What must a buyer do if the seller is a foreign person, according to IRS regulations?

When a seller is a foreign person, IRS regulations require the buyer to withhold a portion of the purchase price at closing to ensure that the U.S. government can collect any taxes that may be due on the sale. Specifically, the buyer must withhold 10% of the purchase price if the seller is a foreign entity or individual, as part of the Foreign Investment in Real Property Tax Act (FIRPTA). This withholding acts as a safeguard for the IRS, ensuring that tax obligations are met before the funds are fully transferred to the seller.

The other options do not meet the requirements set forth by US tax law. For instance, contacting the local tax office or submitting documentation to the seller's country might not fulfill the obligation to withhold taxes, and paying the full purchase price upfront negates the necessary withholding that protects against potential tax liabilities. Therefore, withholding 10% of the purchase price at closing is a critical and legally mandated action for buyers when dealing with foreign sellers.