Final Treasury Rules Expand Reach of FIRPTA Tax Regime

The Treasury Department in Washington, DC

The Treasury Department issued final regulations this week that redefine what constitutes a domestically controlled REIT exempt from tax under the Foreign Investment in Real Property Tax Act (FIRPTA). The regulations create a new look-through rule that extends the reach of the discriminatory FIRPTA regime to common investment structures. (Final Regulations | Tax Notes, April 25 and Bloomberg Law, April 24)

New Look-Through Rule

  • By looking through a domestic C corporation to its shareholders, the new FIRPTA rules run counter to general tax principles, past IRS guidance, and historic precedent.  Moreover, the final regulations do not provide relief to widely held U.S. real estate funds with dispersed foreign ownership, even if the foreign investors are far removed and separate from the management and control of the U.S. funds’ activities. 
  • While the final rules increased the total percentage of foreign ownership of a C corp. necessary to trigger look-through treatment, the change offers little practical relief since participating U.S. investors typically will only invest in U.S. real estate through other channels (e.g., directly, through a partnership, or through a REIT).
  • Transition relief in the final regulations may offer some respite to certain foreign investors, depending on their facts and circumstances. The new look-through rule does not apply to preexisting business arrangements—but only if the entity does not acquire a significant amount of new real estate interests or undergo a significant change in its ownership during the 10-year transition period.

Roundtable Response

  • Roundtable President and CEO Jeffrey DeBoer responded to the Treasury rules. “Foreign capital is badly needed to supplement domestically sourced capital in cities and downtowns that continue struggling to recover from the pandemic. The wide spread adoption of remote work, coupled with today’s high interest rates and decreased lending by banks is fueling a reinforcing cycle of declining investment, property values, and tax revenues that can only be countered through additional investment capital.”
  • “Unfortunately, the final Treasury rules on FIRPTA and domestically controlled REITs raise new barriers to passive foreign investment in U.S. real estate, including affordable housing and the conversion of underutilized office buildings,” DeBoer said.
  • The Real Estate Roundtable and some members of Congress had advocated for the withdrawal of the proposed regulations or significant changes. House Ways and Means Committee Members Darin LaHood (R-IL) and Carol Miller (R-WV) urged Treasury Secretary Janet Yellen to drop the FIRPTA proposal. (Letter to Yellen, July 28, 2023 and real estate industry coalition letter, March 1, 2023 | Roundtable Weekly: Jan. 6, March 4 and Aug. 4, 2023) 

A Roundtable Tax Policy Advisory Committee (TPAC) working group is reviewing the most recent changes and considering potential policy and tax planning strategies going forward. The next TPAC meeting will be held on June 21 in conjunction with the all-member Roundtable Annual Meeting in Washington, DC.

#  #  #

Treasury Testifies on New Rules for Investment Advisors to Combat Illicit Finance

Treasury Department's FinCEN logo

The director of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) appeared before the House Financial Services Committee this week to address recent regulatory proposals for investment advisors to combat illicit finance activity and money laundering in U.S. residential real estate. Director Andrea Gacki testified, “We are also considering next steps with regard to addressing the illicit finance risks associated with the U.S. commercial real estate sector.” (Committee hearing and Gacki’s statement, Feb. 14)

FinCEN’s Business Regulatory Proposals

  • The hearing on Wednesday followed a new FinCEN proposal that would require investment advisors to report suspected money laundering to the U.S. government. (Wall Street Journal, Feb. 13)
  • A fact sheet on the proposal explains that although FinCEN is not proposing an obligation for investment advisers to collect beneficial ownership information at this time, it anticipates it will do so in the future. (FinCEN Proposal and Fact Sheet, Feb. 13 | Treasury’s 2024 Investment Adviser Risk Assessment)
  • Last week, FinCEN proposed a rule that would require certain real estate professionals involved in the closing or settlement of residential transfers to report information to FinCEN about the beneficial owners of legal entities and trusts involving all-cash transactions. The rule would not require the reporting of sales to individuals.  (Roundtable Weekly, Feb. 9 | Reuters and AP, Feb. 7)
  • Another set of regulations that took effect on Jan. 1, 2024 is expected to collect personal information from owners of at least 32 million U.S. businesses into a beneficial ownership registry managed by the government.  A beneficial owner is described as individual who owns at least 25 percent of a company or enough to exert significant control over it. (Final Rule | Fact Sheet | RER background on beneficial ownership)
  • FinCEN Director Gacki told the House Committee that more than 430,000 businesses have submitted reports to the registry so far. (PoliticoPro, Feb. 14)

Concerns About Beneficial Ownership Registry

  • In his opening statement, Committee Chairman Patrick McHenry (R-NC), above, was critical of Treasury’s ongoing proposals and its beneficial ownership regulations affecting small businesses. McHenry added, “Until FinCEN can show Congress it can do its current job and appropriately use its existing authorities, I’m skeptical of providing greater authorities and resources.” (FinCEN’s background information and FAQs on beneficial ownership reporting)
  • McHenry added, “The administration has transformed what was a simple and direct program into Frankenstein’s monster of complexity. We now have a new, overly complex and less secure access regime.”

On Oct. 13, 2023, The Roundtable and a coalition of eight national real estate groups urged Treasury Secretary Yellen to delay the implementation of the burdensome reporting requirements. (Coalition letter | Roundtable Weekly, Oct. 20 and Sept. 30)

#  #  #

Treasury Regulators Propose Beneficial Ownership Rule for All-Cash Residential Transactions

This week, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed a rule that would require certain real estate professionals involved in the closing or settlement of residential transfers to report information to FinCEN about the beneficial owners of legal entities and trusts involving all-cash transactions. The rule would not require the reporting of sales to individuals. (Reuters and AP, Feb. 7)

FinCEN’s Initiatives

  • The proposed rule would require reporting on various types of residential real property transfers. Exceptions would apply for highly regulated types of entities and trusts that are less likely to be used by illicit actors to launder money through residential real property. (FinCEN Fact Sheet on NPRM, Feb. 6)
  • FinCEN expects that the obligation to file Real Estate Reports would generally apply to settlement agents, title insurance agents, escrow agents, and attorneys. 
  • Comments about the Notice of Proposed Rulemaking will be accepted for 60 days following publication in the Federal Register.

Small Business Registry

FinCEN insignia
  • Treasury has also pursued the development of a new small business ownership database called the beneficial ownership registry, which is expected to include personal information on the owners of at least 32 million U.S. businesses. (AP, Feb. 7 | FinCEN’s background information and FAQs on reporting)
  • The registry requires millions of companies to report information about persons who own at least 25% of a company or exert significant authority over it to the Financial Crimes Enforcement Network (FinCEN).These beneficial ownership regulations took effect on Jan. 1, 2024 under the Corporate Transparency Act (CTA). (Final Rule | Fact Sheet | Wall Street Journal and Bloomberg Law, Sept. 29) 
  • On Jan. 8, Treasury Secretary Janet Yellen announced that 100,000 businesses have registered for the new database. (AP, Jan. 8)

Industry Response

  • Ten national real estate industry organizations and The Roundtable submitted detailed comments to FinCEN on Feb. 21, 2022 about the proposed anti-money laundering regulations affecting real estate transactions. (Roundtable Weekly, Feb. 25, 2022)
  • On Oct. 13, 2023, The Roundtable and a coalition of eight national real estate groups urged Treasury Secretary Yellen to delay the implementation of these burdensome reporting requirements. (Coalition letter | Roundtable Weekly, Oct. 20 and Sept. 30)

The Roundtable also signed onto a letter with approximately 70 business groups on Nov. 16, 2023 that urged Congress to pass a one-year delay in implementing the rules.

#  #  #

Key Regulators View Banks’ Office Loan Concentrations as Manageable Risk

Fed Chair Jerome Powell and Treasury Secretary Janet Yellen this week said that federal regulators are closely monitoring bank loan concentrations in office properties for heightened economic risk but view the CRE sector’s financial challenges as manageable. (60 Minutes’ Powell transcript, Feb. 3 and Bloomberg video of Yellen testimony, Feb. 6)

Regulators Focus on CRE

Federal Reserve Chairman Jerome Powell on 60 Minutes
  • Chair Powell told CBS’ 60 Minutes, “We looked at the larger banks’ balance sheets, and it appears to be a manageable problem. It’s a secular change in the use of downtown real estate. And the result will be losses for the owners and for the lenders, but it should be manageable.”
  • Secretary Yellen also said economic pressures on office properties are “manageable” before the House Financial Services Committee on Feb. 6 and the Senate Banking, Housing and Urban Affairs Committee on Feb. 8.  Her testimony included a summary of findings from the Financial Stability Oversight Council’s annual report, which noted, “Elevated interest rates, high costs, and potential structural changes in demand for CRE have heightened concerns about CRE.”
  • CNBC’s Squawkbox interviewed Minneapolis Fed Pres. Neel Kashkari on Feb. 7 about the regulators’ CRE concerns. “It really is focused on the office sector. Many other segments within commercial real estate seem to be doing very well, so I think that delineation is important. And we think it’s going to be on a bank-by-bank basis where we see pressures flare up. Our bank supervisors are in very close contact with others around the country,” Kashkari said.

CRE Markets

Real Estate •	Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR)
  • Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told CNBC’s Squawkbox on Feb. 6 that commercial real estate markets in 2023 were “a little bit paralyzed” but that “if you’re a borrower who’s willing to invest money, banks are willing to reduce their loan balances to reflect the current environment.” (CNBC, Feb. 6)
  • A recent CRED iQ report found that more borrowers are modifying CRE loans. The report covers 441 loans with a total value of $13.6 billion (GlobeSt. Jan. 25)
  • CNBC’s Last Call interviewed House Financial Services Committee Member French Hill (R-AR) about capital and credit pressures on CRE on Feb. 1. Rep. Hill addressed the negative impacts of interest rates, fiscal policy, and inflation on the economy and the office sector—and the problems posed by the regulatory agencies’ Basel III “Endgame” proposal.

Separately, The Federal Reserve Board recently announced that its Bank Term Funding Program will cease making new loans on March 11. The program remains available as an additional source of liquidity for eligible institutions until that date. (Fed news release, Jan. 24)

#  #  #

Senate Finance Committee Approves Janet Yellen as Treasury Secretary; BisNow Webinar Features Roundtable’s DeBoer on Industry Policy Agenda and Biden Administration

Janet Yellen during Senate Finance Committee confirmation hearing

The Senate Finance Committee on Jan. 22 voted unanimously to advance President Biden’s nomination of Janet Yellen for Treasury secretary to the full Senate for a vote. Yellen, who formerly served as chair of the Federal Reserve, would become the first woman to hold the position. (The Hill, Jan. 22) 

  • Yellen testified before the committee earlier this week that “the world has changed,” encouraged policymakers to “act big,” and addressed fiscal relief, potential tax increases and the growing budget deficit. (Bloomberg and Wall Street Journal, Jan. 19)
  • “Neither the President-elect, nor I, propose this relief package without an appreciation for the country’s debt burden,” she said. “But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.” (Yellen testimony, Jan. 19)
  • In follow-up written Q&A with the committee, Yellen addressed a wide variety of policy issues including tax policy and climate change. Among her answers in the document:

    “Both the President and I believe we can turn the threat of climate change into an opportunity to boost our economy and reinvigorate old and new industries to create high paying middle class jobs across America. President Biden has a comprehensive plan to invest in the United States, create a clean energy economy, and address the crisis of climate change. I am focused on the President’s agenda, including investments in the clean energy economy, to address climate change and create good paying jobs and energy efficiency technologies, as well as clean electricity standards that will achieve carbon-pollution-free electricity by 2035.”

  • Yellen also said she planned to start a new Treasury “hub” that would examine financial system risks arising from climate change and on related tax policy incentives, POLITICO’s Zachary Warmbrodt reports.
  • Sen. Ron Wyden (D-OR), who is poised to chair the tax-writing Senate Finance Committee, said in a statement after the hearing, “As we continue to deal with the worst economic crisis in a century, it’s critically important that she be leading the Treasury Department as soon as possible.” 

Roundtable’s DeBoer & Policy Priorities 

Jeffrey DeBoer, upper left, during Bisnow Webinar

Real Estate Roundtable President and CEO Jeffrey DeBoer commented in the media this week on the Biden Administration and policy priorities ahead.  

  • In Commercial Property Executive’s Jan. 22 article, Industry Responds as Biden Kicks Off Tenure (, DeBoer states, “There are many serious issues facing the nation, but job number one is winning the ongoing battle against the health and economic consequences of the pandemic.”  He added, “In addition, we expect robust debate and activity around housing availability, infrastructure and immigration reform and expanding opportunities for all Americans.”
    • The Roundtable and 12 national real estate organizations on Dec. 16, 2020 congratulated Joe Biden and Kamala Harris on their historic election and submitted detailed policy recommendations to the incoming administration on COVID-19 relief, sustainability, housing, immigration, tax policy infrastructure, and other policy issue areas. (Roundtable Weekly, Dec. 18, 2020)
      • The industry letter acknowledges the many economic and social challenges confronting the country and the Biden Administration, including the national response to COVID-19. The letter and supporting policy memo were also sent to every congressional office on Capitol Hill.
      • DeBoer also participated in Jan. 19 BisNow webinar with Roundtable Member Steven Witkoff, Chairman & Chief Executive Officer of Witkoff, and W. Edward (Ed) Walter – Global Chief Executive Officer of the Urban Land Institute and current co-chair of The Roundtable’s Research Committee – that focused on future economic stimulus proposals from the Biden Administration and industry priorities.
      • DeBoer said, “What Biden has suggested already is very positive. We need to go bold and big. So when we look at this next wave of legislation, we’re going to be looking for how does it distribute the vaccine because until that occurs it is going to be difficult for cities and states and businesses to regain their footing. We have also worked hard on the concept of rent assistance and we have urged that impacted businesses also be able to get some rental assistance.”
      • He added, “We are also very hopeful that in the next bill we can get some additional clarity on liability concerns for businesses. And going forward, we’re concerned that for leasing and refinancing, there may be a need to have a program along the lines of what was established after 9-11 for terrorism insurance. There may be a need for a pandemic risk insurance federal program that would allow people to help mitigate the risk of a future pandemic and that insurance would be available to any kind of business.” 

      The Roundtable’s policy agenda and the Biden Administration’s proposals will be discussed during both The Roundtable’s business meeting and policy advisory committee meetings during the organization’s State of the Industry Meeting on Jan. 26-27 (all virtual).

      #  #  #

      Treasury Requests Cessation of Several Fed Emergency Lending Programs and Return of Unused Funds; Senate Republicans Want Funds Repurposed for Pandemic Relief

      Treasury Secretary Steven Mnuchin sent a letter to Federal Reserve Chairman Jay Powell yesterday requesting that five emergency lending facilities, including the Main Street Lending Program (MSLP), should not be extended past their scheduled expiration on December 31, 2020. Mnuchin also requested the Fed to return unused Treasury loan funds from the programs for Congress to re-appropriate. (Treasury letter and The Wall Street Journal, Nov. 19)

      • The MSLP has the capacity to issue up to $600 billion in loans, yet has only completed approximately 400 loans totaling $3.7 billion. (Washington Post, Oct, 30)
      • The programs were created as part of the CARES Act coronavirus aid package passed in March, which included funding for all the Fed’s emergency lending facilities. (The Hill, Nov. 19)
      • Mnuchin’s Nov. 19 letter stated, “I am requesting that the Federal Reserve return the unused funds to the Treasury. This will allow Congress to re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds.”
      • The decision to end the lending facilities operations cannot be done unilaterally by Treasury; it would require cooperation by the Fed.
      • Chairman Powell issued a statement after markets closed yesterday that signaled disagreement. “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.” (Wall Street Journal, and CNBC interview with Mnuchin, Nov. 20)
      • Powell also said on Nov. 17 that “I don’t think it is time yet, or very soon” to close down the programs and that the Fed was “using all of our tools to support the recovery for as long as it takes until the job is well and truly done.” (Reuters, Nov. 17)
      • If the Trump administration decides not to extend the Fed programs, the new administration’s Treasury Department could reestablish them after Biden is inaugurated on Jan. 20. (Wall Street Journal, Nov. 10)

      Pandemic Relief Package

      Capitol side with sun and clouds

      The request for the Fed to return unused funds from the lending programs comes as Congress remains at an impasse over costs for a pandemic relief package – the Trump administration offered a ceiling of $1.8 trillion, House Democrats passed a $2.2 trillion bill, and Senate Republicans favored a $500 billion measure. (Roundtable Weekly, Nov. 6)

      • Mnuchin and Senate Majority Leader Mitch McConnell (R-KY) today discussed a strategy for reviving talks between Republicans and Democrats over the stalled pandemic stimulus package. McConnell commented after the meeting about utilizing the unused Fed funds for a relief package, stating, “Congress should repurpose this money toward the kinds of urgent, important, and targeted relief measures that Republicans have been trying to pass for months, but which Democrats have repeatedly blocked with all-or-nothing demands.” (AP, Nov. 20)
      • President-elect Joe Biden on Monday urged Congress to advance the $2.2 trillion HEROES Act (H.R. 925) passed by the House. “Right now, Congress should come together and pass a COVID relief package like the HEROES Act that the House passed six months ago. Once we shut down the virus and deliver economic relief to workers and businesses, then we can start to build back better than before,” Biden said. (BGov, Nov. 16)
      • A report issued Wednesday by The Century Foundation shows that approximately 12 million Americans will lose unemployment insurance by the end of the year due to deadlines set by Congress early in the pandemic. (Washington Post and GlobeSt, “12M Workers Set to Lose Unemployment Benefits,” Nov. 19)

      Lawmakers also face the added pressure of passing a government funding bill to avoid a Dec. 11 partial shutdown. Congress may choose to merge some COVID-19 aid measures into a sweeping multi-trillion-dollar omnibus funding bill during the lame-duck session to address both issues – or attempt to pass separate bills.

      #  #  #