In an earlier post today I linked to a story about a real estate company CEO’s comments on the impact of a tax ruling on capital inflows to the United States for real estate investment.
Just so you have it, here’s the ruling that I think he was referring to. Notice 2007-55.
The IRS is telling the world that it is going to issue regulations to plug what it perceives to be a loophole. Because you don’t want to chase the rabbit’s trail through the Internal Revenue Code, here’s the gist of the problem.
Foreign government investments can be tax-free in many situations. (Section 892 for all of you True Believers who want to read the Holy Bible Internal Revenue Code). Sovereign wealth funds have been buying minority pieces of REITs. Distributions from the REITs are claimed to be tax-exempt because of the exemption for foreign government investments.
The IRS is saying this is bogus.
This is up in the air at the moment. Some commentators have said that the IRS lacks the authority to plug this loophole (if it is one) and the change must come from Congress, if at all.
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