Tax Transactions Practice Update: IRS Challenges Claims that Certain Capital Gain Dividends Received by Foreign Government Investors from REITs or RICs are Not Subject to US Tax

On June 13, 2007, the Internal Revenue Service (IRS) issued Notice 2007-55 to alert taxpayers that it intends to (i) challenge claims that capital gain dividends paid to foreign government investors by qualified investment entities (QIEs), where such dividends are attributable to gain on the sale of US real property interests (USRPIs), are not subject to US federal income tax and (ii) issue regulations to clarify the rules concerning such dividends.