Proposed regulations repeal domestic C-corporation look-through rule for determination of domestically controlled REIT status

On October 20, 2025, the United States Department of the Treasury and the Internal Revenue Service issued proposed regulations that modify the rules for determining domestically controlled REIT status. Generally, many non-US investors prefer investing in domestically controlled REITs because selling stock in such REITs can qualify for an exemption from the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), which would otherwise impose tax on gains from the sale of REIT stock.

In this alert, we highlight three key takeaways for REITs, fund managers, and non-US investors.

Key highlights

1. Removal of the domestic C-corporation look-through rule

In response to numerous comment letters submitted by taxpayers (including a detailed comment letter submitted by the American Bar Association (ABA) Tax Section, with contributions by DLA Piper Partner Shiukay Hung), the US Treasury reversed its prior “domestic C-corporation look-through rule.” This change generally restores prevailing industry practice prior to 2024, where taxpayers self-created domestically controlled REITs by having a domestic C-corporation hold a majority interest in a REIT. Under the proposed regulations, a domestic C-corporation, excluding REITs and regulated investment companies (RICs), is treated as a non-look-through person in all cases. In particular, the proposed regulations reverse the prior rule that became effective on April 25, 2024. For more information, see our prior client alert and the ABA Tax Section letter.

2. Compliance relief

Eliminating the domestic C-corporation look-through rule is anticipated to simplify the compliance burden for domestically controlled REITs. While the proposed regulations are not yet effective until finalized, taxpayers may choose to apply them to transactions occurring on or after April 25, 2024, effectively undoing the look-through treatment of domestic C-corporations for all time periods.

3. Self-created domestically controlled REITs

With the domestic C-corporation look-through rule effectively repealed, taxpayers may structure self-created domestically controlled REITs through the use of a domestic C-corporation.

Next steps

To learn more, please contact a member of the DLA Piper National REIT Tax practice.

Read more

Access our REIT Tax Resource Center.

Meet the team

To learn more about DLA Piper’s National REIT Tax practice, please contact any of our REIT tax attorneys. View our team snapshot.

About DLA Piper’s National REIT Tax practice

DLA Piper’s National REIT Tax practice has in-depth knowledge and experience advising US-listed public REITs, Singapore-listed public REITs, non-traded public NAV REITs, mortgage REITs, and private REITs on REIT taxation matters including formation, operation, acquisition, disposition, joint ventures, M&A transactions, restructurings, workouts, and transactions under Chapter XI of the US Bankruptcy Code.

Our attorneys are recognized as industry leaders by Chambers and The Legal 500, regularly publish articles in legal and trade publications, and actively participate in real estate and REIT industry organizations.