USRPIUnited States Real Property Interests
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* A domestic corporation, unless it is established that the corporation was not a USRPI property-holding corporation within the period described in Sec.
* Rental Income of Nonresident Aliens--Rental income derived from USRPI activity by an NRA can be either ECI or FDAP.
Nonetheless, the United States has made no attempt to tax nonresidents on gains realized on the transfers of foreign companies that themselves hold USRPI (including USRPHC shares).
The regulations provide that, in general, the term USRPI means any interest, other than an interest solely as a creditor, in either (i) real property located in the United States or the Virgin Islands, or (ii) a domestic corporation unless it is established that the corporation was not a U.S.
Before going further, it is important to determine what constitutes a USRPI. IRC section 897 (c)(1)(A) defines it as:
[section] 1445 imposes on a transferee (i.e., the buyer) the obligation to withhold when 1) the transferor of the property is a foreign person; and 2) the property transferred is a USRPI. (9) When withholding is required, the buyer of the USRPI generally must deduct and withhold 15 percent of the purchase price.
An interest in a domestic corporation can be a USRPI in its entirety if the domestic corporation is a U.S.
Upon disposition of USRPI, the withholding tax does not excuse the foreign investor to file U.S.
The general withholding rule is that, unless an exemption applies, whenever a foreign person disposes of a USRPI, the transferee of that interest must deduct and withhold a tax equal to 10% of the amount realized on the disposition.
Under this provision, any gain recognized by a foreign person on the disposition of a USRPI will be treated as if such gain were ECI and, therefore, subject to U.S.
897, which treats gain or loss from the disposition of a USRPI as effectively connected gain or loss, does not change the capital asset character of the USRPI itself.