Congress enacted the Foreign Investment in Real Property Tax Act (FIRPTA) in 1980 to impose U.S. income tax on certain foreign persons that invest in United States real property interests (USRPI). The FIRPTA tax is collected primarily through a withholding mechanism at the time of disposition of a USRPI. The recent enactment of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) made several important changes to the FIRPTA rules. The PATH Act raised the FIRPTA withholding rate, but the changes under the PATH Act generally were intended to make foreign investment in U.S. realty easier. Commentators have had mixed reactions as to the level that the PATH Act achieved its goals in this regard.

The PATH Act changes are summarized below. This is a general summary and it omits many details in the interest of brevity. The PATH Act changes include the following:

Withholding Rate. The rate has been increased from 10% to 15% of gross proceeds, with an exception for sales of personal residences if the purchase price does not exceed $1,000,000.

Foreign Pension Plan Exemption. Subject to detailed qualification rules, FIRPTA withholding no longer applies to dispositions of USRPIs held directly or indirectly by a foreign pension fund or to distributions from a real estate investment trust (REIT) to such a fund.

Qualified Investment Entities. Special FIRPTA rules apply to "qualified investment entities," which includes REITs and certain regulated investment companies (RICs) that constitute United States real property holding companies (USRPHC). USRPHCs are corporations that hold USRPIs that constitute 50% or more by value of its total business assets and worldwide real property. As a result of the PATH Act:

• The inclusion of RICs as qualified investment entities is permanently extended.
• The exclusions of publicly traded stock as a USRPI for holders of 5% or less of such stock has been increased to 10% solely in the case of REIT.
• A related exclusion that excludes from FIRPTA distributions from a publicly traded qualified investment entity for up to 5% shareholders now applies to shareholders holding up to 10%, also solely in the case of REIT.
• The exception from FIRPTA in the case of a USRPHC that has disposed of all its USRPI in taxable transactions now excludes dispositions of REIT and RIC stock from the exceptions.

Qualified Shareholders. FIRPTA will not apply to disposition of REIT stock by, or distributions from, a REIT attributable to dispositions of USRPI by the REIT to a "qualified shareholder" of a REIT, as specially defined. The qualified shareholder exception can apply whether or not the REIT is publicly traded.