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Instructions for Form 1042-S
taxmap/instr2/i1042s-008.htm#en_us_publink64278ad0e1310

taxmap/instr2/i1042s-008.htm#TXMP32b8ec06
Withholding on Dispositions of U.S. Real Property Interests by Publicly Traded Trusts and Qualified Investment Entities (QIEs)(p9)

rule
taxmap/instr2/i1042s-008.htm#TXMR65905464
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Publicly traded trusts.(p9)
rule
In general, when a publicly traded trust makes a distribution to a foreign person attributable to the disposition of a U.S. real property interest, it must withhold tax under section 1445. However, this withholding liability is shifted to the person who pays the distribution to a foreign person (or to the account of the foreign person) if the special notice requirement of Regulations section 1.1445-8(f) and other requirements of Regulations section 1.1445-8(b)(1) are satisfied.
The amount subject to withholding for a distribution by a publicly traded trust is determined under the rules of Regulations section 1.1445-5(c)(3).
taxmap/instr2/i1042s-008.htm#TXMR2f177a5d
taxmap/instr2/i1042s-008.htm#TXMP1c7e340d
Qualified investment entities.(p9)
rule
Special rules apply to qualified investment entities (QIEs). A QIE is one of the following.
taxmap/instr2/i1042s-008.htm#TXMRe15938fb
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Look‐through rule for QIEs.(p9)
rule
In most cases, any distribution from a QIE to a nonresident alien, foreign corporation, or other QIE that is attributable to the QIE’s gain from the sale or exchange of a U.S. real property interest is treated as gain recognized by the nonresident alien, foreign corporation, or other QIE from the sale or exchange of a U.S. real property interest.
A distribution by a QIE to a nonresident alien or foreign corporation that is treated as gain from the sale or exchange of a U.S. real property interest by the shareholder is subject to withholding at 35%.
Certain exceptions apply to the look‐through rule for distributions by QIEs. Any distribution by a QIE with respect to stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a U.S. real property interest if the shareholder did not own more than 5% of that stock (or 10% of that stock in the case of REITs) at any time during the 1‐year period ending on the date of the distribution. A distribution by a REIT generally is not treated as gain from the sale or exchange of a U.S. real property interest if the shareholder is a qualified shareholder (as described in section 897(k)(3)). These distributions may be included in the shareholder's gross income as a dividend (income code 06) from the QIE, not as long‐term capital gain.
In addition, a qualified foreign pension fund or an entity all of the interests of which are held by a qualified foreign pension fund generally is not subject to the look‐through rule for distributions by REITs. See section 897(l).
Use Forms 1042‐S and 1042 to report and pay over the withheld amounts. All other withholding required under section 1445 is reported and paid over using Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests, and Form 8288‐A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests.
For more information on reporting income from real property interests, see U.S. Real Property Interest in Pub. 515.