Policy Issues

FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT (FIRPTA)

ISSUE

 

The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) imposes a discriminatory capital gains tax on foreign investors in U.S. real estate that does not apply to any other asset class.  In so doing, the FIRPTA regime discourages capital formation and investment that could be used to create jobs and improve U.S. real estate and infrastructure. 

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Position

FIRPTA imposes a discriminatory capital gains tax on foreign investors in U.S. real estate and infrastructure that does not apply to any other asset class.  The Roundtable led a successful effort to reform FIRPTA in 2015 and now strongly supports the Invest in America Act (H.R. 2210), a bipartisan bill to repeal FIRPTA altogether.  The Act has the potential to create as many as 284,000 American jobs and attract as much as $125 billion in global investment in U.S. communities, and would serve as a market-driven catalyst to finance improvements in our nation’s infrastructure.  The Roundtable is also encouraging the Treasury Department to withdraw a misguided FIRPTA administrative notice (IRS Notice 2007-55) that has a chilling effect on inbound investment in U.S. real estate and infrastructure.

Background

FIRPTA imposes a discriminatory capital gains tax on foreign investors in U.S. real estate that does not apply to any other asset class.  In so doing, the FIRPTA regime discourages capital formation and investment that could create jobs and improve U.S. real estate and infrastructure.

Congress passed meaningful reforms to FIRPTA in 2015, exempting foreign pension funds and doubling the amount a foreign interest may invest in a U.S. publicly-traded REIT. These reforms increased global investment in U.S. cities of all sizes and locations by 33%, showing that a full repeal would bring significant benefits to many more state and local economies.

FIRPTA foreign pension fund clarifications  In March 2018, Congress passed much-needed clarifications to the FIRPTA foreign pension exemption.  Because foreign retirement programs often are structured differently from those in the United States, many foreign pension funds were unclear whether they qualified.  The technical corrections clarify that a wide variety of foreign pension funds are eligible for the exemption, including governmental, Social Security-type arrangements.  In June 2019, Treasury release proposed regulations further clarifying the scope of the pension fund exemption that should resolve most, if not all, of foreign investors’ remaining concerns.  (Roundtable Weekly, June 6)

IRS Notice 2007-55.  In October 2017, 32 Members of the House Ways and Means Committee asked the Treasury Department to repeal an IRS Notice that raises the cost of investing in U.S. real estate by subjecting foreign owners of domestically controlled REITs to FIRPTA when the REIT liquidates.  The Roundtable and others are urging Treasury to reconsider the 2007 guidance that reversed taxpayers’ understanding of the law and its operation.

Invest in America Act.  In April 2019, Representative John Larson (D-CT) and Kenny Marchant (R-TX) introduced legislation to repeal FIRPTA altogether.  The Invest in America Act (H.R. 2210) would remove an outdated tax regime that discriminates against foreign investment in U.S. real estate and constrains the ability to mobilize private capital for job-creating new investments in U.S. real estate and infrastructure. The Roundtable and 19 national trade organizations wrote to Ways and Means Committee Members and other key House lawmakers in March 2019, urging them to support the Invest in America Act.  (Coalition letter)

 


 

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