IRS Issues Proposed Regulations Impacting the Determination of Domestically Controlled REIT Status

Summary

On December 29, 2022, the Treasury Department and the Internal Revenue Service (the IRS) published proposed regulations (the Proposed Regulations) in the Federal Register under Section 897 of the Internal Revenue Code of 1986 (26 U.S.C. § 897), as amended (the Code) that would significantly modify the interpretation of the definition of "domestically controlled" real estate investment trust (REIT) status. In particular, the Proposed Regulations would disallow the common practice of foreign investors using a foreign-owned domestic corporation to create a domestically controlled REIT which was permitted under prior guidance. This practice note will review the determination of domestically controlled REIT status under prior guidance and the proposed changes under the Proposed Regulations. The guidance in this practice note is current as of December 29, 2022.