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29 April 20244 minute read

Final domestically controlled REIT regulations offer limited relief

On April 24, 2024, the Treasury Department released final regulations for determining domestically controlled REIT status. 

The final regulations follow the Treasury Department’s December 29, 2022 proposed regulations, which taxpayers and REIT advisors previously relied upon. Those proposed regulations targeted a commonly used structure in which foreign investors use a “foreign-controlled” domestic corporation to create a domestically controlled REIT.  Prior to the proposed regulations, taxpayers and REIT advisors generally believed that the IRS was comfortable with the use of such structures based on PLR 200923001. For more information about the proposed regulations, please see our prior client alert

In this alert, we look at key components of the final regulations and what they mean for real estate funds, joint ventures, and investors.


1. No repeal of the domestic C-corporation look-through rule

Many commentators asked the Treasury Department to repeal the domestic C-corporation look-through rule included in the proposed regulations.  The Treasury, however, was not persuaded by analysis of the PATH Act’s legislative history or by their own prior analysis in PLR 200923001. Instead, the Treasury Department believe that the domestic C-corporation look-through rule is consistent with the tax policy of the domestically controlled REIT regime. The final regulations maintain the look-through concept with some slight modifications.

2. Increased look-through threshold from 25 percent to 50 percent

The Treasury Department responded to comments to narrow the scope of the proposed look-through rule by increasing the look-through ownership threshold from 25 percent to 50 percent. Under the final regulations, the IRS would apply look-through treatment to a non-public domestic C-corporation if foreign persons hold directly or indirectly more than 50 percent of the fair market value of that corporation's outstanding stock. While the increase from 25 percent to 50 percent may be helpful from a REIT compliance perspective with respect to the determination and monitoring of domestically controlled REIT status, such increase is unlikely to offer much relief for real estate funds and joint ventures seeking to use a C-corporation to ensure a REIT qualifies as a domestically controlled REIT.   

3. New transition rule

Commentators highlighted that the proposed regulations could have had retroactive effect and asked for relief.  Under the final regulations, the Treasury Department provide a new transition rule that, for a ten-year period, exempts existing structures from the domestic C-corporation look-through rule, provided that such REITs do not undergo significant changes in shareholder ownership nor acquire a significant amount of new US real estate. Qualifying for the transition rule can be difficult especially for existing real estate funds or joint ventures that are still going through significant acquisitions. We recommend reviewing your real estate fund/joint venture structure with your REIT tax counsel.

4. REITs to certify as to domestically controlled REIT status?

Under the final regulations, a REIT may voluntarily provide a statement as to its domestically controlled REIT status to allow a transferor to certify to a transferee that no withholding is required upon a transfer of the shares. REITs may be hesitant to provide investors with such a certification due to the complexity of these rules.

Next steps

We recommend that real estate funds, joint ventures, and investors review the impact of the final regulations with their REIT tax counsel. Taxpayers may wish to discuss the following:

  • Application of the transition rule
  • Real estate fund and REIT subscription documents
  • Real estate fund side letter provisions, and
  • Due diligence and compliance procedures. 

Please refer to Appendix A for an illustration of the examples in the final regulations.


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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.