The U.S. Department of the Treasury and the IRS have issued proposed regulations (REG-109742-25) that would modify how Qualified Investment Entities (QIEs)—including real estate investment trusts (REITs) and regulated investment companies (RICs)—determine whether they are considered domestically controlled under Section 897. Released on October 20, 2025, the proposal would repeal the “domestic corporation look-through rule” that was introduced in the April 2024 final regulations. The change would treat all domestic C corporations as non-look-through entities, simplifying ownership determinations and potentially easing compliance burdens for taxpayers conducting domestically controlled QIE analyses.
The proposed regulations primarily affect foreign investors holding interests in QIEs that would constitute U.S. real property interests if not domestically controlled. By removing the look-through requirement, the new approach would eliminate the need for taxpayers to conduct multi-tier ownership inquiries into domestic corporations. Treasury has stated that the rules would apply to transactions on or after the date they are finalized, though taxpayers may rely on them for earlier transactions dating back to April 24, 2024. Stakeholders are encouraged to review their prior analyses to assess how the repeal may alter domestically controlled QIE classifications under the Foreign Investment in Real Property Tax Act (FIRPTA).
