of the gross sale price at closing (“FIRPTA Withholding”).

By way of comparison, if a foreign person owns U.S. real property through a foreign corporation, then both U.S. estate tax and U.S. gift tax can be avoided.  This structure also provides the advantages of limited liability and anonymity for the foreign shareholder(s). If shareholders or officers of the corporation will enjoy ‘personal use’ of the U.S. real estate, then a major disadvantage of this structure is the imputation of rental income to such persons; that is, unless the foreign corporation charges fair market value rent to such persons, such rent is imputed to the corporation and will trigger income tax. Another major disadvantage is exposure to the “branch profits tax”, subject to potential reduction via bi-lateral treaty. In lieu of withholding on dividends paid by the foreign corporation that owns the U.S. real estate to its beneficial owners that are foreign persons, the “branch profits tax” imposes a 30% tax on the operating profits of the foreign corporation attributable to the operations of its U.S. real estate that are “deemed” for this purpose to be repatriated to the applicable foreign country. It is important to note that this 30% “branch profit tax” is in addition to the corporate tax on the foreign corporation’s earnings in the U.S. (15% to 35% on net rental income or 30% on gross rental income via withholding by lessee), potentially resulting in an effective tax rate up to 54.5%.  Gain on the sale of U.S. real estate by a foreign corporation is taxable at a 35% rate, and FIRPTA Withholding is required. Thus, if income from the U.S. real estate is expected to be significant and there is no relief available from a bi-lateral treaty then this structure may not be the most attractive option.

There are additional alternative ownership structures that can be utilized, including (i) ownership through a U.S. corporation owned by a foreign corporation; or (ii) ownership through a partnership (U.S. or foreign) or a limited liability company taxed as a partnership; or (iii) ownership though a trust (U.S. or foreign trust, grantor or non-grantor trust).  Again, all of these structures are designed to achieve as many of the above-enumerated planning goals as possible, and the optimal structure always depends on the facts and circumstances of the particular case; that is, there is no ‘one size fits all’ structure.

At the end of the day, foreign persons intent on acquiring U.S. real estate should consult with tax advisors with knowledge of the legion of complex tax rules that confront the foreign owner of U.S. real estate. The failure to do so could easily result in dramatically higher than anticipated tax rates, an inadvertent but costly failure to comply with U.S. tax reporting and compliance rules, and exposure to U.S. transfer taxes as a result of the untimely death of a foreign owner or a gift of the U.S. real estate without proper planning. If you would like to discuss any of these issues, please feel free to contact our firm and we will be happy to evaluate your options.

U.S. Tax and Transactional Issues Relevant to Foreign Owners of U.S. Real Estate and Parties to the Sale Thereof; PART I – Foreign Owner Transfer of a U.S. Real Property Interest

U.S. Tax and Transactional Issues Relevant to Foreign Owners of U.S. Real Estate and Parties to the Sale Thereof; PART I – Foreign Owner Transfer of a U.S. Real Property Interest

PART I – Heightened Interest in Tax Implications of Foreign Owner Transfer of a U.S. Real Property Interest

The number of foreign persons investing in U.S. real estate has continued to rise in recent years. The National Association of Realtors reports that foreign buyers purchased more than 104 billion dollars in U.S. real property from March 2014 to April 2015.  Florida was named the state most favored by foreign buyers, garnering twenty-one percent (21%) of the total purchases made by foreign buyers. This trend spotlights the importance of the Foreign Investment in Real Property Tax Act of 1980, I.R.C. § 1445, more commonly known as FIRPTA.  Also, recent changes to FIRPTA made in December, 2015, resulting from the Protecting Americans from Tax Hikes Act, mean the amount of taxes to be withheld on certain transfers of a U.S. real property interest by foreign nationals has increased.

FIRPTA was enacted, in part, to ensure that foreign sellers pay taxes on the sale of a U.S. real property interest.  Under FIRPTA, all sellers of a U.S. real property interest (considered to be transferors) are presumed to be foreign and the burden of proving otherwise is placed squarely on the shoulders of the property buyer. Buyers of a U.S. real property interest, considered to be transferees and withholding agents by the Internal Revenue Services (IRS) for purposes of FIRPTA, must withhold and remit taxes to the IRS in the amount equal to fifteen percent (15%) of the amount realized from the sale of real property (usually the contract price) in order to be protected from any tax liability which the seller fails to satisfy to the IRS.

As the withholding agent, the buyer/transferee is required to remit the tax withheld from the amount realized on the sale to the IRS within twenty (20) days of the property transfer utilizing the appropriate IRS forms which require that the seller/transferor has a U.S. tax identification number. The foreign transferor can have the amount to be withheld reduced if it applies, no later than the day of closing, for a withholding certificate and demonstrates the existence of certain conditions meriting a reduction in the amount of taxes due on the property transfer.

The buyer/transferee is relieved of the withholding requirement if the seller/transferor gives the buyer a certification, signed under penalties of perjury, that the seller/transferor is not a foreign person.  The certification is required to contain the seller/transferor’s name and address, and tax identification number. The buyer can only rely on this certification if the buyer has not been provided with a notice or does not otherwise have actual knowledge that the seller/transferor is a foreign person.

In a buy-sell transaction of a residence for $300,000.00 or less involving a foreign seller/transferor, a buyer is not required to withhold and remit taxes to the IRS if the buyer is an individual and is willing to sign an affidavit stating that the buyer or a member of the buyer’s family will be occupying the purchased residence for at least fifty percent (50%) of the time that the purchased residence is occupied during the first two (2) twelve (12) month periods following the transfer. When the amount realized on the transaction exceeds $300,000.00 but is less than $1,000,000.00, and the buyer, who is an individual, is willing to sign an affidavit stating that the buyer or a member of the buyer’s family will be occupying the purchased residence for at least fifty percent (50%) of the time that the purchased residence will be occupied during the first two (2) twelve (12) month periods following the transfer, then ten percent (10%) of the amount realized must be withheld.  These exceptions to the withholding requirement can benefit the foreign seller because funds will not be withheld from the sales proceeds in an amount up to fifteen percent (15%) of the amount realized; however, they can result in exposing the buyer to liability for taxes, penalties, and interest owed by the foreign seller to the IRS resulting from the sale of the residence.

The withholding rate remains at fifteen percent (15%) when the amount realized is greater than $1,000,000.00 regardless of the use of the property. Likewise, the fifteen percent (15%) withholding rate applies when the buyer is not an individual or when the property will not be utilized by an individual buyer as a residence.

FIRPTA does not apply only to transactions involving residential property; rather, it includes any real property located in the U.S. or the U.S. Virgin Islands, personal property associated with the use of real property, and interests in a mine, well, growing crops, timber or other natural deposits, as well as rents paid to a foreign person (note: withholding rules governing rental payments made to a foreign person are beyond the scope of this article). A foreign person includes non-resident alien individuals, as well as partnerships, trusts, estates, and (certain) corporations and limited liability companies domiciled outside of the United States.  And, whether involving individuals or entities, FIRPTA applies to real property transfers including, but not limited to gifts, sales, exchanges, redemptions and transfers.

Since seller/transferors are presumed foreign, and it is the buyer/transferee’s burden in a transaction involving the transfer of a U.S. real property interest to prove otherwise, or to be saddled with potential tax liabilities related to the disposition of U.S. real property by a foreign transferor, buyers or transferees (other than certain U.S. governmental entities) are advised to seek legal counsel if the seller/transferor is unable to produce the certification described above attesting that it is not a foreign person.