The Senate Report explained that the 5% Exception was meant to remove “from treatment as effectively connected income for a foreign investor a capital gain distribution from a REIT” and justified it as a means to “provide greater conformity in the tax consequences of REIT distributions and other corporate stock distributions.” The use of the language “capital gain distribution from a REIT” would suggest that the Senate Report was referring to capital gains dividends, rather than liquidating distributions and that the distributions to which the 5% Exception (and, thus, Code Sec. 857(b)(3)(F), enacted at the same time as the 5% Exception, which recasts distributions subject to the 5% Exception as ordinary dividends, applies only to the amount which would be considered capital gain dividends (and not liquidating distributions). 897(h)(1) is applied in accordance with the Notice, a non-U. shareholder to which the 5% Exception applied on a liquidating distribution would not be subject to FIRPTA tax nor would the distribution be subject to withholding as an ordinary dividend under Code Sec. This disparity in treatment would suggest again that Congress did not intend Code Sec. To not treat liquidating distributions as ordinary dividend income subject to Code Sec. Such inconsistencies would not exist if liquidating distributions from a DCR were treated consistently with the provisions of Subchapter C of the Code.897(h)(1)) applied were not liquidating distributions. 897(h)(1) also fosters the goal of greater conformity in the tax consequences of REIT distributions and other corporate stock dividends stated under the Senate Report. shareholder could be subject to branch profits tax on liquidating distributions. Although liquidating distributions to domestic shareholders are generally treated as a sale of stock and are exempt from FIRPTA taxation, as discussed above, the same distributions to non-U. The legislative history behind FIRPTA and the 2003 amendment to the language of Code Sec. In particular, the legislative history of Code Sec. shareholder “would be treated as gain on the sale of U. real property to the extent of the shareholders’ pro rata share of the net capital gain of the REIT.” Such language is instructive, as “net capital gain” in the context of the REIT rules under the Code and Treasury Regulations is used in reference to capital gain dividends rather than liquidating distributions. 857(b)(3)(C), a REIT is permitted to designate as “capital gain dividends” its regular dividends, up to the amount of its “net capital gain” for the year. person (including a foreign corporation) is generally subject to the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). 897(h)(1) or being exempt from taxation under Code Sec. Such regulations, if issued, would apply to distributions occurring on or after June 13, 2007.
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Therefore, the use of “net capital gain” in the Congressional Report would suggest that Congress did not intend for Code Sec. The accompanying 2003 Senate Report to the amendment to Code Sec. 897(h)(1) was not intended to apply to liquidating distributions from DCRs. 897(h)(1), a distribution by a qualified investment entity with respect to any publicly traded class of stock is not treated as gain recognized from the sale or exchange of a USRPI if the non-U. shareholder owned 5% or less of such class of stock during the one-year period ending on the date of such distribution (the “5% Exception”). 897(h)(1) suggests an intent to treat liquidating distributions from DCRs as exempt from U. 897(h)(1) suggests that Congress viewed capital gain dividends, rather than liquidating distributions, as the tax base for Code Sec. The Congressional Report accompanying the original FIRPTA legislation states that, under Code Sec. The rule does not, however, permit any liquidating distributions to be treated as “capital gain dividends.” This complies with the general treatment of liquidating distributions under Subchapter C of the Code as an amount paid by a liquidating corporation to its shareholders in exchange for their stock rather than a dividend.Historical results and trends should not be taken as indicative of future operations.Our statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.As such, Notice 2007-55 creates an inherent conflict in interpretation of the two sections. 897(h)(1) should be read in a manner that would remove any inherent inconsistency in interpretation by treating the liquidation (, deemed sale) of a non-U. shareholders shares in a DCR as outside the scope of Code Sec. 897(h)(1), it would have presumably used a similar qualifier to specify their inclusion. 1445 and the applicable regulations under it also support the inference that liquidating distributions from a DCR should be exempt from U. 897(h)(1) through the specific language of Code Sec. Actual results may differ materially from those included in the forward-looking statements.We intend those forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.In interpreting the language of a statute, “[a] basic rule of statutory construction is that a statute should not be read to create an internal inconsistency.” Although Code Sec. A similar conclusion can be drawn from the language of Treas. The treasury regulation states that the amount subject to withholding is the amount which the REIT has designated as a “capital gain dividend.” The treasury regulation makes no reference to withholding on any amounts from a liquidating distribution, nor do the preambles to the temporary or final regulations make any reference to distributions outside of those designated as “capital gain dividends.” Therefore, “the measure of withholding (and, by inference, the measure of the foreign shareholder’s substantive tax liability) adopted by Treas. 897(h)(1) is applied to liquidating distributions from DCRs to non-U. shareholders, such shareholders could avoid the tax by selling their shares to a domestic buyer prior to the liquidation free of FIRPTA tax under Code Sec. Conversely, if such a DCR were to sell its underlying property to the buyer and then distribute the sales proceeds to a non-U. shareholder in complete liquidation of the REIT, such distributions would be taxable under Code Sec. 897(h)(1) provides for the taxation of “any distribution” by a REIT to a non-U. shareholder to the extent attributable to gain from the sale of a USRPI by the REIT, Code Sec. 1445 provides rules for withholding on the disposition of USRPIs, with subsection (e) providing special rules for certain types of distributions. 1445(e)(3), dealing with distributions by domestic corporations which are current or former USRPHC, requires that on a distribution of property by such a corporation to a non-U. shareholder in, among other things, a liquidating distribution, the corporation must withhold 10% of the “amount realized” by the former shareholder. 1445(e)(3), if the position taken in the Notice is nonetheless applied, a conflict exists between Code Sec. 1445(e)(6) in that both provisions would apply simultaneously on a liquidating distribution if the REIT shares are treated as a USRPI in the hands of the non-U.