Group Raises Concerns About FIRPTA Restrictions

October 18, 2017

The Honorable David Kautter
Assistant Secretary of the Treasury (Tax Policy)
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Dear Mr. Kautter:

On behalf of the Invest in America Coalition, we would like to respectfully request a meeting to discuss a problem with a provision of the Internal Revenue Code called FIRPTA. FIRPTA subjects foreign investment in U.S. real property to a much higher tax burden than foreign investment in any other asset class. If a foreigner invests in a U.S. real estate company, FIRPTA taxes them on any gain they receive from that investment.

The particular problem we would like to discuss is Section 2 of IRS Notice 2007-55. Prior to Notice 2007-55, well established U.S. tax law provided that liquidating distributions by real estate investment trusts (“REITs”) to foreign shareholders were treated as sales of stock. Under this rule, liquidating distributions made by a REIT were treated in the same way as liquidating distributions made by any other corporation. Notice 2007-55, however, concluded that REIT liquidating distributions should generally be treated as capital gain distributions subject to FIRPTA, but only for foreign investors. Needless to say, the IRS’s position has caused considerable consternation and havoc in the foreign investor community. Notice 2007-55 has severely constrained continued foreign investment in U.S. real estate at a time when the markets are in dire need of foreign capital.

Moreover, the Protecting Americans from Tax Hikes Act of 2015 separately resolved the issue that Notice 2007-55 was issued to address in the first place. Now that the Code accommodates the Treasury Department’s original concern, the inconsistent tax treatment provided in the Notice is superfluous and unnecessary.

Because of the many problems presented by the Notice, a bipartisan group of 32 members of the House Ways and Means Committee wrote to Secretary Mnuchin on October 10, 2017 requesting the withdrawal of Notice 2007-55 in order to restore the intent of Congress with respect to the tax treatment of liquidating distributions and increase direct foreign investment in U.S. commercial real estate and infrastructure.

Accompanying me to the meeting would be Jeff DeBoer, CEO of the Real Estate Roundtable, Steve Wechsler, CEO of the National Association of Real Estate Investment Trusts and John Rayis, Tax Counsel to the Invest in America Coalition. We would like to request the meeting for Wednesday November 1^st or Tuesday November 2^nd. We look forward to hearing from you. Thank you very much for your consideration of this matter.

Sincerely,

Peter Lowy
Co-Chief Executive Officer
Westfield Corporation