|FOREST CITY REALTY TRUST, INC. filed this Form DEFM14A on 10/12/2018|
right to receive cash in the merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received with respect to such shares (determined before the deduction of any applicable withholding taxes, as described below under Information Reporting and Backup Withholding) and the U.S. stockholders adjusted tax basis in such shares. A U.S. stockholders adjusted tax basis will generally equal the price the U.S. stockholder paid for its shares less any distributions received that were treated as returns of capital. Gain or loss will be determined separately for each block of shares of our common stock held by a U.S. stockholder (i.e., shares of our common stock acquired at the same cost in a single transaction). Any such capital gain or loss will be long-term capital gain or loss where the U.S. stockholders holding period for such shares of our common stock is more than one year at the effective time of the merger. Long-term capital gain of a noncorporate U.S. stockholder is generally taxed at preferential rates. There are limitations on the deductibility of capital losses.
The per share merger consideration received by a U.S. stockholder in exchange for shares of our common stock pursuant to the merger will not be treated as passive activity income. As a result, U.S. stockholders generally will not be able to apply any passive losses against that income or gain.
Subject to the discussion of backup withholding below under Information Reporting and Backup Withholding, a non-U.S. stockholder generally should not be subject to U.S. federal income tax on the gain or loss from the receipt of the per share merger consideration in exchange for shares of our common stock pursuant to the merger, except as described below.
Gain recognized by a non-U.S. stockholder upon a sale or exchange of shares of our common stock generally will not be taxed under FIRPTA if the Company is a domestically controlled REIT, defined generally as a real estate investment trust, less than 50% in value of the stock of which is and was held directly or indirectly by foreign persons at all times during a specified testing period (provided that if any class of a REITs stock is regularly traded on an established securities market in the U.S., a person holding less than 5% of such class during the testing period is generally presumed not to be a foreign person, unless the REIT has actual knowledge otherwise). The Company believes that it is a domestically controlled REIT, and, therefore, assuming that the Company is a domestically controlled REIT at the effective time of the merger, that taxation under FIRPTA will not apply to the receipt of the per share merger consideration in exchange for shares of our common stock pursuant to the merger. However, gain will be taxable to a non-U.S. stockholder if such gain is treated as effectively connected with the non-U.S. stockholders U.S. trade or business or, if required by an applicable income tax treaty as a condition for subjecting the non-U.S. stockholder to U.S. taxation on a net income basis, is attributable to a permanent establishment or fixed base that the non-U.S. stockholder maintains in the U.S. In this case, the same treatment that applies to U.S. stockholders with respect to the gain will apply to the non-U.S. stockholder. In addition, gain will be taxable to a non-U.S. stockholder if the non-U.S. stockholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a tax home in the U.S., or maintains an office or a fixed place of business in the U.S. to which the gain is attributable. In such cases, a 30% tax will apply to the nonresident alien individuals capital gains.
If the Company does not qualify as a domestically controlled REIT, the tax consequences to a non-U.S. stockholder of an exchange of shares of our common stock for cash pursuant to the merger could be adverse. In such case, the tax consequences to a non-U.S. stockholder will depend upon whether such stock is regularly traded on an established securities market and the amount of such stock that is held by the non-U.S. stockholder. The Company believes that our common stock is regularly traded on an established security market in the U.S. within the meaning of FIRPTA and the applicable Treasury regulations. Therefore, a non-U.S. stockholder will generally be treated as owning a U.S. real property interest within the meaning of FIRPTA only if the stockholder owns more than 10% of the shares of our common stock at any time during the shorter of the period that the non-U.S. stockholder owned such shares or the five-year period ending on the date when the stockholder disposed of the shares. Non-U.S. stockholders should consult their own tax advisors regarding the particular tax consequences of owning a U.S. real property interest within the meaning of FIRPTA.