Fiscal year return

[JackA]

I would like to know if my solution to the following is reasonable (and doable).

My clients are an elderly couple who reside in Lima, Peru. They have no income and have not needed to file a US tax return since 2008 or thereabouts.

Last week they sold their Miami condo. The seller withheld $16,725.00 for taxes under FIRPTA requirements. The condo's basis plus the sale's closing costs result in no income or capital gains taxes being owed.

The client would like to get their refund sooner than later...meaning not waiting to file a year from now. Can I file a 2016 1040 along with a completed Form 1128 (to change to a fiscal year)? We would include my client's copy of Form 8288-A to show the withholding.

Or, is there a more correct/better way to do this?

I do not believe this can be electronically filed so would I mail the return to the service center serving Florida?

[Roland Slugg]

The seller withheld (sic: the buyer withheld) $16,725.00 for taxes under FIRPTA requirements.

I suppose it wouldn't hurt to try the F-1128, but I would lay long odds that the IRS will not approve it. A change in accounting periods requires that the taxpayer establishes a substantial business purpose for the change. A mere desire to recover the tax withheld is not, IMO, a legitimate reason.

Even in the unlikely event that the IRS approves the change, are you sure there would be no tax? When there is a change in accounting periods, the income must be annualized. (Code §443(b)) You did say there was no gain, so maybe the gross-up would still result in zero tax.

I'm wondering, however, if the FIRPTA withholding was necessary? There are several exception to the withholding requirement, and since the selling price was, apparently, only $111,500 ($16,725 ÷ .15), did the sale really require that withholding? One of the exceptions is when the selling price is under $300k and the buyer will use the real estate as his principal residence.