ARTICLE
10 May 2016

Hotel Delays Acquisition After Concluding That FIRPTA Applies To Its Non-U.S. Shareholders

CW
Cadwalader, Wickersham & Taft LLP

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Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
A hotel and resort company delayed the planned acquisition of a vacation ownership business as a result of new understandings of the tax consequences of the deal.
United States Tax

A hotel and resort company delayed the planned acquisition of a vacation ownership business as a result of new understandings of the tax consequences of the deal. In an SEC Form 8-K filing, the company indicated that any gain realized by a non-U.S. shareholder on the disposition of the vacation ownership business common stock in the merger would be subject to the Foreign Investment in Real Property Tax Act ("FIRPTA"). The parties had been advised previously that the proposed acquisition would qualify as a tax-free reorganization.

FIRPTA provides generally that the disposition of "U.S. real property interest" ("USRPI") by a non-U.S. shareholder is subject to U.S. federal income tax as income if it is connected with the conduct of the U.S. trade or business of such non-U.S. shareholder. (Corporate stock can be USRPI, for example.) Although the exchange of one USRPI for another in an otherwise tax-free reorganization is not subject to tax under FIRPTA, shareholders under the proposed transaction would not qualify for this exception. As a result, a non-U.S. shareholder generally would be subject to tax on any gain realized in connection with the transaction, and would be required to file a U.S. federal income tax return.

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