August 1, 2013
FIRPTA Reform Proposal Re-Introduced in the House of Representatives
On July 31, 2013, Representatives Kevin Brady (R-TX) and Joe Crowley (D-NY) introduced H.R. 2870, the "Real Estate Investment and Jobs Act of 2013. The measure, backed by Members of the House of Representatives on a bipartisan basis, would make two significant changes to the Foreign Investment in Real Property Tax Act (FIRPTA). The bill is nearly identical to legislation introduced in the 112th Congress and is a companion to S. 1181, introduced by Senators Menendez (D-NJ) and Enzi (R-WY) in June. Enactment of the two significant provisions in H.R. 2870 would be an important step toward achieving the reforms to FIRPTA that NAREIT, The Real Estate Roundtable and a number of other real estate organizations have been advocating for several years.
Similar to prior versions of this proposal, H.R. 2870 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. This provision, which passed the House by a vote of 402-11 as a stand-alone bill in 2010, 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. 2870 would reverse a 2007 IRS Notice with respect to the treatment of liquidating distributions of a domestically controlled qualified investment entity 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. Prior to 2007, most tax practitioners believed FIRPTA did not apply to these transactions.
NAREIT expresses its appreciation to Representatives Brady and Crowley, both members of the Committee on Ways and Means, for their continued efforts to achieve important modifications to FIRPTA at a time when the U.S. real estate sector could greatly benefit from additional foreign equity investment. In addition, NAREIT thanks the 13 Representatives, including 10 who serve on Ways and Means, who have added their names as original co-sponsors to H.R. 2870: Representatives Blumenauer (D-OR), Gerlach (R-PA), Jenkins (R-KS), Johnson (R-TX), Kind (D-WI), King (R-NY), Larson (D-CT), Pascrell (D-NJ), Rangel (D-NY), Roskam (R-IL), Schock (R-IL), Sessions (R-TX), and Van Hollen (D-MD).
The introduction of the "Real Estate Investment and Jobs Act of 2013" in the House and Senate, together with the Obama Administration's legislative proposal to treat foreign pension plans the same as U.S. pension plans for purposes of FIRPTA, as contained in its Fiscal Year 2014 budget proposal, are positive steps that will hopefully result in the achievement of FIRPTA reform during the 113th Congress.
If you have any comments or questions, please contact Kirk Freeman at email@example.com.