Final regulations: Definition of domestically controlled qualified investment entity under section 897

When foreign persons are considered to directly or indirectly hold stock in a QIE

When foreign persons are considered to directly or indirectly hold stock in a QIE

The U.S. Treasury Department and IRS today released final regulations (T.D. 9992) regarding when foreign persons, including qualified foreign pension funds, are considered to directly or indirectly hold stock in a qualified investment entity (QIE) for purposes of determining whether a QIE is domestically controlled and thus not treated as a United States real property interest (USRPI) under section 897.

The final regulations finalize portions of proposed regulations (REG-100442-22) published on December 29, 2022 (read TaxNewsFlash), other than those portions addressing the section 892 exemption for foreign governments which will be addressed in a separate rulemaking.

The final regulations retain the general approach and structure of the proposed regulations, with certain revisions. The domestic corporation look-through rule was not withdrawn, but its scope was narrowed. In particular, the amount of foreign ownership required to look through a non-public domestic C corporation was increased from 25% or more to more than 50%. In addition, the final regulations adopt a transition rule for existing QIE structures.

The final regulations are effective April 25, 2024.



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