U.S. Releases Final Regulations On Domestically Controlled REITs

The United States Treasury Department and Internal Revenue Service issued final regulations that clarify how a U.S. REIT determines whether it is "domestically controlled" for purposes of applying the exemption from the FIRPTA capital gains tax that otherwise applies when a non-U.S. investor sells shares of a U.S. REIT. Under the final regulations, a "look-though" rule applies to certain taxable U.S. corporations that own an interest in a U.S. REIT, which requires looking to the U.S. or foreign status of the corporate investor's own shareholders to determine the REIT's status as "domestically controlled".

The final regulations also retain various other rules contained in proposed regulations that were issued in 2022, which we discussed in our previous bulletin.