H.R. 3588 — Real Estate Reciprocity Act

This section requires any foreign person holding a direct investment in a U.S. real property interest to file an information return under IRC §6039C(a), eliminating prior regulatory discretion ("to the extent provided in regulations"). It further removes the $50,000 aggregate value de minimis exception in subsection (b), limiting the filing exemption solely to foreign persons not engaged in a U.S. trade or business during the calendar year (previously, no return was required if neither condition applied). The amendments apply to returns filed with respect to taxable years beginning after enactment.

This section directs the Secretary of State to submit to the Secretary of the Treasury, not later than 60 days after enactment of this Act and annually thereafter, a report identifying all foreign countries that prohibit the purchase or ownership of real estate by U.S. citizens.

This section imposes a tax equal to 50% of the amount paid on any acquisition of United States real property by a disqualified person. Disqualified persons include (1) citizens of disqualified countries (other than U.S. citizens or lawful permanent residents), (2) entities domiciled in disqualified countries, (3) disqualified countries and their political subdivisions, agencies, or instrumentalities, and (4) entities 10% controlled by persons described in (1)-(3) (with exceptions for individuals residing in the U.S. due to diplomatic obligations or asylum and for certain publicly traded U.S. corporations and entities they control). A disqualified country is any country identified in the report described in section 3 of the Real Estate Reciprocity Act. This section applies a prorated tax (i.e., the applicable percentage of the amount paid) to disqualified persons described in (4) that are not more than 50% controlled by persons in (1)-(3), where the applicable percentage is the highest percentage that could be substituted for "50 percent" in IRC §954(d)(3) without resulting in control by such persons. This section defines "control" by reference to IRC §954(d)(3) (with modifications treating rules of §958(a)(2) as applying to both foreign and domestic entities) and "10-percent control" by substituting "10 percent" for "50 percent" in that section; it defines "United States real property" by reference to IRC §897(c) (with modifications focused on property status at the time of acquisition). This section requires the person responsible for closing the transaction (including any attorney or title company), with respect to any acquisition of United States real property by a presumptively disqualified person, to file a return and furnish a statement to such person reporting the name, address, and TIN of the acquirer; a description of the property (including street address, if applicable); and the amount paid.