Revenue Procedure 2010-13

by Aninda Dhar

Earlier this year, the IRS released Revenue Procedure 2010-13 which requires taxpayers to report activities for the purposes of the passive activity loss (PAL) rules designated by IRC Section 469 and Reg. Section 1.469-4. As part of their annual tax return, taxpayers must formally disclose in writing, new groupings and regroupings, and the addition and subtraction of specific activities within existent groupings. Pre-existing groupings need not be disclosed unless a change has been made because the initial grouping was "clearly inappropriate" or due to a change in underlying material facts and circumstances.

The new rules are effective for tax years beginning on or after January 25, 2010.

If you have any comments or questions regarding this post, please contact Ken Weissenberg or Aninda Dhar.

Google Becomes a Low-Income Housing Tax Credit (LIHTC) Investor

by Aninda Dhar

Google recently became an LIHTC investor in California. The web giant partnered with Union Bank, a syndicator, to finance two affordable housing projects for seniors.

Why would a web company like Google be interested in LIHTC and developing real estate?

The answer is simple: Investments such as LIHTC improve Google's bottom line and demonstrate the company's concern for social welfare. Google's financial benefit stems from tax credits it receives for its investment. The tax credits are used to offset Google's tax liability. Additionally, Google's investment benefits the company's public profile as a socially conscious business entity. Such a public perception may also translate benefits for the company.

Importantly, Google's foray clearly demonstrates that the LIHTC program is not merely for traditional real estate investors or the usual players. Various members of the corporate diaspora may avail themselves of this program. To learn more about the LIHTC program and other tax credits that can benefit your company's bottom line and perception in the public eye, read our article that appeared in the Metropolitan Corporate Council.

If you have any comments or questions regarding this post, please contact Ken Weissenberg or Aninda Dhar.

Real Estate Revitalization Act of 2010

by Aninda Dhar

Recently introduced legislation could make significant changes to the Foreign Investment in Real Property Tax Act ("FIRPTA"). The bill - H.R. 4539 - introduced by Rep. Joseph Crowley (D-NY) would effectively increase the attractiveness of U.S. real property investments to non- U.S. investors. From the U.S. perspective, additional potential benefits may include an influx of capital to U.S. real estate markets and reduce the need for debt-financing. From the foreign perspective, there would no longer be a penalty against foreigners that invest in U.S. real estate.

Currently, FIRPTA subjects non-U.S. investors to U.S. federal income tax (via withholding) on gain derived from the disposition of the United States Real Property Interests (USRPIs). USRPIs include both direct and indirect interests in U.S. real property. Inter alia, under the proposed bill, interests in United States Real Property Holding Corporations (USRPHCs) would not be considered USRPIs and would not be subject to FIRPTA.

In addition, the proposed bill would classify REIT capital gains and liquidating distributions to foreigners as ordinary dividends. Capital gain dividends would be treated the same as ordinary REIT dividends, subject to 30% withholding or a reduced rate if treaty benefits are available. REIT liquidating distributions would also be classified as ordinary dividends and subject to U.S. withholding to the extent the distribution exceeds the foreigner's basis in the REIT stock.

Read the text of the legislation.

If you have any comments or questions regarding this post, please contact Ken Weissenberg or Aninda Dhar.

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