Reg-105476-18

21198

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
Background

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–105476–18]
RIN 1545–BO60

Withholding of Tax and Information
Reporting With Respect to Interests in
Partnerships Engaged in the Conduct
of a U.S. Trade or Business
Internal Revenue Service (IRS),
Treasury.

AGENCY:
ACTION:

Notice of proposed rulemaking.

This document contains
proposed regulations implementing
certain sections of the Internal Revenue
Code, including sections added to the
Internal Revenue Code by the Tax Cuts
and Jobs Act, that relate to the
withholding of tax and information
reporting with respect to certain
dispositions of interests in partnerships
engaged in the conduct of a trade or
business within the United States. The
proposed regulations affect certain
foreign persons that recognize gain or
loss from the sale or exchange of an
interest in a partnership that is engaged
in the conduct of a trade or business
within the United States, and persons
that acquire those interests. The
proposed regulations also affect
partnerships that, directly or indirectly,
have foreign persons as partners.

SUMMARY:

Written or electronic comments
and requests for a public hearing must
be received by July 12, 2019.

DATES:

Send submissions to:
CC:PA:LPD:PR (REG–105476–18),
Internal Revenue Service, Room 5203,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand-delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to CC:PA:LPD:PR (REG–105476–
18), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW,
Washington, DC 20224, or sent
electronically via the Federal
eRulemaking Portal at http://
www.regulations.gov (IRS REG–105476–
18).

ADDRESSES:

jbell on DSK3GLQ082PROD with PROPOSALS5

FOR FURTHER INFORMATION CONTACT:

Concerning the proposed regulations,
Chadwick Rowland, 202–317–6937;
concerning submissions of comments or
requests for a public hearing, Regina L.
Johnson (202) 317–6901 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

I. Section 1446(f)
Section 1446(f), which was added to
the Internal Revenue Code (the ‘‘Code’’)
by section 13501 of the Tax Cuts and
Jobs Act, Public Law 115–97 (2017) (the
‘‘Act’’), provides rules for withholding
on the transfer of a partnership interest
described in section 864(c)(8). Section
1446(f)(1) provides that, except as
otherwise provided in section 1446(f), if
a portion of the gain (if any) on any
disposition of an interest in a
partnership would be treated under
section 864(c)(8) as effectively
connected with the conduct of a trade
or business within the United States, the
transferee is required to deduct and
withhold a tax equal to 10 percent of the
amount realized on the disposition.
Section 1446(f)(2)(A) provides an
exception to the general withholding
requirement described in section
1446(f)(1) if the transferor furnishes an
affidavit to the transferee stating, under
penalties of perjury, the transferor’s
United States taxpayer identification
number and that the transferor is not a
foreign person. Section 1446(f)(2)(B)(i)
provides that the exception to
withholding described in section
1446(f)(2)(A) will not apply if the
transferee has actual knowledge that the
affidavit furnished is false, or if the
transferee receives a notice from a
transferor’s agent or transferee’s agent
that the affidavit is false.
Section 1446(f)(3) provides that, at the
request of the transferor or transferee,
the Secretary may prescribe a reduced
amount to be withheld under this
section if the Secretary determines that
reducing the amount to be withheld will
not jeopardize the collection of tax on
gain treated under section 864(c)(8) as
effectively connected with the conduct
of a trade or business within the United
States.
Section 1446(f)(4) provides that if a
transferee fails to withhold any amount
required to be withheld under section
1446(f)(1) then the partnership must
deduct and withhold from distributions
to the transferee a tax in an amount
equal to the amount the transferee failed
to withhold, plus interest.
Section 1446(f)(6) generally provides
that the Secretary shall prescribe such
regulations as may be necessary to carry
out the purposes of section 1446(f),
including regulations providing for
exceptions from the provisions of
section 1446(f). Section 1446(f) is
effective for sales, exchanges, and other
dispositions after December 31, 2017.
On December 29, 2017, the
Department of the Treasury (the
‘‘Treasury Department’’) and the

PO 00000

Frm 00002

Fmt 4701

Sfmt 4702

Internal Revenue Service (the ‘‘IRS’’)
released Notice 2018–08, 2018–7 I.R.B.
352, which temporarily suspends the
requirement to withhold on amounts
realized in connection with the sale,
exchange, or disposition of certain
interests in a publicly traded
partnership not treated as a corporation
under section 7704 and the regulations
thereunder. On April 2, 2018, the
Treasury Department and the IRS
released Notice 2018–29, 2018–16 I.R.B.
495, which provides temporary
guidance and announces an intent to
issue proposed regulations under
section 1446(f) with respect to the sale,
exchange, or disposition of certain
interests in non-publicly traded
partnerships. Notice 2018–29, and
section 1446(f)(1) generally, rely on the
principles contained within the section
1445 withholding regime. Under section
1445, if a foreign person disposes of a
United States real property interest
(‘‘U.S. real property interest’’), as
defined in section 897(c), a withholding
obligation is imposed on the transferee
of the interest.
On December 27, 2018, the Treasury
Department and the IRS published in
the Federal Register a notice of
proposed rulemaking at 83 FR 66647
(REG–113604–18) under section
864(c)(8) (the ‘‘proposed section
864(c)(8) regulations’’). The proposed
section 864(c)(8) regulations provide
rules for determining the amount of gain
or loss treated as effectively connected
with the conduct of a trade or business
within the United States (‘‘effectively
connected gain’’ or ‘‘effectively
connected loss’’) described in section
864(c)(8), including rules coordinating
section 864(c)(8) with sections 741 and
751 (relating to the character of gain or
loss realized in connection with the sale
or exchange of an interest in a
partnership). They also provide rules for
coordination of section 864(c)(8) with
section 897 (relating to amounts treated
as effectively connected gain or loss
with respect to U.S. real property
interests), tiered partnerships, and U.S.
income tax treaties.
II. Rules for Withholding Under Section
1446(a) on Distributions by Publicly
Traded Partnerships
Generally, withholding under section
1446(a) is required by a partnership
when effectively connected taxable
income (‘‘ECTI’’) is allocable to a foreign
person. See §§ 1.1446–2 and 1.1446–3.
However, withholding on ECTI earned
by a publicly traded partnership is
required when the ECTI is distributed to
the foreign person. See § 1.1446–4.
Often, an interest in the publicly traded
partnership is held by a nominee, such

E:\FR\FM\13MYP5.SGM

13MYP5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

jbell on DSK3GLQ082PROD with PROPOSALS5

as a domestic financial institution that
holds the publicly traded partnership
interest as a custodian for a foreign
partner. Section 1.1446–4 provides rules
for applying the withholding tax under
section 1446(a) to distributions by
publicly traded partnerships. Under
those rules, when a publicly traded
partnership provides a qualified notice
(within the meaning of § 1.1446–
4(b)(4)), a nominee, which must be a
domestic person, may be treated as a
withholding agent with respect to a
distribution. See § 1.1446–4(b)(4) and
1.1446–4(d). The qualified notice must
be given in accordance with notice
requirements with respect to dividends
under regulations under the Securities
Exchange Act of 1934. Section 1.1445–
8(f) provides similar qualified notice
rules that apply to certain distributions
subject to withholding when
attributable to the disposition of a U.S.
real property interest.
Section 1.1446–4(f)(3) provides an
ordering rule for situations in which the
distribution is attributable to multiple
types of income (such as amounts
attributable to income described in
section 1441 or 1442 or amounts subject
to withholding under section 1446).
However, no rule is provided for
situations in which a qualified notice
does not provide information regarding
the types of income being distributed.
Explanation of Provisions
The proposed regulations provide
rules for withholding, reporting, and
paying tax under section 1446(f) upon
the sale, exchange, or other disposition
of an interest in a partnership described
in section 864(c)(8) and proposed
§ 1.864(c)(8)–1.1 The proposed
regulations would, when finalized,
adopt many of the rules that were
described in Notice 2018–29, with
certain modifications provided, in part,
in response to comments. In addition,
the proposed regulations provide
reporting rules relating to section
864(c)(8) and rules implementing
withholding under section 1446(f)(4).
They also contain rules clarifying the
reporting rules applicable to transfers of
partnership interests subject to section
6050K. Further, the proposed
regulations provide rules implementing
withholding by brokers on transfers of
certain interests in publicly traded
partnerships subject to section
1446(f)(1), and make related changes to
the reporting rules and procedures for
adjusting withholding under sections
1461, 1463, and 1464. They also make
changes to the rules regarding
1 § 1.864(c)(8)–1 was proposed to be added on
December 27, 2018; 83 FR 66647, 66651.

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

withholding on distributions by
publicly traded partnerships under
§ 1.1446–4, including the rules that
apply to qualified notices and
nominees. Finally, the proposed
regulations provide rules coordinating
withholding under section 1446(f) with
other withholding regimes to prevent
overwithholding of tax.
I. Reporting Requirements for Foreign
Transferors and Partnerships With
Foreign Transferors
A partnership that is engaged in the
conduct of a trade or business within
the United States is required to file an
annual information return, Form 1065,
U.S. Return of Partnership Income, and
also provide information to its partners
on Schedule K–1 (Form 1065), Partner’s
Share of Income, Deductions, Credits,
etc., with respect to each partner’s
distributive share of partnership items
and other information. See section 6031
and §§ 1.6031(a)–1 and 1.6031(b)–1T.
Domestic partners generally report the
information from the Schedule K–1
(Form 1065) on their income tax return,
typically Form 1040, U.S. Individual
Income Tax Return, for an individual, or
Form 1120, U.S. Corporation Income
Tax Return, for a corporation. A foreign
partner with a U.S. income tax return
filing obligation generally files Form
1040NR, U.S. Nonresident Alien Income
Tax Return, or Form 1120–F, U.S.
Income Tax Return of a Foreign
Corporation.
A partner (foreign or domestic) that
transfers an interest in a partnership in
an exchange described in section 751(a)
(relating to an exchange of an interest in
a partnership that holds unrealized
receivables or inventory) generally has
an obligation both to inform the
partnership of the transfer and to
include a statement with respect to the
exchange on the partner’s income tax
return under § 1.751–1(a)(3). See section
6050K(c) and § 1.6050K–1(d). A
partnership also has an obligation to
provide information with respect to the
exchange to the transferee and transferor
under section 6050K(c) and § 1.6050K–
1(c). See also Form 8308, Report of a
Sale or Exchange of Certain Partnership
Interests.
Because section 864(c)(8) requires a
deemed sale at the partnership level to
determine a foreign partner’s effectively
connected gain or loss, a foreign person
that transfers its partnership interest
generally will not be able to compute its
income tax liability under section
864(c)(8) unless the partnership
provides certain information to the
foreign partner. The proposed
regulations therefore provide rules that
facilitate the transfer of information

PO 00000

Frm 00003

Fmt 4701

Sfmt 4702

21199

between a foreign partner and the
partnership for purposes of section
864(c)(8).
The proposed regulations generally
provide that a notifying transferor
(generally, any foreign person and
certain domestic partnerships that have
a foreign person as a direct or indirect
partner) that transfers (within the
meaning of proposed § 1.864(c)(8)–
1(g)(5)) an interest in a partnership
(other than certain interests in a
publicly traded partnership) in a
transaction described in section
864(c)(8) must notify the partnership
within 30 days of the transfer by
providing a statement that includes
information relevant to the partnership
for making calculations under section
864(c)(8), including the date on which
the notifying transferor transferred its
interest, and other identifying
information regarding the transferor and
transferee. See proposed § 1.864(c)(8)–
2(a). This rule generally parallels
§ 1.6050K–1, including the content of
the information and when it must be
provided.
Proposed § 1.864(c)(8)–2(b) requires a
specified partnership (generally, a
partnership that is engaged in the
conduct of a trade or business within
the United States or a partnership that
owns, directly or indirectly, an interest
in a partnership so engaged) to furnish
to a notifying transferor the information
necessary for the transferor to comply
with section 864(c)(8) by the due date of
the Schedule K–1 (Form 1065) for the
tax year of the partnership in which the
transfer occurred. Proposed
§ 1.864(c)(8)–2(b) applies if a specified
partnership receives the notification
described in proposed § 1.864(c)(8)–2(a),
or otherwise knows that a relevant
transfer has occurred, and the notifying
transferor would have had a distributive
share of deemed sale EC gain or deemed
sale EC loss (within the meaning of
proposed § 1.864(c)(8)–1(c)) at the time
of the transfer. For these purposes, a
notifying transferor that is a partnership
is treated as a nonresident alien.
Proposed § 1.864(c)(8)–2(b) provides
that, for purposes of the reporting
requirements described in proposed
§ 1.864(c)(8)–2, a partnership that makes
a distribution to a transferor that
qualifies as a transfer under section
864(c)(8) and proposed § 1.864(c)(8)–
1(b) will be treated as having actual
knowledge that a transfer occurred,
thereby triggering the reporting
requirement of proposed § 1.864(c)(8)–
2(b) to the extent that the transferee
would have had a distributive share of
deemed sale EC gain or deemed sale EC
loss within the meaning of proposed
§ 1.864(c)(8)–1(c).

E:\FR\FM\13MYP5.SGM

13MYP5

21200

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

Relatedly, the proposed regulations
clarify that the information a
partnership must provide under section
6050K upon being notified of a transfer
includes the information necessary for a
transferor to make the transferor’s
required statement under § 1.751–
1(a)(3). See proposed § 1.6050K–1(c)(2).
II. Definitions and General Rules of
Applicability
A. Definitions
For purposes of the proposed
regulations under section 1446(f), the
term ‘‘transfer’’ means a sale, exchange,
or other disposition, and includes a
distribution from a partnership to a
partner. See proposed § 1.1446(f)–
1(b)(9). A ‘‘transferee’’ is any person,
foreign or domestic, that acquires a
partnership interest through a transfer.
See proposed § 1.1446(f)–1(b)(10). The
term ‘‘transferor’’ generally means any
person, foreign or domestic, that
transfers a partnership interest, and
therefore refers to the person that
directly owns the interest in the
partnership. For a trust, to the extent all
or a portion of the trust is treated as
owned by the grantor or another person
under sections 671 through 679 (such
trust, ‘‘a grantor trust’’), the term
‘‘transferor’’ means the grantor or other
person. See proposed § 1.1446(f)–
1(b)(11). See also Rev. Rul. 85–13,
1985–1 C.B. 184.
B. Certifications and Books and Records

jbell on DSK3GLQ082PROD with PROPOSALS5

Similar to the approach described in
Notice 2018–29, the proposed
regulations provide various exceptions
to withholding and procedures for
determining the amount to withhold.
Under these rules, the person required
to withhold may generally rely on
information provided in certifications
that it receives or that is contained in its
own books and records. The general
rules of applicability provide the
requirements for providing a valid
certification and for retaining
certifications or information in books
and records. See proposed § 1.1446(f)–
1(c)(2). A certification includes any
documents associated with the
certification, such as statements from
the partnership, IRS forms, withholding
certificates, withholding statements,
certifications, or other documentation.
Id.
C. Determination Dates
Notice 2018–29 required
determinations to be made as of the date
of transfer when applying many of its
rules and exceptions. Because it may be
difficult to make these determinations
on the precise date of transfer, the

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

proposed regulations generally allow
the choice of one of several dates solely
for purposes of making determinations
under section 1446(f)(1) with regard to
a transfer. This date is referred to as the
determination date. It is chosen on a
transfer-by-transfer basis and must be
used for a transfer for all purposes of
section 1446(f). The determination date
must be one of the following: the date
of the transfer, any date no more than
60 days before the transfer, or, with
respect to a transferor that is not a
controlling partner, the later of either
the first day of the partnership’s taxable
year in which the transfer occurs or the
date before the transfer of the most
recent revaluation described in § 1.704–
1(b)(2)(iv)(f)(5) or 1.704–1(b)(2)(iv)(s)(1).
See proposed § 1.1446(f)–1(c)(4). As the
determination date applies only for
purposes of determining the
withholding obligation under section
1446(f), the calculation of tax resulting
from the application of section 864(c)(8)
and the reporting requirements under
proposed § 1.864(c)(8)–2 are determined
based on the date of the transfer.
D. IRS Forms and Instructions
Proposed § 1.1446(f)–1(c)(5) provides
that any reference in the proposed
regulations to an IRS form includes its
successor form and that any form must
be filed in the manner provided in the
instructions to the forms or in other
guidance. The IRS intends to modify
publications, instructions and forms
(including forms discussed in this
Explanation of Provisions) as
appropriate to take into account sections
864(c)(8) and 1446(f).
E. Coordination With Other Withholding
Rules
Proposed § 1.1446(f)–1(d) provides a
rule coordinating section 1446(f)(1) with
section 1445. Specifically, the rule
provides that if a transferee is required
to withhold under section 1445(e)(5) or
§ 1.1445–11T(d)(1) and section
1446(f)(1), then the transferee will be
subject to the payment and reporting
requirements of section 1445 only. This
rule clarifies that even though proposed
§ 1.864(c)(8)–1(d) provides that section
897(g) does not apply to a transfer that
is also subject to section 864(c)(8), the
withholding regime provided in section
1445 and the regulations thereunder
applies under these circumstances,
rather than the rules described in
section 1446(f)(1). Thus, if a foreign
transferor disposes of an interest in a
partnership that is engaged in the
conduct of a trade or business within
the United States (not taking into
account the application of section
897(a)) and in which fifty percent or

PO 00000

Frm 00004

Fmt 4701

Sfmt 4702

more of the value of the gross assets
consist of U.S. real property interests,
and ninety percent or more of the value
of the gross assets consist of U.S. real
property interests plus any cash or cash
equivalents, a transferee must generally
withhold under section 1445(a) (at 15
percent of the amount realized) and not
section 1446(f). However, this rule
applies only if the transferor has not
applied for a withholding certificate
under § 1.1445–11T(d)(1). See proposed
§ 1.1446(f)–1(d). If the transferor has
applied for a withholding certificate,
then the transferee must withhold the
greater of the amounts required under
section 1445(e)(5) or section 1446(f)(1).
Because gain that an upper-tier
partnership recognizes on the transfer of
an interest in a lower-tier partnership
engaged in the conduct of a trade or
business within the United States is
included when calculating the uppertier partnership’s ECTI, the proposed
regulations also provide a coordination
rule that allows a partnership that is
withheld upon under section 1446(f)(1)
(in its capacity as a transferor) to claim
a credit for the amount withheld against
its withholding tax liability under
section 1446(a) (if any). See proposed
§ 1.1446–3(c)(4). See also § 1.1446–
3(d)(2) for rules on how the partnership
or its partners may claim a credit or
refund for tax paid under section 1446.
III. Withholding on the Transfer of a
Non-Publicly Traded Partnership
Interest by a Foreign Person
A. In General
Under section 1446(f)(1), a transferee
of a partnership interest must withhold
a tax equal to 10 percent of the amount
realized on any disposition when the
disposition results in gain that is treated
as effectively connected with the
conduct of a trade or business within
the United States under section
864(c)(8). Proposed § 1.1446(f)–2(a)
implements this rule by requiring any
transferee to withhold a tax equal to 10
percent of the amount realized on any
transfer of a partnership interest (other
than certain publicly traded partnership
interests) under section 1446(f)(1),
unless an exception to withholding
applies under proposed § 1.1446(f)–2(b).
If an exception does not apply and
withholding is required, proposed
§ 1.1446(f)–2(c) provides rules for
determining and adjusting the amount
required to be withheld under section
1446(f)(1). The exceptions and
determination procedures in the
proposed regulations apply solely for
purposes of section 1446(f)(1) and do
not affect a foreign person’s filing
obligation under the Code or a foreign

E:\FR\FM\13MYP5.SGM

13MYP5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
person’s tax liability resulting from the
application of section 864(c)(8).
B. Exceptions to Withholding
1. In General
The proposed regulations provide six
exceptions to withholding by a
transferee under section 1446(f)(1).
These exceptions generally allow the
transferee to rely on certain
certifications that it receives from the
transferor or partnership unless it has
actual knowledge that the certifications
are incorrect or unreliable. See proposed
§ 1.1446(f)–2(b)(1). When the
partnership is a transferee because it
makes a distribution, it may instead rely
on its books and records unless it
knows, or has reason to know, that the
information is incorrect or unreliable.
Id.
2. Certification of Non-Foreign Status by
Transferor
Consistent with section 6.01 of Notice
2018–29, proposed § 1.1446(f)–2(b)(2)
provides the requirements for a
certification of non-foreign status
(including the requirement that it
include the transferor’s TIN), and
clarifies that a valid Form W–9, Request
for Taxpayer Identification Number and
Certification, may be used for this
purpose, including a Form W–9 for the
transferor that is already in the
transferee’s possession. The proposed
regulations also clarify that a Form W–
9 may be used to establish non-foreign
status of a transferor for purposes of
section 1445. See proposed §§ 1.1445–
2(b)(2)(v) and 1.1445–5(b)(3)(iv).

jbell on DSK3GLQ082PROD with PROPOSALS5

3. No Realized Gain by Transferor
Section 1446(f)(1) applies only when
there is gain described in section
864(c)(8) on the transfer of a partnership
interest. Consistent with section 6.02 of
Notice 2018–29, the proposed
regulations provide that a transferee is
not required to withhold if the
transferor provides the transferee with a
certification stating that the transferor
would not realize any gain on the
transfer of the partnership interest
determined as if the transfer occurred
on the determination date. Proposed
§ 1.1446(f)–2(b)(3)(i) provides that this
certification of no realized gain must
take into account any ordinary income
arising from application of section
751(a) and the regulations thereunder.
Therefore, a transferor may not provide
the certification if section 751(a) and the
regulations thereunder require the
transferor to realize ordinary income,
even if the transferor would realize an
overall loss on the transfer.

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

A similar rule in proposed
§ 1.1446(f)–2(b)(3)(ii) applies to
partnership distributions. Section 731
generally provides that if a distribution
of money to a partner exceeds the
partner’s adjusted basis in its interest in
the partnership, then gain will be
recognized to the extent of the
difference between the money
distributed and the partner’s basis. That
gain or loss is considered as gain or loss
from the sale or exchange of the
partnership interest of the distributee
partner. See section 731(a). Consistent
with section 9 of Notice 2018–29,
proposed § 1.1446(f)–2(b)(3)(ii) provides
that for purposes of determining
whether withholding is required on a
distribution, a partnership is permitted
to rely on its books and records or on
a certification provided by the transferor
(the distributee partner) to determine if
there is realized gain to the distributee
partner.
4. Effectively Connected Gain Upon a
Partnership’s Deemed Sale
To make the determination of whether
there is a transfer to which withholding
applies more administrable for
transferors and transferees, proposed
§ 1.1446(f)–2(b)(4) provides that no
withholding is required if the transferee
receives a certification from the
partnership stating that if the
partnership sold all of its assets at fair
market value, the amount of net
effectively connected gain resulting
from the deemed sale would be less
than 10 percent of the total net gain.
Section 6.04 of Notice 2018–29
provided a similar rule, but at a
threshold of 25 percent. Proposed
§ 1.1446(f)–2(b)(4) lowers the percentage
threshold in accordance with section 2
of Notice 2018–29, which stated that the
Treasury Department and the IRS intend
to provide future guidance reducing the
percentage threshold provided in
section 6.04 of Notice 2018–29. The
proposed regulations also allow a
partnership that is a transferee because
it makes a distribution to use this
exception when it determines that the
10-percent test is satisfied from its
books and records.
To make it easier for the partnership
to calculate its effectively connected
gain from the deemed sale, the proposed
regulations allow this amount to be
determined as of the determination date.
Further, the proposed regulations allow
a partnership to make this
determination when no gain on the
deemed sale would have been
effectively connected with the conduct
of a trade or business within the United
States (for example, when the deemed
sale would result in a loss that would

PO 00000

Frm 00005

Fmt 4701

Sfmt 4702

21201

have been effectively connected with
the conduct of a trade or business
within the United States). See proposed
§ 1.1446(f)–2(b)(4)(i)(B).
5. Allocable Share of ECTI
Section 6.03 of Notice 2018–29
provided an exception to withholding
under section 1446(f)(1) for situations in
which a transferor’s distributive share of
ECTI during the previous three taxable
years was less than 25 percent of the
transferor’s total distributive share of
income in each year (the ‘‘three-year
ECTI exception’’). Section 2 of Notice
2018–29 provided that the Treasury
Department and the IRS intended to
lower the three-year ECTI exception’s 25
percent threshold in proposed
regulations, and that other limitations
for this rule were under consideration.
See also section III.B.4 of this
Explanation of Provisions (describing
modifications to the threshold set forth
in section 6.04 of Notice 2018–29).
The three-year ECTI exception was
intended to relieve potentially
significant overwithholding that could
arise when a partner transfers an
interest in a partnership, recognizes
relatively little effectively connected
gain under section 864(c)(8), but cannot
obtain information from the partnership
at the time of the transfer necessary to
qualify for the deemed sale exception
described in section III.B.4 of this
Explanation of Provisions. The threeyear ECTI exception uses a transferor’s
allocable share of ECTI as a proxy for
distributive share of effectively
connected gain recognized in
connection with a deemed sale
described in section 864(c)(8)(B). The
Treasury Department and the IRS are
aware that the amount of a partner’s
recent allocable share of ECTI may not
accurately indicate whether, and to
what extent, the partner would
recognize gain taxable under section
864(c)(8) and proposed § 1.864(c)(8)–1.
For example, a partnership may
recognize relatively little effectively
connected income for several years
while nonetheless holding assets with
significant built-in gain that would be
taxable as effectively connected gain.
The three-year ECTI exception may in
certain cases increase compliance and
collection risks if foreign partners with
limited connections to the United States
and significant tax liability under
section 864(c)(8) are not withheld on
under section 1446(f)(1).
In the interest of striking the
appropriate balance between the risk of
noncompliance and the potential for
overwithholding, the proposed
regulations adopt the three-year ECTI
exception from Notice 2018–29 with the

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

21202

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

modifications described in this section
III.B.5 of this Explanation of Provisions.
The Treasury Department and the IRS
continue to study whether the threeyear ECTI exception is appropriate in
light of the risk of noncompliance, and
request comments on the utility of the
rule and modifications to the rule that
would reduce that risk.
Accordingly, proposed § 1.1446(f)–
2(b)(5)(i) provides that no withholding
is required if a transferee receives a
certification from a transferor stating
that the transferor was at all times a
partner in the partnership for the
immediately prior taxable year and the
two taxable years that precede it and
that the transferor’s allocable share of
ECTI for each of those taxable years was
less than 10 percent of the transferor’s
total distributive share of the
partnership’s net income for that year.
See proposed § 1.1446(f)–2(b)(5)(i)(A)
and (C). In addition, a transferor must
certify that, in the immediately prior
taxable year and the two that preceded
it, the transferor’s allocable share of
ECTI was less than $1 million
(including ECTI allocated to certain
persons related to the transferor). See
proposed § 1.1446(f)–2(b)(5)(i)(B). A
transferor must also certify that its
distributive share of income or gain that
is effectively connected with the
conduct of a trade or business within
the United States or deductions or
losses properly allocated and
apportioned to that income in each of
the taxable years described in proposed
§ 1.1446(f)–2(b)(5)(i)(A) has been
reported on a Federal income tax return
(filed on or before the due date
(including extensions) for filing the
return (and all amounts due with
respect to the return are timely paid))
for each of the three preceding taxable
years, if required to be filed, before the
date on which the transferor furnishes
the certification. See proposed
§ 1.1446(f)–2(b)(5)(i)(D). For this
purpose, if the transferor is a
nonresident alien individual or foreign
corporation, the Federal income tax
return is the transferor’s Form 1040NR
or Form 1120–F; if the transferor is a
partnership, the Federal income tax
returns are the Forms 1040NR or 1120–
F of the direct or indirect partners of the
transferor.
For purposes of this rule, the
immediately prior taxable year is the
transferor’s most recent taxable year
with or within which a taxable year of
the partnership ended and for which a
Schedule K–1 (Form 1065) was due or
furnished (if earlier) before the date of
the transfer. See proposed § 1.1446(f)–
2(b)(5)(ii). Consistent with the threeyear ECTI exception described in Notice

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

2018–29, a transferor does not satisfy
this requirement if for any of the
relevant years it did not receive Form
8805, Foreign Partner’s Information
Statement of Section 1446 Withholding
Tax, unless the transferor was allocated
an item of deduction or loss that is
effectively connected with the conduct
of a trade or business within the United
States, in which case it is treated as
having an allocable share of ECTI for
that year of zero. See proposed
§ 1.1446(f)–2(b)(5)(iii).
When a transferor has had neither
ECTI nor a net distributive share of
income allocated to it in the previous
three taxable years, the composition of
the income the partnership allocates to
the transferor does not provide any
indication of the amount of effectively
connected gain realized by the
transferor in connection with the
transfer. Accordingly, the proposed
regulations also provide that a transferor
does not qualify for the exception
provided in proposed § 1.1446(f)–2(b)(5)
if the transferor did not have a net
distributive share of income allocated to
it in any of its previous three taxable
years. See proposed § 1.1446(f)–
2(b)(5)(iv).
Section 6.03 of Notice 2018–29
provided that the three-year ECTI
exception does not apply when a
partnership is a transferee by reason of
making a distribution. Comments noted
that, particularly in tiered partnership
structures, a distributing partnership
may not be able to obtain the
information necessary to use the
deemed sale exception described in
section 6.04 of Notice 2018–29, such
that the partnership would be required
to withhold under section 1446(f)(1) in
cases in which there was relatively
limited effectively connected income
earned by the partnership. In response
to the comments, the proposed
regulations allow a distributing
partnership to use this exception when
it determines that the three-year ECTI
exception is applicable based on its
books and records, provided that it
receives a representation from the
transferor stating that income tax
returns have been filed, and tax has
been paid, for each of the relevant years
for which the transferor was allocated
effectively connected income (or loss).
See proposed § 1.1446(f)–2(b)(5)(v).
Finally, proposed § 1.1446(f)–
2(b)(5)(vi) provides that a transferor may
not make the certification if it has actual
knowledge that the information relevant
to the certification that is reported by
the partnership on any Form 8805 or
Schedule K–1 (Form 1065) is incorrect.

PO 00000

Frm 00006

Fmt 4701

Sfmt 4702

6. Nonrecognition by Transferor
Section 864(c)(8) and proposed
§ 1.864(c)(8)–1 provide that gain from
the transfer of a partnership interest that
is treated as effectively connected with
the conduct of a trade or business
within the United States is limited to
gain otherwise recognized under the
Code. If a nonrecognition provision of
the Code applies to all of the gain
realized on a transfer, withholding
under section 1446(f)(1) does not apply.
Accordingly, section 6.05 of Notice
2018–29 provided an exception to
withholding for certain nonrecognition
transactions if the transferee receives a
notice from the transferor describing the
application of a nonrecognition
provision. This exception was based on
the rules in § 1.1445–2(d)(2).
Consistent with the rule provided in
Notice 2018–29, the proposed
regulations generally permit a transferee
to rely on a certification of
nonrecognition from the transferor. See
proposed § 1.1446(f)–2(b)(6). The
certification provided by the transferor
must include a brief description of the
transfer and the relevant law and facts
relating to the application of the
nonrecognition provision.
If only a portion of the gain realized
on the transfer is subject to a
nonrecognition provision, an
adjustment to the amount required to be
withheld may be permitted under
proposed § 1.1446(f)–2(c)(4), discussed
in section III.C.4 of this Explanation of
Provisions (describing the rules in
proposed § 1.1446(f)–2(c)(4)(vi) for the
certification of maximum tax liability
that may be relied upon in these
situations).
7. Claim of Treaty Benefits
Notice 2018–29 did not contain
specific rules addressing the application
of income tax treaties, instead including
them in section 6.05 by adopting a
modified version of § 1.1445–2(d)
(providing an exception from
withholding under section 1445 when
the transferor certifies that it is not
required to recognize gain either under
a provision of the Code or under a
treaty). The proposed regulations
provide an exception to withholding
under section 1446(f)(1) when a
transferor certifies that it is not subject
to tax on any gain from the transfer
pursuant to an income tax treaty in
effect between the United States and a
foreign country. See proposed
§ 1.1446(f)–2(b)(7)(i). This exception
applies only when a transferor (as
opposed to owners of an interest in the
transferor, including partners in a
partnership that is a transferor) qualifies

E:\FR\FM\13MYP5.SGM

13MYP5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
for the benefits of an income tax treaty
in order to reduce the burden on a
transferee of reviewing documentation
from multiple persons. The certification
to the transferee must include a valid
Form W–8BEN, Certificate of Foreign
Status of Beneficial Owner for United
States Tax Withholding and Reporting
(Individuals), or W–8BEN–E, Certificate
of Status of Beneficial Owner for United
States Tax Withholding and Reporting
(Entities) (as applicable), that contains
the information necessary to support the
claim for treaty benefits, and the
transferee must mail a copy of the
certification to the IRS by the 30th day
after the date of the transfer in order to
rely upon it. Id. See also Form 8833,
Treaty-Based Return Position Disclosure
Under Section 6114 or 7701(b), and the
instructions to the form regarding the
requirement for the transferor to
disclose a claim for treaty benefits with
a return.
To ensure that these procedures are
followed for claims involving treaty
benefits, this exception is the sole
method by which a transferor may claim
an exception to withholding by reason
of a claim of treaty benefits. See
proposed § 1.1446(f)–2(b)(7)(iii). For
claims involving transfers with respect
to which treaty benefits apply to only a
portion of the gain from the transfer, see
section III.C.4 of this Explanation of
Provisions (describing the rules in
proposed § 1.1446(f)–2(c)(4)(vi) for the
certification of maximum tax liability
that that may be relied upon in these
situations).

jbell on DSK3GLQ082PROD with PROPOSALS5

C. Determining the Amount To
Withhold
1. In General
The proposed regulations provide
certain procedures for determining the
amount to withhold under section
1446(f)(1). The rules are intended to
provide administrable procedures for
transferees to determine the amount to
withhold, and in some cases, provide
procedures intended to better reflect the
amount of the transferor’s actual tax
liability under section 864(c)(8). When
applicable, these procedures generally
allow the transferee to rely on
certifications that it receives from the
transferor (or, in certain cases, from the
partnership) to determine the amount to
withhold unless it has actual knowledge
that the certification is incorrect or
unreliable. See proposed § 1.1446(f)–
2(c)(1). In cases in which a partnership
is the transferee because it makes a
distribution, it may instead rely on its
books and records unless it knows, or
has reason to know, that the information
is incorrect or unreliable. Id.

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

2. Amount Realized
i. In General
The amount required to be withheld
under section 1446(f)(1) is determined
by reference to the transferor’s amount
realized on the transfer. See section
1446(f)(1). The proposed regulations
provide that the amount realized for
purposes of proposed § 1.1446(f)–2 is
determined under section 1001 and the
regulations thereunder and section 752
and the regulations thereunder. See
proposed § 1.1446(f)–2(c)(2)(i); see also
§§ 1.752–1(h) and 1.1001–2.
The proposed regulations also clarify
that in the case of a distribution, the
amount realized is the sum of the
amount of cash distributed (or to be
distributed), the fair market value of
property distributed (or to be
distributed), and the reduction in the
transferor’s share of partnership
liabilities. Id.
ii. Procedures To Determine Share of
Partnership Liabilities
Comments stated that the allocation of
liabilities to a partner under section 752
is not information that normally would
be available to a transferee and may be
difficult for a transferor to determine as
of the date of transfer. To address these
issues, section 7.02 of Notice 2018–29
provided that a transferee may in certain
cases rely on a certification from the
transferor as to the amount of the
transferor’s share of partnership
liabilities reported on the transferor’s
most recently received Schedule K–1
(Form 1065), provided that the form was
for a partnership taxable year that
closed no more than 10 months before
the date of transfer and the transferor is
not a controlling partner. Section 7.03 of
Notice 2018–29 allowed a transferee to
rely on a certification from the
partnership that provided the
transferor’s share of partnership
liabilities as reflected on the most
recently prepared Schedule K–1 (Form
1065).
The proposed regulations provide
procedures similar to sections 7.02 and
7.03 of Notice 2018–29 that allow a
transferee to rely on a certification from
the transferor or the partnership.
Proposed § 1.1446(f)–2(c)(2)(ii)(B)
provides that a transferee may generally
rely on a certification from a transferor
that provides the amount of the
transferor’s share of partnership
liabilities reported on the most recent
Schedule K–1 (Form 1065) issued by the
partnership. In response to comments
stating that a transferor may not possess
a Schedule K–1 (Form 1065) that
satisfies the 10 month requirement in
Notice 2018–29 because of the timing of

PO 00000

Frm 00007

Fmt 4701

Sfmt 4702

21203

the extended due date for Schedule K–
1 (Form 1065), the proposed regulations
provide that a transferee may generally
rely on a certification if the last day of
the partnership taxable year for which
the Schedule K–1 (Form 1065) was
provided was no more than 22 months
before the date of the transfer. See
proposed § 1.1446(f)–2(c)(2)(ii)(B).
Consistent with Notice 2018–29, a
transferor that is a controlling partner
may not provide this certification
because it will generally be able to
require the partnership to provide a
partnership-level certification as to the
controlling partner’s share of
partnership liabilities. Id.
Proposed § 1.1446(f)–2(c)(2)(ii)(C)
allows a transferee to rely on a
certification from the partnership that
provides the amount of the transferor’s
share of partnership liabilities.
However, unlike the rule in Notice
2018–29, the partnership is required to
make this determination as of the
determination date rather than relying
on its most recently prepared Schedule
K–1 (Form 1065). Id. The proposed
regulations also provide a new
procedure that allows a partnership that
is a transferee because it makes a
distribution to rely on its books and
records to determine the transferor’s
share of partnership liabilities as of the
determination date. See proposed
§ 1.1446(f)–2(c)(2)(iii).
If a transferee does not use one of
these determination procedures, the
reduction in the transferor’s share of
partnership liabilities must be
determined as of the date of the transfer
for purposes of computing the amount
realized.
iii. Modified Amount Realized for
Foreign Partnerships
As discussed in section III.B of this
Explanation of Provisions, section
1446(f)(2) and proposed § 1.1446(f)–
2(b)(2) provide an exception to
withholding when the transferor is not
a foreign person. A transferor that is a
foreign partnership may not rely on this
exception even though it may have U.S.
persons (which are not subject to tax
under section 864(c)(8)) as its partners.
To avoid overwithholding when a
foreign partnership transfers its interest
in a partnership, proposed § 1.1446(f)–
2(c)(2)(iv) provides a procedure to limit
the amount realized for withholding
purposes to the portion of the amount
realized that is attributable to foreign
persons. For this purpose, the portion of
the amount realized attributable to a
direct or indirect partner is determined
based on the percentage of gain
allocable to that partner. Any partner
that does not provide a valid

E:\FR\FM\13MYP5.SGM

13MYP5

21204

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

certification of non-foreign status
(including a Form W–9) is treated as a
foreign person for this purpose.
To make the certification for a
modified amount realized, the transferor
must provide to the transferee a Form
W–8IMY, Certificate of Foreign
Intermediary, Foreign Flow-Through
Entity, or Certain U.S. Branches for
United States Tax Withholding and
Reporting, that includes a certification
of non-foreign status for each partner
that is treated as a U.S. person. It must
also include a withholding statement
that provides the percentage of gain
allocable to each direct or indirect
partner and that indicates whether that
person is a U.S. person or is treated as
a foreign person.

jbell on DSK3GLQ082PROD with PROPOSALS5

3. Lack of Money or Property or Lack of
Knowledge Regarding Liabilities
As described in section 8 of Notice
2018–29, in some cases, a reduction in
the transferor’s share of partnership
liabilities may cause the amount
otherwise required to be withheld to
exceed the cash or other property that
the transferee actually pays to the
transferor. In other cases, a transferee
may have not received, or cannot rely
upon, a certification regarding the
transferor’s share of partnership
liabilities, and may not otherwise know
the transferor’s share of partnership
liabilities. In these situations, the
proposed regulations generally provide
that the amount required to be withheld
is equal to the amount realized
determined without regard to the
decrease in the transferor’s share of
partnership liabilities. See proposed
§ 1.1446(f)–2(c)(3).
4. Certification of Maximum Tax
Liability
To more closely align the amount to
withhold with the transferor’s tax
liability under section 864(c)(8), the
proposed regulations provide a
procedure to determine the amount to
withhold that is intended to estimate
the amount of tax the transferor is
required to pay under section 864(c)(8).
See proposed § 1.1446(f)–2(c)(4).
For this procedure to apply, a
transferee must receive a certification
from the transferor containing certain
information relating to the transferor
and the transfer. See proposed
§ 1.1446(f)–2(c)(4)(iii). One of the
requirements for this certification is for
the transferor to identify the amount of
outside capital gain and outside
ordinary gain that would be treated as
effectively connected gain on the
determination date. See proposed
§ 1.1446(f)–2(c)(4)(iii)(E). Further, to
provide this certification, the transferor

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

must represent that it has obtained a
statement from the partnership that
includes, among other things,
information relating to the transferor’s
distributive share of effectively
connected gain in connection with a
deemed sale described in section
864(c)(8)(B) as of the determination
date. See proposed § 1.1446(f)–
2(c)(4)(iii)(G).
When a transferor provides a
transferee this information, proposed
§ 1.1446(f)–2(c)(4)(i) allows the
transferee to withhold based on the
transferor’s maximum tax liability on
the transfer. The transferor’s maximum
tax liability is the amount of the
transferor’s effectively connected gain
multiplied by the applicable percentage.
See section 1446(b) and § 1.1446–
3(a)(2). The applicable percentage
applies the highest rate of tax for each
particular type of income or gain
allocable to a foreign person. Id.
Special rules apply for a transfer in
which only a portion of the gain is
subject to tax under section 864(c)(8)
because a nonrecognition provision of
the Code or an income tax treaty in
effect between the United States and a
foreign country applies (for example,
when the partnership carries on one
trade or business through a U.S.
permanent establishment, and another
trade or business that is not carried on
through a U.S. permanent
establishment). See proposed
§ 1.1446(f)–2(c)(4)(v) and (vi). These
rules provide that the transferor must, in
addition to providing the maximum tax
liability certification, comply with the
procedural requirements that would
otherwise apply when claiming a full
exception to withholding based on a
nonrecognition provision or treaty
benefits.
D. Reporting and Paying Withheld
Amounts
1. In General
A transferee required to withhold
must report and pay any tax withheld
by the 20th day after the date of the
transfer. See proposed § 1.1446(f)–
2(d)(1). To report and pay the amount
withheld, the proposed regulations
direct the transferee to use Forms 8288,
U.S. Withholding Tax Return for
Dispositions by Foreign Persons of U.S.
Real Property Interests, and 8288–A,
Statement of Withholding on
Dispositions by Foreign Persons of U.S.
Real Property Interests. The IRS will
stamp a valid Form 8288–A to show
receipt and mail a copy to the transferor.

PO 00000

Frm 00008

Fmt 4701

Sfmt 4702

2. Transferee’s Obligation To Certify the
Amount Withheld to the Partnership
As discussed in section IV of this
Explanation of Provisions, a partnership
must withhold on distributions to a
transferee under section 1446(f)(4) to the
extent the transferee fails to properly
withhold under section 1446(f)(1) and
proposed § 1.1446(f)–2(a). See proposed
§ 1.1446(f)–3. In order for the
partnership to determine whether it
must withhold under these rules,
proposed § 1.1446(f)–2(d)(2) requires a
transferee to timely furnish certain
information regarding its compliance
with section 1446(f)(1) to the
partnership.
Specifically, proposed § 1.1446(f)–
2(d)(2) requires a transferee (other than
a partnership that is a transferee because
it makes a distribution) to furnish, no
later than 10 days after the transfer, a
certification to the partnership that
either includes a copy of the Form
8288–A that it files with the IRS, or
states the amount realized on the
transfer and any amount withheld by
the transferee. The certification must
also include any underlying
certifications that the transferee has
relied upon that claim an exception or
adjustment to withholding. As
discussed in section IV.B of this
Explanation of Provisions, the
partnership must conduct its own
review of the certification provided by
the transferee, including any underlying
certifications. Therefore, a transferee
that has relied on a certification
claiming an exception or adjustment to
withholding may want to ensure that
the partnership has determined the
certification to be correct and reliable
before the due date for payment of any
withheld amounts to the IRS.
E. Effect of Withholding on Transferor
Proposed § 1.1446(f)–2(e) states that a
foreign person must file a U.S. tax
return and pay any tax due with respect
to a transfer that is subject to section
864(c)(8) regardless of whether there is
withholding under section 1446(f)(1)
and proposed § 1.1446(f)–2. To claim a
credit under section 33, a transferor that
is an individual or corporation must
attach to its return the stamped copy of
Form 8288–A, as referenced in section
III.D of this Explanation of Provisions.
See proposed § 1.1446(f)–2(e)(2)(i). If a
stamped copy of Form 8288–A has not
been provided to the transferor by the
IRS, proposed § 1.1446(f)–2(e)(3)
provides that a transferor may establish
the amount of tax withheld by
furnishing substantial evidence of the
amount. For a discussion of the rule
regarding a transferor that is a foreign

E:\FR\FM\13MYP5.SGM

13MYP5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
partnership claiming a credit for
withholding under section 1446(f)(1),
see section II.E of this Explanation of
Provisions.
IV. Partnership’s Requirement To
Withhold Under Section 1446(f)(4) on
Distributions to Transferee
A. In General
Proposed § 1.1446(f)–3 provides rules
under section 1446(f)(4) that would
implement the partnership’s
requirement to withhold on
distributions to a transferee on any
amount that the transferee failed to
properly withhold under section
1446(f)(1), plus any interest on this
amount. The rules, when made
applicable as final rules, would end the
suspension of section 1446(f)(4)
withholding provided in section 11 of
Notice 2018–29.

jbell on DSK3GLQ082PROD with PROPOSALS5

B. Requirement To Withhold
The proposed regulations provide
that, if a transferee fails to withhold any
amount required to be withheld under
proposed § 1.1446(f)–2 in connection
with the transfer of a partnership
interest, the partnership must withhold
from any distributions made to the
transferee in accordance with the rules
in proposed § 1.1446(f)–3. Under the
general rule, a partnership determines
whether a transferee has withheld the
amount required to be withheld under
proposed § 1.1446(f)–2 by relying on the
certification described in proposed
§ 1.1446(f)–2(d)(2) that it receives from
the transferee. See proposed § 1.1446(f)–
3(a)(1). The partnership may rely on this
certification unless it knows, or has
reason to know, that the certification is
incorrect or unreliable. Id. Therefore,
the partnership must review the
certification received from the
transferee, which includes any
underlying certifications that the
transferee relied on to reduce or
eliminate withholding. Because the
partnership may have information that
may not be available to the transferee
(for example, information in its books
and records), a partnership may know,
or have reason to know, that an
underlying certification is incorrect or
unreliable even though the transferee
properly relied on the certification. In
this case, the partnership would be
required to withhold on the transferee
under section 1446(f)(4) to the extent
required in proposed § 1.1446(f)–3.
If the partnership timely receives
(within 10 days from the transfer), and
may rely on, a certification from the
transferee stating that an exception to
withholding applies or establishing that
the transferee has withheld the amount

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

required to be withheld under proposed
§ 1.1446(f)–2, then the partnership is not
required to withhold under the general
rule in proposed § 1.1446(f)–3(a)(1). See
proposed § 1.1446(f)–3(b)(1). For this
purpose, the amount required to be
withheld may take into account any
adjustment procedures under
§ 1.1446(f)–2(c) (for which any
documents, including underlying
certifications, are attached to the
certification provided by the transferee).
The proposed regulations thus reduce
the burden imposed by section
1446(f)(4) by allowing transferees and
partnerships to rely on the information
produced under the regulations
implementing section 1446(f)(1).
The proposed regulations provide an
additional rule that allows the IRS, in
limited circumstances, to require a
partnership to withhold under section
1446(f)(4) when the IRS notifies the
partnership that it has determined that
the transferee has provided incorrect
information on the certification
described in proposed § 1.1446(f)–
2(d)(2) regarding the amount realized or
the amount withheld, or that the
transferee failed to pay the amounts
reported as withheld to the IRS. See
proposed § 1.1446(f)–3(a)(2). This rule is
meant to induce the transferee to
properly determine the amount realized
on transfer (in accordance with the rules
in proposed § 1.1446(f)–2(c)(2)), and to
correctly report to the partnership the
amount of tax withheld and paid to the
IRS.
Under the proposed regulations,
withholding under section 1446(f)(4)
does not apply when a partnership is a
transferee because it makes a
distribution. See proposed § 1.1446(f)–
3(b)(3). Section 1446(f)(4) imposes a
withholding obligation on a secondary
party, the partnership, when the
transferee fails to withhold under
section 1446(f)(1). When the partnership
is the transferee because it made a
distribution and failed to withhold
under section 1446(f)(1) and proposed
§ 1.1446(f)–2, imposing a section
1446(f)(4) withholding obligation on it
does not provide an additional party to
ensure the 1446(f) liability is paid.
Furthermore, the partnership remains
liable for its failure to withhold in its
capacity as a transferee. See section
VI.A of this Explanation of Provisions.
A publicly traded partnership
generally is also not required to
withhold on distributions made to a
transferee under section 1446(f)(4). See
proposed § 1.1446(f)–3(b)(2)(i). As
described in section V of this
Explanation of Provisions, it would be
administratively difficult for a publicly
traded partnership to determine when a

PO 00000

Frm 00009

Fmt 4701

Sfmt 4702

21205

transfer of its interest has occurred, and
whether the correct amount has been
withheld under section 1446(f)(1).
However, the proposed regulations do
require a publicly traded partnership to
withhold under section 1446(f)(4) in
certain limited instances. Specifically, a
publicly traded partnership may publish
a qualified notice that states that
withholding under section 1446(f)(1)
does not apply with respect to a
distribution. See section V.B.2 and 3 of
this Explanation of Provisions. To
ensure that publicly traded partnerships
exercise due diligence when publishing
these qualified notices, proposed
§ 1.1446(f)–3(b)(2)(ii) provides that the
exception from section 1446(f)(4)
withholding applicable to publicly
traded partnerships does not apply if a
publicly traded partnership determines
(including by reason of having received
notification from the IRS) that it has
published a qualified notice that falsely
states that an exemption applied. When
a publicly traded partnership makes this
determination, it must withhold on
distributions to the transferees an
amount equal to the amount that any
brokers failed to withhold under
proposed § 1.1446(f)–4 due to reliance
on the qualified notice, plus interest.
C. Withholding Rules
A partnership that does not receive, or
cannot rely on, a timely certification
from a transferee stating that an
exception to withholding applies or that
the proper amount has been withheld
must begin to withhold under the
general rule on distributions made to
the transferee on the later of the date
that is 30 days after the transfer or the
date that is 15 days after the partnership
acquires actual knowledge of the
transfer. See proposed § 1.1446(f)–
3(c)(1)(i).
The partnership must withhold on the
entire amount of each distribution made
to the transferee until it may rely on a
certification from the transferee that
states that an exception to withholding
applies or that provides the information
necessary to determine the amount
required to be withheld. See proposed
§ 1.1446(f)–3(c)(1)(ii). The partnership
may rely on this certification to
determine its withholding obligation
regardless of whether it is provided
within the time prescribed in proposed
§ 1.1446(f)–2(d)(2). If the partnership
has not already satisfied the amount
required to be withheld, as determined
from the certification from the
transferee, it must continue to withhold
on distributions to the transferee until it
has done so. Id. However, the
partnership may stop withholding if the
transferee disposes of all of its interest

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

21206

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

in the partnership, unless the
partnership has actual knowledge that
any successor to the transferee is related
to the transferee or the transferor from
which the transferee acquired the
interest. Id.
The amount required to be withheld
under proposed § 1.1446(f)–3(a)(1), as
determined from the certification
provided by the transferee, is a tax equal
to 10 percent of the amount realized on
the transfer, reduced by any amount
already withheld by the transferee, plus
any computed interest. See proposed
§ 1.1446(f)–3(c)(2)(i). The proposed
regulations provide that a partnership
that is required to withhold under
proposed § 1.1446(f)–3(a)(1) may not
take into account any adjustment
procedures that would otherwise affect
the amount required to be withheld
under proposed § 1.1446(f)–2(c)(2)(i).
See proposed § 1.1446(f)–3(c)(2)(i)(A).
Thus, for example, a partnership may
not reduce the amount that it is required
to withhold under the procedures
described in proposed § 1.1446(f)–
2(c)(4) (adjusting the amount subject to
withholding based on a transferor’s
maximum tax liability). The Treasury
Department and the IRS have
determined that it would be
inappropriate to permit adjustments that
may reduce the amount required to be
withheld under section 1446(f)(4).
Withholding on distributions to
transferees under section 1446(f)(4)
applies only after the transferee has
either failed to properly withhold under
section 1446(f)(1) or has not complied
with the applicable procedural
requirements in the proposed
regulations. Accordingly, permitting
adjustments to the amount a partnership
is required to withhold under section
1446(f)(4) would reduce transferees’
incentive to comply with their
obligations under section 1446(f)(1)
while potentially increasing the
partnership’s administrative burden
associated with that withholding.
Proposed § 1.1446(f)–3(c)(2)(ii)
provides rules for the partnership to
compute interest on the amount that the
transferee failed to withhold. Proposed
§ 1.1446(f)–3(c)(3) provides that any
amount required to be withheld on a
distribution under any other
withholding provision in the Code is
not required to be withheld under
section 1446(f)(4). For example, if a
partnership is required to withhold $30
under section 1441 on a $100
distribution, the maximum amount
required to be withheld on that
distribution under section 1446(f)(4) is
$70.
Proposed § 1.1446(f)–3(d) provides
that a partnership required to withhold

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

under section 1446(f)(4) must report and
pay the tax withheld using Forms 8288,
U.S. Withholding Tax Return for
Dispositions by Foreign Persons of U.S.
Real Property Interests, and 8288–C,
Statement of Withholding Under
Section 1446(f)(4) for Withholding on
Dispositions by Foreign Persons of
Partnership Interests, as provided in
forms, instructions, or other guidance.
D. Effect of Withholding on the
Transferor and Transferee
The withholding of tax under section
1446(f)(4) does not relieve a nonresident
alien individual or foreign corporation
subject to tax under section 864(c)(8)
from filing a U.S. income tax return
with respect to the transfer and paying
any tax due with the return. See
proposed § 1.1446(f)–3(e)(1). Because
this tax is withheld from the transferee
rather than from the transferor, the
transferor is not allowed a credit under
section 33. Id. However, the proposed
regulations clarify that tax will not be
collected from the transferor to the
extent it has already been collected from
another person under these rules. See
section VI.A of this Explanation of
Provisions. Therefore, the transferor will
not be required to pay tax to the extent
the tax (but not any portion treated as
interest) has been paid through
withholding on the transferee.
A transferee remains liable under
section 1446(f)(1) even when the
partnership is required to withhold
under section 1446(f)(4). However, the
transferee is treated as satisfying this
withholding tax liability under section
1446(f)(1) to the extent that it is
withheld upon under section 1446(f)(4).
See proposed § 1.1446(f)–3(e)(2). Any
amount withheld that is treated as
interest is not treated as satisfying the
transferee’s liability under section
1446(f)(1), but that amount will instead
be treated as interest paid by the
transferee with respect to its section
1446(f)(1) liability. Id. Under the
proposed regulations, if the amount of
tax withheld from the transferee exceeds
its liability under section 1446(f)(1),
only the partnership may claim a refund
on behalf of the transferee for the excess
amount. Id. This rule is meant to make
the refund process more administrable
by having the partnership act on behalf
of each of its transferees for purposes of
claiming any excess amounts withheld
under section 1446(f)(4). The Treasury
Department and the IRS anticipate that
partnerships and transferees will make
arrangements by contract so that the
transferees may be reimbursed for
amounts refunded to the partnership.
The Treasury Department and the IRS
request comments on this issue.

PO 00000

Frm 00010

Fmt 4701

Sfmt 4702

V. Withholding on the Transfer of a
Publicly Traded Partnership Interest by
a Foreign Person
The proposed regulations provide
rules for withholding and reporting on
the transfer of an interest in a publicly
traded partnership if the interest is
publicly traded on an established
securities market or is readily tradable
on a secondary market or the substantial
equivalent thereof (such interests, ‘‘PTP
interests’’). The rules, when made
applicable as final rules, would end the
suspension of section 1446(f)(1)
withholding on the disposition of PTP
interests provided in Notice 2018–08.
A. In General
A transfer of a PTP interest raises
unique issues for withholding under
section 1446(f). For example, when a
transfer of a PTP interest is effected
through one or more brokers, the
transferee will generally not know the
identity of the transferor. Accordingly,
the Conference Report for the Act
acknowledged that transfers involving
PTP interests could require withholding
rules different from those that apply to
transfers involving non-PTP interests.
See Conference Report on H.R. 1, Tax
Cuts and Jobs Act, H. Rep. No. 115–466,
at 511 (‘‘[T]he Secretary may provide
guidance permitting a broker, as agent of
the transferee, to deduct and withhold
the tax . . . such guidance may provide
that if an interest in a publicly traded
partnership is sold by a foreign partner
through a broker, the broker may deduct
and withhold the 10-percent tax on
behalf of the transferee.’’).
Consistent with the Conference
Report, proposed § 1.1446(f)–4(a)(1)
provides that if a transfer of a PTP
interest is effected through one or more
brokers, the transferee is not required to
withhold, and the withholding
obligation is instead imposed on certain
brokers involved with the transfer.
Generally, the proposed regulations
define a broker to include any person,
foreign or domestic, that in the ordinary
course of a trade or business during the
calendar year stands ready to effect sales
made by others, and that, in connection
with a transfer of a PTP interest,
receives all or a portion of the amount
realized on behalf of the transferor. See
proposed § 1.1446(f)–1(b)(1). For
example, when a transfer of a PTP
interest occurs through a cash on
delivery account, a delivery versus
payment account, or other similar
account or transaction, this definition
would include a broker that receives an
amount realized from the sale against
delivery of the PTP interest and any
other broker that receives an amount

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
realized from that broker. Therefore, the
withholding obligation under proposed
§ 1.1446(f)–4 is generally limited to
brokers that receive proceeds from the
sale and act on behalf of the transferor.
The definition of broker also includes
any clearing organization that effects a
transfer of a PTP interest on behalf of
the transferor. While comments have
stated that clearing organizations may
not have the capability to complete the
withholding required under section
1446(f), the Treasury Department and
the IRS anticipate that clearing
organizations will make arrangements to
ensure that, when effecting the transfer
of a PTP interest on behalf of foreign
brokers, they act on behalf of brokers
that assume withholding responsibility
when clearing sales of PTP interests
(such as a qualified intermediary
(‘‘QI’’)).
If a transfer of a PTP interest is
effected through multiple brokers,
proposed § 1.1446(f)–4(a)(2) provides
rules that specify which broker or
brokers have a withholding obligation.
Under proposed § 1.1446(f)–4(a)(2)(i), a
broker that pays the amount realized to
a foreign broker is required to withhold
unless the foreign broker is either a U.S
branch treated as a U.S. person or a QI
that assumes primary withholding
responsibility for the payment.
Consistent with this rule, the Treasury
Department and the IRS intend to
modify the QI agreement provided in
Revenue Procedure 2017–15, 2017–3
I.R.B. 437, to allow QIs to assume
primary withholding responsibility on
the amount realized. Proposed
§ 1.1446(f)–4(a)(2)(ii) provides an
additional rule requiring the broker that
effects a transfer for the transferor as its
customer to satisfy the withholding
obligation. This rule ensures that
withholding will be completed on
payment of the amount realized to the
transferor when another broker has not
already satisfied the withholding.
To avoid withholding by multiple
brokers, proposed § 1.1446(f)–4(a)(2)(iii)
provides the general rule that a broker
is not required to withhold when it
knows that the withholding obligation
has been satisfied by another broker.
Proposed § 1.1446(f)–4(a)(2)(iv) provides
that a broker must treat another broker
as a foreign person unless it obtains
documentation (including a certification
of non-foreign status) establishing that
the other broker is a U.S. person.
If the transfer of a PTP interest is not
effected through one or more brokers,
then proposed § 1.1446(f)–4 does not
apply, and the general rules of section
1446(f)(1) and proposed § 1.1446(f)–2
apply. A transfer that is effected through
a broker includes a distribution with

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

respect to a PTP interest held through
an account with a broker.
B. Exceptions to Withholding
The proposed regulations provide five
exceptions to withholding that apply to
the transfer of a PTP interest. The
exceptions are intended to both reduce
the compliance burden placed on
brokers and provide rules that are
administrable.
1. Certification of Non-Foreign Status
As mentioned in section III.B.2 of this
Explanation of Provisions, withholding
under section 1446(f)(1) is limited to
transfers by foreign partners.
Accordingly, a broker is not required to
withhold to the extent that it relies on
a certification of non-foreign status that
it receives from the transferor that
claims an exception to withholding. See
proposed § 1.1446(f)–4(b)(2). For
purposes of proposed § 1.1446(f)–4, a
certification of non-foreign status means
a Form W–9, or valid substitute form,
that meets the requirements of § 1.1441–
1(d)(2). A broker may rely on a valid
Form W–9 that it already possesses, and
in certain cases, may instead rely on a
certification that it receives from
another broker that states the TIN and
status of the transferor when that other
broker acts as an agent for the transferor
and possesses the Form W–9 (for
example, from an introducing broker). A
broker will not qualify for the exception
provided in proposed § 1.1446(f)–4(b)(2)
if it has actual knowledge that the
certification is incorrect or unreliable.
2. 10-Percent Exception
The proposed regulations include an
exception to withholding that may
apply if, on a deemed sale of the assets
of the publicly traded partnership the
interest in which is transferred, the
amount of effectively connected gain
would be less than 10 percent of the
total gain. Specifically, proposed
§ 1.1446(f)–4(b)(3) provides that a broker
is not required to withhold under
proposed § 1.1446(f)–4 if it properly
relies on a qualified notice stating that
the 10-percent exception applies.
The 10-percent exception applies if a
hypothetical sale by the publicly traded
partnership of all of its assets at fair
market value on a specified date would
result in an amount of gain effectively
connected with the conduct of a trade
or business within the United States
that is less than 10 percent of the total
gain. The specified date must be a date
designated by the publicly traded
partnership that is within the 92-day
period ending on the date that it posts
a qualified notice. Unlike the similar
exception described in section III.B.4 of

PO 00000

Frm 00011

Fmt 4701

Sfmt 4702

21207

this Explanation of Provisions that
applies to transfers of non-PTP interests,
this rule requires a publicly traded
partnership to designate a date for this
purpose that generally occurs within the
most recent calendar quarter. Cf.
proposed § 1.1446(f)–2(b)(4) (permitting
the deemed sale computation to occur
on a determination date, which would
allow the deemed sale date to be
determined as of the first day of a
partnership’s taxable year in which the
transfer occurred in certain cases). The
Treasury Department and the IRS have
determined that it is appropriate to limit
the availability of this exception to cases
in which a publicly traded partnership
has designated a deemed sale date
occurring within the most recent
calendar quarter because publicly
traded partnerships are in a better
position to determine the value of their
assets, and in some cases determine the
basis of their assets, on a quarterly basis.
The proposed regulations limit reliance
on a qualified notice depending on its
date of posting. See proposed
§ 1.1446(f)–4(b)(3)(iii).
For a discussion of rules regarding
when a publicly traded partnership may
be liable under section 1446(f)(4)
because it falsely states on a qualified
notice that this exception applies, see
section IV.B of this Explanation of
Provisions. For a discussion of the
proposed changes to existing qualified
notice rules, see section VII of this
Explanation of Provisions.
3. Qualified Current Income
Distributions
As discussed in section III.B.3 of this
Explanation of Provisions, the proposed
regulations allow a transferor of a nonPTP interest to provide a certification
stating that the transferor would not
realize any gain on the transfer. Because
it would be administratively difficult for
a broker to timely obtain this type of
certification from the transferor of a PTP
interest, and difficult for the transferor
to determine its basis in the PTP
interest, the proposed regulations do not
provide a similar exception for transfers
of PTP interests.
The Treasury Department and the IRS
have determined, however, that it
would be appropriate to eliminate
withholding under section 1446(f)(1) on
distributions (the full amount of which
is generally treated as an amount
realized under the proposed regulations)
by a publicly traded partnership when
it is likely that the transferor would
realize no gain. In general, under section
705(a)(1), a partner’s basis in its interest
is increased by its distributive share of
income for the taxable year, such that a
distribution by the partnership not in

E:\FR\FM\13MYP5.SGM

13MYP5

21208

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

excess of that income generally does not
result in the recognition of gain under
section 731(a)(1). Accordingly, the
proposed regulations provide that when
a qualified notice posted by a publicly
traded partnership indicates that the
distribution does not exceed the net
income the partnership earned since the
record date of the partnership’s last
distribution, no withholding is required
with respect to the distribution. See
proposed § 1.1446(f)–4(b)(4).
4. Proceeds Subject to Withholding
Under Section 3406
A broker may also be required to
withhold on gross proceeds from the
transfer of a PTP interest under section
3406 when a payment is treated as being
made to a non-exempt U.S. recipient. To
prevent withholding twice on the same
payment, proposed § 1.1446(f)–4(b)(5)
provides an exception to withholding
under section 1446(f)(1) if the amount
realized is subject to withholding under
section 3406.
5. Claim of Treaty Benefits
The proposed regulations provide an
exception similar to the one described
in section III.B.6 of this Explanation of
Provisions when a transferor states that
it is not subject to tax on any gain from
the transfer pursuant to an income tax
treaty in effect between the United
States and a foreign country. See
proposed § 1.1446(f)–4(b)(6). The
exception also requires the transferor to
furnish a valid Form W–8 with the
information necessary to support the
claim. Id. Unlike the exception for nonPTP interests, a broker is not required to
mail the certification to the IRS because
under the proposed regulations brokers
are required to file a Form 1042–S,
Foreign Person’s U.S. Source Income
Subject to Withholding, to report a
transfer of a PTP interest that includes
information about the claim of treaty
benefits. See section V.D of this
Explanation of Provisions for reporting
requirements with respect to transfers of
PTP interests.
C. Determining the Amount To
Withhold

jbell on DSK3GLQ082PROD with PROPOSALS5

1. Amount Realized
i. In General
A broker that is required to withhold
under proposed § 1.1446(f)–4(a) must
withhold 10 percent of the amount
realized on the transfer of a PTP
interest. As explained in section III.C.2
of this Explanation of Provisions, a
reduction in a partner’s share of
partnership liabilities is treated as an
amount realized under proposed
§ 1.1446(f)–2(c). However, because of

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

the difficulties involved with requiring
a broker to timely determine a
transferor’s share of partnership
liabilities, proposed § 1.1446(f)–
4(c)(2)(i) provides a special rule that
treats the amount realized on the
transfer of a PTP interest as the amount
of gross proceeds (as defined in
§ 1.6045–1(d)(5)) paid or credited to the
customer or another broker (as
applicable). If a publicly traded
partnership makes a distribution to a
partner, the amount realized is the
amount of cash distributed (or to be
distributed) and the fair market value of
property distributed (or to be
distributed).
ii. Modified Amount Realized for
Foreign Partnerships
Consistent with the rule described in
section III.C.2.iii of this Explanation of
Provisions that applies to transfers of
non-PTP interests, the proposed
regulations include a rule that allows
brokers to rely on a certification from a
foreign partnership to modify the
amount realized based on the extent to
which the amount realized is
attributable to persons who are (or are
presumed to be) foreign persons. See
proposed § 1.1446(f)–4(c)(2)(ii).
D. Reporting and Paying Withheld
Amounts
A broker required to withhold under
§ 1.1446(f)–4 must pay the withheld tax
pursuant to the deposit rules in
§ 1.6302–2, and report the withholding
on Forms 1042, Annual Withholding
Tax Return for U.S. Source Income of
Foreign Persons, and 1042–S pursuant
to the procedures in § 1.1461–1(b) and
(c). The proposed regulations treat as a
recipient for Form 1042–S reporting
purposes a partner that receives an
amount realized from a transfer of a PTP
interest subject to § 1.1446(f)–4. See
proposed § 1.1461–1(c)(1)(ii)(A)(8). This
rule also clarifies that a foreign
partnership is treated as a recipient for
this purpose to ensure that the foreign
partnership receives a Form 1042–S that
it may use to claim credit for any
withholding under proposed
§ 1.1446(f)–4 against its tax liability
under section 1446(a). See section II.E of
this Explanation of Provisions for
discussion of the general coordination
rule.
To implement the reporting
requirements, the proposed regulations
add to the list of amounts subject to
reporting on Form 1042–S an amount
realized on the transfer of a PTP interest
subject to § 1.1446(f)–4 (with limited
exceptions). See proposed § 1.1461–
1(c)(2). The proposed regulations also
add to this list any distributions of

PO 00000

Frm 00012

Fmt 4701

Sfmt 4702

effectively connected income by a
publicly traded partnership subject to
§ 1.1446–4 to clarify that these amounts
are reportable on Form 1042–S. Id.
E. Effect of Withholding on Transferor
As mentioned in section III.E of this
Explanation of Provisions, the proposed
regulations neither relieve a transferor
of its substantive tax liability under
section 864(c)(8), nor relieve a transferor
subject to section 864(c)(8) from its
filing obligation. See proposed
§ 1.1446(f)–4(e)(1). However, a
transferor is allowed a credit under
section 33 for the amount withheld
under section 1446(f)(1) and proposed
§ 1.1446(f)–4. Id. To claim the credit, the
transferor must attach to its return a
copy of the Form 1042–S that includes
the transferor’s TIN. Id. For a discussion
of the rules regarding a transferor that is
a foreign partnership claiming a credit
for withholding under section
1446(f)(1), see section II.E of this
Explanation of Provisions.
F. Procedures To Adjust
Overwithholding
Section 1.1461–2(a) allows a
withholding agent that overwithheld
under chapter 3 of the Code, and made
a deposit of tax as provided in § 1.6302–
2(a), to adjust the overwithheld amount
using either a reimbursement or a set-off
procedure. Because these rules are
meant to allow withholding agents to
adjust overwithholding for any
deposited amounts that are reportable
on Forms 1042 and 1042–S, the
proposed regulations modify § 1.1461–
2(a) to allow use of the adjustment
procedures for amounts withheld by a
broker pursuant to proposed § 1.1446(f)–
4 (which are reported on Forms 1042
and 1042–S, as noted in section V.D. of
this Explanation of Provisions).
G. Procedures To Adjust
Underwithholding
In general, § 1.1461–2(b) allows a
withholding agent that underwithheld
on a beneficial owner under chapter 3
of the Code to withhold from future
payments made to the beneficial owner,
or satisfy the tax from property or
additional contributions of the
beneficial owner, before the earlier of
the due date for filing Form 1042 or the
date on which the form is actually filed.
The proposed regulations amend this
provision to allow the use of this
procedure by brokers that
underwithheld under proposed
§ 1.1446(f)–4 on the transfer of a PTP
interest.

E:\FR\FM\13MYP5.SGM

13MYP5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
H. Refunds and Credits
Section 1.1464–1 generally provides
that if an overpayment of tax has
actually been withheld from the
beneficial owner of the income, any
refund or credit will be made to that
beneficial owner. If, however, the tax
was not withheld at source, but was
instead paid by the withholding agent,
the refund or credit will be made to the
withholding agent. The proposed
regulations clarify that these rules apply
for purposes of section 1446(f). See
proposed § 1.1464–1(a).
VI. Liability for Failure To Withhold

jbell on DSK3GLQ082PROD with PROPOSALS5

A. In General
Proposed § 1.1446(f)–5(a) provides
that every person required to deduct
and withhold tax under section 1446(f),
including under proposed §§ 1.1446(f)–
2 through 1.1446(f)–4, but that fails to
do so is liable under section 1461. If the
tax required to be withheld is paid by
another person required to withhold, or
by the nonresident alien individual or
foreign corporation subject to tax under
section 864(c)(8), section 1463 and the
proposed regulations clarify that the tax
will only be collected once. However,
the satisfaction of this liability does not
relieve a person that failed to withhold
under section 1446(f) from any interest,
penalties, or additions to tax that would
otherwise apply. The proposed
regulations also provide that a
partnership that fails to withhold under
proposed § 1.1446(f)–3 is liable under
section 1461 only for the amount of tax
that it failed to withhold, and not any
interest computed under § 1.1446(f)–
3(c)(2)(ii). This rule ensures that interest
will be computed and assessed only
once with respect to the same
underlying tax liability.
B. Liability of Agents
Proposed § 1.1446(f)–5(b) provides
rules for the liability of agents, which
generally require an agent of a transferor
or transferee to notify the transferee (or
other person required to withhold) if it
has knowledge that a certification
furnished to that person is false. A
person that receives notice from an
agent may not rely on the certification
to apply an exception to withholding or
for determining the amount to withhold.
Proposed § 1.1446(f)–5(b)(2) provides
procedural rules regarding the timing
and content of the notice, and requires
the agent to furnish a copy of the notice
to the IRS. An agent that fails to provide
the required notice is liable for the tax
that the person that should have
received the notice would have been
required to withhold under section
1446(f). However, under proposed

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

§ 1.1446(f)–5(b)(4), this liability is
limited to the amount of compensation
that the agent derives from the
transaction (and any civil or criminal
penalties that may apply). The proposed
regulations clarify that brokers required
to withhold under § 1.1446(f)–4 are not
treated as agents for purposes of this
rule, and are instead liable for any
failure to withhold under the rules
described in section V of this
Explanation of Provisions.
VII. Amendments to Existing Section
1446 Regulations Relating to
Distributions by Publicly Traded
Partnerships
In response to comments received
outside the context of section 1446(f),
the proposed regulations also contain
changes to the existing qualified notice
rules that apply to distributions that
publicly traded partnerships make to
foreign partners. The Treasury
Department and the IRS are aware that
in certain cases nominees receive
notices of distribution from publicly
traded partnerships that do not provide
detailed information regarding the
amounts of income comprising the
distribution as specified in § 1.1446–
4(f)(3) (such as amounts described in
section 1441 or section 1442 or subject
to withholding under section 1446). The
term ‘‘qualified notice’’ under § 1.1446–
4(b)(4) is currently defined by reference
to the reporting requirements of 17 CFR
240.10b–17(b)(1) or (3), which do not
include a requirement to report
information regarding the types of
income comprising the distribution.
Unless a notice provides that
information, however, a nominee will
not have the information necessary to
apply the ordering rule of § 1.1446–
4(f)(3) to the distribution for purposes of
determining the amount required to be
withheld.
The proposed regulations make two
changes to resolve this issue. First,
proposed § 1.1446–4(b)(4) revises the
method for a publicly traded
partnership to provide a nominee a
qualified notice by requiring that the
notice be posted in a readily accessible
format in an area of the primary public
website of the publicly traded
partnership that is dedicated to this
purpose. Second, proposed § 1.1446–
4(d) creates a default withholding rule
subjecting gross distributions to the
higher of the withholding percentage
required under sections 1441 and 1442
or the applicable percentage under
section 1446(b)(2), unless a qualified
notice provides the nominee sufficient
detail to determine the types of income
distributed and the appropriate
withholding rates to apply. Thus, if a

PO 00000

Frm 00013

Fmt 4701

Sfmt 4702

21209

publicly traded partnership is unable to
determine the makeup of a distribution
when it is made, the nominee must
withhold at the highest applicable rate.
The proposed regulations also expand
the definition of a nominee for
withholding under § 1.1446–4 to
include certain foreign persons that
agree to assume primary withholding
responsibility. Therefore, a QI or a U.S.
branch treated as a U.S. person that
assumes primary withholding
responsibility for a distribution by a
publicly traded partnership under
proposed § 1.1446–4(b)(3) can act as a
nominee with respect to the
distribution. The Treasury Department
and the IRS intend to modify the QI
agreement provided in Revenue
Procedure 2017–15 to allow QIs to
assume primary withholding
responsibility for distributions by
publicly traded partnerships under
section 1446(a).
The proposed regulations also make
changes to the qualified notice rules
applicable to publicly traded
partnerships, publicly traded trusts, and
real estate investment trusts (‘‘REITs’’)
under section 1445 that conform to
proposed § 1.1446–4(b)(4) so that those
rules also provide more readily
available information for nominees. See
proposed § 1.1445–8(f).
As discussed in sections V.F and V.G
of this Explanation of Provisions, the
proposed regulations modify § 1.1461–
2(a) and (b) to allow use of procedures
to adjust overwithholding and
underwithholding for amounts withheld
by a broker pursuant to proposed
§ 1.1446(f)–4. The proposed regulations
also amend § 1.1461–2(a) to allow the
use of reimbursement and set-off
procedures with respect to amounts
withheld under section 1446(a) on
distributions of ECTI by publicly traded
partnerships (which are reported on
Forms 1042 and 1042–S, as opposed to
Forms 8804, Annual Return for
Partnership Withholding Tax (Section
1446), and 8805 used by non-publicly
traded partnerships to report
withholding on ECTI allocable to
foreign partners). They also amend
§ 1.1461–2(b) to clarify that the existing
reference to ‘‘distributions of effectively
connected income under section 1446’’
is meant to apply only to those
distributions that are made by publicly
traded partnerships.
Applicability Dates
Proposed § 1.864(c)(8)–2(a) and
proposed § 1.6050K–1(d)(3) apply to
transfers that occur on or after the date
that these regulations are published as
final regulations in the Federal Register
(the ‘‘finalization date’’). Proposed

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

21210

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

§ 1.864(c)(8)–2(b) and (c) and proposed
§ 1.6050K–1(c)(2) and (c)(3) apply to
returns filed on or after the finalization
date. Proposed § 1.864(c)(8)–2(d) applies
beginning on the finalization date.
Proposed §§ 1.1445–2(b)(2)(v) and
1.1445–5(b)(3)(iv) apply to certifications
provided on or after May 7, 2019, except
that a taxpayer may apply those
provisions with respect to certifications
provided before that date. A taxpayer
may rely on the proposed amendments
to §§ 1.1445–2 and 1.1445–5 with
respect to any period before the
finalization date. Proposed § 1.1445–
8(f)(1) applies to distributions made on
or after the date that is 60 days after the
finalization date.
Proposed § 1.1446–3(c)(4) applies to
partnership taxable years that include
transfers that occur on or after the date
that is 60 days after the finalization
date. Proposed § 1.1446–4(b)(2), (b)(3),
(c), (d), and (f) apply to distributions
made on or after the date that is 60 days
after the finalization date.
Proposed §§ 1.1446(f)–1 through
1.1446(f)–5 apply to transfers that occur
on or after the date that is 60 days after
the finalization date. For transfers that
occur before the date that is 60 days
after the finalization date, taxpayers
may apply the rules described in Notice
2018–08 and Notice 2018–29.
Alternatively, instead of applying the
rules described in Notice 2018–29,
taxpayers and other affected persons
may choose to apply §§ 1.1446(f)–1,
1.1446(f)–2, and 1.1446(f)–5 of the
proposed regulations in their entirety to
all transfers as if they were final
regulations.
The proposed amendments to
§ 1.1461–1(a)(1), (c)(1)(i), (c)(1)(ii),
(c)(2)(i) and (c)(4) apply with respect to
returns for transfers occurring on or
after the date that is 60 days after the
finalization date. The proposed
amendments to § 1.1461–2(a)(1) and (b)
apply to transfers occurring on or after
the date that is 60 days after the
finalization date. The proposed
amendments to § 1.1461–3 apply to
returns for transfers occurring on or
after the date that is 60 days after the
finalization date.
The proposed amendments to
§ 1.1463–1(a) apply to transfers that
occur on or after the date that is 60 days
after the finalization date.
The proposed amendments to
§ 1.1464–1(a) apply to transfers that
occur on or after the date that is 60 days
after the finalization date.
The Treasury Department and the IRS
intend to obsolete Notice 2018–08 and
Notice 2018–29 effective on the date
that is 60 days after the finalization
date.

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

Special Analyses
I. Regulatory Planning and Review
This regulation is not subject to
review under section 6(b) of Executive
Order 12866 pursuant to the
Memorandum of Agreement (April 11,
2018) between the Treasury Department
and the Office of Management and
Budget regarding review of tax
regulations.
II. Paperwork Reduction Act
The collection of information in these
proposed regulations is in proposed
§ 1.864(c)(8)–2 regarding reporting for
transactions described in section
864(c)(8) and proposed § 1.864(c)(8)–1,
and proposed §§ 1.1446(f)–1, 1.1446(f)–
2, 1.1446(f)–3, and 1.1446(f)–4 regarding
the withholding, reporting, and paying
of tax under section 1446(f) following
the transfer of an interest described in
section 864(c)(8) and proposed
§ 1.864(c)(8)–1. Section II.1 of this
Special Analyses discusses the
collections of information that will be
conducted using IRS forms. The
information collections that will not be
conducted through IRS forms are
discussed in section II.2 of this Special
Analyses.
A. Collections of Information—Forms
1042, 1042–S, 8288, 8288–A, 8288–C,
W–8IMY, W–8BEN, and W–8BEN–E
Under proposed §§ 1.1446(f)–2(b)(2)
and 1.1446(f)–4(b)(2), a transferor
qualifies for an exception from
withholding if it provides to the
transferee or broker (as applicable) a
certification of non-foreign status,
which includes a valid Form W–9 (at
the transferor’s option). The IRS has
determined that Form W–9 is not a
collection of information under 5 CFR
1320.3(h)(1) and is exempt from the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) (‘‘PRA’’).
The collection of information in
proposed § 1.1446(f)–2(b)(7) is provided
by the transferor by submitting a
certification and Form W–8BEN or W–
8BEN–E to the transferee and is
optional. The information will be used
by the transferor to determine whether
an exception to withholding applies
based on an income tax treaty.
The information in proposed
§ 1.1446(f)–2(c)(2)(iv)(C) by the
transferor to the transferee is provided
on Form W–8IMY and is optional. This
information will be used by the
transferee to determine the modified
amount realized.
The collection of information in
proposed § 1.1446(f)–2(d)(1) will be
provided on Forms 8288 and 8288–A by
the transferee to the IRS and is

PO 00000

Frm 00014

Fmt 4701

Sfmt 4702

mandatory if the transferee withholds
tax under section 1446(f)(1). These
forms will be used by the transferee to
report and pay any tax under section
1446(f)(1) and proposed § 1.1446(f)–2.
The information provided in
proposed § 1.1446(f)–3(d) by the
partnership to the IRS will be used by
the partnership to report and pay any
tax under section 1446(f)(4) and
proposed § 1.1446(f)–3 and will be
provided on new Form 8288–C. The IRS
anticipates that the burden associated
with this collection of information will
be reflected in OMB control number
1545–0902.
The collection of information
provided in proposed § 1.1446(f)–
4(a)(2)(i) from certain U.S. branches of
foreign persons and qualified
intermediaries to the broker that
effected the transfer of an interest
described in section 864(c)(8) and
proposed § 1.1446(f)–4 will be provided
on Form W–8IMY. This information
will be used by the broker to determine
its withholding obligation under section
1446(f)(1) and proposed § 1.1446(f)–4.
The collection of information in
proposed § 1.1446(f)–4(b)(6) is provided
by the transferor by submitting a
certification and Form W–8BEN or W–
8BEN–E to the broker and is optional.
The information will be used by the
broker to determine whether an
exception to withholding applies based
on an income tax treaty.
The information in proposed
§ 1.1446(f)–4(c)(2)(ii)(C) by the
transferor to the broker is provided on
Form W–8IMY and is optional. This
information will be used by the broker
to determine the modified amount
realized.
The information in proposed
§ 1.1446(f)–4(d) will be provided on
Forms 1042 and 1042–S submitted by
the broker to the IRS and is mandatory
if the broker withholds tax under
section 1446(f)(1) or if it applies the
exception described in proposed
§ 1.1446(f)–4(b)(6). These forms will be
used to report and pay any tax under
section 1446(f)(1) and proposed
§ 1.1446(f)–4.
The information in proposed
§ 1.1446(f)–4(e)(2) provided by the
transferor to the IRS will be used to
claim a credit for an amount withheld
under section 1446(f)(1) and proposed
§ 1.1446(f)–4, and will be satisfied by
submitting Form 1042–S with an
income tax return (Form 1040NR or
1120–F) to the IRS.
The Treasury Department and the IRS
intend that the information collection
requirements described in this section
II.1 will be set forth in the forms and
instructions identified in the Revision of

E:\FR\FM\13MYP5.SGM

13MYP5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
Existing Forms and New Forms table.
As a result, for purposes of the PRA, the
reporting burdens associated with the

collections of information in those
forms will be reflected in the PRA

21211

submissions associated with those
forms.

REVISION OF EXISTING FORMS AND NEW FORMS

Form 1042–S
Form 8288 .....
Form 8288–A
Form 8288–C
Form W–8BEN
Form W–
8BEN–E ......
Form W–8IMY

New

Revision of
existing form

Number of
additional
respondents
(estimated,
rounded to
nearest 1,000)

..................................................................
..................................................................
..................................................................
Y
..................................................................

Y
Y
Y
..................................................................
Y

<6,000
<70,000
<70,000
<70,000
<70,000

..................................................................
..................................................................

Y
Y

<70,000
<70,000

Source: RAAS:CDW and SOI.

The numbers of respondents in the
Revision of Existing Forms and New
Forms table were estimated by the
Research, Applied Analytics and
Statistics Division of the IRS from the
Compliance Data Warehouse and
Statistics of Income, using tax years
2013 through 2015. Data for each of the
Forms 1042, 1042–S, 8288, 8288–A, W–
8BEN, W–8BEN–E, and W–8IMY
represent preliminary estimates of the
total number of additional taxpayers
that are expected to file these forms. The
tax data for 2016 and 2017 are not yet
available. Data for Forms 8288, 8288–A,
W–8BEN, W–8BEN–E, and W–8IMY
represent preliminary estimates of the
total number of interests in
partnerships, other than publicly traded
partnership interests, engaged in the
conduct of a trade or business in the
United States that will be transferred by
foreign persons. Data for Form 8288–C
represent preliminary estimates of the

total number of transferees on whom
partnerships must withhold tax under
section 1446(f)(4) if the transferees do
not fully withhold tax under section
1446(f)(1). Data for Form 1042–S
represent preliminary estimates of the
total number of interests in publicly
traded partnership engaged in the
conduct of a trade or business in the
United States that will be transferred by
foreign persons.
The current status of the PRA
submissions related to the tax forms that
will be used to conduct the information
collections in the proposed regulations
is provided in the Current Status of PRA
Submissions table. The overall burden
estimates provided for the OMB control
numbers below are aggregate amounts
that relate to the entire package of forms
associated with the applicable OMB
control number and will in the future
include, but not isolate, the estimated
burden of the tax forms that will be

created or revised as a result of the
information collections in the proposed
regulations. These numbers are
therefore unrelated to the future
calculations needed to assess the burden
imposed by the proposed regulations.
No burden estimates specific to the
forms affected by the proposed
regulations are currently available. The
Treasury Department and the IRS have
not estimated the burden, including that
of any new information collections,
related to the requirements under the
proposed regulations. The Treasury
Department and the IRS request
comments on all aspects of information
collection burdens related to the
proposed regulations, including
estimates for how much time it would
take to comply with the paperwork
burdens described above for each
relevant form and ways for the IRS to
minimize the paperwork burden.

CURRENT STATUS OF PRA SUBMISSIONS
Type of filer
Form 1042, Form 1042–S .......................

OMB No.(s)

All filers (Legacy Model) ..........................

1545–0096

Status
Approved 12/27/2016 until 12/31/2019.

Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201606-1545-025.
Form 8288, Form 8288–A .......................

All filers (Legacy system) ........................

1545–0902

Approved 1/2/2017 until 1/31/2020.

Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201608-1545-015.

jbell on DSK3GLQ082PROD with PROPOSALS5

Form W–8BEN, Form W–8BEN–E, Form
W–8IMY.

Business (NEW Model) ...........................

1545–0123

Approved 12/21/2018 until 12/31/2019.

Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201805-1545-019.
All other filers (Legacy system) ...............

1545–1621

Approved 12/19/18 until 12/31/2021.

Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201708-1545-002.

VerDate Sep<11>2014

20:23 May 10, 2019

Jkt 247001

PO 00000

Frm 00015

Fmt 4701

Sfmt 4702

E:\FR\FM\13MYP5.SGM

13MYP5

21212

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

jbell on DSK3GLQ082PROD with PROPOSALS5

B. Collections of Information—Proposed
§§ 1.864(c)(8)–2(a) and (b), 1.1446(f)–
1(c)(3), 1.1446(f)–2(b)(2) Through (7),
(c)(2), and (c)(4), 1.1446(f)–4(b)(2) and
(6), 1.1446(f)–4(b)(3) and (4), and
1.1446(f)–2(d)(2)
These proposed regulations contain
collections of information that are not
on existing or new IRS forms. These
collections of information include:
(a) Notification by a transferor to a
partnership that a transfer has occurred
(proposed § 1.864(c)(8)–2(a));
(b) Statement provided by a
partnership to a transferor necessary for
the transferor to calculate its tax liability
(proposed § 1.864(c)(8)–2(b));
(c) Retention of information by
partnership in its books and records
(proposed § 1.1446(f)–1(c)(3));
(d) Certifications from a transferor (or
partnership) to a transferee for an
exception from withholding or
adjustment to amount realized
(proposed § 1.1446(f)–2(b)(2) through
(7), (c)(2), and (c)(4));
(e) Certification from a transferee to
partnership regarding the transferee’s
withholding (proposed § 1.1446(f)–
2(d)(2)).
(f) Certifications from a transferor to a
broker to apply an exception from
withholding (proposed § 1.1446(f)–
4(b)(2) and (6)); and
(g) Information provided by a publicly
traded partnership to a broker (proposed
§ 1.1446(f)–4(b)(3) and (4)).
The collections of information
contained in this notice of proposed
rulemaking has been submitted to the
Office of Management and Budget for
review in accordance with the PRA.
Comments on the collection of
information should be sent to the Office
of Management and Budget, Attn: Desk
Officer for the Department of the
Treasury, Office of Information and
Regulatory Affairs, Washington, DC
20503, with copies to the Internal
Revenue Service, Attn: IRS Reports
Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of
information should be received by July
12, 2019. Comments are specifically
requested concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the IRS, including
whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection
of information (including underlying
assumptions and methodology);
How the quality, utility, and clarity of
the information to be collected may be
enhanced;

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

How the burden of complying with
the proposed collections of information
may be minimized, including through
the application of automated collection
techniques or other forms of information
technology; and
Estimates of capital or start-up costs
and costs of operation, maintenance,
and purchase of service to provide
information.
The collections of information
provided in proposed § 1.864(c)(8)–2
will be used by both the partnership
engaged in the conduct of a trade or
business in the United States and the
foreign partner that transfers an interest
in the partnership and are mandatory.
The notification provided to the
partnership by the foreign transferor in
proposed § 1.864(c)(8)–2(a) will serve as
notice to the partnership that a transfer
described in section 864(c)(8) and
proposed § 1.864(c)(8)–1 occurred. The
statement provided to the foreign
transferor by the partnership in
proposed § 1.864(c)(8)–2(b) is necessary
for the foreign transferor to determine
its effectively connected gain or loss as
described in proposed § 1.864(c)(8)–1(b)
and (c).
The collection of information
provided in proposed § 1.1446(f)–1(c)(3)
requires a partnership to retain certain
identified information in its books and
records regarding its obligation to
withhold under section 1446(f). The
identified information will be used by a
partnership to determine the
application, and the extent, of
withholding under section 1446(f).
The collections of information
provided in proposed § 1.1446(f)–2(b)(2)
through (7), (c)(2), and (c)(4) from the
transferor of an interest described in
section 1446(f), or from the partnership
whose interest is transferred, to the
transferee of the interest will be used by
the transferee to determine whether an
exception applies or to determine the
amount realized. These collections of
information are optional. The
certification in proposed § 1.1446(f)–
2(b)(7) includes the submission of Form
W–8BEN or W–8BEN–E and is also
discussed in section II.1 of this Special
Analyses.
The information provided in
proposed § 1.1446(f)–2(d)(2) by the
transferee to the partnership will be
used by the partnership to determine
whether it has a withholding obligation
under section 1446(f)(4) and proposed
§ 1.1446(f)–3.
The collection of information
provided in proposed § 1.1446(f)–4(b)(6)
by the transferor to the broker will be
used by the broker to determine if an
exception applies that relieves the
broker from its withholding obligation

PO 00000

Frm 00016

Fmt 4701

Sfmt 4702

under section 1446(f)(1) and proposed
§ 1.1446(f)–4. The certification in
proposed § 1.1446(f)–4(b)(6) includes
the submission of Form W–8BEN or W–
8BEN–E and is also discussed in section
II.1 of this Special Analyses.
Estimated total annual reporting
burden: 50,920 hours.
Estimated average annual burden
hours per respondent: Approximately
0.67 hours (40 minutes).
Estimated cost per respondent
($2016): $26.00.
Estimated total annual monetized
cost ($2016): $1,827,938.00.
Estimated number of respondents:
76,000.
Estimated annual frequency of
responses: 0.4 (as the collections of
information do not occur on an annual
basis).
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
III. Regulatory Flexibility Act
It is hereby certified that this notice
of proposed rulemaking will not have a
significant economic impact on a
substantial number of small entities
within the meaning of section 601(6) of
the Regulatory Flexibility Act (5 U.S.C.
chapter 6).
The proposed regulations affect (i)
foreign persons that recognize gain or
loss from the sale or exchange of an
interest in a partnership that is engaged
in the conduct of a trade or business
within the United States, and who are
not subject to the Regulatory Flexibility
Act, (ii) U.S. persons that are transferors
providing Forms W–9 to transferees to
certify that they are not foreign persons,
(iii) persons who acquire those interests,
(iv) partnerships that, directly or
indirectly, have foreign persons as
partners, and (v) brokers that effect
transfers of interests in publicly traded
partnerships.
The Treasury Department and the IRS
do not have data readily available to
assess the number of small entities
potentially affected by the proposed
regulations. However, entities
potentially affected by these proposed
regulations are generally not small
entities, because of the resources and
investment necessary to acquire a

E:\FR\FM\13MYP5.SGM

13MYP5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
partnership interest from a foreign
person or to directly, or indirectly, have
foreign persons as partners. Therefore,
the Treasury Department and the IRS do
not believe that a substantial number of
domestic small entities will be subject
to the proposed regulation’s information
collections. Consequently, the Treasury
Department and the IRS certify that the
proposed regulations will not have a
significant economic impact on a
substantial number of small entities.
The IRS invites the public to comment
on the impact of these regulations on
small entities.
Pursuant to section 7805(f) of the
Code, these regulations will be
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on their
impact on small businesses.

Before the proposed regulations are
adopted as final regulations,
consideration will be given to any
comments that are submitted timely to
the IRS as prescribed in this preamble
under the ADDRESSES heading. The
Treasury Department and the IRS
request comments on all aspects of the
proposed rules. All comments will be
available at www.regulations.gov or
upon request. A public hearing will be
scheduled if requested in writing by any
person that timely submits written
comments. If a public hearing is
scheduled, notice of the date, time, and
place for the public hearing will be
published in the Federal Register.

The principal authors of the proposed
regulations are Subin Seth, Ronald M.
Gootzeit, and Chadwick Rowland,
Office of Associate Chief Counsel
(International). However, other
personnel from the Treasury
Department and the IRS participated in
their development.
Statement of Availability of IRS
Documents

jbell on DSK3GLQ082PROD with PROPOSALS5

Paragraph 1. The authority citation
for part 1 is amended by adding
sectional authorities for §§ 1.864(c)(8)–
2, 1.1445–5, 1.1445–8, 1.1446–3 through
1.1446–4, 1.1446(f)–1 through 1.1446(f)–
5, and 1.6050K–1 in numerical order to
read in part as follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 1.864(c)(8)–2 also issued under 26
U.S.C. 864(c)(8)(E), 6001 and 6031(b).

*

IRS Revenue Procedures, Revenue
Rulings, notices, and other guidance
cited in this document are published in
the Internal Revenue Bulletin and are
available from the Superintendent of
Documents, U.S. Government Printing
Office, Washington, DC 20402, or by
visiting the IRS website at http://
www.irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.

Jkt 247001

*

*

*

*

Section 1.1445–5 also issued under 26
U.S.C. 1445(e)(7).

*
*

*

*

*

*

*

*

*

*

Section 1.1446–3 also issued under 26
U.S.C. 1446(g).

*

*

*

*

*

Section 1.1446–4 also issued under 26
U.S.C. 1446(g).

*

*

*

*

*

Section 1.1446(f)–1 also issued under 26
U.S.C. 1446(f)(6) and 1446(g).

*

*

*

*

*

Section 1.1446(f)–2 also issued under 26
U.S.C. 1446(f)(6) and 1446(g).

*

*

*

*

*

Section 1.1446(f)–3 also issued under 26
U.S.C. 1446(f)(6) and 1446(g).

*

*

*

*

*

Section 1.1446(f)–4 also issued under 26
U.S.C. 1446(f)(6) and 1446(g).

*

Drafting Information

20:23 May 10, 2019

PART 1—INCOME TAXES

Section 1.1445–8 also issued under 26
U.S.C. 1445(e)(7).

Comments and Requests for Public
Hearing

VerDate Sep<11>2014

Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:

*

*

*

*

Section 1.1446(f)–5 also issued under 26
U.S.C. 1446(f)(6) and 1446(g).

*

*

*

*

*

Section 1.6050K–1 also issued under 26
U.S.C. 6050K(a).

*

*
*
*
*
Par. 2. Section 1.864(c)(8)–2 is added
to read as follows:

■

§ 1.864(c)(8)–2
requirements.

Notification and reporting

(a) Notification by foreign transferor—
(1) In general. Except as provided in
paragraph (a)(2) of this section, a
notifying transferor that transfers an
interest in a specified partnership must
notify the partnership of the transfer in
writing within 30 days of the transfer.
The notification must include—
(i) The names and addresses of the
notifying transferor and the transferee or
transferees;
(ii) The U.S. taxpayer identification
number (TIN) of the notifying transferor
and, if known, of the transferee or
transferees; and

PO 00000

Frm 00017

Fmt 4701

Sfmt 4702

21213

(iii) The date of the transfer.
(2) Exceptions—(i) Certain interests in
publicly traded partnerships. Paragraph
(a)(1) of this section does not apply to
a notifying transferor that transfers an
interest in a publicly traded partnership
if the interest is publicly traded on an
established securities market or is
readily tradable on a secondary market
(or the substantial equivalent thereof).
(ii) Certain distributions. Paragraph
(a)(1) of this section does not apply to
a notifying transferor that is treated as
transferring an interest in a specified
partnership because it received a
distribution from that specified
partnership.
(3) Section 6050K. The notification
described in paragraph (a)(1) of this
section may be combined with or
provided at the same time as the
notification described in § 1.6050K–
1(d), provided that it satisfies the
requirements of both sections.
(4) Other guidance. The notification
described in paragraph (a)(1) of this
section must also include any
information required in forms,
instructions, or other guidance.
(b) Reporting by specified
partnerships with notifying transferor—
(1) In general. (i) A specified
partnership must provide to a notifying
transferor the statement described in
paragraph (b)(2) of this section if—
(A) The partnership receives the
notice described in paragraph (a) of this
section, or otherwise has actual
knowledge that there has been a transfer
of an interest in the partnership by a
notifying transferor; and
(B) At the time of the transfer, the
notifying transferor would have had a
distributive share of deemed sale EC
gain or deemed sale EC loss within the
meaning of § 1.864(c)(8)–1(c).
(ii) Distributions. For purposes of
paragraph (b)(1)(i)(B) of this section, a
partnership that is a transferee because
it makes a distribution is treated as
having actual knowledge of that
transfer.
(2) Contents of statement. The
statement required to be furnished by
the specified partnership under
paragraph (b)(1) of this section must
include—
(i) The items described in
§ 1.864(c)(8)–1(c)(3)(ii) (foreign
transferor’s aggregate deemed sale EC
items, which includes items derived
from lower-tier partnerships); and
(ii) Any other information as provided
in forms, instructions, or other
guidance.
(3) Time for furnishing statement. The
specified partnership must furnish the
required information on or before the
due date (with extensions) for issuing

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

21214

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

Schedule K–1 (Form 1065), Partner’s
Share of Income, Deductions, Credits,
etc., or its successor, to the transferor for
the year of the transfer. See § 1.6031(b)–
1T(b).
(4) Manner of furnishing statement.
No specific format is required for the
information except as provided in any
forms, instructions, or other guidance.
(5) Partnership notifying transferor.
For purposes of this paragraph (b), a
specified partnership must treat a
notifying transferor that is a partnership
as a nonresident alien individual.
(c) Statement may be provided to
agent. A partnership may provide a
statement required under paragraph
(b)(2) of this section to a person other
than the notifying transferor if the
person is described in § 1.6031(b)–1T(c).
(d) Definitions. The following
definitions apply for purposes of this
section.
(1) Notifying transferor. The term
notifying transferor means any foreign
person, any domestic partnership that
has a foreign person as a direct partner,
and any domestic partnership that has
actual knowledge that a foreign person
indirectly holds, through one or more
partnerships, an interest in the domestic
partnership.
(2) Specified partnership. The term
specified partnership means a
partnership that is engaged in the
conduct of a trade or business within
the United States or that owns (directly
or indirectly) an interest in a
partnership that is engaged in the
conduct of a trade or business within
the United States, and may include a
publicly traded partnership as defined
in section 7704 and §§ 1.7704–1 through
1.7704–4, but does not include a
publicly traded partnership treated as a
corporation under that section.
(3) Transfer. The term transfer has the
meaning provided in § 1.864(c)(8)–
1(g)(5).
(e) Applicability dates. Paragraph (a)
of this section applies to transfers that
occur on or after the date that these
regulations are published as final
regulations in the Federal Register.
Paragraphs (b) and (c) of this section
apply to returns filed on or after the date
that these regulations are published as
final regulations in the Federal Register.
Paragraph (d) of this section applies
beginning on the date that these
regulations are published as final
regulations in the Federal Register.
■ Par. 3. Section 1.1445–2 is amended
by adding paragraph (b)(2)(v) and a
sentence to the end of paragraph (e) to
read as follows:

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

§ 1.1445–2 Situations in which withholding
is not required under section 1445(a).

*

*
*
*
*
(b) * * *
(2) * * *
(v) Form W–9. For purposes of
paragraph (b)(2)(i) of this section, a
certification of non-foreign status
includes a valid Form W–9, Request for
Taxpayer Identification Number and
Certification, or its successor, submitted
to the transferee by the transferor.
*
*
*
*
*
(e) Applicability dates. * * *
Paragraph (b)(2)(v) of this section
applies to certifications provided on or
after May 7, 2019, except that a taxpayer
may apply it with respect to
certifications provided before that date.
■ Par. 4. Section 1.1445–5 is amended
by adding paragraph (b)(3)(iv) and a
sentence to the end of paragraph (h) to
read as follows:
§ 1.1445–5 Special rules concerning
distributions and other transactions by
corporations, partnerships, trusts, and
estates.

*

*
*
*
*
(b) * * *
(3) * * *
(iv) Form W–9. For purposes of
paragraph (b)(3)(i) of this section, a
certification of non-foreign status
includes a valid Form W–9, Request for
Taxpayer Identification Number and
Certification, or its successor, submitted
to the transferee by the transferor.
*
*
*
*
*
(h) Applicability dates. * * *
Paragraph (b)(3)(iv) of this section
applies to certifications provided on or
after May 7, 2019, except that a taxpayer
may apply it with respect to
certifications provided before that date.
■ Par. 5. Section 1.1445–8 is amended
by revising paragraph (f) to read as
follows:
§ 1.1445–8 Special rules regarding publicly
traded partnerships, publicly traded trusts
and real estate investment trusts (REITs).

*

*
*
*
*
(f) Qualified notice—(1) In general. A
qualified notice for purposes of
paragraph (b)(3)(iv) of this section is a
notice provided in the manner
described in § 1.1446–4(b)(4) by a
partnership, trust, or REIT regarding a
distribution that is attributable to the
disposition of a United States real
property interest. In the case of a REIT,
a qualified notice is only a notice of a
distribution, all or any portion of which
the REIT actually designates, or
characterizes in accordance with
paragraph (c)(2)(ii)(C) of this section, as
a capital gain dividend in the manner
described in § 1.1446–4(b)(4), with

PO 00000

Frm 00018

Fmt 4701

Sfmt 4702

respect to each share or certificate of
beneficial interest. A deemed
designation under paragraph (c)(2)(ii)(A)
of this section may not be the subject of
a qualified notice under this paragraph
(f). A person described in paragraph
(b)(3) of this section is treated as
receiving a qualified notice when the
notice is provided in accordance with
§ 1.1446–4(b)(4).
(2) Applicability dates. Paragraph
(f)(1) of this section applies to
distributions made on or after the date
that is 60 days after the date that these
regulations are published as final
regulations in the Federal Register.
*
*
*
*
*
■ Par. 6. Section 1.1446–3 is amended:
■ 1. In the first sentence of paragraph
(a)(2)(i), by removing ‘‘section 11(b)(1)’’
and adding in its place ‘‘section 11(b)’’.
■ 2. By adding paragraph (c)(4).
The addition reads as follows:
§ 1.1446–3 Time and manner of calculating
and paying the 1446 tax.

*

*
*
*
*
(c) * * *
(4) Coordination with section 1446(f).
A partnership that is directly or
indirectly subject to withholding under
section 1446(f)(1) during its taxable year
may credit the amount withheld under
section 1446(f)(1) against its section
1446 tax liability for that taxable year
only to the extent the amount is
allocable to foreign partners.
*
*
*
*
*
■ Par. 7. Section 1.1446–4 is amended
by:
■ 1. By revising paragraphs (b)(3) and
(4).
■ 2. By removing the second sentence of
paragraph (c).
■ 3. By revising paragraphs (d) and
(f)(3).
The revisions and additions read as
follows:
§ 1.1446–4

Publicly traded partnerships.

*

*
*
*
*
(b) * * *
(3) Nominee. For purposes of this
section, the term nominee means a
person that holds an interest in a
publicly traded partnership on behalf of
a foreign person and that is either a U.S.
person, a qualified intermediary (as
defined in § 1.1441–1(e)(5)(ii)) that
assumes primary withholding
responsibility for a payment, or a U.S.
branch of a foreign person that agrees to
be treated as a U.S. person (as described
in § 1.1441–1(b)(2)(iv)) with respect to a
payment.
(4) Qualified notice. For purposes of
this section, a qualified notice is a
notice posted by a publicly traded
partnership that states the amount of a

E:\FR\FM\13MYP5.SGM

13MYP5

21215

jbell on DSK3GLQ082PROD with PROPOSALS5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
distribution that is attributable to each
type of income described in paragraphs
(f)(3)(i) through (v) of this section. A
qualified notice may also include the
information described in § 1.1446(f)–
4(b)(3), relating to an exception from
withholding under section 1446(f)(1) for
transfers of certain partnership interests.
The notice must be posted in a readily
accessible format in an area of the
primary public website of the publicly
traded partnership that is dedicated to
this purpose. A qualified notice must be
posted by the date required for
providing notice with respect to
dividends described in 17 CFR 240.10b–
17(b)(1) or (3) (or any successor
regulation) issued pursuant to the
Securities Exchange Act of 1934 (15
U.S.C. 78a) and contain the information
described therein as it would relate to
the distribution. The publicly traded
partnership must keep the notice
accessible to the public for ten years on
its primary public website or the
primary public website of any successor
organization. No specific format is
required unless provided in forms,
instructions, or other guidance. See
paragraph (d) of this section regarding
when a nominee is considered to have
received a qualified notice.
*
*
*
*
*
(d) Rules for designation of nominees
to withhold tax under section 1446. A
nominee that receives a distribution
from a publicly traded partnership
subject to withholding under this
section, and which is to be paid to (or
for the account of) any foreign person,
may be treated as a withholding agent
under this section. A nominee is treated
as receiving a qualified notice on the
date that the notice is posted in
accordance with paragraph (b)(4) of this
section. When a nominee is treated as a
withholding agent with respect to a
foreign partner of the partnership, the
obligation to withhold on distributions
to the foreign partner in accordance
with the rules of this section is imposed
solely on the nominee. A nominee
responsible for withholding under the
rules of this section is subject to liability
under sections 1461 and 6655, as well
as all applicable penalties and interest,
as if the nominee were a partnership
responsible for withholding under this
section. A nominee may rely on a
qualified notice that meets the
requirements in paragraph (b)(4) of this
section to determine the amounts on
which it must withhold. If a notice a
publicly traded partnership issues
relating to its distribution does not meet
the requirements in paragraph (b)(4) of
this section, the nominee must withhold
on the distribution with respect to—

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

(1) Foreign partners that are
corporations, at the greater of the
highest rate of tax specified in section
11(b) or section 881; and
(2) Foreign partners that are not
corporations, at the greater of the
highest rate of tax specified in section
1 or section 871.
*
*
*
*
*
(f) * * *
(3) Ordering rule relating to
distributions. Distributions from
publicly traded partnerships are deemed
to be paid out of the following types of
income in the order indicated—
(i) Amounts attributable to income
described in section 1441 or 1442 that
are not effectively connected with the
conduct of a trade or business in the
United States but are subject to
withholding, before taking into account
any treaty exemptions;
(ii) Amounts attributable to income
described in section 1441 or 1442 that
are not effectively connected with the
conduct of a trade or business in the
United States and are not subject to
withholding because of an exemption
under a provision of the Code;
(iii) Amounts attributable to income
effectively connected with the conduct
of a trade or business in the United
States that are not subject to
withholding under §§ 1.1446–1 through
1.1446–6 (for example, amounts exempt
by treaty);
(iv) Amounts subject to withholding
under §§ 1.1446–1 through 1.1446–6;
and
(v) Amounts not listed in paragraphs
(f)(3)(i) through (iv) of this section.
*
*
*
*
*
■ Par. 8. Section 1.1446–7 is amended
by revising the section heading and
adding two sentences at the end of the
section to read as follows:
§ 1.1446–7

Applicability dates.

* * * The addition of § 1.1446–
3(c)(4) applies to partnership taxable
years that include transfers that occur
on or after the date that is 60 days after
the date that these regulations are
published as final regulations in the
Federal Register. The revisions to
§ 1.1446–4(b)(3) and (4), the removal of
the second sentence of § 1.1446–4(c),
and the revisions to § 1.1446–4(d) and
(f)(3) apply to distributions made on or
after the date that is 60 days after the
date that these regulations are published
as final regulations in the Federal
Register.
■ Par. 9. Sections 1.1446(f)–1 through
1.1446(f)–5 are added to read as follows:
Sec.

*

*

*

1.1446(f)–1

PO 00000

Frm 00019

*

*

General rules.

Fmt 4701

Sfmt 4702

1.1446(f)–2 Withholding on the transfer of a
non-publicly traded partnership interest.
1.1446(f)–3 Partnership’s requirement to
withhold under section 1446(f)(4) on
distributions to transferee.
1.1446(f)–4 Withholding on the transfer of a
publicly traded partnership interest.
1.1446(f)–5 Liability for failure to withhold.

*

*

*

§ 1.1446(f)–1

*

*

General rules.

(a) Overview. These regulations
provide rules for withholding, reporting,
and paying tax under section 1446(f)
upon the sale, exchange, or other
disposition of certain interests in
partnerships. This section provides
definitions and general rules of
applicability that apply for purposes of
section 1446(f). Section 1.1446(f)–2
provides withholding rules for the
transfer of a non-publicly traded
partnership interest under section
1446(f)(1). Section 1.1446(f)–3 provides
rules that apply when a partnership is
required to withhold under section
1446(f)(4) on distributions made to the
transferee in an amount equal to the
amount that the transferee failed to
withhold plus interest. Section
1.1446(f)–4 provides special rules for
the sale, exchange, or disposition of
publicly traded partnership interests, for
which the withholding obligation under
section 1446(f)(1) is generally imposed
on certain brokers that act on behalf of
the transferor. Section 1.1446(f)–5
provides rules that address the liability
for failure to withhold under section
1446(f) and rules regarding the liability
of a transferor’s or transferee’s agent.
(b) Definitions. This paragraph (b)
provides definitions that apply for
purposes of §§ 1.1446(f)–1 through
1.1446(f)–5.
(1) The term broker means any
person, foreign or domestic, that, in the
ordinary course of a trade or business
during the calendar year, stands ready
to effect sales made by others, and that,
in connection with a transfer of a PTP
interest, receives all or a portion of the
amount realized on behalf of the
transferor. The term broker also
includes any clearing organization (as
defined in § 1.1471–1(b)(21)) that effects
the transfer of a PTP interest on behalf
of the transferor. The term broker does
not include an escrow agent that effects
no sales other than such transactions
that are incidental to the purpose of
escrow (such as sales to collect on
collateral).
(2) The term controlling partner
means a partner that, together with any
person that bears a relationship
described in sections 267(b) or 707(b)(1)
to the partner, owns directly or
indirectly a 50 percent or greater

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

21216

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

interest in the capital, profits,
deductions, or losses of the partnership
in the 12 months before the
determination date.
(3) The term effect has the meaning
provided in § 1.6045–1(a)(10).
(4) The term foreign person means a
person that is not a United States
person.
(5) The term PTP interest means an
interest in a publicly traded partnership
if the interest is publicly traded on an
established securities market or is
readily tradable on a secondary market
(or the substantial equivalent thereof).
(6) The term publicly traded
partnership has the same meaning as in
section 7704 and §§ 1.7704–1 through
1.7704–4 but does not include a
publicly traded partnership treated as a
corporation under that section.
(8) The term TIN means the tax
identifying number assigned to a person
under section 6109.
(9) The term transfer means a sale,
exchange, or other disposition, and
includes a distribution from a
partnership to a partner.
(10) The term transferee means any
person, foreign or domestic, that
acquires a partnership interest through
a transfer, and includes a partnership
that makes a distribution.
(11) Except as otherwise provided in
this paragraph, the term transferor
means any person, foreign or domestic,
that transfers a partnership interest. In
the case of a trust, to the extent all or
a portion of the income of the trust is
treated as owned by the grantor or
another person under sections 671
through 679 (such trust, a grantor trust),
the term transferor means the grantor or
other person.
(12) The term transferor’s agent or
transferee’s agent means any person
who represents the transferor or
transferee (respectively) in any
negotiation with another person relating
to the transaction or in settling the
transaction. A person will not be treated
as a transferor’s agent or a transferee’s
agent solely because it performs one or
more of the activities described in
§ 1.1445–4(f)(3) (relating to activities of
settlement officers and clerical
personnel).
(13) The term United States person or
U.S. person means a person described in
section 7701(a)(30).
(c) General rules of applicability—(1)
In general. This paragraph (c) provides
general rules that apply for purposes of
§§ 1.1446(f)–1 through 1.1446(f)–5.
(2) Certifications—(i) In general. This
paragraph (c)(2) provides rules that are
applicable to certifications described in
§§ 1.1446(f)–1 through 1.1446(f)–5,
except as otherwise provided therein, or

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

in forms, instructions, or other
guidance. A certification must provide
the name and address of the person
providing it. A certification must also be
signed under penalties of perjury and, if
the certification is provided by the
transferor, must include a TIN if the
transferor has, or is required to have, a
TIN. A transferee (or other person
required to withhold) may not rely on
a certification if it knows that a
transferor has, or is required to have, a
TIN, and that TIN has not been provided
with the certification. A certification
includes any documents associated with
the certification, such as statements
from the partnership, IRS forms,
withholding certificates, withholding
statements, certifications, or other
documentation. Documents associated
with the certification form an integral
part of the certification, and the
penalties of perjury statement provided
on the certification also applies to the
documents. A certification (other than
the certification described in
§ 1.1446(f)–2(d)(2)) may not be relied
upon if it is obtained earlier than 30
days before the transfer or any time after
the transfer.
(ii) Penalties of perjury. A
certification signed under penalties of
perjury must provide the following:
‘‘Under penalties of perjury, I declare
that I have examined the information on
this document, and to the best of my
knowledge and belief, it is true, correct,
and complete.’’
(iii) Authority to sign certifications on
behalf of a business entity. A
certification provided by a business
entity must be signed by an individual
who is an officer, director, general
partner, or managing member of the
entity, or, if the general partner or
managing member is itself a business
entity, an individual who is an officer,
director, or managing member of the
entity that is the general partner or
managing member.
(iv) Electronic submission. A
certification may be sent electronically,
including as text in an email, an image
embedded in an email, or a Portable
Document Format (.pdf) attached to an
email. An electronic certification,
however, may not be relied upon if the
person receiving the submission knows
that the certification was transmitted by
a person not authorized to do so by the
person required to execute the
certification.
(v) Retention period. Any person that
relies on a certification pursuant to
§§ 1.1446(f)–1 through 1.1446(f)–5 must
retain the certification (including any
documentation) for the longer of five
calendar years following the close of the
last calendar year in which it relied on

PO 00000

Frm 00020

Fmt 4701

Sfmt 4702

the certification or for as long as it may
be relevant to the determination of its
withholding obligation under section
1446(f) or its withholding tax liability
under section 1461.
(vi) Submission to IRS. Except as
provided in § 1.1446(f)–2(b)(7) and
1.1446(f)–2(c)(4)(vi) (involving
certifications relating to an income tax
treaty), or in any forms, instructions, or
other guidance, the recipient of a
certification is not required to mail a
copy to the IRS.
(vii) Grantor trusts. A certification
provided by a transferor that is a grantor
or other owner of a grantor trust must
identify the portion of the amount
realized that is attributable to the
grantor or other owner.
(3) Books and records. A partnership
that relies on its books and records
pursuant to §§ 1.1446(f)–1 through
1.1446(f)–5 (including for purposes of
providing a certification or other
statement) must identify in its books
and records the date on which the
transfer occurred, the information on
which the partnership relied, and the
provisions of §§ 1.1446(f)–1 through
1.1446(f)–5 supporting an exception
from, or adjustment to, the partnership’s
obligation to withhold. The
identification required by this paragraph
(c)(3) must be made no later than 30
days after the date of the transfer. The
partnership must retain the identified
information in its books and records for
the longer of five calendar years
following the close of the last calendar
year in which it relied on the
information or for as long as it may be
relevant to the determination of its
withholding obligation under section
1446(f) or its withholding tax liability
under section 1461.
(4) Determination date—(i) In general.
This paragraph (c)(4) provides rules for
the determination date. The same
determination date must be used for all
purposes with respect to a transfer. Any
statement, certification, or books and
records with regard to a transfer must
state the determination date. The
determination date of a transfer must be
one of the following—
(A) The date of the transfer;
(B) Any date that is no more than 60
days before the date of the transfer; or
(C) The date that is the later of—
(1) The first day of the partnership’s
taxable year in which the transfer
occurs, as determined under section
706; or
(2) The date, before the date of the
transfer, of the most recent event
described in § 1.704–1(b)(2)(iv)(f)(5) or
§ 1.704–1(b)(2)(iv)(s)(1) (revaluation
event), irrespective of whether the
capital accounts of the partners are

E:\FR\FM\13MYP5.SGM

13MYP5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
adjusted in accordance with § 1.704–
1(b)(2)(iv)(f).
(ii) Controlling partner. The
determination date for a transferor that
is a controlling partner is determined
without regard to paragraph (c)(4)(i)(C)
of this section.
(5) IRS forms and instructions. Any
reference to an IRS form includes its
successor form. Any form must be filed
in the manner provided in the
instructions to the forms or in other
guidance.
(d) Coordination with section 1445. A
transferee that is otherwise required to
withhold under section 1445(e)(5) or
§ 1.1445–11T(d)(1) with respect to the
amount realized, as well as under
section 1446(f)(1), will be subject to the
payment and reporting requirements of
section 1445 only, and not section
1446(f)(1), with respect to that amount.
However, if the transferor has applied
for a withholding certificate under the
last sentence of § 1.1445–11T(d)(1), the
transferee must withhold the greater of
the amounts required under section
1445(e)(5) or section 1446(f)(1). A
transferee that has complied with the
withholding requirements under either
section 1445(e)(5) or section 1446(f)(1),
as applicable under this paragraph (d),
will be deemed to satisfy the other
withholding requirement.
(e) Applicability date. This section
applies to transfers that occur on or after
the date that is 60 days after the date
that these regulations are published as
final regulations in the Federal Register.

jbell on DSK3GLQ082PROD with PROPOSALS5

§ 1.1446(f)–2 Withholding on the transfer
of a non-publicly traded partnership
interest.

(a) Transferee’s obligation to
withhold. Except as otherwise provided
in this section, a transferee is required
to withhold under section 1446(f)(1) a
tax equal to 10 percent of the amount
realized on any transfer of a partnership
interest. This section does not apply to
a transfer of a PTP interest that is
effected through one or more brokers,
including a distribution made with
respect to a PTP interest held in an
account with a broker. For rules
regarding those transfers, see
§ 1.1446(f)–4.
(b) Exceptions to withholding—(1) In
general. A transferee is not required to
withhold under this section if it
properly relies on a certification or its
books and records as described in this
paragraph (b). A transferee may not rely
on a certification if it has actual
knowledge that the certification is
incorrect or unreliable. A partnership
that is a transferee because it makes a
distribution may not rely on its books
and records if it knows, or has reason

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

to know, that the information is
incorrect or unreliable.
(2) Certification of non-foreign status
by transferor. A transferee may rely on
a certification of non-foreign status from
the transferor that states that the
transferor is not a foreign person, states
the transferor’s name, TIN, and address,
and is signed under penalties of perjury.
For this purpose, a certification of nonforeign status includes a valid Form W–
9, Request for Taxpayer Identification
Number and Certification. For purposes
of this paragraph (b)(2), a transferee may
rely on a valid Form W–9 from the
transferor that it already possesses if the
form meets these requirements.
(3) No realized gain by transferor—(i)
In general. A transferee (other than a
partnership that is a transferee because
it makes a distribution) may rely on a
certification from the transferor that
states that the transfer of the partnership
interest would not result in any realized
gain (including ordinary income arising
from application of section 751 § 1.751–
1) to the transferor as of the
determination date. See paragraph (b)(6)
of this section for rules that apply when
the transferor realizes gain but is not
required to recognize the gain under a
provision of the Internal Revenue Code.
(ii) Partnership distributions. A
partnership that is a transferee because
it makes a distribution may rely on its
books and records, or on a certification
from the transferor, to determine that
the distribution would not result in any
realized gain to the transferor as of the
determination date.
(4) Less than 10 percent effectively
connected gain—(i) In general. A
transferee (other than a partnership that
is a transferee because it makes a
distribution) may rely on a certification
from the partnership that states that if
the partnership sold all of its assets at
fair market value as of the determination
date in the manner described in
§ 1.864(c)(8)–1(c), either—
(A) The amount of net gain that would
have been effectively connected with
the conduct of a trade or business
within the United States would be less
than 10 percent of the total net gain; or
(B) No gain would have been
effectively connected with the conduct
of a trade or business within the United
States.
(ii) Partnership distributions. A
partnership that is a transferee because
it makes a distribution may rely on its
books and records to determine that as
of the determination date either
paragraph (b)(4)(i)(A) or (B) of this
section is satisfied.
(5) Less than 10 percent effectively
connected taxable income—(i) In
general. A transferee (other than a

PO 00000

Frm 00021

Fmt 4701

Sfmt 4702

21217

partnership making a distribution) may
rely on a certification from the
transferor that states that—
(A) For the transferor’s immediately
prior taxable year and the two preceding
taxable years, the transferor was at all
times a partner in the partnership;
(B) The transferor’s allocable share of
effectively connected taxable income
determined under § 1.1446–2 (as
provided on Form 8805, Foreign
Partner’s Information Statement of
Section 1446 Withholding Tax) (ECTI),
including any ECTI allocable to a
partner that bears a relationship to the
transferor described in sections 267(b)
or 707(b)(1), was less than $1 million in
each of the taxable years described in
paragraph (b)(5)(i)(A) of this section;
(C) The transferor’s allocable share of
ECTI in each of the taxable years
described in paragraph (b)(5)(i)(A) of
this section was less than 10 percent of
the transferor’s total distributive share
of net income from the partnership for
that year as determined under
subchapter K of the Internal Revenue
Code (as provided on Schedule K–1
(Form 1065), Partner’s Share of Income,
Deductions, Credits, etc.); and
(D) The transferor’s distributive share
of income or gain that is effectively
connected with the conduct of a trade
or business within the United States or
deductions or losses properly allocated
and apportioned to that income in each
of the taxable years described in
paragraph (b)(5)(i)(A) of this section has
been reported on a Federal income tax
return (either filed by the transferor or,
in the case of transferor that is a
partnership, filed by its direct or
indirect nonresident alien individual or
foreign corporate partners) on or before
the due date (including extensions), and
all amounts due with respect to the
reported amounts has been timely paid
to the IRS, provided that the return was
required to be filed when the transferor
furnishes the certification (taking into
account any extensions of time to file).
(ii) Immediately prior taxable year—
(A) In general. The transferor’s
immediately prior taxable year is the
transferor’s most recent taxable year—
(1) With or within which a taxable
year of the partnership ended; and
(2) For which a Schedule K–1 (Form
1065) was due (including extensions) or
furnished (if earlier) before the transfer.
(B) Limitation. A transferee may not
rely on a certification that is provided
before the transferor’s receipt of the
Schedule K–1 (Form 1065) described in
paragraph (b)(5)(ii)(A) of this section.
(iii) No Form 8805—(A) In general.
Except as provided in paragraph
(b)(5)(iii)(B) of this section, a transferor
that does not receive Form 8805 because

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

21218

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

it had no ECTI for which the
partnership paid section 1446 tax
(within the meaning in § 1.1446–2(a)) in
any of the years described in paragraph
(b)(5)(i)(A) of this section may not make
the certification provided in this
paragraph (b)(5).
(B) Exception. If, in any of the years
described in paragraph (b)(5)(i)(A) of
this section, a transferor has an allocable
share of loss that is effectively
connected with the conduct of a trade
or business within the United States, or
has deductions properly allocated and
apportioned to income that is effectively
connected with the conduct of a trade
or business within the United States
from the partnership, paragraph
(b)(5)(iii)(A) of this section does not
apply by reason of a lack of Form 8805
with respect to that year, and the
transferor is treated as having an
allocable share of ECTI of zero in that
year for purposes of paragraph
(b)(5)(i)(C) of this section.
(iv) No net distributive share of
income. A transferor that did not have
a net distributive share of income in any
year described in paragraph (b)(5)(i)(A)
of this section cannot provide the
certification described in this paragraph
(b)(5).
(v) Partnership distributions. A
partnership that is a transferee by reason
of making a distribution may rely on its
books and records to determine that the
requirements in paragraphs (b)(5)(i)(A)
through (C) of this section have been
satisfied (subject to the rules in
paragraphs (b)(5)(ii) through (iv) of this
section). The partnership must also
obtain a representation from the
transferor stating that the requirement in
paragraph (b)(5)(i)(D) of this section has
been satisfied.
(vi) No certification when reporting is
incorrect. A transferor may not make the
certification described in this paragraph
(b)(5) if it has actual knowledge that the
information relevant to the certification
that is reported by the partnership on
any Form 8805 or Schedule K–1 (Form
1065) is incorrect.
(6) Certification of nonrecognition by
transferor—(i) In general. A transferee
may rely on a certification from the
transferor that states that by reason of
the operation of a nonrecognition
provision of the Internal Revenue Code
the transferor is not required to
recognize any gain or loss with respect
to the transfer. The certification must
briefly describe the transfer and provide
the relevant law and facts relating to the
certification.
(ii) Partial nonrecognition. Paragraph
(b)(6)(i) of this section does not apply if
only a portion of the gain realized on
the transfer is subject to a

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

nonrecognition provision. However, see
paragraph (c)(4)(v) of this section for
rules applicable to a transferor’s claim
for partial nonrecognition.
(7) Income tax treaties—(i) In general.
A transferee may rely on a certification
from the transferor that states that the
transferor is not subject to tax on any
gain from the transfer pursuant to an
income tax treaty in effect between the
United States and a foreign country if
the requirements of this paragraph (b)(7)
are met. The transferor must include
with the certification a withholding
certificate (on a Form W–8BEN,
Certificate of Foreign Status of
Beneficial Owner for United States Tax
Withholding and Reporting
(Individuals), or Form W–8BEN–E,
Certificate of Status of Beneficial Owner
for United States Tax Withholding and
Reporting (Entities)) that meets the
requirements for validity under
§ 1.1446–1(c)(2)(iv) (or an applicable
substitute form that meets the
requirements under § 1.1446–1(c)(5))
and that contains the information
necessary to support the claim for treaty
benefits. A transferee may rely on a
certification of treaty benefits only if,
within 30 days after the date of the
transfer, the transferee mails a copy of
the certification to the Internal Revenue
Service, at the address provided in
§ 1.1445–1(g)(10), together with a cover
letter providing the name, TIN, and
address of the transferee and the
partnership in which an interest was
transferred.
(ii) Treaty claim for less than all of the
gain. Paragraph (b)(7)(i) of this section
does not apply if treaty benefits apply
to only a portion of the gain from the
transfer. However, see paragraph
(c)(4)(vi) of this section for rules
applicable to situations in which treaty
benefits apply to only a portion of the
gain.
(iii) Exclusive means to claim an
exception from withholding based on
treaty benefits. A transferor claiming
treaty benefits with respect to all of the
gain from the transfer must use the
exception in this paragraph (b)(6) and
not any other exception or
determination procedure in paragraphs
(b) and (c) of this section to claim an
exception to withholding by reason of a
claim of treaty benefits.
(c) Determining the amount to
withhold—(1) In general. A transferee
that is required to withhold under this
section must withhold 10 percent of the
amount realized on the transfer of the
partnership interest, except as otherwise
provided in this paragraph (c). Any
procedures in this paragraph (c) apply
solely for purposes of determining the
amount to withhold under section

PO 00000

Frm 00022

Fmt 4701

Sfmt 4702

1446(f)(1) and this section. A transferee
may not rely on a certification if it has
actual knowledge that the certification
is incorrect or unreliable. A partnership
that is a transferee because it makes a
distribution may not rely on its books
and records if it knows, or has reason
to know, that the information is
incorrect or unreliable.
(2) Amount realized—(i) In general.
The amount realized on the transfer of
the partnership interest is determined
under section 1001 (including
§§ 1.1001–1 through 1.1001–5) and
section 752 (including § 1.752–1
through 1.752–7). Thus, the amount
realized includes the amount of cash
paid (or to be paid), the fair market
value of other property transferred (or to
be transferred), the amount of any
liabilities assumed by the transferee or
to which the partnership interest is
subject, and the reduction in the
transferor’s share of partnership
liabilities. In the case of a distribution,
the amount realized is the sum of the
amount of cash distributed (or to be
distributed), the fair market value of
property distributed (or to be
distributed), and the reduction in the
transferor’s share of partnership
liabilities.
(ii) Alternative procedures for
transferee to determine share of
partnership liabilities—(A) In general. A
transferee (other than a partnership that
is a transferee because it makes a
distribution), as an alternative to
determining the share of partnership
liabilities under paragraph (c)(2)(i) of
this section, may use the procedures of
this paragraph (c)(2)(ii) to determine the
extent to which a reduction in
partnership liabilities is included in the
amount realized.
(B) Certification of liabilities by
transferor. Except as otherwise provided
in this section, a transferee may rely on
a certification from a transferor, other
than a controlling partner, that provides
the amount of the transferor’s share of
partnership liabilities reported on the
most recent Schedule K–1 (Form 1065)
issued by the partnership. If the
transferor’s actual share of liabilities at
the time of the transfer differs from the
amount reported on that Schedule K–1
(Form 1065), the certification will not be
treated as incorrect or unreliable if the
transferor also certifies that it does not
have actual knowledge of any events
occurring after receiving the Schedule
K–1 (Form 1065) that would cause the
amount of the transferor’s share of
partnership liabilities at the time of the
transfer to differ by more than 25
percent from the amount shown on the
Schedule K–1 (Form 1065). A transferee
may not rely on a certification if the last

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
day of the partnership taxable year for
which the Schedule K–1 (Form 1065)
was provided was more than 22 months
before the date of the transfer.
(C) Certification of liabilities by
partnership. A transferee may rely on a
certification from a partnership that
provides the amount of the transferor’s
share of partnership liabilities on the
determination date. If the transferor’s
actual share of liabilities at the time of
the transfer differs from the amount on
the certification, the certification will
not be treated as incorrect or unreliable
if the partnership also certifies that it
does not have actual knowledge of any
events occurring after the determination
date that would cause the amount of the
transferor’s share of partnership
liabilities at the time of the transfer to
differ by more than 25 percent from the
amount shown on the certification by
the partnership for the determination
date.
(iii) Partnership’s determination of
partnership liabilities for distributions.
A partnership that is a transferee
because it makes a distribution may rely
on its books and records to determine
the extent to which the transferor’s
share of partnership liabilities on the
determination date are included in the
amount realized. The information in the
books and records will not be treated as
incorrect or unreliable unless the
partnership has actual knowledge, on or
before the date of the distribution, of
any events occurring after the
determination date that would cause the
amount of the transferor’s share of
partnership liabilities at the time of the
transfer to differ by more than 25
percent from the amount determined by
the partnership as of the determination
date.
(iv) Certification by a foreign
partnership of non-foreign status of its
partners—(A) In general. When a
transferor is a foreign partnership, a
transferee may use the procedures of
this paragraph (c)(2)(iv) to determine the
amount realized. For this purpose, the
transferee may rely on a certification
from the transferor providing the
modified amount realized, and may
treat the modified amount realized as
the amount realized.
(B) Determining modified amount
realized. The modified amount realized
is determined by multiplying the
amount realized (as determined under
this paragraph (c)(2), without regard to
this paragraph (c)(2)(iv)) by the
aggregate percentage computed as of the
determination date. The aggregate
percentage is the percentage of the gain
(if any) arising from the transfer that
would be allocated to presumed foreign
persons. For this purpose, a presumed

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

foreign person is any direct or indirect
partner of the transferor that has not
provided a certification of non-foreign
status that meets the requirements of
paragraph (b)(2) of this section. For
purposes of this paragraph (c)(2)(iv), an
indirect partner is a person that owns an
interest in the transferor indirectly
through one or more foreign
partnerships.
(C) Certification. The certification is
made by providing a withholding
certificate (on Form W–8IMY,
Certificate of Foreign Intermediary,
Foreign Flow-Through Entity, or Certain
U.S. Branches for United States Tax
Withholding and Reporting) and a
withholding statement that provides the
percentage of gain allocable to each
direct or indirect partner and that
provides whether each such person is a
United States person or presumed
foreign person. The certification must
also include a certification of nonforeign status that meets the
requirements of paragraph (b)(2) of this
section from each of the United States
persons that are direct or indirect
partners of the transferor that are
identified as a United States person on
the withholding statement.
(3) Lack of money or property or lack
of knowledge regarding liabilities. The
amount to withhold equals the amount
realized determined without regard to
any decrease in the transferor’s share of
partnership liabilities if—
(i) The amount otherwise required to
be withheld under this paragraph (c)
would exceed the amount realized
determined without regard to the
decrease in the transferor’s share of
partnership liabilities; or
(ii) The transferee is unable to
determine the amount realized because
it does not have actual knowledge of the
transferor’s share of partnership
liabilities (and has not received or
cannot rely on a certification described
in paragraph (c)(2)(ii)(B) or (C) of this
section).
(4) Certification of maximum tax
liability—(i) In general. A transferee
may use the procedures of this
paragraph (c)(4) for determining the
amount to withhold for purposes of
section 1446(f)(1) and paragraph (a) of
this section. A transferee (other than a
partnership that is a transferee because
it makes a distribution) may rely on a
certification from a transferor that is a
foreign corporation, a nonresident alien
individual or a foreign partnership
regarding the transferor’s maximum tax
liability as described in paragraph
(c)(4)(ii) of this section. A partnership
that is a transferee because it makes a
distribution may instead rely on its
books and records to determine the

PO 00000

Frm 00023

Fmt 4701

Sfmt 4702

21219

transferor’s maximum tax liability if the
books and records includes the
information required by paragraphs
(c)(4)(iii) and (c)(4)(iv) of this section. A
transferor that is a foreign partnership is
treated as a nonresident alien individual
for purposes of determining the
transferor’s maximum tax liability.
(ii) Maximum tax liability. For
purposes of this paragraph (c)(4), the
term maximum tax liability means the
amount of the transferor’s effectively
connected gain (as determined under
paragraph (c)(4)(iii)(E) of this section)
multiplied by the applicable percentage,
as defined in § 1.1446–3(a)(2).
(iii) Required information. The
certification must include—
(A) A statement that the transferor is
either a nonresident alien individual, a
foreign corporation, or a foreign
partnership;
(B) The transferor’s adjusted basis in
the transferred interest on the
determination date;
(C) The transferor’s amount realized
(determined in accordance with
paragraph (c)(2) of this section) on the
determination date;
(D) Whether the transferor remains a
partner immediately after the transfer;
(E) The amount of outside ordinary
gain and outside capital gain that would
be recognized and treated as effectively
connected gain under § 1.864(c)(8)–1(b)
on the determination date (effectively
connected gain);
(F) The transferor’s maximum tax
liability on the determination date;
(G) A representation from the
transferor that the transferor determined
the amounts described in paragraph
(c)(4)(iii)(E) of this section based on the
statement described in paragraph
(c)(4)(iv) of this section; and
(H) A representation from the
transferor that it has provided the
transferee with a copy of the statement
described in paragraph (c)(4)(iv) of this
section.
(iv) Partnership statement. A
transferor may make the representation
in paragraph (c)(4)(iii)(G) of this section
only if the partnership provides to the
transferor a statement (that meets the
requirements for a certification under
the general rules for applicability in
§ 1.1446(f)–1(c)) that includes—
(A) The partnership’s name, address,
and TIN; and
(B) The transferor’s aggregate deemed
sale EC ordinary gain, within the
meaning of § 1.864(c)(8)–1(c)(3)(ii)(A) (if
any) and the transferor’s aggregate
deemed sale EC capital gain, within the
meaning of § 1.864(c)(8)–1(c)(3)(ii)(B) (if
any), in each case, on the determination
date.

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

21220

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

(v) Partial nonrecognition. If a
nonrecognition provision applies to
only a portion of the gain realized on
the transfer, a certification described in
this paragraph (c)(4) may be relied upon
only if the certification also includes the
information required in paragraph (b)(6)
of this section.
(vi) Income tax treaties. If only a
portion of the gain on the transfer is not
subject to tax pursuant to an income tax
treaty in effect between the United
States and a foreign country, a
certification described in paragraph
(c)(4)(i) of this section may be relied
upon only if the certification also
complies with the requirements of
paragraph (b)(7) of this section,
including the requirement that the
determination that gain from the
transfer is not subject to tax pursuant to
an income tax treaty be made with
respect to the transferor, and that the
transferee mail a copy of the relevant
certification described in this paragraph
(c)(4) to the IRS.
(d) Reporting and paying withheld
amounts—(1) In general. A transferee
required to withhold under this section
must report and pay any tax withheld
by the 20th day after the date of the
transfer using Forms 8288, U.S.
Withholding Tax Return for Dispositions
by Foreign Persons of U.S. Real Property
Interests, and 8288–A, Statement of
Withholding on Dispositions by Foreign
Persons of U.S. Real Property Interests,
in accordance with the instructions to
those forms. The IRS will stamp Form
8288–A to show receipt and mail a
stamped copy to the transferor (at the
address reported on the form). See
paragraph (e)(2) of this section for the
procedures for the transferor to claim a
credit for amounts withheld. Forms
8288 and 8288–A must include the TINs
of both the transferor and the transferee.
If any required TIN is not provided, the
transferee must still report and pay any
tax withheld on Form 8288.
(2) Certification of withholding to
partnership for purposes of section
1446(f)(4). A transferee (other than a
partnership that is a transferee because
it makes a distribution) must certify to
the partnership the extent to which it
has satisfied its obligation to withhold
under this section no later than 10 days
after the transfer. The certification must
either include a copy of Form 8288–A
that the transferee files with respect to
the transfer, or state the amount realized
and the amount withheld on the transfer
of the partnership interest. The
certification must also include any
certifications that the transferee relied
on to apply an exception to withholding
under paragraph (b) of this section or to
determine the amount to withhold

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

under paragraph (c) of this section. See
§ 1.1446(f)–3 for rules regarding a
partnership’s obligation to withhold on
distributions to a transferee when this
certification establishes only partial
satisfaction of the required amount, is
not provided, or cannot be relied upon.
(e) Effect of withholding on
transferor—(1) In general. The
withholding of tax by a transferee under
this section does not relieve a foreign
person from filing a U.S. tax return with
respect to the transfer. See §§ 1.6012–
1(b)(1), 1.6012–2(g)(1), and 1.6031(a)–1.
Further, the withholding of tax by a
transferee does not relieve a nonresident
alien individual or foreign corporation
subject to tax under section 864(c)(8)
from paying any tax due with the return
that has not been fully satisfied through
withholding.
(2) Manner of obtaining credit—(i)
Individuals and corporations. Except as
provided in paragraph (e)(3) of this
section, an individual or corporation
may claim a credit under section 33 for
the amount withheld under this section
by attaching to its applicable return the
stamped copy of Form 8288–A provided
to it under paragraph (d)(1) of this
section. See also § 1.1462–1.
(ii) Partnerships. For a rule allowing
a foreign partnership that is a transferor
to claim a credit for the amount
withheld under this section against its
tax liability under section 1446(a), see
§ 1.1446–3(c)(4).
(3) Failure to receive Form 8288–A. If
a stamped copy of Form 8288–A has not
been provided to the transferor by the
IRS, the transferor may establish the
amount of tax withheld by the transferee
by attaching to its return substantial
evidence of the amount. The transferor
must attach to its return a statement that
includes all of the information
otherwise required to be provided on
Form 8288–A.
(f) Applicability date. This section
applies to transfers that occur on or after
the date that is 60 days after the date
that these regulations are published as
final regulations in the Federal Register.
§ 1.1446(f)–3 Partnership’s requirement to
withhold under section 1446(f)(4) on
distributions to transferee.

(a) Partnership’s obligation to
withhold amounts not withheld by the
transferee—(1) In general. If a transferee
fails to withhold any amount required to
be withheld under § 1.1446(f)–2, the
partnership in which the interest was
transferred must withhold from any
distributions made to the transferee
pursuant to this section. To determine
its withholding obligation under this
paragraph (a)(1), a partnership may rely
on a certification received from the

PO 00000

Frm 00024

Fmt 4701

Sfmt 4702

transferee described in § 1.1446(f)–
2(d)(2) unless it knows, or has reason to
know, that the certification is incorrect
or unreliable.
(2) Notification by IRS. A partnership
that receives notification from the IRS
that a transferee has provided incorrect
information regarding the amount
realized or amount withheld on the
certification described in § 1.1446(f)–
2(d)(2), or has failed to pay the IRS the
amount reported as withheld on the
certification, must withhold the amount
prescribed in the notification on
distributions to the transferee made on
or after the date that is 15 days after it
receives the notification. For this
purpose, the amount realized is not
treated as incorrect if the transferee
properly relied on a certification to
compute the amount realized pursuant
to § 1.1446(f)–2(c)(2).
(b) Exceptions to withholding—(1)
Withholding has been satisfied by
transferee. A partnership is not required
to withhold under paragraph (a)(1) of
this section if it relies on a certification
described in § 1.1446(f)–2(d)(2) received
from the transferee (within the time
prescribed in that section) that states
that an exception to withholding
described in § 1.1446(f)–2(b) applies or
that the transferee withheld the full
amount required to be withheld (taking
into account any adjustments under
§ 1.1446(f)–2(c)) under § 1.1446(f)–2.
(2) PTP interests—(i) In general.
Except as provided in paragraph
(b)(2)(ii) of this section, a partnership is
not required to withhold under this
section on distributions made with
respect to a PTP interest.
(ii) Exception for a false qualified
notice. If a publicly traded partnership
determines (including by reason of
notification from the IRS) that it has
published a qualified notice that falsely
states that either the exception
described in § 1.1446(f)–4(b)(3) (the 10percent exception) or the exception
described in § 1.1446(f)–4(b)(4) (the
qualified current income exception)
applies, the publicly traded partnership
must withhold under this section on
distributions to the transferee in an
amount equal to the amount that a
broker failed to withhold under
§ 1.1446(f)–4 due to reliance on the
qualified notice, plus interest.
(3) Distributing partnerships. A
partnership that is a transferee because
it makes a distribution is not required to
withhold under this section.
(c) Withholding rules—(1) Timing of
withholding—(i) In general. A
partnership required to withhold under
paragraph (a)(1) of this section must
withhold on distributions made to the
transferee beginning on the later of—

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
(A) The date that is 30 days after the
date of transfer; or
(B) The date that is 15 days after the
date on which the partnership acquires
actual knowledge that the transfer has
occurred.
(ii) Satisfaction of withholding
obligation. A partnership is treated as
satisfying its withholding obligation
under paragraph (a)(1) of this section
and may stop withholding on
distributions to the transferee on the
earlier of—
(A) The date on which the partnership
completes withholding and paying the
amount required to be withheld under
paragraph (c)(2) of this section;
(B) The date on which the partnership
receives and may rely on a certification
from the transferee described in
§ 1.1446(f)–2(d)(2) (without regard to
whether the certification is received by
the time prescribed in that section) that
claims an exception to withholding
under § 1.1446(f)–2(b); or
(C) If a partnership interest is not a
PTP interest, the date on which the
transferee no longer owns an interest in
the partnership, unless the partnership
has actual knowledge that any successor
to the transferee is a person that bears
a relationship described in section
267(b) or 707(b)(1) with respect to the
transferee or the transferor from which
the transferee acquired the interest.
(2) Amount to withhold—(i) In
general. A partnership required to
withhold under paragraph (a)(1) of this
section must withhold the full amount
of each distribution made to the
transferee until it has withheld—
(A) A tax of 10 percent of the amount
realized (determined solely under
§ 1.1446(f)–2(c)(2)(i) or, in the case of a
publicly traded partnership, solely
under § 1.1446(f)–4(c)(2)(i)) on the
transfer, reduced by any amount
withheld by the transferee, plus
(B) Any interest computed under
paragraph (c)(2)(ii) of this section.
(ii) Computation of interest. The
amount of interest required to be
withheld under paragraph (a)(1) of this
section is the amount of interest that
would be required to be paid under
section 6601 and § 301.6601–1 if the
amount that should have been withheld
by the transferee was considered an
underpayment of tax. For this purpose,
interest is payable between the date that
is 20 days after the date of the transfer
and the date on which the tax due under
paragraph (a)(1) of this section is paid
to the IRS.
(iii) Certifications required. For
purposes of paragraph (c)(2)(i)(A) of this
section, a partnership must determine
the amount realized on the transfer and
any amount withheld by the transferee

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

based on a certification from the
transferee described in § 1.1446(f)–
2(d)(2), without regard to whether the
certification is received by the time
prescribed in that section. A partnership
that does not receive or cannot rely on
a certification from the transferee
described in § 1.1446(f)–2(d)(2) must
withhold tax equal to the full amount of
each distribution made to the transferee
until it receives a certification that it can
rely on.
(3) Coordination with other
withholding provisions. Any amount
required to be withheld on a
distribution under any other provision
of the Internal Revenue Code is not also
required to be withheld under section
1446(f)(4) or this section.
(d) Reporting and paying withheld
amounts. The partnership must report
and pay the tax withheld using Forms
8288, U.S. Withholding Tax Return for
Dispositions by Foreign Persons of U.S.
Real Property Interests, and 8288–C,
Statement of Withholding Under
Section 1446(f)(4) for Withholding on
Dispositions by Foreign Persons of
Partnership Interests, as provided in
forms, instructions, or other guidance.
(e) Effect of withholding on transferor
and transferee—(1) Transferor. The
withholding of tax by a partnership
under this section does not relieve a
foreign person from filing a U.S. income
tax return with respect to the transfer.
See §§ 1.6012–1(b)(1), 1.6012–2(g)(1),
and 1.6031(a)–1. Further, the
withholding of tax by a partnership does
not relieve a nonresident alien
individual or foreign corporation subject
to tax under section 864(c)(8) from
paying any tax due with the return that
has not been fully satisfied through
withholding. An individual or
corporation is not allowed a credit
under section 33 for amounts withheld
on distributions to the transferee under
this section. See, however, §§ 1.1446(f)–
5(a) and 1.1463–1(a), which generally
provide that tax will not be recollected
if paid by another person.
(2) Transferee. A transferee is treated
as satisfying its withholding tax liability
under § 1.1446(f)–2 to the extent that a
partnership withholds tax (which does
not include interest) from the transferee
under this section. Interest computed
under paragraph (c)(2)(ii) of this section
that is withheld by the partnership from
the transferee is treated as interest paid
by the transferee with respect to its
withholding tax liability under
§ 1.1446(f)–2. A transferee may not
obtain a refund when the amount of tax
withheld under this section exceeds the
transferee’s withholding tax liability
under § 1.1446(f)–2. Instead, only the
partnership may claim a refund on

PO 00000

Frm 00025

Fmt 4701

Sfmt 4702

21221

behalf of the transferee for the excess
amount under this section.
(f) Applicability date. This section
applies to transfers that occur on or after
the date that is 60 days after the date
that these regulations are published as
final regulations in the Federal Register.
§ 1.1446(f)–4 Withholding on the transfer
of a publicly traded partnership interest.

(a) Broker’s obligation to withhold on
a transfer of a PTP interest—(1) In
general. If a transfer of a PTP interest is
effected through one or more brokers,
the transferee is not required to
withhold under section 1446(f)(1) and
§ 1.1446(f)–2. Rather, any broker
required to withhold under paragraph
(a)(2) of this section must withhold a tax
equal to 10 percent of the amount
realized (as defined in paragraph (c)(2)
of this section) on the transfer of a PTP
interest, except as otherwise provided in
this section. For rules regarding the
application of section 1446(f)(4) and
§ 1.1446(f)–3 to a publicly traded
partnership, see § 1.1446(f)–3(b)(2).
(2) Broker’s requirement to withhold—
(i) Payments to foreign brokers. A broker
that pays the amount realized from the
transfer of a PTP interest to another
broker that is a foreign person must
withhold under this section unless the
foreign person is—
(A) A qualified intermediary (as
defined in § 1.1441–1(e)(5)(ii)) that
provides a valid qualified intermediary
withholding certificate (as described in
§ 1.1441–1(e)(3)(ii)) that states that it
assumes primary withholding
responsibility under chapter 3; or
(B) A U.S. branch of a foreign person
(as described in § 1.1441–1(b)(2)(iv))
that provides a valid U.S. branch
withholding certificate (as described in
§ 1.1441–1(e)(3)(v)) that states that it
agrees to be treated as a U.S. person
with respect to any payment associated
with the certificate.
(ii) Brokers with customer
relationship with transferor. A broker
that effects the transfer for the transferor
as its customer (as defined in § 1.6045–
1(a)(2)) is required to withhold under
this section.
(iii) Exception. A broker is not
required to withhold under this section
if it knows that the withholding
obligation has already been satisfied.
(iv) Determination of foreign broker’s
status. For purposes of paragraph
(a)(2)(i) of this section, a broker must
treat another broker as a foreign person
unless it obtains documentation
(including a certification of non-foreign
status) establishing that the other broker
is a U.S. person.
(b) Exceptions to withholding—(1) In
general. A broker is not required to

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

21222

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

withhold under this section if it
properly relies on a certification
described in paragraph (b)(2) or (b)(6) of
this section, a qualified notice described
in paragraph (b)(3) or (b)(4) of this
section, or if the exception described in
paragraph (b)(5) of this section applies.
A broker may not rely on a certification
described in this paragraph (b) if it has
actual knowledge that the certification
is incorrect or unreliable.
(2) Certification of non-foreign status.
A broker may rely on a certification of
non-foreign status that it obtains from
the transferor. A certification of nonforeign status under this section means
a Form W–9, Request for Taxpayer
Identification Number and Certification,
or valid substitute form, that meets the
requirements of § 1.1441–1(d)(2). For
this purpose, a broker may rely on a
valid form that it already possesses from
the transferor. A broker may instead rely
on certification from a second broker (as
defined in § 1.6045–1(a)(1)) that acts as
an agent for the transferor when the
second broker does not receive the
amount realized from the transfer of the
PTP interest. This certification must
state that the second broker has
collected a valid certification of nonforeign status (within the meaning of
this paragraph (b)(2)) from the
transferor, and it must include the
transferor’s TIN and status as a foreign
or U.S. person.
(3) Less than 10 percent effectively
connected gain by partnership—(i) In
general. A broker may rely on a
qualified notice described in paragraph
(b)(3)(iii) of this section that states that
the 10-percent exception applies, as
determined under paragraph (b)(3)(ii) of
this section.
(ii) 10-percent exception—(A) In
general. The 10-percent exception
applies to a transfer if, on the PTP
designated date described in paragraph
(b)(3)(ii)(B) of this section, had the
publicly traded partnership sold all of
its assets at fair market value in the
manner described in § 1.864(c)(8)–1(c),
either—
(1) The amount of gain that would
have been effectively connected with
the conduct of a trade or business
within the United States would be less
than 10 percent of the total gain; or
(2) No gain would have been
effectively connected with the conduct
of a trade or business within the United
States.
(B) PTP designated date. The PTP
designated date for a transfer is any date
for a deemed sale determination that is
designated by the publicly traded
partnership in a qualified notice
described in paragraph (b)(3)(iii) of this
section, provided that the PTP

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

designated date occurs on or after the
date that is 92 days before the date on
which the publicly traded partnership
posted the qualified notice naming the
PTP designated date.
(iii) Qualified notice—(A) In general.
Except as provided in paragraph
(b)(3)(iii)(B) and (C) of this section, a
qualified notice described in this
paragraph (b)(3)(iii) is the most recent
qualified notice (within the meaning of
§ 1.1446–4(b)(4)) posted by the publicly
traded partnership.
(B) Qualified notice posting date
requirement. A qualified notice is
described in this paragraph (b)(3)(iii)
only if the publicly traded partnership
has posted it within the 92-day period
ending on the date of the transfer.
(C) Recent posting of qualified notice.
If the most recent qualified notice
posted by the publicly traded
partnership was posted during the 10day period ending on the date of the
transfer, a broker may instead rely on
the immediately preceding qualified
notice (within the meaning of § 1.1446–
4(b)(4)) posted by the publicly traded
partnership, provided that it satisfies
the condition described in paragraph
(b)(3)(iii)(B) of this section.
(4) Distribution made from current
income—(i) In general. A broker is not
required to withhold under this section
on a distribution by a publicly traded
partnership if the entire amount of a
distribution is designated, on a qualified
notice (within the meaning of § 1.1446–
4(b)(4)) posted with respect to that
distribution, as a qualified current
income distribution (within the
meaning of paragraph (b)(4)(ii) of this
section).
(ii) Qualified current income
distribution. A qualified current income
distribution is a distribution that does
not exceed the net income of the
publicly traded partnership since the
record date (within the meaning of 17
CFR 240.14a–1(h) or its successor
provision) of the immediately preceding
distribution made by the publicly traded
partnership.
(5) Amount subject to withholding
under section 3406. A broker is not
required to withhold under this section
if the amount realized from the transfer
of the PTP interest is subject to
withholding under § 31.3406(b)(3)–2 of
this chapter.
(6) Income tax treaties. A broker may
rely on a certification from the
transferor that states that the transferor
is not subject to tax on any gain from the
transfer pursuant to an income tax treaty
in effect between the United States and
a foreign country if the requirements of
this paragraph (b)(6) are met. The
transferor must include with the

PO 00000

Frm 00026

Fmt 4701

Sfmt 4702

certification a withholding certificate
(on a Form W–8BEN, Certificate of
Foreign Status of Beneficial Owner for
United States Tax Withholding and
Reporting (Individuals), or Form W–
8BEN–E, Certificate of Status of
Beneficial Owner for United States Tax
Withholding and Reporting (Entities))
that meets the requirements for validity
under § 1.1446–1(c)(2)(iv) (or an
applicable substitute form that meets
the requirements under § 1.1446–1(c)(5))
and that contains the information
necessary to support the claim for treaty
benefits. For purposes of this paragraph
(b)(6), a broker may rely on a
withholding certificate that it already
possesses from the transferor unless it
has actual knowledge that the
information is incorrect or unreliable.
This exception does not apply if treaty
benefits apply to only a portion of the
gain from the transfer.
(c) Determining the amount to
withhold—(1) In general. A broker that
is required to withhold under this
section must withhold 10 percent of the
amount realized on the transfer of the
PTP interest, except as provided in this
paragraph (c). Any procedures in this
paragraph (c) apply solely for purposes
of determining the amount to withhold
under section 1446(f)(1) and this
section. A broker may not rely on a
certification described in this paragraph
(c) if it has actual knowledge that the
certification is incorrect or unreliable.
(2) Amount realized—(i) In general.
Solely for purposes of this section, the
amount realized is the amount of gross
proceeds (as defined in § 1.6045–1(d)(5))
paid or credited upon the transfer to the
customer or other broker (as applicable),
or, in the case of a distribution, the
amount of cash distributed (or to be
distributed) and the fair market value of
property distributed (or to be
distributed).
(ii) Certification by a foreign
partnership of non-foreign status of its
partners—(A) In general. When a
transferor is a foreign partnership, a
broker may use the procedures of this
paragraph (c)(2)(ii) to determine the
amount realized. For this purpose, the
broker may rely on a certification from
the transferor providing the modified
amount realized, and may treat the
modified amount realized as the amount
realized.
(B) Determining modified amount
realized. The modified amount realized
is determined by multiplying the
amount realized (as determined under
this paragraph (c)(2), without regard to
this paragraph (c)(2)(ii)) by the aggregate
percentage computed as of the
determination date. The aggregate
percentage is the percentage of the gain

E:\FR\FM\13MYP5.SGM

13MYP5

jbell on DSK3GLQ082PROD with PROPOSALS5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
(if any) arising from the transfer that
would be allocated to presumed foreign
persons. For this purpose, a presumed
foreign person is any direct or indirect
partner of the transferor that has not
provided a certification of non-foreign
status that meets the requirements of
paragraph (b)(2) of this section. For
purposes of this paragraph (c)(2)(ii), an
indirect partner is a person that owns an
interest in the transferor indirectly
through one or more foreign
partnerships.
(C) Certification. The certification is
made by providing a withholding
certificate (on Form W–8IMY,
Certificate of Foreign Intermediary,
Foreign Flow-Through Entity, or Certain
U.S. Branches for United States Tax
Withholding and Reporting) and a
withholding statement that provides the
percentage of gain allocable to each
direct or indirect partner and that
provides whether each such person is a
United States person or presumed
foreign person. The certification must
also include a certification of nonforeign status that meets the
requirements of paragraph (b)(2) of this
section from each of the United States
persons that are direct or indirect
partners of the transferor that are
identified as a United States person on
the withholding statement. For purposes
of this paragraph (c)(2)(ii), a broker may
rely on a withholding certificate and
withholding statement that it already
possesses from the partnership unless it
has actual knowledge that the
information is incorrect or unreliable.
(d) Reporting and paying withheld
amounts. A broker that is required to
withhold under this section must pay
the withheld tax pursuant to the deposit
rules in § 1.6302–2. For rules regarding
reporting on Forms 1042, Annual
Withholding Tax Return for U.S. Source
Income of Foreign Persons, and 1042–S,
Foreign Person’s U.S. Source Income
Subject to Withholding, that apply to a
broker that withholds under this
section, see § 1.1461–1(b) and (c). For
rules regarding when an amount
realized on the transfer of a PTP interest
is an amount subject to reporting, see
§ 1.1461–1(c)(2)(i)(Q). A broker that
pays the amount realized to a foreign
partnership must issue a Form 1042–S
directly to the partnership rather than
issuing a form to each of the partners of
the partnership. See § 1.1461–
1(c)(1)(ii)(A)(8) (treating the foreign
partnership as a recipient for reporting
purposes). A broker making a payment
to a U.S. branch treated as a U.S. person
must not treat the branch as a U.S.
person for purposes of reporting the
payment made to the branch. Therefore,
a payment to that U.S. branch must be

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

reported on Form 1042–S. See § 1.1461–
1(c). A Form 1042–S issued directly to
the transferor must include the TIN of
the transferor unless the broker does not
know the TIN at the time of issuance.
(e) Effect of withholding on
transferor—(1) In general. The
withholding of tax under this section
does not relieve a foreign person from
filing a U.S. tax return with respect to
the transfer. See §§ 1.6012–1(b)(1),
1.6012–2(g)(1), and 1.6031(a)–1.
Further, the withholding of tax by a
broker does not relieve a nonresident
alien individual or foreign corporation
subject to tax under section 864(c)(8)
from paying any tax due with the return
that has not been fully satisfied through
withholding.
(2) Manner of obtaining credit—(i)
Individuals and corporations. An
individual or corporation may claim a
credit under section 33 for the amount
withheld under this section by attaching
to its applicable return a copy of a Form
1042–S that includes its TIN.
(ii) Partnerships. For a rule allowing
a foreign partnership that is a transferor
to claim a credit for the amount
withheld under this section against its
obligation to withhold under section
1446(a), see § 1.1446–3(c)(4).
(f) Applicability date. This section
applies to transfers that occur on or after
the date that is 60 days after the date
that these regulations are published as
final regulations in the Federal Register.
§ 1.1446(f)–5
withhold.

Liability for failure to

(a) Liability for failure to withhold.
Every person required to withhold and
pay tax under section 1446(f), but that
fails to do so, is liable for the tax under
section 1461. Under section 1463, if the
tax required to be withheld is paid by
another person required to withhold
under section 1446(f) or by the
nonresident alien individual or foreign
corporation subject to tax under section
864(c)(8), the tax will not be recollected.
However, any person that failed to
withhold under section 1446(f) is in no
case relieved from liability for any
interest, penalties, or additions to tax
that would otherwise apply. A
partnership that failed to withhold and
pay tax under § 1.1446(f)–3 is only
liable for the amount of tax that it failed
to collect (but not any interest computed
on that amount under § 1.1446(f)–
3(c)(2)(ii)), plus any interest, penalties,
or additions to tax with regard to the
partnership’s failure to withhold.
(b) Liability of agents—(1) Duty to
provide notice of false certification. A
transferee’s or transferor’s agent (other
than a broker required to withhold
under § 1.1446(f)–4) must provide

PO 00000

Frm 00027

Fmt 4701

Sfmt 4702

21223

notice to a transferee (or other person
required to withhold) if that person is
furnished with a certification described
in §§ 1.1446(f)–1 through 1.1446(f)–4
and the agent knows that the
certification is false. A person required
to withhold may not rely on a
certification if it receives the notice
described in this paragraph (b)(1).
(2) Procedural requirements. Any
agent who is required to provide notice
under paragraph (b)(1) of this section
must do so in writing (including by
electronic submission) as soon as
possible after learning of the false
certification. If the agent first learns of
the false certification before the date of
transfer, notice must be given by the
third day following that discovery but
no later than the date of transfer (before
the transferee’s payment of
consideration). If an agent first learns of
a false certification after the date of
transfer, notice must be given by the
third day following that discovery. The
notice must also explain the possible
consequences to the recipient of a
failure to withhold. The notice need not
disclose the information on which the
agent’s statement is based. The agent
must also furnish a copy of the notice
to the IRS by the date on which the
notice is required to be given to the
recipient. The copy of the notice must
be delivered to the address provided in
§ 1.1445–1(g)(10) and must be
accompanied by a cover letter stating
that the copy is being filed pursuant to
the requirements of § 1.1446(f)–5(b)(2).
(3) Failure to provide notice. Any
agent who is required to provide notice
under paragraph (b)(1) of this section,
but fails to do so in the manner required
in paragraph (b)(2) of this section, is
liable for the tax that the person who
should have been provided notice in
accordance with paragraph (b)(2) of this
section was required to withhold under
section 1446(f) if the notice had been
given.
(4) Limitation on liability. An agent’s
liability under paragraph (b)(3) of this
section is limited to the amount of
compensation that the agent derives
from the transaction. In addition, an
agent that assists in the preparation of,
or fails to disclose knowledge of, a false
certification may be liable for civil and
criminal penalties.
(c) Applicability date. This section
applies to transfers that occur on or after
the date that is 60 days after the date
that these regulations are published as
final regulations in the Federal Register.
■ Par. 10. Section 1.1461–1 is amended:
■ 1. As proposed to be amended
December 18, 2018, at 83 FR 64757:

E:\FR\FM\13MYP5.SGM

13MYP5

21224

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules

i. Paragraph (a)(1) is further amended
by revising the sixth, seventh, and
eighth sentences.
■ ii. Paragraph (c)(1)(i)(A) is further
amended by revising the second and
third sentences.
■ 2. By revising paragraph
(c)(1)(ii)(A)(8).
■ 3. By adding paragraph (c)(1)(ii)(B)(5).
■ 4. In paragraph (c)(2)(i) introductory
text, by revising the first and second
sentences.
■ 5. In paragraph (c)(2)(i)(N), by
removing the word ‘‘and’’ that follows
the semi-colon.
■ 6. In paragraph (c)(2)(i)(O), by
removing the period at the end of the
paragraph and adding ‘‘; and’’ in its
place.
■ 7. By adding paragraphs (c)(2)(i)(P)
and (Q).
■ 8. By adding a sentence at the end of
paragraph (c)(4)(ii)(A).
■ 9. Revising paragraph (i).
The revisions and additions read as
follows:
■

jbell on DSK3GLQ082PROD with PROPOSALS5

§ 1.1461–1
withheld.

Payment and returns of tax

(a) * * *
(1) Deposits of tax. * * * With
respect to withholding under section
1446, this section shall apply only to
publicly traded partnerships and
nominees that withhold under § 1.1446–
4 and brokers that withhold under
§ 1.1446(f)–4 on transfers of publicly
traded partnership interests. See
§ 1.1461–3 for penalties that apply for
failure to withhold under section
1446(a) on effectively connected taxable
income allocable to foreign partners or
under section 1446(f) on transfers of
partnership interests by foreign
partners. The references in the previous
two sentences to § 1.1446(f)–4 and
section 1446(f) shall apply to transfers
of partnership interests that occur on or
after 60 days after the date that these
regulations are published as final
regulations in the Federal Register.
*
*
*
*
*
(c) * * *
(1) * * *
(i) * * *
(A) In general. * * * Notwithstanding
the preceding sentence, any person that
withholds or is required to withhold an
amount under sections 1441, 1442,
1443, § 1.1446–4(a) (applicable to
publicly traded partnerships required to
pay tax under section 1446(a) on
distributions), or § 1.1446(f)–4(a)
(applicable to brokers required to
withhold on transfers of publicly traded
partnership interests) must file a Form
1042–S for the payment withheld upon
whether or not that person is engaged in
the conduct of a trade or business and

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

whether or not the payment is an
amount subject to reporting. The
reference in the previous sentence to
§ 1.1446(f)–4(a) shall apply with respect
to returns for transfers that occur on or
after 60 days after the date that these
regulations are published as final
regulations in the Federal Register.
* * *
*
*
*
*
*
(ii) * * *
(A) * * *
(8) A partner (including a foreign
partnership) receiving a distribution
from a publicly traded partnership
subject to withholding under section
1446(a) and § 1.1446–4 on distributions
of effectively connected income, and a
partner (including a foreign partnership)
receiving an amount realized from a
transfer of a publicly traded partnership
interest subject to withholding under
section 1446(f)(1) and § 1.1446(f)–4. The
references in this paragraph
(c)(1)(ii)(A)(8) to section 1446(f)(1) and
§ 1.1446(f)–4 shall apply with respect to
returns for transfers that occur on or
after 60 days after the date that these
regulations are published as final
regulations in the Federal Register.
*
*
*
*
*
(B) * * *
(5) A foreign broker withheld upon
under § 1.1446(f)–4(a)(2)(i) by another
broker paying an amount realized from
the transfer of a PTP interest.
*
*
*
*
*
(2) * * *
(i) In general. Subject to the
exceptions described in paragraph
(c)(2)(ii) of this section, amounts subject
to reporting on Form 1042–S are
amounts paid to a foreign payee or
partner (including persons presumed to
be foreign) that are amounts subject to
withholding as defined in § 1.1441–2(a),
§ 1.1446–4(a) (addressing publicly
traded partnerships required to pay
withholding tax under section 1446(a)
on distributions of effectively connected
income), or § 1.1446(f)–4(a) (addressing
brokers required to withhold and pay
tax on the amount realized on the
transfer of an interest in a publicly
traded partnership). The reference in the
previous sentence to withholding under
§ 1.1446–4(f) shall apply with respect to
returns for transfers that occur on or
after 60 days after the date that these
regulations are published as final
regulations in the Federal
Register. * * *
*
*
*
*
*
(P) The amount of any distribution
made by a publicly traded partnership
that is an amount subject to withholding
under § 1.1446–4, or that is paid to a
qualified intermediary that assumes

PO 00000

Frm 00028

Fmt 4701

Sfmt 4702

primary withholding responsibility for
the payment or a U.S. branch of a
foreign person that agrees to be treated
as a U.S. person described in § 1.1446–
4(b)(2); and
(Q) An amount realized on the
transfer of a publicly traded partnership
interest subject to § 1.1446(f)–4 (unless
an exception to withholding applies
under § 1.1446(f)–4(b)(2) through (5)).
*
*
*
*
*
(4) * * *
(ii) * * *
(A) Amounts paid to a nonqualified
intermediary, a flow-through entity, and
certain U.S. branches. * * * For a
payment to a foreign partnership on the
transfer of a publicly traded partnership
interest subject to § 1.1446(f)–4(a), see
paragraph (c)(1)(ii)(A)(8) of this section
(treating the foreign partnership as a
recipient).
*
*
*
*
*
(i) Applicability date—(1) In general.
Except as provided in paragraph (i)(2) of
this section, this section applies to
returns required for payments made on
or after January 6, 2017. For payments
made after June 30, 2014, and before
January 6, 2017, see this section as in
effect and contained in 26 CFR part 1,
as revised April 1, 2016. For payments
made after December 31, 2000, and
before July 1, 2014, see this section as
in effect and contained in 26 CFR part
1, as revised April 1, 2013.
(2) Exceptions. Paragraphs (a)(1),
(c)(1)(i)(A), (c)(1)(ii)(A)(8), (c)(2)(i), and
(c)(2)(iii) of this section apply as
provided in those paragraphs.
Paragraphs (c)(1)(ii)(A)(11),
(c)(1)(ii)(B)(5), (c)(2)(i)(P) and (Q), and
(c)(4)(ii)(A) apply with respect to
returns for transfers that occur on or
after 60 days after the date that these
regulations are published as final
regulations in the Federal Register.
■ Par. 11. Section 1.1461–2 is amended:
■ 1. By revising paragraph (a)(1).
■ 2. As proposed to be amended April
13, 2016, at 81 FR 21795, by revising the
first and last sentences of paragraph (b).
The revisions and addition read as
follows:
§ 1.1461–2 Adjustments for
overwithholding or underwithholding of tax.

(a) * * *
(1) In general. Except as otherwise
provided in this paragraph (a)(1), a
withholding agent that has
overwithheld under chapter 3 of the
Internal Revenue Code, and made a
deposit of the tax as provided in
§ 1.6302–2(a), may adjust the
overwithheld amount either pursuant to
the reimbursement procedure described
in paragraph (a)(2) of this section or
pursuant to the set-off procedure

E:\FR\FM\13MYP5.SGM

13MYP5

Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed Rules
described in paragraph (a)(3) of this
section. These rules do not apply to
partnerships or nominees required to
withhold under section 1446(a), other
than on a distribution by a publicly
traded partnership subject to
withholding under § 1.1446–4(a) and a
payment of an amount realized on the
transfer of an interest in a publicly
traded partnership subject to
§ 1.1446(f)–4. The reference in the
previous sentence to withholding under
§ 1.1446–4(f) shall apply with respect to
returns for transfers that occur on or
after 60 days after the date that these
regulations are published as final
regulations in the Federal Register.
*
*
*
*
*
(b) * * * A withholding agent may
withhold from future payments
(including distributions of effectively
connected income subject to
withholding under § 1.1446–4 and the
amount realized from the transfer of a
partnership interest subject to
§ 1.1446(f)–4) made to a beneficial
owner the tax that should have been
withheld from previous payments to
that beneficial owner under chapter 3 of
the Code. * * * The reference in this
paragraph (b) to withholding under
§ 1.1446–4(f)–4 shall apply with respect
to returns for transfers that occur on or
after 60 days after the date that these
regulations are published as final
regulations in the Federal Register.
*
*
*
*
*
■ Par. 12. Section 1.1461–3 is amended
by revising the first sentence and last
sentences to read as follows:
§ 1.1461–3
1446.

Withholding under section

jbell on DSK3GLQ082PROD with PROPOSALS5

For rules relating to the withholding
tax liability of a partnership, nominee,
or transferee under section 1446, see
§§ 1.1446–1 through 1.1446–7 and
1.1446(f)–1 through 1.1446(f)–5. * * *
The references in this section to
§§ 1.1446–1 through 1.1446–7 apply to
partnership taxable years beginning
after May 18, 2005, or such earlier time
as the regulations under §§ 1.1446–1
through 1.1446–5 apply by reason of an
election under § 1.1446–7, and the
references in this section to § 1.1446(f)–
1 through 1.1446(f)–5 shall apply with

VerDate Sep<11>2014

17:32 May 10, 2019

Jkt 247001

respect to returns for transfers that occur
on or after 60 days after the date that
these regulations are published as final
regulations in the Federal Register.
■ Par. 13. Section 1.1463–1 is amended
by revising the fourth and fifth
sentences of paragraph (a) to read as
follows:
§ 1.1463–1
income.

Tax paid by recipient of

(a) * * * See §§ 1.1446–3(e), 1.1446–
3(f) and 1.1446(f)–5(a) for application of
the rule of this paragraph (a), and for
additional rules, in which the
withholding tax was required to be paid
under section 1446. The references in
the previous sentence to § 1.1446–3(e)
and 1.1446–3(f) apply to partnership
taxable years beginning after May 18,
2005, or such earlier time as the
regulations under §§ 1.1446–1 through
1.1446–5 apply by reason of an election
under § 1.1446–7, and the reference in
the previous sentence to § 1.1446(f)–5(a)
shall apply to the tax required to be
withheld under section 1446(f) for
transfers that occur on or after 60 days
after the date that these regulations are
published as final regulations in the
Federal Register.
*
*
*
*
*
■ Par. 14. Section 1.1464–1 is amended
by revising the last sentence of
paragraph (a) and by revising paragraph
(c) to read as follows:
§ 1.1464–1

Refunds or credits.

(a) In general. * * * With respect to
section 1446 (other than section
1446(f)), this section applies only to a
publicly traded partnership described in
§ 1.1446–4.
*
*
*
*
*
(c) Applicability date. The last
sentence of paragraph (a) applies to
publicly traded partnerships described
in § 1.1446–4 for partnership taxable
years beginning after April 29, 2008,
and to brokers required to withhold
under § 1.1446(f)–4 on transfers that
occur on or after the date that is 60 days
after the date that these regulations are
published as final regulations in the
Federal Register.
■ Par. 15. Section 1.6050K–1 is
amended by:

PO 00000

Frm 00029

Fmt 4701

Sfmt 9990

21225

1. Redesignating the introductory text
of paragraph (c) and paragraphs (c)(1)
through (3) as the introductory text of
paragraph (c)(1) and paragraphs (c)(1)(i)
through (iii), respectively.
■ 2. Adding a subject heading to newlyredesignated paragraph (c)(1).
■ 3. Adding paragraphs (c)(2) and (3),
(d)(3), and (h).
The revision and additions read as
follows:
■

§ 1.6050K–1 Returns relating to sales or
exchanges of certain partnership interests.

*

*
*
*
*
(c) Statements to be furnished to
transferor and transferee—(1) In
general. * * *
(2) Information to be provided to
transferors. The statement a partnership
must provide to a transferor partner
pursuant to paragraph (c)(1) of this
section must also include the
information necessary for the transferor
to make the transferor’s required
statement under § 1.751–1(a)(3).
(3) Transfers of partnership interests
by foreign persons. For additional
information required to be provided by
the partnership if section 864(c)(8)
applies to the transfer of a partnership
interest by a foreign person, see
§ 1.864(c)(8)–2(b).
(d) * * *
(3) Transfers of partnership interests
by foreign persons. For notifications
required by foreign transferors of
partnership interests, see § 1.864(c)(8)–
2(a).
*
*
*
*
*
(h) Applicability date. Paragraphs
(c)(2) and (3) of this section apply to
returns filed on or after the date that
these regulations are published as final
regulations in the Federal Register.
Paragraph (d)(3) of this section applies
to transfers that occur on or after the
date that these regulations are published
as final regulations in the Federal
Register.
Kirsten Wielobob,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2019–09515 Filed 5–7–19; 4:15 pm]
BILLING CODE 4830–01–P

E:\FR\FM\13MYP5.SGM

13MYP5