On October 21, 2025, the Treasury Department published proposed regulations under the Foreign Investment in Real Property Tax Act (FIRPTA) that would repeal the controversial “look-through” rule adopted in final regulations last year (as discussed in our April 30, 2024, client alert).
Under the existing final regulations, a real estate investment trust (REIT) is required to look through certain taxable domestic corporations in determining whether the REIT is “domestically controlled” under FIRPTA (and thus whether gain on the REIT’s stock is exempt from taxation under FIRPTA). As noted in our prior client alert, the final regulations significantly impacted many real estate funds and other foreign investors in U.S. real estate and were harshly criticized by commentators for being inconsistent with existing law and contrary to public policy.
In a development that will be welcomed by many participants in the real estate industry, the new proposed regulations contain a total repeal of the look-through rule. As a result, under the proposed regulations, all domestic C corporations would be treated as U.S. persons for purposes of determining whether an underlying REIT is domestically controlled, regardless of whether and to what extent the C corporation is owned by foreign persons. This would revert the law to what most practitioners believed was its state prior to the promulgation of the look-through rule.
Although the proposed regulations will become effective upon finalization, taxpayers are expressly permitted to rely on the proposed regulations for transactions occurring on or after April 25, 2024, the date the existing look-through rule was finalized.
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