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Final Regulations for Domestically-Controlled REITs: Opportunities and Challenges

Recording of a 90-minute premium CLE/CPE video webinar with Q&A

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Conducted on Tuesday, September 10, 2024

Recorded event now available

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This CLE/CPE webinar will provide an in-depth analysis of recent Internal Revenue Service (“IRS”) final regulations addressing the ability of a REIT to qualify as a "domestically controlled REIT" and will offer valuable insights into the challenges, options and opportunities for real estate private equity sponsors and non-U.S. investors.

Description

On April 24, 2024, the Treasury Department and the IRS released final regulations (the “Final Regulations”) under Section 897 of the Internal Revenue Code of 1986, as amended (the “Code”) addressing the circumstances under which a REIT is considered “domestically controlled.” A REIT’s qualification as domestically controlled offers a valuable tax exemption relied upon by many non-U.S. investors: a non-U.S. investor may sell shares in a domestically controlled REIT without being subject to U.S. federal income tax under the Foreign Investment in Real Property Tax Act (“FIRPTA”) rules.

The Final Regulations include a “look-through” rule initially invented in the proposed regulations published by the Treasury Department and the IRS on December 29, 2022 (the “Proposed Regulations”). This rule requires the look-through of “foreign-controlled” domestic corporations – such that, effectively, these corporations do not count as domestic owners for purposes of determining domestic control. Prior to the Proposed Regulations, foreign-controlled domestic corporations were commonly included in structures and generally believed by taxpayers and REIT advisors alike to count towards domestic control. Despite numerous comment letters to the Treasury Department recommending the elimination of this “look-through” rule, the Final Regulations largely adopt the framework from the Proposed Regulations, subject to a few modifications and a transition rule that would delay the application of the “look-through” rule to certain pre-existing structures.

TIt is anticipated that the Final Regulations will have a significant impact on many U.S. real estate sponsors and non-U.S. investors. Listen as our experienced and authoritative panel discusses the impact of the Final Regulations, including the opportunities, options and challenges ahead for taxpayers.

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Outline

  1. Overview of the Final Regulations and potential impact on real estate sponsors and non-U.S. investors
  2. Determining "domestically controlled" under the “look-through” rule in the Final Regulations
  3. Transition rule for pre-existing REITs
  4. Ambiguities, challenges, and opportunities under the Final Regulations
  5. Impact of Loper Bright and the Stop Corporate Capture Act

Benefits

The panel will discuss these and other key issues:

  • Discuss key information regarding the Final Regulations, including the challenges and opportunities thereunder;
  • Provide illustrative examples; and
  • Share practical takeaways.

Faculty

Anderson, Paige
Paige Anderson
Partner
Vinson & Elkins

Ms. Anderson’s practice focuses on the federal income tax aspects of business transactions, particularly in the...  |  Read More

Bertonaschi, Stephen
Stephen Bertonaschi
Senior Managing Director, Leader of Real Estate Tax Compliance
FTI Consulting

Mr. Bertonaschi specializes in advising clients in key areas, including entity formation and structuring, real estate...  |  Read More

Hung, Shiukay
Shiukay Hung
Partner
DLA Piper

Shiukay Hung is a Partner and the Co-Chair of DLA Piper’s National REIT Tax Practice. He is recognized as a...  |  Read More

Senie, Brian
Brian Senie
Partner
Kirkland & Ellis

Mr. Senie advises clients on tax issues arising in real estate transactions and related transactions involving...  |  Read More

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