Regulations section 1.1445-8 provides rules for withholding required on the disposition of a U.S. real property interest by a publicly traded trust or a REIT. The special rules of Regulations section 1.1445-8 only apply to distributions by a publicly traded trust or a REIT.
In general, when a publicly traded trust or a REIT makes a distribution to a foreign person attributable to the disposition of a U.S. real property interest, it must withhold tax under section 1445. However, this withholding liability is shifted to the person who pays the distribution to a foreign person (or to the account of the foreign person) if the special notice requirement of Regulations section 1.1445-8(f) and other requirements of Regulations section 1.1445-8(b)(1) are satisfied.
The amount subject to withholding for a distribution by a publicly traded trust is determined under the large trust rules of Regulations section 1.1445-5(c)(3).
The amount subject to withholding for a distribution by a trust or REIT generally is the amount of each share or beneficial interest designated by the trust or REIT as a capital gains dividend, multiplied by the number of shares or certificates of beneficial interests owned by a foreign person. If the withholding liability is shifted to the payer of the distribution under Regulations section 1.1445-8(b), the payer will receive notice as described in Regulations section 1.1445-8(f) of the amount of the distribution subject to withholding.
The rate of withholding is as follows:
- Distribution by a publicly traded trust that makes recurring sales of growing crops and timber - 10%.
- Distribution by a publicly traded trust not described in 1 above - 35%.
- Distribution by a REIT - 35%.
To determine whether an interest holder is a foreign person, see Regulations section 1.1445-8(e).
Use Form 1042-S (PDF) and 1042 (PDF) to report and pay over the withheld amounts. All other withholding required under section 1445 is reported and paid over using Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests (PDF), and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests (PDF).
Generally, any distribution from a qualified investment entity attributable to gain from the sale or exchange of a U.S. real property interest is treated as such gain by the nonresident alien individual or foreign corporation receiving the distribution. A distribution by a trust or REIT on stock regularly traded on a securities market in the United States is not treated as gain from the sale or exchange of a U. S. real property interest if the shareholder did not own more than 5% of that stock at any time during the trust or REIT's tax year. These distributions are included in the shareholder's gross income as a dividend from the trust or REIT, not as long-term capital gain. The rules of Regulations section 1.1461-4 control how and when to obtain refunds of overwithheld amounts. Thus, the early refund procedure in Regulations section 1.1445-6(g) does not apply to persons whose payments were withheld under Regulations section 1.1445-8.
References/Related Topics
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.
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