The information presented is only of a general nature, intended simply as background material, is current only as of the latest revision date, October 15, 2007, omits many details and special rules and cannot be regarded as legal or tax advice.

Internal Revenue Code § 897

U.S. nonresidents and foreign corporations are subject to U.S. tax on gains from dispositions of "United States real property interests," which include stock in a "United States real property holding corporation."

The nonrecognition of gain generally applicable to shareholders in a reorganization is not available to U.S. nonresident and foreign corporate shareholders in United States real property holding corporations unless those shareholders receive in the reorganization stock in another United States real property holding corporation. In other words, gain is not recognized if the potential for taxation under FIRPTA is preserved.

Example. T is a United States real property holding corporation but A, after the merger of T into A, is not. In that merger, a T shareholder who is a U.S. nonresident will recognize gain, but not loss, equal to the difference between the value of the A stock received and the basis of the T stock surrendered, even though the merger constitutes an A reorganization.

Where the shareholder receives a combination of U.S. real property holding corporation stock and other property, the transaction is fragmented into its U.S. realty and nonrealty components (based upon the relative fair market value of the consideration received).

© 2005