Roundtable and Business Coalition Submit Comments to Treasury on FIRPTA "Look-Through" Proposal
February 27, 2023
The Real Estate Roundtable, the American Investment Council, ICSC, Institute for Portfolio Alternatives, Managed Funds Association, and Nareit submitted comments on Feb. 27, 2023 to the Treasury Department regarding a new Foreign Investment in Real Property Tax Act (FIRPTA) "Look-Through Rule" and section 892 proposed regulations, which were released on Dec. 29, 2022.
- Treasury’s proposal to look through a U.S. C corporation shareholder of a REIT would reverse decades of well-settled tax law, severely misconstrue the statute, and contradict Congressional intent. The changes would apply retroactively to existing investments, penalizing taxpayers who relied on the government’s own rulings.
- The look-through rule could impair real estate’s access to foreign capital at a critical economic juncture and undermine foreign investors’ confidence in the stability and predictability of U.S. tax rules. (Coalition Letter, Feb. 27)
- The statutory interpretation advanced by the look-through rule—that the words “directly or indirectly” in Section 897(h)(4)(B) require the upward attribution of REIT stock through a taxable C corporation—is at odds with the language of Section 897(h), the Congressional intent behind Section 897(h) as reflected in its legislative history, basic rules of statutory interpretation, Treasury’s own regulations domestically controlled REITs, and applicable IRS rulings and case law on the constructive ownership of stock. In 2015, Congress considered and rejected a C corp. look-through rule in favor of more narrowly tailored rules for looking through REITs.
The look-through rule would cast a wide net, capturing and imposing tax on many non-abusive arrangements commonly used by real estate businesses to attract investment and pool capital from a variety of different sources.
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