The U.S. Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-109826-17) regarding the section 897(l) exception from taxation with respect to a qualified foreign pension fund’s gain or loss on the disposition of certain interests in United States real property.
The proposed regulations [PDF 394 KB] also include rules for certifying that a qualified foreign pension fund is not subject to withholding on certain dispositions of, and distributions with respect to, certain United States real property interests (USRPIs).
Section 897(l), added to the Code in 2015, provides an exemption to the application of section 897(a) on gain or loss on certain dispositions of, and distributions with respect to, USRPIs for certain foreign pension funds and their subsidiaries.
Section 897(l)(1) provides that a qualified pension fund or an entity all of the interests in which are held by a qualified foreign pension fund is not treated as a nonresident alien or foreign corporation for purposes of section 897 and, thus, is exempt from section 897(a) on gain or loss from the disposition of a USRPI or the receipt of a distribution described in section 897(h).
Section 897(l)(2) defines a qualified foreign pension fund as a trust, corporation, or other organization or arrangement that satisfies five requirements.
The proposed regulations provide guidance regarding:
The proposed regulations are scheduled to appear in the Federal Register on June 7, 2019. Comments or requests for a public hearing are due 90 days after June 7, 2019.
The proposed regulations are viewed as generally providing helpful rules that interpret section 897(l) broadly and as providing foreign pension funds with greater certainty in determining qualified foreign pension fund status. The proposed regulations also provide a targeted anti-abuse rule.
The proposed regulations generally are proposed to apply to dispositions of USRPIs and distributions described in section 897(h) occurring on or after the date that the regulations finalizing the proposed regulations are published in the Federal Register. The anti-abuse provisions (discussed above) are proposed to apply to dispositions of USRPIs and distributions described in section 897(h) occurring on or after June 6, 2019 (presumably the date when the proposed regulations were filed for public inspection with the Federal Register).
The preamble states that a taxpayer may rely on the proposed regulations with respect to dispositions or distributions occurring on or after December 18, 2015, and prior to the effective date of the final regulations, provided that the taxpayer consistently and accurately complies with the rules in the proposed regulations.
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