TAX 9869 Lecture Notes - Lecture 45: Foreign Corporation, Installment Sale
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10.13 Intangible Property
–Creditor Exception Rule- A mortgage may fun afoul of §897 to the extent it has
an equity feature (participation in appreciation)
–If gain is reported under the installment sale method, the notes are classified as
a U.S. real property interest in order to ensure both that subsequent collections
on the notes fall prey to §897 and that any disposition of the installment notes
which cashes out the investment is within the scope of §897.
–§897 focuses generally on stock ownership.
•In contrast to stock ownership, the ownership per se of an interest in a conduit
entity is not a U.S. real property interest.
•Look Through Rule- The disposition of an interest in a pass-through entity, to the
extent that the consideration received by the taxpayer is attributable to U.S. real
property interests held by the entity, is considered to be received directly by the
taxpayer and thus is subject to the rules applicable to direct investment.
–An outright sale of property, its transfer in satisfaction of a claim, or any other
taxable transfer will constitute a disposition.
–Nonrecognition transfers which produce as a result taxable gain such as the
receipt of boot in a like-kind exchange or, with regard to a gift, the relief of a
liability in excess of the taxpayer’s basis in the property should constitute
–Gifts, bequests, nontaxable transfers to trusts, partnerships, corporations, and
other entities, and like-kind exchanges
•As long as the transfer does not remove the property from the taxing jurisdiction
of the U.S. or generate an increased basis which would shield a portion of the
gain from domestic taxation upon a subsequent disposition, I generally should
not constitute a disposition for purposes of §897.
10.15 Indirect Investment- Interests Held Through Domestic Corporations
–Gain from the sale by a foreign person of shares in a U.S. corporation will be
taxed under §897 if that corporation has at anytime within the past five (or
shorter, the taxpayer’s holding period) been a U.S. real property holding