September 28, 2025

F.I.R.P.T.A. Revisited -- Things To Remember When Nonresidents Invest in U.S. Real Property

September 28, 2025/ Ruchelman P.L.L.C.

The year 2025 marks the 45th anniversary of the enactment of the Foreign Investors Real Property Tax Act. It is a good time to revisit issues that are faced by nonresident investors considering an acquisition of real property in the U.S. For the private investor, many decision points must be addressed. Here are a few that come readily to mind: (1) Will the investment generate passive or active income? (2) Now and possibly in the future, will the investment be limited to one property or will there be multiple properties? (3) Is it better to own the property directly or through a holding company? (4) Should the holding company be formed in the U.S. or abroad there, or should there be holding companies in both places? (5) Should the holding company be tax-transparent or tax-opaque? (6) Will the structure prevent death duties from being imposed in the U.S.? (7) If the initial holding structure produces suboptimal results, can the structure be revised, and if so, at what cost? (8) Is it better to hold all U.S. properties through one U.S. holding company or is it better to hold each U.S. property through its own separate U.S. holding company? Stanley C. Ruchelman and Wooyoung Lee provide guidance to foreign investors and their home country advisers so that well-reasoned investment structures can be formulated at the front end that take into account U.S. tax rules, foreign tax rules, and preferences of the particular client.

September 28, 2020

Home Thoughts from Abroad: When Foreigners Purchase U.S. Homes

September 28, 2020/ Ruchelman P.L.L.C.

Remember when tax planning was an exercise in solving two or three potential issues for a client? Memorandums ran eight pages or so. Those days are long gone, especially when planning for a non-U.S. individual’s purchase of a personal use residence in the U.S. A myriad of issues pop up once the property is identified, so that planning which begins at that time often misses significant tax issues encountered over the period of ownership and beyond. Michael J.A. Karlin, a partner of Karlin & Peebles, L.L.P., Los Angeles, and Stanley C. Ruchelman, address the big-picture issues in an article that exceeds 50 pages. Included are issues that arise leading up to the acquisition, during ownership and occupancy, the time of disposition, and at the conclusion of life. The article is the “go-to” document for tax planners.

August 15, 2017

Foreign Partner Not Subject to U.S. Tax on Gain from Redemption of U.S. Partnership Interest

August 15, 2017/ Ruchelman P.L.L.C.

Hurray! After three years, the U.S. Tax Court ruled that gain from the sale of a partnership interest or the receipt of a liquidating distribution by a retiring partner is not subject to U.S. income tax even though the partnership conducts business in the U.S. Neha Rastogi, Elizabeth V. Zanet, and Nina Krauthamer explain the reasoning behind the decision and the magnitude of the defeat for the I.R.S. Unless the case is reversed on appeal, the decision invalidates the I.R.S. position announced in Rev. Rul 91-32.

June 27, 2017

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

June 27, 2017/ Ruchelman P.L.L.C.

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.