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The PATH Act includes certain revenue raising provisions to offset, in part, the tax revenue loss
anticipated to result of the above-described tax reform provisions of the Act. Such revenue raisers
include (among other technical changes) the following provisions:

A. Increase in FIRPTA Withholding Rate. The purchaser of a U.S. real property interest from a non-
U.S. person was previously required to withhold 10 percent of the purchase price under FIRPTA. The
PATH Act increases this rate to 15 percent for dispositions occurring after the 60th day following
enactment, but maintains the 10 percent rate for sales of residential property for between $300,000
and $1,000,000. This provision is not a tax increase but is designed to ensure that FIRPTA withholding
collects a sufficient portion of the taxes owed.

B. Restriction on REIT Spin-offs. In recent years, it has become increasingly common for large
corporate taxpayers to reduce their tax bills by contributing real estate used in their businesses to a
subsidiary, spinning off the subsidiary in a tax free transaction under Code section 355, and then
having the spun-out corporation making a REIT election. The PATH Act curtails such activity by (i)
providing that neither the distributing corporation nor the spun-out corporation can make a REIT
election for ten years after that corporation was involved in a Section 355 transaction and (ii) denying
tax-free treatment to spin-offs in which the distributing corporation or spun-out corporation (but not
both) is a REIT.

5. CONCLUSION

The revisions to the FIRPTA and REIT rules discussed above represent a potentially large expansion of
the incentives for foreign investment in U.S. real property interests, especially for foreign pension
funds. Sponsors of U.S. real property investment funds and foreign investors with interests in U.S. real
estate assets should review the new provisions to determine whether such persons could benefit from
such U.S. tax law changes.

Sadis & Goldberg LLP

Please feel free to discuss any aspect of this Alert with your regular Sadis & Goldberg contact or with
any of the partners, whose names and contact information are provided below.

Alex Gelinas, 212.573.8159, agelinas@sglawyers.com
Daniel G. Viola, 212.573.8038, dviola@sglawyers.com
Danielle Epstein-Day, 212.573.8416, depstein@sglawyers.com
Douglas Hirsch, 212.573.6670, dhirsch@sglawyers.com
Erika Winkler, 212.573.8022, ewinkler@sglawyers.com
Jamie Kim, 212.573.8034, jkim@sglawyers.com
Jeffrey Goldberg, 212.573.6666, jgoldberg@sglawyers.com
Jennifer Rossan, 212.573.8783, jrossan@sglawyers.com
John Araneo, 212.573.8158, jaraneo@sglawyers.com
Lance Friedler, 212.573.8030, lfriedler@sglawyers.com
Mitchell Taras, 212.5738417, mtaras@sglawyers.com
Paul Fasciano, 212.573.8025, pfasciano@sglawyers.com
Ron S. Geffner, 212.573.6660, rgeffner@sglawyers.com
Sam Lieberman, 212.573.8164, slieberman@sglawyers.com
Steven Etkind, 212.573.8412, setkind@sglawyers.com
Steven Huttler, 212.573.8424, shuttler@sglawyers.com
Yehuda Braunstein, 212.573.8029, ybraunstein@sglawyers.com
Yelena Maltser, 212.573.8429, ymaltser@sglawyers.com

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