Creeping Xenophobia and the Taxation of Foreign-Owned Real Estate

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Abstract

Prior to 1980 certain nonresident alien individuals and foreign corporations
were exempt from United States tax on their United States source
capital gains that were not effectively connected with the conduct of a
trade or business within the United States. Congress enacted the Foreign
Investment in Real Property Tax Act of 1980 (FIRPTA4) to close
thisperceived loophole to the extent that it exempted gains derived from
sales of United States real estate. In this article Professor Kaplan analyzes
the pre-FIRPTA tax regime and the modifications introduced by
FIRPT. Professor Kaplan argues that the loophole addressed by
FIRPT not only was of minor significance, but was consciously created
because of the difficulty of collecting taxes on the capital gains of
nonresident, nonbusiness foreign investors, and was justqf/able on additional
policy grounds. In partially closing this limited loophole,
FIRPTA complicates the tax code, overrides bilateral tax treaty provisions,
and creates an intrusive but unenforceable collection scheme.
Professor Kaplan suggests that FIRP-TA can only be understood as an
attempt to discourage foreign investment in United States real estate-a -
xenophobic goal, lacking any economic or common sense rationale,
which FIPTA is in any case unlikely to accomplish-and recommends
that FIRPT- be repealed in its entirety.
Original languageEnglish (US)
Pages (from-to)1091-1128
JournalGeorgetown Law Journal
Volume71
StatePublished - 1983

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