F.I.R.P.T.A. Planning & Compliance

There are international tax issues unique to the holding of real property interests, including application of the Foreign Investment in Real Property Tax Act (F.I.R.P.T.A.), claiming of deductions for trade or business operations, buy versus lease considerations, and financing issues.

Local tax issues unique to the holding of real property interests, including transfer taxes, require knowledge of local law.

The Firm practice considers all these areas in planning for investment in U.S. real estate.

Sample Representations

  • We restructured ownership of a U.S. real property holding corporation from one foreign entity to another foreign entity in a manner that avoided potential F.I.R.P.T.A. tax on the transfer. This was accomplished through use of statutory tax exceptions provided by F.I.R.P.T.A. in coordination with the applicable provisions of the U.S.-Germany Income Tax Treaty. This required analyzing the business activity and U.S. connections of the foreign entity and affiliates to meet the limitation on benefits (L.O.B.) requirements under the treaty, preparation of a non-recognition transaction filing under I.R.C. §351, determining reporting status under the Foreign Account Tax Compliance Act (F.A.T.C.A.), and eliminating potential future F.A.T.C.A. withholding tax exposure through analysis of the U.S.-Germany I.G.A. to determine if it provided more favorable terms than the F.A.T.C.A. regulations.

  • We assisted a nonresident, non-citizen individual owning U.S. real property through a two-tier corporate structure, involving a foreign parent corporation and its subsidiary that was a U.S. real property holding corporation, to gift the property to children in the U.S. and to eliminate the issue of U.S. individuals owning U.S. real property through an interest in a foreign corporation. The planning took into account gift tax rules and F.I.R.P.T.A. rules applicable to non-U.S. individuals.

  • We arranged for the transfer of an interest in a U.S. real estate parcel held by a foreign individual to a foreign corporation in a non-recognition transaction. This transfer was intended to eliminate U.S. estate tax that could result upon the death of a foreign individual who directly holds U.S. real estate. We were able to avoid application of F.I.R.P.T.A. provisions that would otherwise make such transfer taxable and addressed potential anti-inversion provisions of U.S. tax law.