IRS Proposed Regulations Restore Key FIRPTA Relief For REIT Structures

Proposed regulations restore common market structures for REITs

The Internal Revenue Service (IRS) and U.S. Treasury Department have proposed regulations (the Proposed Regulations) that would expand FIRPTA (Foreign Investment in Real Property Tax Act) relief for domestically controlled REITs (real estate investment trust) by repealing the corporate look-through rule introduced by final U.S. Treasury regulations issued in April 2024 (the 2024 Regulations).

As discussed in a prior bulletin, the 2024 Regulations adopted a look-through rule affecting many "domestically controlled" REIT structures. Those structures typically involved a fully taxable U.S. C corporation as a majority shareholder of a REIT to cause it to qualify as a domestically controlled REIT, and therefore foreign minority shareholders were exempt from FIRPTA on their shares. Before the 2024 Regulations, a REIT could remain domestically controlled even if the U.S. C corporation was wholly owned by