September 22, 2011
FIRPTA Reform Proposal Introduced Yesterday In House
Yesterday Reps. Kevin Brady (R-TX) and Joe Crowley (D-NY), along with Patrick Tiberi (R-OH) and Shelley Berkley (D-NV), introduced H.R. 2989, the Real Estate Jobs and Investment Act of 2011. This proposal would make two significant changes to the Foreign Investment in Real Property Tax Act (FIRPTA), representing an important step in the enactment of necessary reforms to FIRPTA that NAREIT and a number of other real estate organizations have been advocating for some time.
First, H.R. 2989 includes a proposal, which was the centerpiece of a bill that the House passed in the previous Congress by a 402-11 vote, H.R. 5901. This proposal would increase the current "portfolio investor" exception for sales of
stock and capital gains dividends of listed REITs from 5 percent to 10 percent, including for investors of 10 percent or less in listed foreign entities entitled to pass-through treatment under applicable U.S. tax treaties. This change
would conform the definition of "portfolio investor" for FIRPTA purposes to that used in tax treaties and which is applicable to foreign investment in U.S. debt securities. REIT dividends paid to non-U.S. portfolio investors would remain
subject to U.S. withholding (but not FIRPTA) tax.
Second, H.R. 2989 would reverse a 2007 IRS notice with respect to the treatment of liquidating distributions of a REIT pursuant to which such distributions are currently taxed as a sale of real estate subject to FIRPTA, rather than being taxed as a sale of stock - as
most tax practitioners believed to be the case prior to 2007. This provision is consistent with the request made by Reps. Brady and Crowley, along with 24 other bipartisan members of the House Ways and Means Committee, in a letter submitted to the Treasury Department on June 24, 2011.
NAREIT appreciates the leadership of Reps. Brady and Crowley for their efforts in addressing much-needed FIRPTA reform. NAREIT is hopeful that comparable legislation will be introduced and considered in the Senate in the near future.
If you have any comments or questions, please contact Dara Bernstein, NAREIT's Senior Tax Counsel, at firstname.lastname@example.org.