Real estate withholding laws changing - Real Estate - Federal Tax Board, California - Interview

California CPA, Dec, 2002

However, buyers normally delegate these responsibilities to the escrow company.

Q: What is the escrow company required to do?

A: The escrow company is required to notify buyers in writing of their withholding obligation. When the buyer directs the escrow company to withhold the amount, or when the escrow company has assumed responsibility to withhold, it must withhold and complete Form 597, provide two copies of Form 597 to the seller, and provide one copy of Form 597 to the FTB along with the withholding payment by the due date.

Q: What is the penalty for failing to withhold?

A: $500 or 10 percent of the withholding amount, whichever is greater.

Q: What is the penalty if the escrow person fails to notify the buyer in writing of the withholding requirements?

A: $500 or 10 percent of the withholding amount, whichever is greater.

Q: What is the penalty if the seller signs a false exemption certificate?

A: $1,000 or 20 percent of the amount required to be withheld, whichever is greater.

Reprinted with permission from the Franchise Tax Board. For a copy of the new law, visit www.leginfo.ca.gov/bilinfo.html. For more in formation, go to www.ftb.ca.gov or call (888) 792-4900.