Notice 2018-8

Part III. Administrative, Procedural, and Miscellaneous
Revised Timeline and Other
Guidance Regarding the
Implementation of New
Section 1446(f)
Notice 2018 – 08
SECTION 1. OVERVIEW
This notice announces that the Department of the Treasury (“Treasury Department”) and the Internal Revenue Service
(“IRS”) are suspending the application of
new section 1446(f) of the Internal Revenue Code (“Code”) in the case of a disposition of certain publicly traded partnership interests. New section 1446(f) was
added by section 13501 of “An Act to
provide for reconciliation pursuant to titles II and V of the concurrent resolution
on the budget for fiscal year 2018,” P.L.
115–97 (the “Act”), which was enacted on
December 22, 2017. Section 13501 of the
Act also added new section 864(c)(8).
Section 2 of this notice provides background on new sections 864(c)(8) and
1446(f). Section 3 of this notice describes
the revised timeline for the application of
new section 1446(f) to a disposition of
certain interests in publicly traded partnerships. Section 4 of this notice requests
comments and provides contact information.

In general, new section 1446(f)(1) provides that if any portion of the gain on any
disposition of an interest in a partnership
would be treated under new section
864(c)(8) as effectively connected with
the conduct of a trade or business within
the United States (“effectively connected
gain”), then the transferee must withhold a
tax equal to 10 percent of the amount
realized on the disposition. Under an exception in new section 1446(f)(2), however, withholding is generally not required
if the transferor furnishes an affidavit to
the transferee stating, among other things,
that the transferor is not a foreign person.
New section 1446(f)(6) authorizes the
Secretary to issue such regulations or
other guidance as may be necessary to
carry out the purposes of new section
1446(f), including regulations providing
for exceptions from the provisions of new
section 1446(f). Furthermore, new section
1446(g) authorizes regulations that are
necessary to carry out the purposes of new
section 1446 generally, including regulations providing for the application of new
section 1446 in the case of publicly traded
partnerships. New section 1446(f) applies
to sales, exchanges, or other dispositions
occurring after December 31, 2017.
SECTION 3. TIMING OF
APPLICATION OF NEW SECTION
1446(f) TO DISPOSITIONS OF
CERTAIN PUBLICLY TRADED
PARTNERSHIP INTERESTS

SECTION 2. BACKGROUND
In general, new section 864(c)(8) provides that a nonresident alien individual’s
or foreign corporation’s gain or loss from
the sale, exchange, or other disposition of
a partnership interest is effectively connected with the conduct of a trade or business in the United States to the extent that
the person would have had effectively
connected gain or loss had the partnership
sold all of its assets at fair market value.
New section 864(c)(8) applies to sales,
exchanges, or other dispositions occurring
on or after November 27, 2017. See Revenue Ruling 91–32, 1991–1 C.B. 107, for
the IRS’s position with respect to sales,
exchanges, or other dispositions of an interest in a partnership occurring before
November 27, 2017.

February 12, 2018

Stakeholders have indicated that, in the
case of a disposition of a publicly traded
partnership interest, applying new section
1446(f) without guidance presents significant practical problems. For example,
stakeholders stated that a transferee of an
interest in a publicly traded partnership
typically will not be able to determine
whether the transferor partner is foreign or
domestic or whether any portion of a
transferor partner’s gain would be treated
under new section 864(c)(8) as effectively
connected gain. This may be the case because publicly traded partnership interests
are generally held in street name by a
broker and transferred through a clearinghouse. Moreover, a particular sale may be
aggregated with other sales and purchases
of partnership interests by other customers

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of the same broker. As a result, it may be
difficult for a transferee to determine
whether it must withhold under new section 1446(f). Furthermore, although the
Conference Report suggests the Treasury
Department and the IRS provide guidance
providing that in the case of a publicly
traded partnership interest sold by a foreign partner through a broker, the broker
may deduct and withhold on behalf of the
transferee, H.R. Rep. No. 115– 466, at 511
(2017), until guidance is provided and
new withholding and reporting systems
are developed, it would not be possible for
brokers to perform any such withholding.
In consideration of these concerns and
others raised by stakeholders, and to allow
for an orderly implementation of the requirements of new section 1446(f), the
Treasury Department and the IRS have
determined that withholding under new
section 1446(f) should not be required
with respect to any disposition of an interest in a publicly traded partnership
(within the meaning of section 7704(b))
until regulations or other guidance have
been issued under new section 1446(f).
This temporary suspension is limited to
dispositions of interests that are publicly
traded and does not extend to nonpublicly traded interests. The Treasury
Department and the IRS intend to issue
future regulations or other guidance on
how to withhold, deposit, and report the
tax withheld under new section 1446(f)
with respect to a disposition of an interest
in a publicly traded partnership. Future
guidance under new section 1446(f) with
respect to a disposition of an interest in a
publicly traded partnership will be prospective and will include transition rules
to allow sufficient time to prepare systems
and processes for compliance.
The rules described in this notice suspending withholding under new section
1446(f) do not extend to new section
864(c)(8), which remains applicable.
SECTION 4. REQUEST FOR
COMMENTS AND CONTACT
INFORMATION
The Treasury Department and the IRS
request comments on the rules to be issued under new section 1446(f). Comments are specifically requested regard-

Bulletin No. 2018 –7

ing: (i) the application of new section
1446(f) to interests in publicly traded partnerships, including the role of brokers in
collecting the tax; (ii) rules for determining the amount realized taking into account section 752(d); and (iii) procedures
for requesting a reduced amount required
to be withheld, including how to determine an appropriate reduced amount and
whether such procedures should be automatic or require approval by the IRS. The
Treasury Department and the IRS also
request comments on whether a temporary
suspension of new section 1446(f) for
partnership interests that are not publicly
traded partnership interests is needed and
what additional guidance, or forms and
instructions, may be needed to assist taxpayers in applying new sections 864(c)(8)
and 1446(f).
Written comments may be submitted to
the Office of Associate Chief Counsel (International), Attention: Ronald M. Gootzeit,
Internal Revenue Service, IR-4569B, 1111
Constitution Avenue, NW, Washington,
DC 20224. Alternatively, taxpayers
may submit comments electronically to
[email protected].
Comments will be available for public
inspection and copying.
The principal author of this notice is
Mr. Gootzeit of the Office of Associate
Chief Counsel (International). For further
information regarding this notice, contact
Mr. Gootzeit at (202) 317-6937 (not a
toll-free number).

Guidance on Withholding
Rules
Notice 2018 –14
I. PURPOSE
This notice: (1) extends the effective
period of Forms W-4, Employee’s Withholding Allowance Certificate, furnished
to claim exemption from income tax withholding under section 3402(n) of the Internal Revenue Code (Code) for 2017
until February 28, 2018, and permits employees to claim exemption from withholding for 2018 by temporarily using the
2017 Form W-4; (2) temporarily suspends

the requirement under section 3402(f)(2)
(B)1 that employees must furnish their
employers new Forms W-4 within 10 days
of changes in status that reduce the withholding allowances they are entitled to
claim; (3) provides that the optional withholding rate on supplemental wage payments under Treas. Reg. § 31.3402(g)–1
is 22 percent for 2018 through 2025; and
(4) provides that, for 2018, withholding
under section 3405(a)(4) on periodic payments when no withholding certificate is
in effect is based on treating the payee as
a married individual claiming three withholding allowances.
Sections 11001 and 11041 of “An Act
to provide for reconciliation pursuant to
titles II and V of the concurrent resolution
on the budget for fiscal year 2018,” P.L.
115–97 (the “Act”), which was enacted on
December 22, 2017, made significant
changes to income tax rates, income tax
deductions and credits, and federal income tax withholding. The Internal Revenue Service (IRS) is currently working
on revising Form W-4 to reflect the
changes made by the Act, such as changes
in available itemized deductions, increases in the child tax credit, the new
dependent credit, and the repeal of dependent exemptions. As a result, the 2018
Form W-4 may not be released until after
February 15, 2018.
The Act does not mandate that employees furnish new Forms W-4 for 2018 and
expressly permits the IRS to administer
income tax withholding under section
3402 for 2018 without regard to the
changes in the withholding rules and the
suspension of personal exemptions. Accordingly, and in order to minimize burden on employees and employers, the IRS
and the Department of the Treasury (Treasury Department) designed the 2018 withholding tables to work with the Forms
W-4 that employees have already furnished their employers. See Notice 1036,
Early Release Copies of the 2018 Percentage Method Tables for Income Tax Withholding, and Publication 15 (Circular E),
Employer’s Tax Guide, for use in 2018.
For employees with simpler tax situations,
the new tables are designed to produce the
correct amount of tax withholding. The
revisions are also aimed at avoiding over-

and under-withholding of tax as much as
possible. The IRS is also working on revising the withholding calculator on
www.irs.gov to reflect the changes made
by the Act. When released, the modified
calculator and 2018 Form W-4 can be
used by employees who wish to update
their withholding in response to the Act or
changes in their personal circumstances in
2018. Until a new Form W-4 is issued,
employees and employers should continue
to use the 2017 Form W-4.
Section II of this notice extends the
effective period of Forms W-4 furnished
to claim exemption from income tax withholding for 2017 to February 28, 2018,
and describes the procedures by which
employees may claim exemption from
withholding for 2018 under section
3402(n) using the 2017 Form W-4. These
procedures expire 30 days after the 2018
Form W-4 is released. They may be relied
upon for actions taken in 2017 with respect to the 2018 tax year. Section III of
this notice temporarily suspends the requirement that employees must furnish
employers new Forms W-4 within 10 days
after a change in status that results in
reduced withholding allowances under
section 3402(f)(2)(B) and Treas. Reg.
§ 31.3402(f)(2)–1. Section IV of this notice clarifies that the optional withholding
rate for supplemental wages is 22 percent
for taxable years beginning after December 31, 2017 and before January 1, 2026.
Section V of this notice provides that, for
2018, the rules for default withholding
under section 3405(a)(4) parallel the rules
for prior years and treat the payee as a
married individual claiming three withholding allowances.
II. GUIDANCE FOR EMPLOYEES
EXEMPT FROM WITHHOLDING
Under section 3402(n), an employee
may claim exemption from income tax
withholding if the employee certifies on
Form W-4 that (1) the employee incurred
no liability for income tax for the preceding taxable year; and (2) the employee
anticipates that he or she will incur no
liability for income tax for the current
taxable year. See also Treas. Reg.
§§ 31.3402(f)(4)–2 and 31.3402(n)–1.

1

All references to sections in this document are to Code sections unless specifically provided otherwise.

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February 12, 2018