Glossary

U.S. Real Property Holding Corporation (USRPHC)

Also known as: USRPHC, USRPHC

A domestic corporation in which the fair market value of U.S. real property interests equals 50% or more of the total fair market value of its combined U.S. and foreign real property interests plus its trade or business assets, which causes stock in the corporation to itself be treated as a U.S. real property interest under FIRPTA.

The USRPHC test matters because FIRPTA does not stop at direct ownership of real property — without it, a foreign investor could simply hold property through a domestic corporation and sell the corporation's stock instead of the property to escape FIRPTA entirely. By treating USRPHC stock itself as a USRPI, the rule reaches through the corporate wrapper to tax the foreign seller's gain on the underlying real estate value embedded in the shares. The determination is tested as of the disposition date or, if higher, the highest testing-period value, and is asset-based rather than intent-based, so a corporation can drift into or out of USRPHC status simply through changes in its asset mix over time — a company that diversifies into enough non-real-estate operating assets can shed USRPHC status, which is a deliberate structuring lever ('cleansing') available to some issuers. REITs receive special treatment: because a REIT is required by its own qualification rules to hold predominantly real estate, REIT stock would almost always fail the USRPHC test and be a USRPI, except that Congress carved out an exception for stock of a domestically controlled REIT, which is the single most important structural planning point for foreign investors accessing U.S. real estate through REIT vehicles.