IRS Issues New Guidance on FIRPTA and F Reorganizations, What Multinationals Need to Know

The IRS has released Notice 2025-45, a major piece of guidance that affects how foreign corporations redomiciling into the United States are treated under the Foreign Investment in Real Property Tax Act (FIRPTA) and the rules governing F reorganizations. The notice provides new exceptions, clarifications, and definitions under sections 897(d), 897(e), and 368(a)(1)(F) that will be formalized in upcoming proposed regulations.

This guidance is particularly important for publicly traded foreign corporations planning to convert into U.S. corporations, cross border groups exploring structural simplification, and tax professionals analyzing FIRPTA exposure within inbound reorganizations.

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FIRPTA Background and Why These Changes Matter

Under FIRPTA, foreign persons generally must recognize gain when disposing of U.S. real property interests, or USRPIs. This includes indirect dispositions, such as distributing stock of a U.S. real property holding corporation (USRPHC). Historically, the rules under sections 897(d) and 897(e), along with temporary regulations and older notices, created substantial obstacles for foreign corporations seeking to redomicile into the United States through an inbound F reorganization.

Notice 2025-45 acknowledges these burdens and creates more practical pathways for legitimate redomiciliation transactions while still preventing abuse.

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New Category: The Covered Inbound F Reorganization

The notice introduces a new defined term, the covered inbound F reorganization, which applies when:

1. A publicly traded foreign corporation serves as the transferor corporation.

2. A publicly traded domestic corporation is the resulting corporation.

3. The transaction qualifies as a section 368(a)(1)(F) mere change in identity, form, or place of organization.

4. No significant property is distributed to shareholders as part of a plan connected to the reorganization.

This new category allows the IRS to modernize the FIRPTA rules for redomiciliation transactions that do not raise tax policy concerns.

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Publicly Traded Requirements

A corporation meets the publicly traded standard only if its principal class of stock:

• Was regularly traded on an established securities market for the required period

• Represents a majority of aggregate vote and value

• Is not traded merely over the counter

Foreign corporations must satisfy a three year trading history before the F reorganization, while domestic resulting corporations must satisfy a one year period after completion.

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No Significant Non Cash Distributions

To qualify as a covered inbound F reorganization, the resulting domestic corporation cannot transfer non cash property to its shareholders as part of the plan of reorganization. If non cash transfers occur within one year, a plan is presumed to exist unless the aggregate property value is less than one percent of the foreign transferor's asset value.

This prevents backdoor distributions disguised as reorganization steps.

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Updated FIRPTA Exception Under Section 897(d)

The IRS will modify the rules under section 1.897-5T(c)(4) so that:

• Gain recognition on the distribution of USRPHC stock will not apply if the conditions of Notice 89-85 and Notice 2006-46 are met, including updated reliance on section 897(c)(3).

• Section 897(c)(3) is applied based on what the foreign corporation knows or has reason to know, including reasonable efforts to review public information.

• Distributees whose resulting corporation stock is not treated as a USRPI under section 897(c)(3) are automatically treated as meeting the FIRPTA subject to tax requirement.

Simplified filing rules also apply. Only distributees who do not qualify for the section 897(c)(3) exception require declarations attached to the foreign transferor's return.

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Modified Nonrecognition Rules Under Section 897(e)

The notice confirms that, in a covered inbound F reorganization:

• The foreign transferor corporation's exchange of a USRPI for stock of the resulting domestic corporation will receive nonrecognition treatment under section 361.

• This applies even if the stock of the resulting domestic corporation would not be taxable upon subsequent disposition.

• The foreign transferor must satisfy the filing obligations under section 1.897-5T(d)(1)(iii), with reduced information requirements.

This change removes a longstanding FIRPTA barrier to inbound redomiciliations.

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Clarifications to the Identity of Stock Ownership Requirement for F Reorganizations

Section 368(a)(1)(F) requires that the same persons own the stock of the transferor and resulting corporations in identical proportions immediately before and after the reorganization.

Notice 2025-45 resolves a major uncertainty by confirming that:

• Stock dispositions that are not part of the plan of reorganization do not affect F reorganization qualification.

• Even if stock sales occur in close timing to the reorganization, they will not disqualify the transaction as long as they are not included in the plan.

The notice provides a new example illustrating this point, reinforcing flexibility for publicly traded corporations where shareholder turnover is constant.

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Effective Dates and Reliance

Taxpayers may rely on the rules in the notice for qualifying transactions before the proposed regulations are issued, provided they apply them consistently.

Once finalized, the new regulations will apply to:

• Distributions, transfers, or exchanges occurring on or after August 19, 2025

• Certain F reorganizations occurring during the same period

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How Margen Helps Multinationals Apply FIRPTA and F Reorganization Rules

Cross border reorganizations involve both highly technical FIRPTA rules and detailed qualification standards under section 368. Margen helps tax professionals handle these complexities by answering questions such as:

• "Does our planned redomiciliation qualify as a covered inbound F reorganization?"

• "Which shareholders need declarations under the updated FIRPTA filing rules?"

• "How does section 897(c)(3) apply to widely held publicly traded corporations?"

• "Are stock sales surrounding the reorganization considered part of a plan?"

• "What exceptions apply under sections 897(d) and 897(e) for our transaction?"

Margen uses the most recent IRS guidance, including the full text of Notice 2025-45, to provide accurate, scenario specific analysis that helps organizations complete reorganizations confidently and in compliance with U.S. tax rules.

For full details, see IRS Notice 2025-45.