USRPHCUnited States Real Property Holding Company
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However, if an interest in a publicly traded partnership or trust was owned by a foreign person with a greater than 5% interest at any time during the previous five-year period, then that interest is a USRP interest (if the partnership or trust would otherwise qualify as a USRPHC if it were a corporation), and the disposition is subject to withholding (Regs.
real property holding corporations (USRPHCs), which are corporations with a majority of assets consisting of USRP interests.
With respect to a synthetic long position, the following example illustrates how an equity swap with respect to the stock of USRPHC (5) generally would operate: Assume a foreign investor, who believes that the value of hotels in the South Florida area will appreciate over the next several years, would like to invest in the stock of South Beach, Inc.
Given that the investor's long position in the swap is equivalent economically to a leveraged purchase of the underlying stock in the USRPHC, the issue arises whether Code [section] 897 applies to the investor when such position is disposed of 2 The IRS could assert two alternative arguments in attempting to apply Code [section] 897 to the investor's long position in the swap 1) the investor's position in the swap is itself a USRPI, or 2) that the investor should be treated as owning the underlying USRPHC stock under common law principles.
Nevertheless, because the long party in an equity swap with respect to the stock of a USRPHC is entitled to receive all of the appreciation in the underlying property, the IRS may argue that the investor has "a right to share in the appreciation" in the underlying property.
A USRPHC or former USRPHC that chooses to withhold only under Sec.
Thus, to mitigate the risk of withholding (and interest and penalties), if the domestic corporation is a USRPHC or a former USRPHC, it must obtain a withholding certificate.
(6) Also, a domestic corporation generally is presumed to be a USRPHC unless the taxpayer establishes that such corporation was at no time a USRPHC during the relevant period (i.e., the shorter of the period the taxpayer held such interest or the five-year period ending on the date of such interest's disposition).
A domestic corporation generally will be considered a USRPHC if the fair market value (FMV) of the USRPIs held by the domestic corporation on any applicable determination date equals or exceeds 50% of the sum of the FMV of its USRPIs, its interests in real property located outside the United States, and any other of its assets used or held for use in a trade or business.
Specifically, for purposes of determining whether a corporation is a USRPHC, if a (controlling) corporation holds a controlling interest in a second (controlled) corporation:
Thus, the controlled corporation's liquid assets are disregarded entirely for purposes of determining whether the controlling corporation is a USRPHC.