The impact of sec. 897 on an NRA or foreign corporation's sale of domestic stock.

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Nonresident alien individuals

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The impact of sec. 897 on an NRA or foreign corporation's sale of domestic stock.

Foreign corporations and nonresident alien individuals (NRAs) frequently invest in the United States via the stock of domestic corporations. When they make such an investment, in addition to considering the U.S. international tax implications of distributions from such entities, they must also consider the U.S. federal tax implications of a subsequent disposition of their interest in a domestic corporation. (1) Subject to certain exceptions, an NRA or foreign corporation's taxable sale of its domestic corporation stock normally results in a foreign source gain or loss under Sec. 865(a) that is not subject to U.S. taxation. (2)

One of the notable exceptions to this general rule, however, occurs when the domestic corporation's stock is stock of a U.S. real property holding corporation (USRPHC). Sec. 897(a) generally provides that a foreign person's gain or loss from the disposition of a U.S. real property interest (USRPI) is treated as gain or loss that is effectively connected with a U.S. trade or business. Subject to certain exceptions, a USRPI includes an interest (other than solely as a creditor) in a USRPHC. Generally speaking, a USRP...

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