Page 50 - Withholding Taxes for Foreign Entities

10:50 - 14-Feb-2020
Page 48 of 55
Fileid: … tions/P515/2020/A/XML/Cycle10/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
transferee of the partnership interest must de- Disposition of REIT stock. Disposition of Exceptions. You do not have to withhold if any
duct and withhold 15% of the amount realized stock in a REIT that is held directly (or indirectly of the following apply.
on the disposition. through one or more partnerships) by a quali- 1. You (the transferee) acquire the property
fied shareholder may not be subject to withhold-
Trusts and estates. You are a withholding ing. See section 897(k)(2) for more information. for use as a residence and the amount re-
agent if you are a trustee, fiduciary, or executor alized (sales price) is not more than
of a trust or estate having one or more foreign Domestically controlled QIE. The sale of $300,000. You or a member of your family
beneficiaries. You must establish a U.S. real an interest in a domestically controlled QIE is must have definite plans to reside at the
property interest account. You enter in the ac- not the sale of a U.S. real property interest. The property for at least 50% of the number of
count all gains and losses realized during the entity is domestically controlled if at all times days the property is used by any person
tax year of the trust or estate from dispositions during the testing period less than 50% in value during each of the first two 12-month peri-
of U.S. real property interests. You must with- of its stock was held, directly or indirectly, by ods following the date of transfer. When
hold 21% on any distribution to a foreign benefi- foreign persons. The testing period is the counting the number of days the property
ciary that is attributable to the balance in the shorter of (a) the 5-year period ending on the is used, do not count the days the property
real property interest account on the day of the date of disposition, or (b) the period during will be vacant. For this exception, the
distribution. A distribution from a trust or estate which the entity was in existence. transferee must be an individual.
to a beneficiary (foreign or domestic) will be For the purpose of determining whether a 2. The property disposed of is an interest in a
treated as attributable first to any balance in the QIE is domestically controlled, the following domestic corporation and any class of
U.S. real property interest account and then to rules apply. stock of the corporation is regularly traded
other amounts. 1. A person holding less than 5% of any on an established securities market. How-
A trust with more than 100 beneficiaries may ever, this exception does not apply to cer-
elect to withhold from each distribution 21% of class of stock of a QIE which is regularly tain dispositions of substantial amounts of
traded on an established securities market
the amount attributable to the foreign benefi- in the United States at all times during the non-publicly traded interests in publicly
ciary's proportionate share of the current bal- testing period will be treated as a U.S. per- traded corporations.
ance of the trust's real property interest ac- son unless the QIE has actual knowledge
count. This election does not apply to publicly that such person is not a U.S. person. 3. The disposition is of an interest in a do-
traded trusts or REITs. For more information mestic corporation and that corporation
about this election, see Regulations section 2. Any stock in a QIE that is held by another furnishes you a certification stating, under
1.1445-5(c). QIE will be treated as held by a foreign penalties of perjury, that the interest is not
person if: a U.S. real property interest. In most ca-
Publicly traded partnership and trust inter- ses, the corporation can make this certifi-
ests. If any class of interest in a partnership or a. Any class of stock of such other QIE cation only if either of the following is true.
a trust is regularly traded on an established se- is regularly traded on an established • During the previous 5 years (or, if
curities market, any interest in such a partner- securities market, or shorter, the period the interest was
ship or trust will be treated as an interest in a b. Such other QIE is a RIC that issues held by its present owner), the corpo-
publicly traded corporation and will be subject certain redeemable securities. ration was not a USRPHC.
to the rules applicable to those interests. • As of the date of disposition, the inter-
Notwithstanding the above, the stock est in the corporation is not a U.S.
Qualified investment entities (QIEs). Spe- of the QIE will be treated as held by a U.S. real property interest by reason of
cial rules apply to QIEs. A QIE is: person if such other QIE is domestically section 897(c)(1)(B) of the Code. The
controlled.
1. A REIT, or 3. Stock in a QIE that is held by any other certification must be dated not more
than 30 days before the date of trans-
2. A RIC that is a U.S. real property holding QIE not described above will be treated as fer.
corporation. held by a U.S. person in proportion to the 4. The transferor gives you a certification
Look-through rule for QIEs. In most ca- stock ownership of such other QIE which stating, under penalties of perjury, that the
ses, any distribution from a QIE to a nonresi- is (or is treated as) held by a U.S. person. transferor is not a foreign person and con-
dent alien, foreign corporation, or other QIE that If a foreign shareholder in a domestically taining the transferor's name, U.S. TIN,
is attributable to the QIE's gain from the sale or controlled QIE disposes of an interest in the QIE and home address (or office address, in
exchange of a U.S. real property interest is trea- in an applicable wash sale transaction, special the case of an entity).
ted as gain recognized by the nonresident alien, rules apply. See section 897. The transferor can give the certification
foreign corporation, or other QIE from the sale to a qualified substitute. The qualified sub-
or exchange of a U.S. real property interest. Retirement and pension funds. A qualified stitute gives you a statement, under penal-
A distribution by a QIE to a nonresident alien foreign pension fund or any entity wholly owned ties of perjury, that the certification is in the
or foreign corporation that is treated as gain by such qualified foreign pension fund will not possession of the qualified substitute. For
from the sale or exchange of a U.S. real prop- be treated as a foreign person for dispositions this purpose, a qualified substitute is (a)
erty interest by the shareholder is subject to of U.S. real property interest or distributions re- the person (including any attorney or title
withholding at 21%. ceived from a REIT. Qualified foreign pension company) responsible for closing the
Certain exceptions apply to the look-through funds are described in section 897(l)(2). transaction, other than the transferor's
rule for distributions by QIEs. Any distribution by agent, and (b) the transferee's agent.
a QIE with respect to stock regularly traded on Additional information. For additional infor- 5. You receive a withholding certificate from
an established securities market in the United mation on the withholding rules that apply to the IRS that excuses withholding. See
States is not treated as gain from the sale or ex- corporations, trusts, estates, and qualified in- Withholding Certificates, later.
change of a U.S. real property interest if the vestment entities, see section 1445 of the Inter-
shareholder did not own more than 5% of that nal Revenue Code and the related regulations. 6. The transferor gives you written notice that
stock (or more than 10% of that stock in the For additional information on the withholding no recognition of any gain or loss on the
case of REITs) at any time during the 1-year pe- rules that apply to partnerships, see the previ- transfer is required because of a nonre-
riod ending on the date of the distribution. A dis- ous discussion. cognition provision in the Internal Revenue
tribution by a REIT generally is not treated as You also may write to the: Code or a provision in a U.S. tax treaty.
gain from the sale or exchange of a U.S. real You must file a copy of the notice by the
property interest if the shareholder is a qualified 20th day after the date of transfer with the
shareholder (as described in section 897(k)(3)). Internal Revenue Service Ogden Service Center, P.O. Box 409101,
These distributions may be included in the Philadelphia, PA 19255-0725 Ogden, UT 84409.
shareholder's gross income as a dividend from
the QIE, not as long-term capital gain.

Page 48 Publication 515 (2020)