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Foreign Investment in U.S. Real Estate – A F.I.R.P.T.A. Introduction

Foreign Investment in U.S. Real Estate – A F.I.R.P.T.A. Introduction

Many economic, political, and cultural factors make U.S. real estate an attractive investment for high net worth individuals resident in other countries.  These factors are supported by a set of straightforward tax rules that apply at the time of sale.  Alicea Castellanos, the C.E.O. and Founder of Global Taxes L.L.C., looks at the U.S. Federal income taxes and reporting obligations that apply to a foreign investor from the time U.S. real property is acquired to the time of its sale.

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Sale of a Partnership Interest by a Foreign Partner – Is Rev. Rul. 91-32 Based on Law or Administrative Wishes?

Sale of a Partnership Interest by a Foreign Partner – Is Rev. Rul. 91-32 Based on Law or Administrative Wishes?

The I.R.S. has a long history in misapplying U.S. tax rules applicable to a sale of a partnership interest.  For U.S. tax purposes, a partnership interest is treated as an asset separate and apart from an indirect interest in partnership assets.  In Rev. Rul. 91-32, the I.R.S. misinterpreted case law and Code provisions to conclude that gains derived by foreign investors in U.S. partnerships are subject to tax.  No one thought the I.R.S. position was correct, but then, in a field advice to an agent setting up an adjustment, the I.R.S. publicly stated that the ruling was a proper application of U.S. law when issued and remains so today. The adjustment was challenged in the Tax Court, and the tax bar is eagerly awaiting a decision.  Stanley C. Ruchelman and Beate Erwin examine the I.R.S. position, the string of losses encountered by the I.R.S. when challenged by taxpayers, and the Grecian Magnesite case awaiting decision.

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P.A.T.H. Act Leads to Widespread Tax Changes

Everyone likes Christmas presents and the P.A.T.H. Act delivers. It provides favorable tax treatment in the form of (i) F.I.R.P.T.A. exemptions for foreign pensions funds, (ii) increased ownership thresholds before F.I.R.P.T.A. tax is imposed on C.I.V. investment in R.E.I.T.’s, (iii) increased ownership thresholds before F.I.R.P.T.A. tax is imposed on foreign investment in domestically-controlled R.E.I.T.’s, (iv) a reduction in the time that must elapse in order to avoid corporate level tax on built-in gain when an S-election is made by a corporation after the close of the year of its formation, and (v) a permanent exemption from Subpart F income for active financing income of C.F.C.’s.

However, not all taxpayers benefitted from the Act. The P.A.T.H. Act increases F.I.R.P.T.A. withholding tax to 15%, adopts new partnership tax examination rules, and tightens rules regarding I.T.I.N.’s. Elizabeth V. Zanet, Christine Long, Rusudan Shervashidze, and Philip R. Hirschfeld explain these and certain other legislative changes.

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Foreign Investment in U.S. Real Estate – Think About Taxes Before Investing

Published in Journal of Taxation of Investments, Volume 32, Number 3: Spring 2015. © Civic Research Institute. Authorized Reprint.

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Indian Investors Purchasing U.S. Real Estate – From a U.S. Point of View

Published in International Taxation, Volume 13, Issue 3: September 2015.

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