IRS Redraws Lines on 'Domestic' Investment Entities for Taxes
Published Date: 10/21/2025
Proposed Rule
Summary
The IRS is proposing new rules that change how they decide if an investment company is controlled by U.S. people or foreign owners. This mainly affects foreign investors who own shares in companies tied to U.S. real estate. Comments on these changes are open until December 22, 2025, so get ready to weigh in if this impacts you or your investments!
Analyzed Economic Effects
3 provisions identified: 2 benefits, 0 costs, 1 mixed.
Removal of Domestic-Corp Look-Through
The IRS proposes to remove the domestic corporation "look-through" rule and to treat all domestic C corporations as non-look-through persons when deciding whether a qualified investment entity (QIE) is domestically controlled. This change is tied to the test that a QIE is domestically controlled if less than 50 percent of its stock value is held directly or indirectly by foreign persons, and the proposal says it primarily affects foreign persons who own stock in QIEs connected to U.S. real estate.
When The New Test Applies
If finalized, the proposed regulations would apply to transactions occurring on or after October 20, 2025. Taxpayers may elect to apply the final regulations to transactions on or after April 25, 2024, and taxpayers may rely on the proposed regulations for transactions occurring before the final rule is published.
Reduced Compliance Burden for Small Entities
The Treasury and the IRS state that removing the domestic corporation look-through rule will reduce compliance burdens on small entities and they certify, under the Regulatory Flexibility Act, that the proposed rule will not have a significant economic impact on a substantial number of small entities.
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Key Dates
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