Policy Issues

House Ways & Means Members Seek FIRPTA Relief Through Regulatory Action

October 10, 2017

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Thirty-two Republican and Democratic members of the House Ways and Means Committee on October 10, 2017 sent a letter to Treasury Secretary Mnuchin urging Treasury to withdraw section two of IRS Notice 2007-5, which applies the Foreign Investment in Real Property Tax Act (FIRPTA) to certain liquidating distributions of a REIT.  The Notice imposes a costly and unnecessary obstacle to foreign investment in U.S. commercial real estate. 

The letter notes that the IRS Notice “creates winners and losers in the tax code by subjecting foreign investment in U.S. real property to a much higher tax burden than foreign investment in any other class of assets.”  For instance, if a foreign taxpayer receives a liquidating distribution from a domestically controlled REIT, that distribution is treated as the sale of real estate subject to FIRPTA.  In contrast, “if that same taxpayer sold their shares of stock in a domestic REIT or received a liquidating distribution from any other type of domestic corporation, it would not be subject to U.S. tax.”

Repeal of IRS Notice 2007-55 would represent a positive, significant step toward reducing the FIRPTA burden.

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