FIRPTA for RICs and REITs – Proposed Regulations Revoke “Look-through” Requirement for US Corporate Shareholders in Determining Domestic Control

On October 20, 2025, Treasury issued proposed regulations (the “New Proposed Regulations”) that allow REITs and RICs to more readily qualify as “domestically controlled” for purposes of Section 897 of the Internal Revenue Code, a statute commonly known as “FIRPTA.” The New Proposed Regulations modify regulations that were finalized in April 2024 (the “2024 Regulations”). Our alert on the 2024 Regulations is here. As explained in more detail below, the 2024 Regulations required that domestic control of a RIC or REIT be determined by “looking through” to certain domestic C corporate shareholders. The New Proposed Regulations revoke that look-through requirement.

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Under FIRPTA, a foreign person is generally subject to US federal income tax on any gain realized on the disposition of US real property and stock of domestic “United States real property holding corporations” (“USRPHCs”). However, this tax does not apply when a foreign person transfers an interest in a “qualified investment entity” (“QIE”) (including a RIC or a REIT) that is a USRPHC if the QIE is “domestically controlled.” Generally, a QIE is domestically controlled if less than 50% of the value of its equity interests is owned, directly or indirectly, by foreign persons during the applicable testing period.

For purposes of determining whether a QIE that is a USRPHC is “domestically controlled,” the 2024 Regulations proposed to disregard equity interests held by certain domestic entities classified as “look-through persons” and count instead the interests held indirectly by those entities’ direct or indirect holders. In what was a significant change from the prior rules, the 2024 Regulations included non-public domestic C corporations, more than 50% of the value of which is directly or indirectly owned by foreign persons, among the list of look-through persons.

Practitioners expressed concern that the requirement to look through to the direct and indirect shareholders of non-public domestic C corporations exceeded Treasury’s regulatory authority and would raise practical compliance difficulties. Acknowledging these concerns, the New Proposed Regulations would repeal that portion of the 2024 Regulations. As a result, all domestic C corporations will once again count as US persons for determining whether a QIE that is a USRPHC is domestically controlled.

Taxpayers are permitted to rely on the New Proposed Regulations for transactions occurring prior to the release of final regulations.

O’Melveny will be closely monitoring further developments in this area and can assist clients with analyzing and complying with the final regulations and any future guidance related to FIRPTA and US real property investors. Please contact the attorneys listed on this Client Alert or your O’Melveny counsel for questions regarding the information discussed herein.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Billy Abbott, an O’Melveny partner licensed to practice law in California and New York; Luc Moritz, an O’Melveny partner licensed to practice law in California; Alexander Anderson, an O’Melveny partner licensed to practice law in New York; Will Becker, an O’Melveny partner licensed to practice law in Texas; Jan Birtwell an O’Melveny partner licensed to practice law in England & Wales; and Arsalan Memon, an O’Melveny associate licensed to practice law in California, New Jersey, and New York,, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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