Overview
- The Oct. 20, 2025 proposed regulations would eliminate the requirement to look through foreign‑controlled domestic C corporations when testing domestically controlled REIT status under Section 897.
- Taxpayers may rely on the proposal immediately, and if finalized, the rules would apply prospectively from finalization with optional retroactive application to transactions on or after April 25, 2024.
- Treasury and the IRS cited extensive public comments and determined that mandatory shareholder tracing through domestic corporations was not the best interpretation and created impracticable compliance burdens.
- Other elements of the 2024 final regulations remain in place, including look‑through rules for partnerships, S corporations and certain non‑public REITs, and the treatment of qualified foreign pension funds as foreign persons.
- The reversion aligns with prior market practice reflected in a 2009 private letter ruling and is expected to simplify structuring for foreign investment in U.S. real estate.