Real Estate Tax Alert Regulations address withholding on foreign persons post PATH

Real Estate Tax Alert
Regulations address withholding on foreign
persons post PATH Act
Background
Regulations have been released with respect to certain aspects of the Protecting Americans from Tax Hikes Act of
2015 (PATH Act). The new regulations affect foreign investors and withholding agents that are required to
withhold tax from foreign persons on certain dispositions, or deemed dispositions, of United States real property
interests (USRPIs). The regulations provide timely guidance regarding withholding tax and other matters related
to the implementation of the PATH Act. However, many questions remain unanswered, including some noted
below and those related to the determination of whether an entity is treated as a qualified foreign pension plan
(QFPF). In this regard, the IRS has requested comments on regulations that should be issued with respect to the
exemption from FIRPTA for QFPFs.
Summary of the regulations
The regulations have been updated to indicate that QFPFs or an entity of which all of the interests are held by a
QFPF are not considered foreign persons for purposes of FIRPTA withholding.

This change provides a mechanism for a qualified foreign pension fund to certify that it is not subject to
certain aspects of FIRPTA.

While the certification may apply to direct sales of a USRPI and REIT capital gain dividends, the
certification does not explicitly apply in other cases (such as return of capital distributions from a REIT or
income earned in a partnership).

Instead of using a form W-8BEN to certify as to its classification as a QFPF, the QFPF would furnish to the
withholding agent a certification that the QFPF is not a foreign person.

In order for a QFPF to certify that it is not a foreign person, it should provide a certification that:
-
States that the transferor is not a foreign person;
-
Sets forth the transferor’s name, identifying number and address; and
-
Is signed under penalties of perjury by a responsible officer in the case of a corporation, by a general
partner in the case of a partnership and a trustee, executor, or equivalent fiduciary in the case of a trust
or estate.

In addition to satisfying the requirements set forth in the regulations, a withholding agent may also wish to
have a foreign pension fund certify as to other matters, such as whether the entity qualifies as a QFPF.

No particular form is needed for this certification.
As provided in the PATH Act, the rates of withholding on certain dispositions, or deemed dispositions, of
USRPIs have been increased from 10% to 15%, other than with respect to sales of certain residences. The new
withholding rates apply to dispositions of, and distributions with respect to, USRPIs that occur after
February 16, 2016.
The regulations updated certain IRS mailing addresses listed in Sections 897 and 1445. For some of the changes
to the addresses, the new addresses will be provided on the Form 8288 instructions.
The regulations incorporate a change in the PATH Act that applies to the cleansing exception. The cleansing
exception generally provides that the stock of a corporation will not be treated as a USRPI after it sells all of its
interests in USRPIs in transactions in which gain was recognized. The changes in the regulations follow the
PATH Act and provide that for dispositions after December 18, 2015 the cleansing exception will not apply if the
corporation or predecessor was a REIT or RIC within the shorter of the period the taxpayer held the stock of the
corporation or the 5 year period ending on the date of disposition of the stock of the corporation.
For additional information concerning this issue, please contact:
Adam Feuerstein
703-918-6802
[email protected]
Adam Handler
213-356-6499
[email protected]
Real Estate Alert | February 2016
2
PwC Real Estate Tax Practice – National and Regional Contacts:
National
David Voss
US RE Tax Leader
New York
646-471-7462
[email protected]
Regional
Atlanta
Chris Nicholaou
678-419-1388
[email protected]
Steve Tyler
678-419-1224
[email protected]
Boston
Timothy Egan
617-530-7120
[email protected]
Rachel Kelly
617-530-7208
[email protected]
John Sheehan
646-471-6206
[email protected]
Chicago
Jill Loftus
312-298-3294
[email protected]
Los Angeles
New York, cont.
Adam Handler
213-356-6499
[email protected]
Oliver Reichel
646-471-5673
[email protected]
Phil Sutton
213-830-8245
[email protected]
Miranda Tse
213-356-6032
[email protected]
New York
Brandon Bush
646-471-2498
[email protected]
Eugene Chan
646-471-0240
[email protected]
Dan Crowley
646-471-5123
[email protected]
Paul Ryan
646-471-8419
[email protected]
Christian Serao
646-471-0694
[email protected]
San Francisco
Kevin Nishioka
415-498-7086
[email protected]
Neil Rosenberg
415-498-6222
[email protected]
Washington, DC
James Guiry
646-471-3620
[email protected]
Karen Bowles
703-918-1576
[email protected]
Dallas
Sean Kanousis
646-471-4858
[email protected]
Adam Feuerstein
703-918-6802
[email protected]
William Atkiels
214-754-5388
[email protected]
Christine Lattanzio
646-471-8463
[email protected]
Laura Hewitt
617-530-5331
[email protected]
Denver
David Leavitt
646-471-6776
[email protected]
Kelly Nobis
703-918-3104
[email protected]
Alan Naragon
312-298-3228
[email protected]
Robert Lund
720-931-7358
[email protected]
Real Estate Alert | February 2016
James Oswald
646-471-4671
[email protected]
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