Tag: Tax Policy

House Republicans Unveil Tax Package; Ways and Means Chairman to Address Real Estate Roundtable Next Week

Posted on by Trey Jackson

House Ways and Means Committee Chairman Jason Smith

The House Ways and Means Committee unveiled a tax package today that includes measures impacting commercial real estate, and announced a legislative mark-up on June 13. (Politico and Tax Notes, June 9)

Committee Chairman Jason Smith (R-MO), above, Ways and Means Member Brad Schneider (D-IL), and committee staff will speak on June 14 during The Roundtable’s all-member Annual Meeting in Washington, DC at the Tax Policy Advisory Committee (TPAC) meeting.

GOP Proposal & CRE

  • Chairman Smith released a statement today about the package, which includes the following bills scheduled for markup next week:
  • The proposals relevant to real estate include:
    • Business interest deduction. The Build It in America Act (H.R. 3938) would provide a 4-year extension (through 2025) of certain, taxpayer-favorable business interest deductibility rules that applied from 2018-2021. The proposal would allow more real estate businesses to operate under the general rules of section 163(j) and its preferable cost recovery schedules.
    • Bonus depreciation.  H.R. 3938 also includes a 3-year extension (through 2025) of 100% bonus depreciation for qualifying capital investments, including equipment, machinery, and interior improvements to nonresidential property (“qualified improvement property”).  Bonus depreciation is 80% in 2023 and gradually phasing down. 
    • Opportunity Zones. The Small Business Jobs Act (H.R. 3937) would establish special, favorable rules for investments in rural opportunity zones. It would also create a new and detailed information-reporting regime for all opportunity funds.
  • The GOP package (H.R. 3938) also contains proposals that would repeal some clean energy provisions from the Inflation Reduction Act (H.R. 5376), including electric vehicle tax credits, clean energy production, and investment tax credits.

Prospects for Passage

House Ways and Means Committee hearing

  • The Ways and Means proposal may pass through committee—and possibly pass the Republican-majority House—but such a package faces steep obstacles in the Democrat-controlled Senate and with the White House.   

The proposals are a good indication of the priorities that House Republicans will bring to any bipartisan economic policy negotiations as the year unfolds. 

#  #  # 

Debt Ceiling Compromise Passed Days Before National Default Deadline

Posted on by Trey Jackson

Capitol side view

Congress passed compromise legislation this week to suspend the debt ceiling for two years and restrain government spending, sending it to President Biden for his signature and calming world financial markets days before a US government default. (CQ and Wall Street Journal, June 2)

After the Debt Ceiling

  • The House on Wednesday night passed the Fiscal Responsibility Act (H.R. 3746)—forged by President Joe Biden, House Speaker Kevin McCarthy (R-CA), and their negotiation teams—to suspend the nation’s $31.4 trillion debt limit until Jan. 1, 2025 and cut spending by at least $1.5 trillion. The Senate approved the bill last night by a bipartisan vote of 63-36. (Congressional Budget Office, May 30 and Associated Press, May 26)
  • “No one gets everything they want in a negotiation, but make no mistake: this bipartisan agreement is a big win for our economy and the American people,” President Biden stated last night. “I look forward to signing this bill into law as soon as possible…” (White House statement, June 1)
  • House policymakers have signaled they may follow the debt ceiling crisis with a legislative tax proposal that could include significant measures affecting commercial real estate. (Roundtable Weekly, May 26)
  • Congressional action on such measures would come at a time when the office sector faces difficult conditions, including asset price discovery and tighter liquidity. (Wall Street Journal, May 30 Financial Times, May 29 | GlobeSt, May 26) 

Economic Conditions & CRE

Ross Perot, Jr. on Bloomberg TV

  • Real Estate Roundtable Chair John Fish (Chairman and CEO, SUFFOLK) explained the economic conditions facing CRE and the office market, along with other pressures such as remote work and a shortage of labor, in a May 26 Boston Globe interview. “We’re in a very precarious situation,” Fish said.
  • Roundtable Board Member Ross Perot, Jr., above, (Chairman, The Perot Companies and Hillwood) discussed the financing challenges faced by some CRE sectors in an interview with Bloomberg TV on Wednesday. “If the industry can’t get a construction loan, real estate will have a recession,” Perot said. “The key to commercial real estate today will be banking.”
  • The Federal Reserve’s “Beige Book” issued this week also reported on the nation’s current overall economic activity, noting, “Commercial construction and real estate activity decreased overall, with the office segment continuing to be a weak spot.” (GlobeSt, May 31)
  • Additionally, Trepp’s CMBS Delinquency Report issued this week showed the nation’s overall CMBS delinquency rate hit a 14-month high, topping 4% for the first time since 2018. Although May’s delinquency rate jumped to 3.62%, up 53 basis points for the month, the all-time high registered 10.34% in July 2012 and the COVID-19 high reached 10.32% in June 2020.
  • Federal Reserve monetary policies, congressional fiscal policy, potential tax measures, and other issues impacting CRE will be discussed during The Real Estate Roundtable’s Annual Meeting on June 13-14 in Washington, DC.

The Roundtable meeting includes policy advisory committee meetings—open to all members—that will feature prominent policymakers, including Senate Banking Committee Member Bill Hagerty (R-TN); House Ways and Means Committee Chairman Jason Smith (R-MO); David Crane, the US-DOE’s Director of the Office of Clean Energy Demonstrations; and Alejandra Nunez, US-EPA Assistant Administrator overseeing climate policy.

#  #  # 

Bipartisan Legislation Reintroduced to Allow Greater REIT Equity Investments in Distressed Retail Tenants

Posted on by Trey Jackson

Retail tenant distress

Bipartisan legislation reintroduced this week by House Ways and Means Committee Members Darin LaHood (R- IL) and Brad Schneider (D-IL) would allow real estate investment trusts (REITs) to make greater equity investments in retail tenants that have yet to recover from the pandemic’s economic impact. 

Support for Retail Tenant Assistance

  • The Retail Revitalization Act (H.R. 3749) is aimed at unlocking capital for productive investment and helping prevent further large-scale job losses and bankruptcies in the retail sector and its supply chain. (Congressional Record, May 30)
  • As of May 5, ten major retailers had filed for bankruptcy protection in 2023. The number of retail failures, which includes Bed Bath & Beyond, David’s Bridal, and Party City, is already twice the level of 2022. More bankruptcies are anticipated. (Forbes, May 5 and Forbes, May 15)
  • Real Estate Roundtable President Jeffrey DeBoer stated, “The Retail Revitalization Act would reform an outdated section of our tax code that currently prevents the commercial real estate industry from stepping forward and deploying its own capital to solve significant economic challenges. Retail bankruptcies have negative consequences for employees, surrounding businesses, and local communities. This bipartisan legislation to allow REITs to invest more heavily in their tenants is exactly the type of cost-effective, commonsense measure that everyone can and should support. The bill will save jobs, increase local tax revenue, and create a stronger foundation for future economic growth.”

Amending REIT Rules

REITs - graphic

  • The LaHood-Schneider legislation—strongly supported by The Real Estate Roundtable—would modify tax provisions limiting REITs’ ability to invest equity capital in their retail tenants. The bill would amend existing “related-party rent” rules by:
    • increasing the capacity of a REIT to own the equity of a distressed tenant from 10% to 50% and from 10% to 30% for all other tenants;

    • changing the ownership attribution rules used to determine what is considered related party rent under current REIT rules to the general ownership attribution rules used elsewhere in the tax code, and;

    • changing the limitation on space that a REIT can lease to its taxable REIT subsidiary.

Tax Policymakers

  • House Ways and Means Committee Chairman Jason Smith (R-MO)Tax proposals such as H.R. 3749 and others will be discussed during TPAC, held in conjunction with The Roundtable’s all-member Annual Meeting on June 13-14 in Washington, DC. TPAC speakers will include:

    • House Ways and Means Committee Chairman Jason Smith (R-MO), above

    • House Ways and Means Committee Member Brad Schneider (D-IL)
    • Joint Committee on Taxation Chief of Staff Thomas Barthold
    • Senior staff from Senate Finance Committee and House Ways and Means Committee

TPAC will also feature a panel session on “Post-Pandemic Real Estate Challenges and Tax Policy: Debt Workouts / Tax Incentives for Property Repurposing, Community Revitalization, and Housing.” All Roundtable members are encouraged to attend.

#  #  #

 

House Tax Package Expected to Follow Debt Ceiling Resolution

Posted on by Trey Jackson

US Capitol sunsetThe House Ways and Means Committee may release a tax-focused economic growth package in June after a final resolution is reached between President Joe Biden, House Speaker Kevin McCarthy (R-CA), and their negotiation teams on the debt ceiling. The intense talks on federal spending limits have less than a week before the Treasury Department estimates the nation may default on its debt obligations. (Wall Street Journal, May 25 | PoliticoPro, May 23 | Roundtable Weekly, May 19) 

Tax Measures & CRE 

  • The House Republican tax package is about 90% complete and “buttoned up pretty tight,” according to Ways and Means Member Kevin Hern (R-OK). “We’re making sure that we don’t disrupt any of the debt limit conversations and distract from that, but it would be ready to go very quickly,” Hern said. (Tax Notes, May 24)
     
  • Ways and Means Committee Member Randy Feenstra (R-IA) commented that the package will likely include measures that expired last year, including full bonus depreciation and certain taxpayer-favorable rules related to the deductibility of business interest under Section 163(j)—both supported by The Real Estate Roundtable. (PoliticoPro, May 23 and BGov, May 25)
     
  • Under the Tax Cuts and Jobs Act (TCJA) of 2017, 100% bonus depreciation applies to capital investments made between 2018 and 2022 (as well as capital improvements made to the interior of nonresidential buildings). However, the bonus depreciation benefit began phasing down this year. In addition, real estate businesses that elect out of TCJA’s limits on business interest deductibility do not qualify for the bonus depreciation benefit.
     
  • The House tax package is expected to extend 100% bonus depreciation through at least 2025, allowing many taxpayers to continue immediately expensing qualified interior improvements. Moreover, by reinstating certain expired provisions from section 163(j), the tax bill would allow more real estate businesses to avail themselves of the bonus depreciation benefit without inhibiting their ability to deduct their business interest expense. 

Additional Provisions and TCJA Permanency 

House Ways and Means Committee doorway

  • The economic growth package could also include provisions extending the enhanced child tax credit and the deductibility of R&D expenditures.  Housing-related measures, such as an expansion of the low-income housing tax credit, are also under consideration. 
  • Separately, the Ways and Means Committee may also consider the TCJA Permanency Act (H.R. 976), reintroduced by Committee Vice Chairman Vern Buchanan (R-FL) in February. The bill would permanently extend TCJA provisions scheduled to sunset at the end of 2025, including the 20 percent deduction for qualified pass-through business income (Section 199A). (Tax Notes and Roundtable Weekly, Feb. 24)
  • While a TCJA permanency bill is likely dead on arrival in the current Senate, the House economic growth tax package could be the starting point for bipartisan negotiations with congressional Democrats on a limited number of tax and economic priorities as the year further unfolds. 

House Ways and Means Committee Chairman Jason Smith (R-MO) will be a guest at The Roundtable’s June 13-14 all-member Annual Meeting and policy adivisory committee meetings will include discussions on a debt ceiling agreement and potential tax legislation. 

#  #  # 

Senate Republican Taxwriter Introduces Legislation to Permanently Extend 20% Pass-Through Income Deduction

Posted on by Trey Jackson

Senate Finance Committee member Steve Daines (R-MT)

Yesterday, Senate Finance Committee member Steve Daines (R-MT) reintroduced legislation to make permanent the 20 percent deduction for pass-through business income (Section 199A), one of the cornerstone provisions of the Tax Cuts and Jobs Act of 2017 that expires at the end of 2025. 

Deduction Sunset

  • House Ways and Means Committee Chairman Jason Smith (R-MO), who has long championed making Section 199A permanent, is anticipated to re-introduce the legislation in the House soon.
  • In 2017, Congress created the 20% deduction for pass-through business income to avoid putting businesses organized as partnerships, S corporations (S corps), and real estate investment trusts (REITs) at a competitive disadvantage relative to large C corporations (C corps).

  • Section 199A is scheduled to sunset on Dec. 31, 2025 as businesses continue to recover from post-pandemic price hikes, labor shortages, and supply chain disruptions.

Section 199A Permanency 

Coalition letter on Section 199A legislation

    • The Real Estate Roundtable and a coalition of more than 145 business organizations sent a letter yesterday to Sen. Daines in support of the bill. (Coalition letter, May 18)
    • The letter notes that the bill “would provide certainty to the millions of S corporations, partnerships and sole proprietorships that rely on the Section 199A deduction to remain competitive both here and overseas.”

    • Previously, The Roundtable and other stakeholders supported congressional efforts in 2021 to make the pass-through deduction permanent. (Coalition letter, Feb. 26, 2021 and Tax Notes, March 1, 2021)

    While House Republicans are expected to introduce an economic growth package in the coming weeks that includes tax cuts, it is unclear whether the bill will address provisions such as Section 199A that are not scheduled to expire until the end of 2025. 

    #   #   #

    Lawmakers Reintroduce Bill to Reform, Expand the Low-Income Housing Tax Credit

    Posted on by Trey Jackson

    Low income housing SFO residences

    Bipartisan, bicameral legislation introduced last Thursday would significantly expand and improve the low-income housing tax credit (LIHTC). The tax credit, strongly supported by The Real Estate Roundtable, subsidizes the construction, rehabilitation, and preservation of affordable rental housing for low- and moderate-income tenants. 

    Increasing Supply 

    • The Affordable Housing Credit Improvement Act (AHCIA) would finance nearly two million affordable homes over the next 10 years. (Affordable Housing Tax Credit Coalition, 2023)
    • Led by Sens. Maria Cantwell (D-WA) and Todd Young (R-IN), along with Reps. Darin LaHood (R-IL) and Suzan DelBene (D-WA), the AHCIA (H.R. 3238 and S. 1557) has already garnered nearly 90 cosponsors.  
    • Roundtable President and CEO Jeffrey DeBoer said, “The low-income housing tax credit is a critical and well-designed tool that addresses a pressing issue throughout the country–the lack of affordable rental housing. LIHTC harnesses market forces and the power of the private sector to incentivize the construction and rehabilitation of affordable homes. Countless studies have demonstrated LIHTC’s cost-effectiveness. Inflation has taken a toll on working Americans, but Congress can help reduce the burden of high housing costs by passing the AHCIA reforms.”  
    • A March 7 Senate Finance Committee hearing showed bipartisan policymaker consensus on the need to increase the supply of affordable housing by expanding the LIHTC and other tax incentives. The National Multifamily Housing Council (NMHC) and National Apartment Association (NAA), two key supporters of the AHCIA, offered joint testimony during the hearing. (Roundtable Weekly, March 10) 

    AHCIA Provisions 

    AHCIA summary

    • A summary of the AHCIA is available here. Among its many provisions, the legislation would:
      • Boost the allocation of low-income housing credits to states by restoring the temporary 12.5% increase enacted in 2018 (expired at the end of 2021) and phasing in a 50% increase in the LIHTC allocation cap over two years.
      • Lower the threshold of private activity bond financing—from 50 to 25%—required to trigger the maximum amount of 4% housing credits available to individual properties. 
    • The bill would also ensure that low-income housing credit projects that seek to maximize their energy efficiency through use of the section 179D commercial building deduction are not penalized by existing provisions of the law that reduce the basis of the development by the 179D deduction amount. 
    • While movement on LIHTC legislation is unlikely before the debt ceiling debate is resolved, the broad-based, bipartisan support for AHCIA could lead to Congressional action on the bill later in the year. (News – The Affordable Housing Tax Credit Coalition)

     Domestic Content 

    • In related news, the Internal Revenue Service (IRS) released a notice this week on “made in the USA” guidance that can increase clean energy tax credits. The Inflation Reduction Act (IRA) offers a “bonus” tax credit of up to 10%  for solar, wind, battery storage, and other projects that use iron, steel, and components manufactured in the U.S. (JD Supra, May 16) 

    The “domestic content” notice provides initial guidance until the Treasury Department proposes rules on the subject. A fact sheet prepared by The Roundtable keeps track of various federal agency actions that implement IRA tax incentives of significance to the real estate sector.      

    #   #   #

    President’s Budget Reignites Congressional Debate on Taxing Assets at Death

    Posted on by Trey Jackson

    Capitol at sunset

    Congressional policymakers this week focused on two tax policy proposals included in President Biden’s FY2024 budget that could adversely affect family-owned real estate businesses—eliminating the step-up in the basis of assets at death and imposing new restrictions on the use of grantor retained annuity trusts (GRATs) and grantor trusts. (Roundtable Weekly, March 10 and Treasury’s “Green Book” description of the President’s revenue proposals, March 9)

    Step-up in Basis

    • The White House budget plan once again includes a proposal to eliminate the step-up in basis of real estate and other assets at death.  The budget would replace step-up with a new policy that subjects the decedent’s appreciated assets to capital gains tax at death, in addition to potential estate tax liability.  The tax on unrealized, built-in gains would apply even when the decedent and the heir have no intention or desire to sell the property.
    • On Tuesday, a bipartisan group of Representatives led by Rep. Tracey Mann (R-KS) and Jim Costa (D-CA) introduced House Resolution 237 expressing support for retaining stepped-up basis.  Cosponsored by 63 members of Congress (4 Dem., 58 Rep.), the resolution notes that stepped-up basis is “a crucial component of many family farms and small business succession plans.” (BGov and Rep. Mann news release, March 21)
    • In 2021, a study by EY commissioned by the Family Business Estate Tax Coalition with support from The Real Estate Roundtable found that repealing stepped-up basis and taxing unrealized gains at death would result in reduced job growth, lower wages, and a reduction in GDP of roughly $10 billion per-year.

    Grantor Trusts

    FY2023 Budget Cover

    • The President’s budget again proposes major tax increases on grantor retained annuity trusts (GRATs) and grantor trusts that the administration estimates would raise $65 billion over 10 years.
    • GRATs and grantor trusts are frequently used to facilitate the continuation of family-owned businesses from one generation to the next, particularly in capital-intensive industries like real estate that can involve significantly appreciated assets.
    • On Monday, four Democratic Senators—Elizabeth Warren (MA), Bernie Sanders (VT), Chris Van Hollen (MD), and Sheldon Whitehouse (RI)—wrote to Treasury Secretary Yellen urging her to use her regulatory authority to “limit the ultra-wealthy’s abuse of trusts to avoid paying taxes.” The letter includes eight specific recommendations, including the reissuance of family limited partnership regulations that address the use of valuation discounts. (Tax Notes, March 22)
    • In 2017, The Real Estate Roundtable and others commissioned a study by Dr. Robert Shapiro, former Undersecretary of Commerce for Economic Affairs, analyzing the economic impact of a proposed regulation to limit valuation discounts for family businesses. The study concluded the limits could cost 106,000 jobs and $150 billion in GDP over 10 years. The study followed formal Roundtable written comments submitted in 2016—and oral testimony highly critical of the proposal by Roundtable Tax Policy Advisory Committee Member Stef Tucker.

    The White House FY2024 budget revenue proposals will be discussed during the Roundtable’s Spring Meeting on April 24-25 in Washington, DC (Roundtable-level members only.)

    #  #  # 

    Coalition Urges Treasury to Exempt Unrealized Gains from New Corporate Alternative Minimum Tax

    Posted on by Trey Jackson

    IRS logoA coalition of trade organizations that includes The Real Estate Roundtable asked the IRS yesterday to issue regulatory guidance clarifying that unrealized gains and losses are not subject to tax under the new corporate alternative minimum tax (CAMT). Enacted under the Inflation Reduction Act of 2022, CAMT levies a 15% minimum tax on the adjusted financial statement income (book income) of certain large corporate taxpayers. (Coalition letter, March 15)

    CAMT Implementation

    • Starting this year, the CAMT applies to firms with an average of $1 billion or more in profits in any three-year period and to foreign-parented U.S. firms with profits of over $100 million if the aggregated foreign group has over $1 billion in profits. Congress expressly exempted REITs from the tax. (Congressional Research Service, Jan. 19, 2023)

    • The coalition’s comments respond to a Dec. 27, 2022 IRS Notice (2023-7) that states Treasury may issue future guidance intended “to help avoid substantial unintended adverse consequences” from the interaction of mark-to-market accounting and the CAMT. Congress granted the Treasury Secretary substantial regulatory authority to implement the new tax. (Debevoise & Plimpton, Jan. 3 and Gibson Dunn, Jan. 6)

    Coalition Weighs In CAMT letter - image

    • The coalition, which includes the American Investment Council, the U.S. Chamber of Commerce, and others, emphasized in its comments that providing a comprehensive exclusion for unrealized gains and losses that are marked-to-market for book purposes would be consistent with the legislative intent of the CAMT—and Congress’s rejection of prior proposals to tax unrealized gains.

    • The coalition’s comments note that Treasury’s clarification would help avoid a patchwork of unprincipled and ad hoc rules that leave certain categories of unrealized gains and losses subject to tax. The result could distort investment decisions, create a disincentive for taxpayers to elect fair value accounting, and force taxpayers to sell real estate and other assets or borrow money to pay their taxes.

    The Roundtable’s Tax Policy Advisory Committee (TPAC) and its partner organizations will continue to work with federal regulators on the CAMT guidance to prevent the unintended taxation of unrealized real estate gains and losses.

    #  #  #

    President Biden’s FY2024 Budget Aims to Raise Taxes on Real Estate, Capital Formation, and Investment

    Posted on by Trey Jackson

    FY2023 Budget Cover

    The Biden administration yesterday proposed a $6.9 trillion FY2024 budget that includes $3 trillion in deficit reduction and $2.2 trillion in tax increases over the next decade on corporations, high-earning households, and certain business activities, including real estate investment. (White House budget materials and Treasury Department news release)

    Blueprint for Negotiations

    • Real Estate Roundtable President and CEO Jeffrey DeBoer said, “Congress has rejected several of these same tax proposals in the past. In particular, Congress has said no to proposals to double the capital gains rate, tax gains reinvested in property of a like-kind, or taxing unrealized gains. We will strongly urge that these counter-productive proposals again be rejected. They have weak policy support, are poorly timed and quite risky given the current uncertain economy.”
    •  Of note for real estate:
      • Capital Gains Rate
        The top, combined tax rate on long-term capital gains would nearly double from 23.8% (20% + 3.8% net investment income tax) to 44.6%. This results from increasing the maximum capital gains rate from 20% to 39.6% and a new proposal to increase the net investment income tax from 3.8% to 5%.
      • Mark-to-Market Tax on Unrealized Capital Gains
        The FY 2024 budget carries over President Biden’s proposal from last year, imposing a retroactive, annual minimum tax of 25% on the income and unrealized gains of taxpayers with wealth (assets minus liabilities) exceeding $100M.
      • Real Estate Professionals
        The budget also carries over a proposal to extend the 3.8% net investment income tax to real estate professionals and other pass-through business owners who are currently exempt from the tax because they are active in their business.

    Tax ProposalsChicago cityscape sky view

    • Other real estate-related tax proposals include:
      • Taxing carried interest as ordinary income
      • Limiting the deferral of gain from like-kind exchanges
      • Increasing the top tax rate on ordinary income to $39.6%
      • Ending step-up in basis and taxing unrealized capital gains at death
      • Expanding the limitation on excess business losses for non-corporate taxpayers by converting the limitation from a 1-year deferral to a permanent compartmentalization of active pass-through losses
      • Modifying tax rules for grantor retained annuity trusts (GRATs) and grantor trusts
      • Recapturing and taxing real estate depreciation deductions at ordinary income tax rates
    • The budget also devotes $59 billion to provisions aimed at increasing the supply and availability of affordable housing, as well as $10 billion “to incentivize State, local, and regional jurisdictions to make progress in removing barriers to affordable housing developments, such as restrictive zoning.” Tax incentives in the budget include an expansion of the low-income housing tax credit (LIHTC) and a new tax credit for the development of affordable, owner-occupied housing.

    These tax issues and other policies affecting CRE will be discussed during The Roundtable’s Spring Meeting on April 24-25 in Washington.

    #  #  # 

    Roundtable, Trade Organizations Urge Treasury to Withdraw FIRPTA Regulatory Proposal

    Posted on by Trey Jackson

    The Real Estate Roundtable and 16 other trade organizations weighed in this week against a proposed IRS rule that would expand the reach of the Foreign Investment in Real Property Tax Act (FIRPTA) of 1980.

    Retroactive Rewrite

    • On December 29, Treasury and the IRS released proposed regulations that would redefine what constitutes a domestically controlled REIT and impose capital gains taxes, through FIRPTA, on investment structures that taxpayers have used for decades when planning real estate and infrastructure investments in the United States.
    • For purposes of FIRPTA and the exemption for domestically controlled REITs, the proposed look-through rule would no longer treat a taxpaying U.S. C corporation (that is a shareholder of a REIT) as a U.S. person if more than 25% of the owners of the C corporation are foreign. The result would be that many REITs previously exempt from FIRPTA would be thrust, retroactively, into the discriminatory tax regime.

    Industry Response

    • On Monday, The Roundtable, Nareit, American Investment Council, Managed Funds Association, and ICSC submitted detailed comments to Treasury urging withdraw of the proposed look-through rule. The organizations wrote that the rule would “reverse decades of well-settled tax law, severely misconstrue the statute, and contradict Congressional intent,” as well as potentially “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.” (Letter to Treasury, Feb. 27)
    • On Wednesday, The Roundtable and 14 other real estate trade organizations wrote to the congressional tax-writing committees asking Members of Congress to encourage the Treasury Department and IRS to withdraw the rule, which could put property value, jobs, and communities at risk unnecessarily. (Letter to congressional tax committees, March 1)
    • Treasury’s regulatory package also included favorable final rules regarding the FIRPTA foreign pension fund exemption and a helpful proposal related to real estate investments and the tax exemption for foreign governments.

    The principal drafters of the Treasury comment letter were Roundtable Tax Policy Advisory Committee (TPAC) members David Levy (Weil Gotshal) and David Polster (Skadden), as well as Nickolas Gianou (Skadden). TPAC members also met virtually with Treasury officials on February 15 to discuss the proposed regulation. TPAC will remain active and engaged with the administration on this issue as the process unfolds.

    #  #  #