Josiah Child Weighs in on New IRS Guidance Regarding Real Property Holding in Tax Notes

New guidance from the IRS reverses course on a longstanding rule that automatically treated foreign U.S. real property holding corporations (USRPHCs) as commercial entities.

The rule change means “foreign sovereigns will have greater flexibility and certainty in managing upper-tier structures,” Josiah Child of Caplin & Drysdale told Tax Notes. This will give sovereigns that can establish “home-country blockers” a better shot at avoiding commercial activity that puts the section 892 exemption at risk, he said.

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Child observed that the new guidance provides that the term “controlled entity” excludes entities classified as partnerships. That cements guidance presented in recent letter rulings, and it would appear also to confirm those rulings’ holdings under section 7701 that an entity with multiple regarded beneficial owners shouldn’t be considered “wholly owned by a foreign government” even if all of the owners have government status under section 892 from the same sovereign.

“While welcome, the proposed regulation would not grant some commenters’ request for full repeal of [reg.] section 301.7701-2(b)(6) and would not allow foreign governments to form disregarded entities,” Child said.

To read the article in full, please visit Tax Notes’ website.