IRS Issues Final Regulations Addressing Ownership Of Domestically Controlled REITs

On April 24, 2024, the Internal Revenue Service ("IRS") released final regulations (TD 9992) ("Final Regulations") addressing the determination of whether a real estate investment trust ("REIT") is "domestically controlled." The Final Regulations finalize proposed regulations (REG-100442-22) ("Proposed Regulations") under Section 897 of the Internal Revenue Code published on Dec. 29, 2022.¹

The Final Regulations largely adopt the Proposed Regulations with certain modifications. Notably, the Final Regulations (i) look through a non-public domestic C corporation if foreign persons hold directly or indirectly more than 50 percent (revised from 25 percent or more in the Proposed Regulations) and (ii) include a 10-year transition period for existing structures with respect to the domestic corporation look-through rule.