September 23, 2011
FIRPTA Reform Proposal Introduced in Senate
Yesterday, Senators Bob Menendez (D-NJ) and Mike Enzi (R-WY) introduced S. 1616, the Real Estate Investment and Jobs Act of 2011. This legislation, similar to H.R. 2989 introduced September 21 in the House by Kevin Brady (R-TX) and Joe Crowley (D-NY), would make two significant changes to the Foreign Investment in Real Property Tax Act (FIRPTA). These two changes would be 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.
Like H.R. 2989, S. 1616 includes a proposal that 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, among other things, certain 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, S. 1616 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.
NAREIT expresses its appreciation to Senators Menendez and Enzi, who, in a December 1, 2010 letter, along with 12 other members of the Senate Finance Committee, urged Senate Finance Committee Chair Max Baucus (D-MT) and then-Ranking Member Charles Grassley (R-IA), to consider reforms to FIRPTA. NAREIT is hopeful that Congress will consider S.1616 or H.R. 2989 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.