Liquidating distribution foreign corporation
8 can be ambiguous and filled with traps for the unwary. 1445 is that the former treats gain or loss from the disposition of a USRPI as income effectively connected with a U. trade or business, thereby creating a tax liability under Sec. real property holding corporation (USRPHC) as defined in Sec.Consequently, because only a distribution made out of earnings and profits is a dividend, both a return of capital and a distribution in excess of capital (basis) are within the scope of Sec. The regulations potentially expand the withholding requirements to all domestic corporations (i.e., not just USRPHCs or former USRPHCs) by requiring the corporation to withhold if the foreign person’s interest in the corporation constitutes a USRPI under Sec. 1441 (including the withholding provisions of Secs. Alternatively, if the USRPHC or former USRPHC chooses to withhold under both Secs. It is important to note that if the USRPHC or former USRPHC does not obtain a withholding certificate prior to the distribution, it must withhold 10% of the return of capital and excess of capital distribution.
The relevant non-FIRPTA notice procedures for distributions described under Sec. Thus, the transferee would be the domestic corporation. Thus, to mitigate the risk of withholding (and interest and penalties), if the domestic corporation is a USRPHC or a former USRPHC, it must obtain a withholding certificate.Consequently, if the foreign shareholder does not establish that its interest in the domestic corporation is not a USRPI, the domestic corporation would be required to withhold 10% on the return of capital and excess of capital distribution under Sec.1445(e)(3), notwithstanding that the domestic corporation is not a current or former USRPHC. In general, the foreign shareholder may establish that the interest was not a USRPI as of the date of the disposition by requesting and obtaining a statement from the domestic corporation no later than the due date, including extensions, on which a tax return otherwise would be due, that its interest was not a USRPI (non-FIRPTA notice) as of the date of disposition.14, it must make a reasonable estimate of the portion of the distribution that constitutes a dividend and withhold 30% under Sec. 1445(e)(3) on the remainder of the distribution, or on such smaller portion based on a withholding certificate obtained in accordance with Regs. The above-described procedures apply by statute to domestic corporations that are current or former USRPHCs.However, the regulations expand the withholding requirements to all domestic corporations if the foreign shareholder’s interest in the corporation is a USRPI. 897(c)(1) establishes a statutory presumption that any interest (other than an interest solely as a creditor) in any domestic corporation is a USRPI unless the taxpayer establishes that the domestic corporation is not and was not a USRPHC during the relevant time frame.