|Federal and State laws require that escrow agents and real estate agents have Sellers fill out specific forms to delineate the citizenship status and other ownership considerations. |
The documents are submitted to the Federal government and to the State of California. If the seller is a foreign person or refuses to fill out the forms, the escrow holder is obligated under law to withhold 10% of the purchase price and forward that amount to the Federal government, which will hold that money until proper income tax paperwork has been submitted by the Seller and analyzed by IRS.
The State of California similarly requires the escrow holder to withhold funds in the amount of 3-1/3% of the selling price and forward that amount to the California Franchise Tax Board if the Seller does not comply with the requirements.