The Foreign Investment in Real Property Tax Act (FIRPTA) was established in 1980 to ensure foreign investors paid a tax on any gains when selling American real estate, a concern to any foreign-based entity looking to invest in American real estate. Since then, new policies have alleviated many concerns foreign investors had under FIRPTA.
However, the IRS issued a notice in 2008 to broaden the scope of FIRPTA. Foreign investment in infrastructure projects like toll roads, bridges and wind farms would likely face significant double taxation on capital gains, even though these investors are already paying their fair share of U.S. federal and state taxes as corporations. The U.S. has had a long standing tax policy stating that foreign-owned companies do not pay a capital gains tax since these gains are considered, by the U.S. government, to be within the taxing province of the home country government.
By expanding FIRPTA in a way that would double tax investments in these projects, the IRS risks undermining increased investments in infrastructure. The IRS notice is not a finalized rule for interpreting the application of FIRPTA and OFII has submitted detailed comments making the case for a reconsideration of this policy shift. It is not yet clear when a final decision will be made by the IRS. OFII supports the Real Estate Investment and Jobs Act (H.R. 2870), sponsored by Representatives Kevin Brady and Joe Crowley, which would fix this longstanding problem.
Comment Letter to IRS, January 2009