FIRPTA Blocker

A FIRPTA Blocker is a corporate entity used to protect non-U.S. investors from the tax consequences of the Foreign Investment in Real Property Tax Act (FIRPTA). Under FIRPTA, foreign investors who directly or through partnerships hold U.S. real property interests (USRPIs) are subject to U.S. tax on gains from the disposition of those interests, plus mandatory withholding of up to 15% of gross proceeds. In venture capital, FIRPTA exposure can arise when portfolio companies hold significant U.S. real estate, or more commonly, when the company itself is classified as a U.S. Real Property Holding Corporation (if real property assets exceed 50% of total assets). A FIRPTA blocker corporation holds the fund investment on behalf of foreign investors, preventing direct FIRPTA exposure. The blocker pays corporate tax on gains, but foreign investors avoid U.S. tax filing obligations and potentially punitive withholding requirements. FIRPTA blockers are standard in fund structures targeting international LPs.