FIRPTA

Section 897(a) requires foreign transferors of USRPIs (which includes stock in a US real property holding corporation (USRPHC)) to recognize gain or loss on such transfers and treat such gain or loss as effectively connected income.

Sections 897(d) and 897(e) generally provide that non-recognition provisions of the Code do not apply to a distribution or transfer of a USRPI, except to the extent provided in the regulations. Under Treas. Reg. § 1.897-6T(a)(1), a foreign person recognizes gain on the transfer of a USRPI unless it receives in the exchange a USRPI and satisfies certain other requirements, including detailed filing requirements ("FIRPTA Filing Requirement"). Under, Treas. Reg. § 1.897-5T(c)(4), as modified by Notice 89-95 and Notice 2006-46, a foreign corporation recognizes gain on distributions of stock of a USRPHC in certain inbound asset reorganizations, unless each of the following requirements are satisfied:

• Shareholders of the foreign distributing corporation would be taxed on the subsequent disposition of the stock of the USRPHC ("Subject-to-US-Tax Requirement");
• The foreign distributing corporation satisfies the FIRPTA Filing Requirement; and
• It pays a "FIRPTA Toll Charge" to the IRS.

These requirements were a disincentive to foreign corporations considering migrating into the United States.

F Reorganization

Section 368(a)(1)(F) provides that "a mere change in identity, form, or place of organization of one corporation, however effected" of a corporation is a tax-free reorganization ("F Reorganization"). An F Reorganization involves two actual or deemed transactions: (1) the transfer by a corporation ("Transferor Corporation") of all its assets to in exchange for the stock of another corporation ("Resulting Corporation"), followed by (2) the distribution by the transferor corporation of the stock of the resulting corporation to its shareholders in liquidation. Various Code sections provide nonrecognition treatment to each party involved in each transaction.

The FIRPTA regulations described above apply to the two transactions in an F Reorganization. Thus, prior to Notice 2025-45, a foreign transferor corporation holding a USRPI recognized gain with respect to the deemed transfer of the USRPI, unless the resulting domestic corporation was a USRPHC. If the resulting domestic corporation was a USRPHC, the foreign transferor corporation recognized gain on the deemed distribution to the extent that its shareholders failed to meet the Subject-to-US-Tax Requirement. Finally, even if the shareholders met that requirement, the foreign corporation may have been required to pay the FIRPTA Toll Charge.

As a result, the current rules served as an impediment to certain publicly-traded foreign corporations redomiciling into the United States. Publicly traded foreign corporations that own USRPIs faced a significant compliance burden to satisfy the FIRPTA Filing Requirement and to calculate the FIRPTA Toll Charge, because each rule required detailed information from its public shareholder base.

Relief under Notice 2025-45

The proposed regulations that will be issued under Notice 2025-45 should revise the various FIRPTA rules applicable to certain redomiciling transactions of publicly traded foreign corporations. The proposed regulations should apply to an F Reorganization where the transferor corporation is a publicly traded foreign corporation and the resulting corporation is a publicly traded domestic corporation ("Covered Inbound F Reorganization").

The proposed regulations should revise Treas. Reg. § 1.897-6T(a) to provide that, in a Covered Inbound F Reorganization, the foreign transferor corporation will generally not recognize gain or loss on the transfer of USRPIs to a resulting domestic corporation in exchange for stock of the resulting domestic corporation that is not a USRPI, provided the foreign transferor corporation satisfies the FIRPTA Filing Requirement. The proposed regulations should also revise Treas. Reg. § 1.897-5T(c)(4) such that its various requirements for nonrecognition generally do not apply with respect to public shareholders who own less than 5% of the foreign transferor corporation. Finally, the proposed regulations should also remove certain parts of the FIRPTA Filing Requirement.

The proposed regulations should also clarify that a disposition of stock in either the transferor corporation or the resulting corporation would not disqualify a potential F Reorganization from satisfying the "identity of the stock ownership" requirement. This clarification is of particular importance to publicly traded corporations undergoing an F Reorganization, as trading among public shareholders between the two transactions of the F Reorganization are common.

In sum, the proposed regulations should generally provide nonrecognition treatment to a Covered Inbound F Reorganization of a publicly traded foreign corporation that determines, based on reasonable efforts, that none of its public shareholders hold or have held during the applicable period more than 5% of its stock. Even if the publicly traded foreign corporation has such five-percent shareholders, the proposed regulations should ease the burden on the corporation of complying with the requirements under the FIRPTA rules.

Effective date

The proposed regulations are proposed to apply to distributions, transfers, or exchanges occurring on or after August 19, 2025. Taxpayers may rely on the Notice for transactions occurring on or after August 19, 2025 and before the proposed regulations are issued if they follow the rules in their entirety and in a consistent manner.