|FOREST CITY REALTY TRUST, INC. filed this Form DEFM14A on 10/12/2018|
during the one-year period ending on the date of the distribution will generally be treated as an ordinary dividend.
The portion of the distribution, made with respect to our common stock held by a non-U.S. stockholder who owns more than 10% of such stock at any time during the one-year period ending on the date of the distribution that is attributable to gain from sales or exchanges by the Company of U.S. real property interests will generally be taxed to a non-U.S. stockholder under the provisions of the Foreign Investment in Real Property Tax Act of 1980, as amended (FIRPTA). Under this statute, such a distribution is taxed to a non-U.S. stockholder as if the gain were effectively connected with a U.S. trade or business. Thus, non-U.S. stockholders will be taxed on the distribution at the normal capital gain rates applicable to U.S. stockholders, subject to any applicable alternative minimum tax in the case of individuals, and the 30% branch profits tax may also apply if the stockholder is a foreign corporation. The Company (or applicable withholding agent) is required by applicable Treasury regulations under this statute to withhold 21% of any distribution that the Company could designate as a capital gain dividend. However, if the Company designates as a capital gain dividend a distribution made before the day the Company actually effects the designation, then although the distribution may be taxable to a non-U.S. stockholder, withholding does not apply to the distribution under this statute. Rather, the Company must effect the 21% withholding from distributions made on and after the date of the designation, until the distributions so withheld equal the amount of the prior distribution designated as a capital gain dividend. The non-U.S. stockholder may credit the amount withheld against its U.S. tax liability.
The portion of the distribution to a non-U.S. stockholder that is designated by the Company at the time of distribution as a capital gain dividend that is not attributable to or treated as attributable to the disposition by the Company of a U.S. real property interest generally will not be subject to U.S. federal income taxation, subject to the exceptions discussed in The MergerMaterial U.S. Federal Income Tax ConsequencesTreatment of the Per Share Merger ConsiderationNon-U.S. Stockholders.
Return of Capital. The special REIT taxable income distribution made, if any, in excess of the Companys current and accumulated earnings and profits will not be taxable to a non-U.S. stockholder to the extent that the distribution does not exceed the non-U.S. stockholders adjusted basis in such stockholders shares of our common stock. The distribution of this kind will instead reduce the adjusted basis of such shares. To the extent that the distribution of this kind exceeds the non-U.S. stockholders adjusted basis in such stockholders shares of our common stock, the distribution will give rise to tax liability if the non-U.S. stockholder otherwise would have to pay tax on any gain from the sale or disposition of such non-U.S. stockholders shares. See discussion below under Treatment of the Per Share Merger ConsiderationNon-U.S. Stockholders. If it cannot be determined at the time the special REIT taxable income distribution is made whether the distribution will be in excess of current and accumulated earnings and profits, withholding will generally apply to the distribution at the rate applicable to ordinary dividends. However, the non-U.S. stockholder may seek a refund of these amounts from the IRS if it is subsequently determined that the distribution was, in fact, in excess of the Companys current and accumulated earnings and profits.
Also, if a non-U.S. stockholder owns more than 10% of shares of our common stock at any time during the one-year period ending on the date of the distribution, the Company (or applicable withholding agent) could potentially be required to withhold 15% of the distribution made in excess of the Companys current and accumulated earnings and profits, even if the non-U.S. stockholder is not liable for U.S. tax on the receipt of that distribution. However, a non-U.S. stockholder may seek a refund of these amounts from the IRS if the non-U.S. stockholders tax liability with respect to the distribution is less than the amount withheld.
Treatment of the Per Share Merger Consideration
The exchange of shares of our common stock for cash in the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. stockholder whose shares of our common stock are converted into the