26 U.S.C. § 897: Disposition of investment in United States real property

in the case of a nonresident alien individual, under section 871(b)(1), or in the case of a foreign corporation, under section 882(a)(1), the individual’s alternative minimum taxable income (as defined in section 55(b)(1)(D)) for the taxable year, or the individual’s net United States real property gain for the taxable year. the aggregate of the gains for the taxable year from dispositions of United States real property interests, over the aggregate of the losses for the taxable year from dispositions of such interests. In the case of an individual, a loss shall be taken into account under subsection (a) only to the extent such loss would be taken into account under section 165(c) (determined without regard to subsection (a) of this section). an interest in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the Virgin Islands, and the period after June 18, 1980 , during which the taxpayer held such interest, or the 5-year period ending on the date of the disposition of such interest. as of the date of the disposition of such interest, such corporation did not hold any United States real property interests, were disposed of in transactions in which the full amount of the gain (if any) was recognized, or ceased to be United States real property interests by reason of the application of this subparagraph to 1 or more other corporations, and neither such corporation nor any predecessor of such corporation was a regulated investment company or a real estate investment trust at any time during the shorter of the periods described in subparagraph (A)(ii). the fair market value of its United States real property interests equals or exceeds 50 percent of its United States real property interests, its interests in real property located outside the United States, plus any other of its assets which are used or held for use in a trade or business. If any class of stock of a corporation is regularly traded on an established securities market, stock of such class shall be treated as a United States real property interest only in the case of a person who, at some time during the shorter of the periods described in paragraph (1)(A)(ii), held more than 5 percent of such class of stock. Paragraph (1)(A)(ii) shall be applied by substituting “any corporation (whether foreign or domestic)” for “any domestic corporation”. Under regulations prescribed by the Secretary, assets held by a partnership, trust, or estate shall be treated as held proportionately by its partners or beneficiaries. Any asset treated as held by a partner or beneficiary by reason of this subparagraph which is used or held for use by the partnership, trust, or estate in a trade or business shall be treated as so used or held by the partner or beneficiary. Any asset treated as held by a partner or beneficiary by reason of this subparagraph shall be so treated for purposes of applying this subparagraph successively to partnerships, trusts, or estates which are above the first partnership, trust, or estate in a chain thereof. the stock which the first corporation holds in the second corporation shall not be taken into account, the first corporation shall be treated as holding a portion of each asset of the second corporation equal to the percentage of the fair market value of the stock of the second corporation represented by the stock held by the first corporation, and any asset treated as held by the first corporation by reason of clause (ii) which is used or held for use by the second corporation in a trade or business shall be treated as so used or held by the first corporation. For purposes of subparagraph (A), the term “controlling interest” means 50 percent or more of the fair market value of all classes of stock of a corporation. The term “interest in real property” includes fee ownership and co-ownership of land or improvements thereon, leaseholds of land or improvements thereon, options to acquire land or improvements thereon, and options to acquire leaseholds of land or improvements thereon. The term “real property” includes movable walls, furnishings, and other personal property associated with the use of the real property. For purposes of determining under paragraph (3) whether any person holds more than 5 percent of any class of stock and of determining under paragraph (5) whether a person holds a controlling interest in any corporation, section 318(a) shall apply (except that paragraphs (2)(C) and (3)(C) of section 318(a) shall be applied by substituting “5 percent” for “50 percent”). Except to the extent otherwise provided in regulations, notwithstanding any other provision of this chapter, gain shall be recognized by a foreign corporation on the distribution (including a distribution in liquidation or redemption) of a United States real property interest in an amount equal to the excess of the fair market value of such interest (as of the time of the distribution) over its adjusted basis. at the time of the receipt of the distributed property, the distributee would be subject to taxation under this chapter on a subsequent disposition of the distributed property, and the basis of the distributed property in the hands of the distributee is no greater than the adjusted basis of such property before the distribution, increased by the amount of gain (if any) recognized by the distributing corporation, or if such nonrecognition is provided in regulations prescribed by the Secretary under subsection (e)(2). Except to the extent otherwise provided in subsection (d) and paragraph (2) of this subsection, any nonrecognition provision shall apply for purposes of this section to a transaction only in the case of an exchange of a United States real property interest for an interest the sale of which would be subject to taxation under this chapter. the extent to which nonrecognition provisions shall, and shall not, apply for purposes of this section, and transfers of property in reorganization, and changes in interests in, or distributions from, a partnership, trust, or estate, For purposes of this subsection, the term “nonrecognition provision” means any provision of this title for not recognizing gain or loss. Under regulations prescribed by the Secretary, the amount of any money, and the fair market value of any property, received by a nonresident alien individual or foreign corporation in exchange for all or part of its interest in a partnership, trust, or estate shall, to the extent attributable to United States real property interests, be considered as an amount received from the sale or exchange in the United States of such property. Any distribution by a qualified investment entity to a nonresident alien individual, a foreign corporation, or other qualified investment entity shall, to the extent attributable to gain from sales or exchanges by the qualified investment entity of United States real property interests, be treated as gain recognized by such nonresident alien individual, foreign corporation, or other qualified investment entity from the sale or exchange of a United States real property interest. Notwithstanding the preceding sentence, any distribution by a qualified investment entity to a nonresident alien individual or a foreign corporation with respect to any class of stock which is regularly traded on an established securities market located in the United States shall not be treated as gain recognized from the sale or exchange of a United States real property interest if such individual or corporation did not own more than 5 percent of such class of stock at any time during the 1-year period ending on the date of such distribution. The term “United States real property interest” does not include any interest in a domestically controlled qualified investment entity. In the case of a domestically controlled qualified investment entity, rules similar to the rules of subsection (d) shall apply to the foreign ownership percentage of any gain. any real estate investment trust, and any regulated investment company which is a United States real property holding corporation or which would be a United States real property holding corporation if the exceptions provided in subsections (c)(3) and (h)(2) did not apply to interests in any real estate investment trust or regulated investment company. The term “domestically controlled qualified investment entity” means any qualified investment entity in which at all times during the testing period less than 50 percent in value of the stock was held directly or indirectly by foreign persons. The term “foreign ownership percentage” means that percentage of the stock of the qualified investment entity which was held (directly or indirectly) by foreign persons at the time during the testing period during which the direct and indirect ownership of stock by foreign persons was greatest. the period beginning on June 19, 1980 , and ending on the date of the disposition or of the distribution, as the case may be, the 5-year period ending on the date of the disposition or of the distribution, as the case may be, or the period during which the qualified investment entity was in existence. in the case of any class of stock of the qualified investment entity which is regularly traded on an established securities market in the United States, a person holding less than 5 percent of such class of stock at all times during the testing period shall be treated as a United States person unless the qualified investment entity has actual knowledge that such person is not a United States person, any class of stock of which is regularly traded on an established securities market, or which is a regulated investment company which issues redeemable securities (within the meaning of section 2 of the Investment Company Act of 1940), any stock in the qualified investment entity held by any other qualified investment entity not described in subclause (I) or (II) of clause (ii) shall only be treated as held by a United States person in proportion to the stock of such other qualified investment entity which is (or is treated under clause (ii) or (iii) as) held by a United States person. If an interest in a domestically controlled qualified investment entity is disposed of in an applicable wash sale transaction, the taxpayer shall, for purposes of this section, be treated as having gain from the sale or exchange of a United States real property interest in an amount equal to the portion of the distribution described in subparagraph (B) with respect to such interest which, but for the disposition, would have been treated by the taxpayer as gain from the sale or exchange of a United States real property interest under paragraph (1). disposes of an interest in a domestically controlled qualified investment entity during the 30-day period preceding the ex-dividend date of a distribution which is to be made with respect to the interest and any portion of which, but for the disposition, would have been treated by the taxpayer as gain from the sale or exchange of a United States real property interest under paragraph (1), and acquires, or enters into a contract or option to acquire, a substantially identical interest in such entity during the 61-day period beginning with the 1st day of the 30-day period described in subclause (I). any substitute dividend payment (within the meaning of section 861), or any other similar payment specified in regulations which the Secretary determines necessary to prevent avoidance of the purposes of this paragraph. A transaction shall not be treated as an applicable wash sales transaction if the nonresident alien individual, foreign corporation, or qualified investment entity receives the distribution described in clause (i)(I) with respect to either the interest which was disposed of, or acquired, in the transaction. A transaction shall not be treated as an applicable wash sales transaction if it involves the disposition of any class of stock in a qualified investment entity which is regularly traded on an established securities market within the United States but only if the nonresident alien individual, foreign corporation, or qualified investment entity did not own more than 5 percent of such class of stock at any time during the 1-year period ending on the date of the distribution described in clause (i)(I). a foreign corporation holds a United States real property interest, and under any treaty obligation of the United States the foreign corporation is entitled to nondiscriminatory treatment with respect to that interest, Any election under paragraph (1), once made, may be revoked only with the consent of the Secretary. if all of the owners of all classes of interests (other than interests solely as a creditor) in the foreign corporation at the time of the election consent to the making of the election and agree that gain, if any, from the disposition of such interest after June 18, 1980 , which would be taken into account under subsection (a) shall be taxable notwithstanding any provision to the contrary in a treaty to which the United States is a party, and subject to such other conditions as the Secretary may prescribe by regulations with respect to the corporation or its shareholders. The election provided by paragraph (1) shall be the exclusive remedy for any person claiming discriminatory treatment with respect to this section, section 1445, and section 6039C. the fair market value of such property transferred, over the adjusted basis of such property in the hands of the transferor, plus the amount of gain, if any, recognized to the transferor under any other provision at the time of the transfer. In the case of any disposition of stock in a real estate investment trust, paragraphs (3) and (6)(C) of subsection (c) shall each be applied by substituting “more than 10 percent” for “more than 5 percent”. In the case of any distribution from a real estate investment trust, subsection (h)(1) shall be applied by substituting “10 percent” for “5 percent”. stock of a real estate investment trust which is held directly (or indirectly through 1 or more partnerships) by a qualified shareholder shall not be treated as a United States real property interest, and notwithstanding subsection (h)(1), any distribution to a qualified shareholder shall not be treated as gain recognized from the sale or exchange of a United States real property interest to the extent the stock of the real estate investment trust held by such qualified shareholder is not treated as a United States real property interest under clause (i). subparagraph (A)(i) shall not apply to the applicable percentage of the stock of the real estate investment trust held by the qualified shareholder, and the applicable percentage of the amounts realized by the qualified shareholder with respect to any disposition of stock in the real estate investment trust or with respect to any distribution from the real estate investment trust attributable to gain from sales or exchanges of a United States real property interest shall be treated as amounts realized from the disposition of United States real property interests. in the case of an applicable investor, subparagraph (B) shall apply with respect to such distribution, and in the case of any other person, such distribution shall be treated under section 857(b)(3)(F) 1 as a dividend from a real estate investment trust notwithstanding any other provision of this title. 1 See References in Text note below. holds an interest (other than an interest solely as a creditor) in such qualified shareholder, and holds more than 10 percent of the stock of such real estate investment trust (whether or not by reason of the person’s ownership interest in the qualified shareholder). For purposes of subparagraphs (B)(i) and (D), the constructive ownership rules under subsection (c)(6)(C) shall apply. For purposes of subparagraph (B), the term “applicable percentage” means the percentage of the value of the interests (other than interests held solely as a creditor) in the qualified shareholder held by applicable investors. is eligible for benefits of a comprehensive income tax treaty with the United States which includes an exchange of information program and the principal class of interests of which is listed and regularly traded on 1 or more recognized stock exchanges (as defined in such comprehensive income tax treaty), or is a foreign partnership that is created or organized under foreign law as a limited partnership in a jurisdiction that has an agreement for the exchange of information with respect to taxes with the United States and has a class of limited partnership units which is regularly traded on the New York Stock Exchange or Nasdaq Stock Market and such class of limited partnership units value is greater than 50 percent of the value of all the partnership units, is a qualified collective investment vehicle, and maintains records on the identity of each person who, at any time during the foreign person’s taxable year, holds directly 5 percent or more of the class of interest described in subclause (I) or (II) of clause (i), as the case may be. is eligible for benefits under the comprehensive income tax treaty described in subparagraph (A)(i)(I), but only if the dividends article of such treaty imposes conditions on the benefits allowable in the case of dividends paid by a real estate investment trust, and is eligible under such treaty for a reduced rate of withholding with respect to ordinary dividends paid by a real estate investment trust even if such person holds more than 10 percent of the stock of such real estate investment trust, is a publicly traded partnership (as defined in section 7704(b)) to which subsection (a) of section 7704 does not apply, is a withholding foreign partnership for purposes of chapters 3, 4, and 61, and if such foreign partnership were a domestic corporation, would be a United States real property holding corporation (determined without regard to paragraph (1)) at any time during the 5-year period ending on the date of disposition of, or distribution with respect to, such partnership’s interests in a real estate investment trust, or fiscally transparent within the meaning of section 894, or required to include dividends in its gross income, but entitled to a deduction for distributions to persons holding interests (other than interests solely as a creditor) in such foreign person. such partner’s distributive share of the amount of gain taken into account under subsection (a)(1) by the partner for the taxable year (determined without regard to this paragraph) shall be increased by the amount of such excess, and such partner’s distributive share of items of income or gain for the taxable year that are not treated as gain taken into account under subsection (a)(1) (determined without regard to this paragraph) shall be decreased (but not below zero) by the amount of such excess. any gain recognized from the disposition of a United States real property interest, and any distribution by a real estate investment trust that is treated as gain recognized from the sale or exchange of a United States real property interest, over any loss recognized from the disposition of a United States real property interest. For purposes of this paragraph, an applicable investor’s proportionate share of USRPI gain shall be determined on the basis of such investor’s share of partnership items of income or gain (excluding gain allocated under section 704(c)), whichever results in the largest proportionate share. If the investor’s share of partnership items of income or gain (excluding gain allocated under section 704(c)) may vary during the period such investor is a partner in the partnership, such share shall be the highest share such investor may receive. For purposes of this section, a qualified foreign pension fund shall not be treated as a nonresident alien individual or a foreign corporation. For purposes of the preceding sentence, an entity all the interests of which are held by a qualified foreign pension fund shall be treated as such a fund. which is created or organized under the law of a country other than the United States, by such country (or one or more political subdivisions thereof) to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (including self-employed individuals) or persons designated by such employees, as a result of services rendered by such employees to their employers, or by one or more employers to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (including self-employed individuals) or persons designated by such employees in consideration for services rendered by such employees to such employers, which does not have a single participant or beneficiary with a right to more than five percent of its assets or income, which is subject to government regulation and with respect to which annual information about its beneficiaries is provided, or is otherwise available, to the relevant tax authorities in the country in which it is established or operates, and contributions to such trust, corporation, organization, or arrangement which would otherwise be subject to tax under such laws are deductible or excluded from the gross income of such entity or arrangement or taxed at a reduced rate, or taxation of any investment income of such trust, corporation, organization or arrangement is deferred, or such income is excluded from the gross income of such entity or arrangement or is taxed at a reduced rate. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection. The amendments made by this section [amending this section] shall take effect on January 1, 2015 . Notwithstanding the preceding sentence, such amendments shall not apply with respect to the withholding requirement under section 1445 of the Internal Revenue Code of 1986 for any payment made before the date of the enactment of this Act [ Dec. 18, 2015 ]. which makes a distribution after December 31, 2014 , and before the date of the enactment of this Act, and which would (but for the second sentence of paragraph (1)) have been required to withhold with respect to such distribution under section 1445 of such Code, The amendments made by subsection (b)(1) [amending this section] shall apply with respect to testing periods (as defined in section 897(h)(4)(D) of the Internal Revenue Code of 1986) ending on or after the date of the enactment of this Act [ Dec. 18, 2015 ].” The amendment made by this section [amending this section] shall take effect on January 1, 2014 . Notwithstanding the preceding sentence, such amendment shall not apply with respect to the withholding requirement under section 1445 of the Internal Revenue Code of 1986 for any payment made before the date of the enactment of this Act [ Dec. 19, 2014 ]. which makes a distribution after December 31, 2013 , and before the date of the enactment of this Act, and which would (but for the second sentence of paragraph (1)) have been required to withhold with respect to such distribution under section 1445 of such Code, The amendment made by subsection (a) [amending this section] shall take effect on January 1, 2012 . Notwithstanding the preceding sentence, such amendment shall not apply with respect to the withholding requirement under section 1445 of the Internal Revenue Code of 1986 for any payment made before the date of the enactment of this Act [ Jan. 2, 2013 ]. which makes a distribution after December 31, 2011 , and before the date of the enactment of this Act; and which would (but for the second sentence of paragraph (1)) have been required to withhold with respect to such distribution under section 1445 of such Code, The amendment made by subsection (a) [amending this section] shall take effect on January 1, 2010 . Notwithstanding the preceding sentence, such amendment shall not apply with respect to the withholding requirement under section 1445 of the Internal Revenue Code of 1986 for any payment made before the date of the enactment of this Act [ Dec. 17, 2010 ]. which makes a distribution after December 31, 2009 , and before the date of the enactment of this Act [ Dec. 17, 2010 ]; and which would (but for the second sentence of paragraph (1)) have been required to withhold with respect to such distribution under section 1445 of such Code, The amendment made by subsection (a) [amending this section] shall take effect on January 1, 2008 . Notwithstanding the preceding sentence, such amendment shall not apply with respect to the withholding requirement under section 1445 of the Internal Revenue Code of 1986 for any payment made before October 4, 2008 . which makes a distribution after December 31, 2007 , and before October 4, 2008 , and which would (but for the second sentence of paragraph (1)) have been required to withhold with respect to such distribution under section 1445 of such Code, Except as provided in subsection (b), the amendments made by this subtitle [subtitle C (§§ 1121–1125) of title XI of Pub. L. 96–499 , enacting this section and provisions set out as notes under this section, and amending sections 861, 871, 882 of this title] shall apply to dispositions after June 18, 1980 . The amendments made by section 1123 [enacting section 6039C of this title and amending section 6652 of this title ] shall apply to 1980 and subsequent calendar years. In applying such amendments to 1980, such calendar year shall be treated as beginning on June 19, 1980 , and ending on December 31, 1980 .” such United States real property holding company is a Delaware corporation incorporated on January 17, 1984 , the transfer, sale, exchange, or other disposition is to any member of a qualified ownership group, the recipient of the share of stock elects, for purposes of such section 897, a carryover basis in the transferred shares, the transfer, sale, exchange, or other disposition is part of a single integrated plan, whereby the stock of the corporation described in paragraph (1) becomes owned directly by the 2 corporations specifically referred to in subsection (b) or by such 2 corporations and by 1 or both of their jointly owned direct subsidiaries, within 20 days after each transfer, sale, exchange, or other disposition, the person making such transfer, sale, exchange, or other disposition notifies the Internal Revenue Service of the transaction, the date of the transaction, the basis of the stock involved, the holding period for such stock, and such other information as the Internal Revenue Service may require, and the integrated plan is completed before the date 4 years after the date of the enactment of the Technical and Miscellaneous Revenue Act of 1988 [ Nov. 10, 1988 ]. For purposes of this section, the term ‘member of a qualified ownership group’ means a corporation incorporated on June 16, 1890 , under the laws of the Netherlands or a corporation incorporated on October 18, 1897 , under the laws of the United Kingdom or any corporation owned directly or indirectly by either or both such corporations. The provisions of this section shall take effect on the date of the enactment of this section [ Oct. 22, 1986 ].” Except as provided in paragraph (2), after December 31, 1984 , nothing in section 894(a) or 7852(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] or in any other provision of law shall be treated as requiring, by reason of any treaty obligation of the United States, an exemption from (or reduction of) any tax imposed by section 871 or 882 of such Code on a gain described in section 897 of such Code. any treaty (hereinafter in this paragraph referred to as the ‘old treaty’) is renegotiated to resolve conflicts between such treaty and the provisions of section 897 of the Internal Revenue Code of 1986, and the new treaty is signed on or after January 1, 1981 , and before January 1, 1985 , In the case of any disposition after December 31, 1979 , of a United States real property interest (as defined in section 897(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) to a related person (within the meaning of section 453(f)(1) of such Code), the basis of the interest in the hands of the person acquiring it shall be reduced by the amount of any nontaxed gain. because the disposition occurred before June 19, 1980 , or because of any treaty obligation of the United States.”