# Prop. Treas. Reg. § 1.897-1: Taxation of foreign investment in United States real property interests, definition of terms. Proposed regulation, not in force. REG-100442-22, 90 FR 48422, published 2025-10-21 . Interprets 26 U.S.C. § 897. Par. 2. Section 1.897-1 is amended by: 1. Revising paragraphs (a)(2) and (c)(3)(iii)(A); 2. Removing paragraph (c)(3)(iii)(B) and redesignating paragraph (c)(3)(iii)(C) as paragraph (c)(3)(iii)(B); 3. Revising the last sentence of newly redesignated paragraph (c)(3)(iii)(B); 4. Removing the language “see paragraph (c)(3)(vii)(A)” in the second sentence of paragraph (c)(3)(iv)(A) and adding “see paragraph (c)(3)(vi)(A)” in its place; 5. Revising paragraph (c)(3)(v)(B); 6. Removing the last sentence in paragraph (c)(3)(v)(C); 7. Revising paragraph (c)(3)(v)(D); 8. Removing paragraph (c)(3)(v)(E) and redesignating paragraph (c)(3)(v)(F) as paragraph (c)(3)(v)(E); 9. Removing paragraph (c)(3)(v)(G) and redesignating paragraphs (c)(3)(v)(H) through (J) as paragraphs (c)(3)(v)(F) through (H); 10. Revising the last sentence of newly redesignated paragraphs (c)(3)(v)(G) and (H); 11. Redesignating paragraphs (c)(3)(v)(K) through (O) as paragraphs (c)(3)(v)(I) through (M); 12. Removing paragraph (c)(3)(vi) and redesignating paragraph (c)(3)(vii) as paragraph (c)(3)(vi); 13. Revising the newly redesignated paragraph (c)(3)(vi); and 14. Removing the language “paragraph (c)(3)(ii) through (vii)” in paragraph (c)(4) and adding “paragraph (c)(3)(ii) through (vi)” in its place. The revisions read as follows: (a) * * * (2) Applicability date. Except as otherwise provided in this paragraph (a)(2), the regulations set forth in this section and §§ 1.897-2 through 1.897-4 apply to transactions occurring after June 18, 1980. Paragraphs (c)(3) and (4) of this section apply to transactions occurring on or after October 20, 2025. For transactions occurring before October 20, 2025, see paragraphs (c)(3) and (4) of this section contained in 26 CFR part 1, as revised April 1, 2025. With respect to transactions occurring before October 20, 2025, taxpayers may apply paragraphs (c)(3) and (4) of this section for transactions occurring on or after April 25, 2024, and transactions occurring before April 25, 2024, resulting from an entity classification election under § 301.7701-3 of this chapter that was effective on or before April 25, 2024, but was filed on or after April 25, 2024. Paragraphs (k) and (l) of this section apply to transactions occurring on or after April 25, 2024, and transactions occurring before April 25, 2024, resulting from an entity classification election under § 301.7701-3 of this chapter that was effective on or before April 25, 2024, but was filed on or after April 25, 2024. For transactions occurring before April 25, 2024, see paragraphs (c)(2)(i) and (l) of this section and § 1.897-9T(c) contained in 26 CFR part 1, as revised April 1, 2024. * * * * * (c) * * * (3) * * * (iii) * * * (A) Certain holders of U.S. publicly traded QIE stock. Notwithstanding any other provision of this paragraph (c)(3), a person holding less than five percent of U.S. publicly traded stock of a QIE at all times during the testing period, determined without regard to paragraph (c)(3)(ii)(A) of this section, is treated as a United States person that is a non-look-through person with respect to that stock, unless the QIE has actual knowledge that such person is not a United States person or has actual knowledge that such person is a look-through person that is a foreign-controlled entity. For an example illustrating the application of this paragraph (c)(3)(iii)(A), see paragraph (c)(3)(vi)(B) of this section ( Example 2 ). (B) * * * For an example illustrating the application of this paragraph (c)(3)(iii)(B), see paragraph (c)(3)(vi)(B) of this section ( Example 2 ). * * * * * (v) * * * (B) A foreign-controlled entity is any entity in which foreign persons hold directly or indirectly more than 50 percent of the fair market value of the entity's outstanding interests. For purposes of determining whether an entity is a foreign-controlled entity, the rules of paragraphs (c)(3)(ii)(A) through (C), (c)(3)(iii)(A) and (B), and (c)(3)(iv) of this section apply (treating the entity as if it were a QIE for this purpose). * * * * * (D) A non-look-through person is an individual, a domestic C corporation, a nontaxable holder, a foreign corporation (including a foreign government pursuant to section 892(a)(3)), a publicly traded partnership (domestic or foreign), a public RIC, an estate (domestic or foreign), an international organization (as defined in section 7701(a)(18)), a qualified foreign pension fund (including any part of a qualified foreign pension fund), or a qualified controlled entity. For special rules that treat certain holders of QIE stock as non-look-through persons, see paragraphs (c)(3)(iii)(A) and (B) of this section. * * * * * (G) * * * A RIC is not a public RIC, however, if the QIE whose status as domestically controlled is being determined under this paragraph (c)(3) has actual knowledge that the RIC is a foreign-controlled entity. (H) * * * A domestic partnership is not a publicly traded partnership, however, if the QIE whose status as domestically controlled is being determined under this paragraph (c)(3) has actual knowledge that the domestic partnership is a foreign-controlled entity. * * * * * (vi) Examples. The rules of this paragraph (c)(3) are illustrated by the following examples. It is assumed that each entity has a single class of stock or other ownership interests, that the ownership described existed throughout the relevant testing period and that, unless otherwise stated, a QIE is not a public QIE as defined under paragraph (c)(3)(v)(F) of this section. (A) Example 1: QIE stock held by domestic C corporation —( 1 ) Facts. USR is a REIT, 51 percent of the stock of which is held by X, a domestic C corporation as defined in paragraph (c)(3)(v)(A) of this section, and 49 percent of the stock of which is held by nonresident alien individuals, which are foreign persons as defined in paragraph (k) of this section. ( 2 ) Analysis. Under paragraph (c)(3)(v)(K) of this section, USR is a QIE. Because X is a domestic C corporation it is a non-look-through person as defined under paragraph (c)(3)(v)(D) of this section. Thus, under paragraph (c)(3)(ii)(A) of this section X is considered as holding directly or indirectly stock of USR for purposes of determining whether USR is a domestically controlled QIE. Under paragraph (c)(3)(ii)(C) of this section, the USR stock held directly or indirectly by X is not considered held directly or indirectly by any other person, including the shareholders of X. Because X is not a foreign person as defined in paragraph (k) of this section and holds directly or indirectly 51 percent of the single class of outstanding stock of USR, foreign persons hold directly or indirectly less than 50 percent of the fair market value of the stock of USR, and USR therefore is a domestically controlled QIE under paragraph (c)(3)(i) of this section. ( 3 ) Alternative facts: QIE stock held by domestic partnership. The facts are the same as in paragraph (c)(3)(vi)(A)( 1 ) of this section ( Example 1 ), except that, instead of being a domestic C corporation, X is a domestic partnership that is not a publicly traded partnership as defined in paragraph (c)(3)(v)(H) of this section. In addition, FC1, a foreign corporation, holds a 50 percent interest in X, and the remaining interests in X are held by U.S. citizens. X is not a non-look-through person as defined in paragraph (c)(3)(v)(D) of this section and, therefore, is a look-through person as defined in paragraph (c)(3)(v)(C) of this section. Accordingly, under paragraph (c)(3)(ii)(A) of this section, X is not considered as holding directly or indirectly stock of USR for purposes of determining whether USR is a domestically controlled QIE. Under paragraph (c)(3)(ii)(B) of this section, the stock of USR that, but for paragraph (c)(3)(ii)(A) of this section, is considered held by X, a look-through person, is instead considered held proportionately by X's partners that are non-look-through persons. Accordingly, because FC1 and the U.S. citizen partners in X are non-look-through persons as defined in paragraph (c)(3)(v)(D) of this section, 25.5 percent of the stock of USR is considered as held directly or indirectly by FC1 (50% × 51%), a foreign person as defined in paragraph (k) of this section, and 25.5 percent (in the aggregate) of the stock of USR is considered as held directly or indirectly by the U.S. citizen partners in X (50% × 51%), who are not foreign persons as defined in paragraph (k) of this section. Foreign persons therefore hold directly or indirectly 74.5 percent of the stock of USR (49 percent of the stock of USR held directly or indirectly by nonresident alien individuals, who are non-look-through persons as defined in paragraph (c)(3)(v)(D) of this section, plus the 25.5 percent held directly or indirectly by FC1), and USR is not a domestically controlled QIE under paragraph (c)(3)(i) of this section. The result described in this paragraph (c)(3)(vi)(A)( 3 ) would be the same if, instead of being a domestic partnership, X were a foreign partnership. ( 4 ) Alternative facts: QIE stock held by a qualified foreign pension fund. The facts are the same as in paragraph (c)(3)(vi)(A)( 3 ) of this section, except that, instead of being a foreign corporation, FC1 is a qualified foreign pension fund. The analysis is the same as in paragraph (c)(3)(vi)(A)( 3 ) of this section regarding the treatment of X as a look-through person as defined in paragraph (c)(3)(v)(C) of this section. In addition, FC1, a foreign person under paragraph (c)(3)(iv)(A) of this section, is a non-look-through person as defined in paragraph (c)(3)(v)(D) of this section. Because FC1 and the U.S. citizen partners in X are non-look-through persons, 25.5 percent of the stock of USR is considered as held directly or indirectly by FC1 (50% × 51%), and 25.5 percent (in the aggregate) of the stock of USR is considered as held directly or indirectly by the U.S. citizen partners in X (50% × 51%). Thus, for the same reasons described in paragraph (c)(3)(vi)(A)( 3 ) of this section, foreign persons hold directly or indirectly 74.5 percent of the stock of USR, and USR is not a domestically controlled QIE under paragraph (c)(3)(i) of this section. (B) Example 2: QIE stock held by public QIE that is a domestically controlled QIE —( 1 ) Facts. USR2 is a REIT, 51 percent of the stock of which is held by USR1, a REIT that is a public QIE as defined in paragraph (c)(3)(v)(F) of this section. The remaining 49 percent of the stock of USR2 is held by nonresident alien individuals, which are foreign persons as defined in paragraph (k) of this section. The stock of USR1 is U.S. publicly traded QIE stock as defined in paragraph (c)(3)(v)(M) of this section. FC1 and FC2, both foreign corporations, each hold 20 percent of the stock of USR1. The remaining 60 percent of the stock of USR1 is held by persons that each hold less than 5 percent of the stock of USR1 (USR1 less than five-percent public shareholders) and with respect to which USR1 has no actual knowledge that such person is not a United States person or is a look-through person that is a foreign-controlled entity (as determined under paragraph (c)(3)(v)(B) of this section by treating any entity as if it were a QIE for this purpose). ( 2 ) Analysis. Under paragraph (c)(3)(v)(K) of this section, USR2 and USR1 are QIEs. Under paragraph (c)(3)(iii)(A) of this section, each of the USR1 less than five-percent public shareholders is treated as a United States person that is a non-look-through person. Consequently, under paragraph (c)(3)(i) of this section USR1 is a domestically controlled QIE because FC1 and FC2, each a foreign person as defined in paragraph (k) of this section that is a non-look-through person under paragraph (c)(3)(v)(D) of this section, together hold directly or indirectly only 40 percent of the stock of USR1 and, thus, foreign persons hold directly or indirectly less than 50 percent of the fair market value of the stock of USR1. In addition, the USR2 stock held by USR1 is treated as held directly or indirectly by a United States person that is a non-look-through person under paragraph (c)(3)(iii)(B) of this section. Because USR1 holds directly or indirectly 51 percent of the stock of USR2, foreign persons hold directly or indirectly less than 50 percent of the fair market value of the stock of USR2, and USR2 is a domestically controlled QIE under paragraph (c)(3)(i) of this section. ( 3 ) Alternative facts: QIE stock held by public QIE that is not a domestically controlled QIE. The facts are the same as in paragraph (c)(3)(vi)(B)( 1 ) of this section ( Example 2 ), except that 25 percent of the stock of USR1 is held by each of FC1 and FC2, with the remaining 50 percent of the stock of USR1 held by the USR1 less than five-percent public shareholders. Regardless of the treatment of the USR1 less than five-percent public shareholders, USR1 is not a domestically controlled QIE under paragraph (c)(3)(i) of this section because FC1 and FC2, each a foreign person as defined in paragraph (k) of this section that is a non-look-through person under paragraph (c)(3)(v)(D) of this section, together hold directly or indirectly 50 percent of the stock of USR1 and, thus, foreign persons do not hold directly or indirectly less than 50 percent of the fair market value of the stock of USR1. In addition, the USR2 stock held by USR1 is treated as held by a foreign person that is a non-look-through person under paragraph (c)(3)(iii)(B) of this section. Because USR1 holds directly or indirectly 51 percent of the stock of USR2, foreign persons do not hold directly or indirectly less than 50 percent of the fair market value of the stock of USR2, and USR2 is not a domestically controlled QIE under paragraph (c)(3)(i) of this section. (C) Example 3: QIE stock held by non-public QIE —( 1 ) Facts. USR2 is a REIT, 49 percent of the stock of which is held by nonresident alien individuals, and 51 percent of the stock of which is held by USR1, a REIT. USR1 is not a public QIE as defined in paragraph (c)(3)(v)(F) of this section. U.S. citizens hold 50 percent of the stock of USR1. The remaining 50 percent of the stock of USR1 is held by PRS, a domestic partnership, 50 percent of the interests in which are held by DC, a domestic C corporation as defined in paragraph (c)(3)(v)(A) of this section, and 50 percent of the interests in which are held by nonresident alien individuals. ( 2 ) Analysis. Under paragraph (c)(3)(v)(K) of this section, USR2 and USR1 are QIEs. USR1 is not treated as a non-look-through person under paragraph (c)(3)(iii)(B) of this section because USR1 is not a public QIE as defined in paragraph (c)(3)(v)(F) of this section. Each of USR1 and PRS is a look-through person as defined in paragraph (c)(3)(v)(C) of this section that is not treated as holding directly or indirectly stock in USR2 for purposes of determining whether USR2 is a domestically controlled QIE under paragraph (c)(3)(ii)(A) of this section. Because the U.S. citizens who hold USR1 stock are non-look-through persons as defined in paragraph (c)(3)(v)(D) of this section, those U.S. citizens are treated under paragraph (c)(3)(ii)(B) of this section as holding directly or indirectly 25.5 percent of the stock of USR2 through their USR1 stock interest (50% × 51%) in accordance with paragraph (c)(3)(ii)(A) of this section. Similarly, because DC and the nonresident alien partners in PRS are non-look-through persons as defined in paragraph (c)(3)(v)(D) of this section, each is treated under paragraph (c)(3)(ii)(B) of this section as holding directly or indirectly the stock of USR2 through its interest in PRS and PRS's interest in USR1. Thus, DC is treated as holding directly or indirectly 12.75 percent of the stock of USR2 (50% × 50% × 51%) and the nonresident alien individual partners, which are foreign persons as defined in paragraph (k) of this section, are treated as directly or indirectly holding a 12.75 percent aggregate interest in the stock of USR2 (50% × 50% × 51%). Foreign persons therefore hold directly or indirectly 61.75 percent of the stock of USR2 (the 49 percent stock in USR2 directly held by nonresident alien individuals, who are foreign persons and non-look-through persons as defined in paragraph (c)(3)(v)(D) of this section, plus the 12.75 percent in stock indirectly held by the nonresident alien individual partners in PRS), and USR2 is not a domestically controlled QIE under paragraph (c)(3)(i) of this section. * * * * *