TAX POLICY / FIRPTA - March 18, 2016 Roundtable Weekly

New Congressional Report Supports Broad Interpretation of FIRPTA Foreign Pension Fund Exemption   

Report from the Joint Committee on Taxation (JCT) adds new support for a broad and expansive interpretation of the foreign investors who qualify for the FIRPTA foreign pension fund exemption.

The recently enacted reform of the Foreign Investment in Real Property Tax Act (FIRPTA), long advocated by The Real Estate Roundtable, is already having a positive effect on the mobilization of foreign capital for U.S. real estate projects.  As the full effect of these FIRPTA changes takes hold, the new investment is going to strengthen local communities, create jobs, and expand the tax base.  The FIRPTA reforms received another boost on Monday when the non-partisan congressional Joint Committee on Taxation (JCT) released a report that takes a broad, expansive view of the types of foreign plans that qualify for the new FIRPTA exemption for “qualified foreign pension plans.”

 JCT Blue book 2015 cover

JCT released its latest Blue Book — The General Explanation of Tax Legislation Enacted in 2015 — that addressed several questions that Roundtable members have raised regarding FIRPTA. 

The professional staff of the JCT assists both houses of Congress on tax legislation by preparing the official revenue estimates of all tax legislation and drafting the legislative histories for tax-related bills and is involved in drafting of statutory provisions.   JCT regularly issues so-called “Blue Book” explanations of recently enacted tax legislation.  Probably because of JCT’s close involvement in the legislative process—federal courts, the Treasury Department, and the IRS regularly cite the Blue Book as authority when interpreting federal tax laws, and the federal tax regulations cite the Blue Book as a source of legal authority that taxpayers can use as support for their tax position. 

Notably, JCT in its latest Blue Book — The General Explanation of Tax Legislation Enacted in 2015 — addressed several questions that Roundtable members have raised in recent weeks. 

According to the Blue Book, qualifying foreign pension funds “may be structured in a variety of ways, and may comprise one or more separate entities. The word ‘arrangement’ encompasses such alternative structures.”  Perhaps most importantly, the Blue Book states that “[m]ulti-employer and government-sponsored public pension funds that provide pension and pension-related benefits may satisfy this prong of the definition.  For example, such pension funds may be established for one or more companies or professions, or for the general working public of a foreign country.”

By clarifying that qualifying funds include funds established for one or more professions, or for “the general working public,” the JCT report may provide a higher level of confidence to certain foreign investors, such as broad-based governmental retirement funds, that they are covered by the new FIRPTA foreign pension fund exemption.  

The Roundtable’s Tax Policy Advisory Committee (TPAC) has been in regular communication with the tax-writing committees since enactment of the FIRPTA reforms in December to promote technical corrections and implementing rules that ensure the new law achieves its intended objectives.  While Congress has not yet acted on technical corrections legislation and the Treasury Department has not yet issued implementing regulations, the JCT Blue Book is a meaningful step forward.  Moreover, it should serve as a helpful guide to Treasury officials as they work to prepare to more detailed guidance.  

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