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An analysis by Leo Berwick, Taxand USA
The Internal Revenue Service (IRS) has recently issued proposed regulations reversing prior guidance on determining whether a Real Estate Investment Trust (REIT) is domestically controlled. The new rules restore the ability of foreign investors to structure REIT holdings to qualify for the domestically controlled REIT exception to FIRPTA, reducing US tax on REIT share sales.
The proposal eliminates the 2024 “look-through” rule that treated certain domestic corporations as foreign-owned, instead confirming that all domestic corporations count as US shareholders, regardless of foreign ownership.
Foreign investors may rely on the proposed regulations for transactions on or after 25 April 2024, enabling more flexible and tax-efficient REIT structuring to avoid FIRPTA taxation.
John Troth and Connie Lee from Leo Berwick, Taxand USA, have published an article highlighting the implications of the new proposed regulations, which can be read here.
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