Td 9926

This document is in the process of being submitted to the Office of the Federal
Register (OFR) for publication and will be pending placement on public display at
the OFR and publication in the Federal Register. The version of the final
regulations released today may vary slightly from the published document if
minor editorial changes are made during the OFR review process. The document
published in the Federal Register will be the official document.

[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9926]
RIN 1545-BO60
Withholding of Tax and Information Reporting with Respect to Interests in
Partnerships Engaged in a U.S. Trade or Business
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final rule.
SUMMARY: This document contains final regulations that provide guidance related to
the withholding of tax and information reporting with respect to certain dispositions of
interests in partnerships engaged in a trade or business within the United States. The
final 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 a trade or business within
the United States, and persons that acquire those interests. The final regulations also
affect partnerships that, directly or indirectly, have foreign persons as partners.

DATES: Effective date: These regulations are effective on [INSERT DATE OF
PUBLICATION IN THE FEDERAL REGISTER].
Applicability Dates: For dates of applicability, see §§1.864(c)(8)-2(e), 1.1445-2(e),
1.1445-5(h), 1.1445-8(j), 1.1446-7, 1.1446(f)-1(e), 1.1446(f)-2(f), 1.1446(f)-3(f),
1.1446(f)-4(f), 1.1446(f)-5(d), 1.1461-1(i), 1.1461-2(d), 1.1461-3, 1.1463-1, 1.1464-1(c),
1.6050K-1(h), and 1.6302-2(g).
FOR FURTHER INFORMATION CONTACT: In general, Chadwick Rowland or Ronald
M. Gootzeit (202) 317-6937; concerning §1.1446(f)-4, Charles Rioux (202) 317-6933
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Section 1446(f), which was added to the Internal Revenue Code (the Code) by
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). On
December 29, 2017, the Department of the Treasury (the Treasury Department) and the
IRS released Notice 2018-08, 2018-7 I.R.B. 352, which temporarily suspended the
requirement to withhold on amounts realized in connection with the sale, exchange, or
disposition of certain interests in a publicly traded partnership that are publicly traded on
an established securities market or readily tradable on a secondary market (or the
substantial equivalent thereof) (PTP interests). On April 2, 2018, the Treasury
Department and the IRS released Notice 2018-29, 2018-16 I.R.B. 495, which provided
temporary guidance and announced an intent to issue proposed regulations under
section 1446(f) with respect to the sale, exchange, or disposition of certain interests in

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non-publicly traded partnerships. On May 13, 2019, the Treasury Department and the
IRS published proposed regulations (REG-105476-18) primarily under section 1446(f)
relating to the withholding of tax and information reporting in the Federal Register (84
FR 21198) (the proposed regulations). The proposed regulations implemented section
1446(f) by providing guidance related to the withholding of tax and information reporting
with respect to certain dispositions by a foreign person of an interest in a partnership
that is engaged in a trade or business within the United States. In general, the
proposed regulations provided rules that apply to transfers of interests in non-publicly
traded partnerships (non-PTP interests) and transfers of PTP interests.
Section 864(c)(8) was also added to the Code by the Act. On December 27,
2018, the Treasury Department and the IRS published proposed regulations (REG113604-18) under section 864(c)(8) in the Federal Register (83 FR 66647) (the
proposed section 864(c)(8) regulations). The proposed section 864(c)(8) regulations
provided 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) under section 864(c)(8), including certain
rules that coordinate section 864(c)(8) with other relevant sections of the Code. Final
regulations under section 864(c)(8) were released on September 21, 2020, at
https://www.irs.gov/pub/irs-drop/td-9919.pdf and will be published separately in the
Federal Register (the final section 864(c)(8) regulations).
All written comments received in response to the proposed regulations are
available at www.regulations.gov or upon request. Additionally, a public hearing was

3

scheduled for August 26, 2019, but it was not held because there were no requests to
speak.
Summary of Comments and Explanation of Revisions
I. Overview
The final regulations retain the basic approach and structure of the proposed
regulations with certain revisions based on comments received. This Summary of
Comments and Explanation of Revisions discusses the comments received with respect
to the proposed regulations and any revisions made in response to those comments, as
well as other revisions made that were not directly in response to those comments.
Sections VI.A and VII.C of this Summary of Comments and Explanation of Revisions
also describe certain requirements specific to entities acting as qualified intermediaries
for section 1446 withholding purposes that are anticipated to be included in a revised
qualified intermediary agreement and that are not included in these final regulations. 1
II. Reporting Requirements for Foreign Transferors and Partnerships with Foreign
Transferors
Proposed §1.864(c)(8)-2 provided rules that facilitate the transfer of information
between a foreign partner and the partnership whose interest is transferred for purposes
of determining the transferor’s tax liability under section 864(c)(8). These rules required
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

1

The final regulations also include certain conforming changes to regulations under sections
1445 and 1446 to reflect the rate changes made by section 13001(b)(3)(A)-(D) of the Act and the due
date changes made by section 2006 of the Surface Transportation and Veterans Health Care Choice
Improvement Act of 2015 (the Surface Transportation Act), Public Law No. 114-41 (2015). Although the
changes to these regulations are applicable based on the date of publication of this document in the
Federal Register, the same result applies before that date as of the relevant effective dates of the Act
and the Surface Transportation Act.

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meaning of proposed §1.864(c)(8)-1(g)(5)) an interest in a partnership (other than
certain PTP interests) in a transaction described in section 864(c)(8) to notify the
partnership within 30 days of the transfer. Proposed §1.864(c)(8)-2(a). After receiving
the notification from a notifying transferor, a specified partnership (generally, a
partnership that is engaged in a trade or business within the United States or a
partnership that owns, directly or indirectly, an interest in a partnership so engaged) is
required 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),
Partner’s Share of Income, Deductions, Credits, etc., for the tax year of the partnership
in which the transfer occurred. Proposed §1.864(c)(8)-2(b).
While the final section 864(c)(8) regulations generally require a three-year
lookback period for purposes of determining the foreign source portion of deemed sale
gain or loss attributable to a partnership’s inventory property or intangibles, the
regulations also allow, in certain cases, the relevant foreign source portion of deemed
sale gain or loss to be determined by reference to the source of the partnership’s
income occurring after the date, if any, on which a material change in circumstances
occurs. §1.864(c)(8)-1(c)(2)(ii)(E). These final regulations provide that a specified
partnership must include in the statement provided to the notifying transferor information
regarding whether the transferor’s deemed sale EC gain or loss (as described in
§1.864(c)(8)-1(c)(2)) was determined under the material change in circumstances rule
provided in §1.864(c)(8)-1(c)(2)(ii)(E). §1.864(c)(8)-2(b)(2)(ii).

5

These final regulations also revise the definition of specified partnership to
remove unnecessary language on publicly traded partnerships. See §1.864(c)(8)1(d)(2).
III. Scope of the Withholding Obligation under Section 1446(f)
The general approach in the proposed regulations required withholding on the
transfer of a partnership interest unless an exception or adjustment to withholding
applied. See proposed §§1.1446(f)-2(a) and 1.1446(f)-4(a). Comments suggested that
proposed §1.1446(f)-2(a) was overly broad in that it could impose a withholding
obligation on any transfer of a partnership interest, regardless of whether the
partnership in question has any assets in, or any other connection to, the United States,
or whether a transfer of an interest in the partnership would result in tax on gain under
section 864(c)(8), and so required a transferee to withhold in a number of
circumstances where section 1446(f)(1)’s statutory language does not. To address this
issue, the comments suggested various exceptions to withholding.
One comment requested that the final regulations provide that even if a
transferee does not obtain a certification allowing an exception to withholding, the
transferee should not be considered to have failed to withhold if the transferee
demonstrates that the transfer did not result in any gain under section 864(c)(8). The
comment also suggested that in such a case, the transferee should be excused from
any penalties that would otherwise apply. In addition, the comment suggested an
exception to withholding when the transferee can demonstrate that no deemed sale EC
gain would be allocated to the transferor. Another comment suggested adding an
exception to withholding when the transferee can demonstrate that the partnership is
not engaged in a trade or business within the United States.
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One comment suggested limiting the scope of withholding by allowing a
transferee to rely on a certification from the partnership providing that it has not been
required to file a Form 1065, U.S. Return of Partnership Income, for some number of
past years, and it does not expect to be required to file a Form 1065 for the taxable year
in which the transfer occurs. The comment suggested, however, that the partnership
should not be required to provide this certification at the time of the transfer.
One comment generally requested that the final regulations expand the scope of
the withholding obligation under section 1446(f). Specifically, the comment requested
that the final regulations limit the number of exceptions and adjustments to withholding
and, for any exception or adjustment to withholding retained in the final regulations, the
comment requested that the final regulations increase the requirements necessary to
qualify for such an exception or adjustment.
The final regulations retain the general rule in proposed §1.1446(f)-2(a) that
requires withholding on the transfer of a partnership interest unless an exception or
adjustment to withholding applies. While the statutory language of section 1446(f)(1)
imposes a withholding requirement when a portion of the gain from a transfer would be
treated under section 864(c)(8) as effectively connected gain, a transferee will not know
whether a transfer results in tax on gain under section 864(c)(8) without information
from either the transferor or the partnership. These rules, therefore, require that the
transferee presume that a transfer is subject to withholding unless it obtains a
certification from the transferor establishing otherwise (or, if the partnership is the
transferee because it makes a distribution, by relying on information in its books and
records to make such determination). A transferee that obtains and properly relies on

7

this certification (or, when the partnership is the transferee, its books and records) will
generally not be subject to any withholding tax liability, even if the transfer results in tax
on gain under section 864(c)(8). See, however, §1.1446(f)-3(a) and section V.A. of this
Summary of Comment and Explanation of Revisions regarding a partnership’s
obligation to withhold on distributions made to a transferee for cases in which the
partnership receives a certification from the transferee that it knows, or has reason to
know, is incorrect or unreliable.
However, in response to comments, the final regulations add a rule in §1.1446(f)5(b) that provides that any person required to withhold under section 1446(f) is not liable
for failure to withhold, or any interest, penalties, or additions to tax, if it establishes to
the satisfaction of the Commissioner that the transferor had no gain under section
864(c)(8) subject to tax on the transfer. Accordingly, while the general scope of the
withholding obligation under §1.1446(f)-2(a) is retained in these final regulations, the
consequences for failing to comply with the obligation are modified when the transferor
had no gain under section 864(c)(8) subject to tax on the transfer. As this rule applies
for all purposes of section 1446(f), it also modifies the consequences for a partnership
that fails to comply with its withholding obligation under §1.1446(f)-3 or a broker that
fails to comply with its withholding obligation under §1.1446(f)-4 on the transfer of a PTP
interest. The final regulations also add an exception to withholding if the partnership
certifies to the transferee that it is not engaged in a trade or business within the United
States. See section IV.A.3.ii of this Summary of Comments and Explanation of
Revisions. The same exception is added for a publicly traded partnership that is not

8

engaged in a trade or business within the United States. See section VI.B.2 of this
Summary of Comments and Explanation of Revisions.
IV. Withholding on the Transfer of a Non-PTP Interest
In general, section 1446(f)(1) provides that a transferee of a partnership interest
must withhold a tax equal to 10 percent of the amount realized on any disposition that
results in effectively connected gain under section 864(c)(8). Proposed §1.1446(f)-2(a)
implemented this rule by providing that 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 (other than a PTP interest) unless an exception to withholding, or an
adjustment to the amount to withhold, applies under proposed §1.1446(f)-2(b) or (c),
respectively. Proposed §1.1446(f)-2(d)(1) provided rules for reporting and paying the
amount of any tax withheld and proposed §1.1446(f)-2(e) provided rules regarding the
effect of withholding on a transferor. For a discussion of the rules that apply to a
transfer of a PTP interest, see section VI of this Summary of Comments and
Explanations of Revisions.
A. Exceptions to withholding
Proposed §1.1446(f)-2(b)(2) through (7) provided six exceptions to withholding
by a transferee under section 1446(f)(1). The applicability of these exceptions was
determined in one of three ways: self-certification by the transferor (that is, the
transferee relies on a certification received from the transferor); certification by the
partnership (for purposes of the exception to withholding provided in proposed
§1.1446(f)-2(b)(4)(i)); or reliance on the books and records of the partnership (for cases
in which a partnership is a transferee because it makes a distribution). These final
regulations modify certain exceptions to withholding in response to comments received.
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1. Non-foreign Status Exception
Proposed §1.1446(f)-2(b)(2) provided for an exception to withholding if the
transferor of an interest in a partnership provides a certification of non-foreign status to
the transferee (the Non-foreign Status Exception). One comment requested that the
final regulations expand the Non-foreign Status Exception to match similar rules
provided in §§1.1445-2(b) and 1.1446-1(c)(3) that allow for reliance upon means other
than a certification or statement to ascertain the non-foreign status of the transferor.
The final regulations do not adopt this recommendation. While the provisions
cited in the comment generally allow for reliance on means other than a certification or
statement to ascertain non-foreign status, those provisions provide that the transferee
or partnership remains liable under section 1461 if the determination of non-foreign
status is incorrect. See §1.1445-2(b)(1) (last sentence) and §1.1446-1(c)(3). As
described in section III of this Summary of Comments and Explanation of Revisions,
§1.1446(f)-5(b) provides similar flexibility in that it would allow a transferee that did not
rely on a certification of non-foreign status to show that the transferor had no gain under
section 864(c)(8) subject to tax on the transfer because the transferor is not a foreign
person; in such a case, no interest, penalties, or additions to tax will apply under the
rules of these final regulations.
The comment also made the same recommendation regarding the Non-Foreign
Status Exception provided in proposed §1.1446(f)-4(b)(2) as it applied to transfers of
PTP interests. The final regulations do not adopt this recommendation for the reasons
described in the preceding paragraph.
2. No Realized Gain Exception

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i. In general
Proposed §1.1446(f)-2(b)(3) provided an exception to withholding if the
transferee relies 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 the application of section 751 and §1.751-1 (the No Gain Exception). One
comment suggested that a transferor realizing an overall loss on a transfer should be
eligible for the No Gain Exception, even if the transferor realizes ordinary income under
section 751 and §1.751-1. The final regulations do not adopt this comment because the
comment is inconsistent with the basic computation of outside gain and outside loss
provided in §1.864(c)(8)-1(b)(2). As explained in Section I.B of the Explanation of
Provisions in the preamble to the proposed section 864(c)(8) regulations, the amount of
gain or loss determined under section 741 (before application of section 751) is not a
limitation on the amount of gain or loss characterized as effectively connected with the
conduct of a trade or business within the United States. 83 FR 66647, at 66648; see
also §1.751-1(a) and §1.864(c)(8)-1(i) (Example 3). Thus, because a transferor can
realize ordinary income under section 751 that is characterized as effectively connected
with the conduct of a trade or business within the United States under section 864(c)(8)
even if the transferor realizes an overall loss with respect to the partnership interest, it
would be inappropriate for the No Gain Exception to apply merely because the
transferor does not realize an overall gain with respect to the transfer of the partnership
interest.
ii. Ordinary income arising from the deemed sale of section 751 property

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A comment explained that many transferors would be unable to use the No Gain
Exception, even if they would otherwise qualify, because transferors need information
from the partnership regarding the partnership’s unrealized receivables or inventory
items (section 751 property) and the relevant deemed sale computations associated
with that property. While the proposed regulations require a partnership to provide the
information necessary to make these computations on Form 8308, Report of a Sale or
Exchange of Certain Partnership Interests, proposed §1.6050K-1(c) did not accelerate
the date on which the partnership must provide Form 8308 to the transferor.2 Thus, the
comment suggested that a transferor may not have the information necessary at the
time of transfer to use the No Gain Exception. To address this issue, the comment
requested certain regulatory safe harbors that would allow a transferor to use the No
Gain Exception at the time of the deemed sale, including a rule that would allow a
transferor to make reasonable assumptions regarding the presence and value of section
751 property based on information at hand (for example, information used by the
partnership in preparing a recent Form 8308).
These final regulations modify the No Gain Exception to address the concerns
raised in the comment, but do not adopt the solution suggested in the comment.
Specifically, §1.1446(f)-2(b)(3)(ii) provides that a transferor may rely on a certification
from the partnership stating that, as of the determination date (as determined under the
rules of §1.1446(f)-1(c)(4)), the transfer of the partnership interest would not result in
any ordinary income arising from the application of section 751 and §1.751-1. This

2

Under §1.6050K-1(c), the partnership must provide Form 8308 to the transferor by January 31
of the calendar year following the calendar year in which the relevant exchange occurred or, if later, 30
days after the partnership is notified of the exchange.

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certification, in turn, is attached to, and forms part of, the general certification provided
by the transferor to the transferee as part of the No Gain Exception. By adopting this
approach, instead of the one suggested by the comment, the underlying issues raised in
the comment are addressed in a manner consistent with the rest of the exceptions to
withholding provided in §1.1446(f)-2(b), which generally allow determinations regarding
the applicability of an exception to be made as of the determination date. This
approach allows a partnership that holds section 751 property to provide the same
information to transferors that use the same determination date; therefore, this
approach provides an administrable, clear solution that taxpayers can consistently
apply, while also taking into account the unique nature of section 751 property.
3. 10-percent EC Gain Exception
i. In general
Proposed §1.1446(f)-2(b)(4) provided an exception to withholding if the
transferee relies on a certification from the partnership stating that if the partnership sold
all of its assets at fair market value on the determination date, the amount of net
effectively connected gain resulting from the deemed sale would be less than 10
percent of the total net gain from the deemed sale (the EC Gain Exception). The EC
Gain Exception also applied to a partnership that is a transferee because it makes a
distribution, in which case the partnership can rely on its books and records as of the
determination date to determine if the EC Gain Exception applies. One comment
suggested that the EC Gain Exception should refer to the transferor’s distributive share
of net effectively connected gain and should take into account, when applicable, the
transferor’s eligibility for benefits under an income tax treaty, rather than the aggregate

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amount of net effectively connected gain that would be realized by the partnership upon
the deemed sale described in section 864(c)(8) and proposed §1.864(c)(8)-1. With
respect to treaty benefits, however, the comment acknowledged that the maximum tax
liability certification provided in §1.1446(f)-2(c)(4) could provide the same result.
The final regulations adopt this comment in part. Specifically, §1.1446(f)2(b)(4)(i)(A)(2) provides, in relevant part, that a transferee may rely on a certification
from the partnership that states that if the partnership sold all of its assets at fair market
value on the determination date in the manner described in §1.864(c)(8)-1(c), the
transferor’s distributive share of net effectively connected gain from the partnership
would be either zero or less than 10 percent of the transferor’s distributive share of the
total net gain from the partnership. Accordingly, this modification applies to situations in
which the transferor would not have a distributive share of net effectively connected
gain (including by reason of having a distributive share of net effectively connected
loss). This modification, therefore, generally adopts the suggestion provided in the
comment to account for the transferor’s distributive share of net effectively connected
gain. Additionally, these final regulations retain the rules provided in proposed
§1.1446(f)-2(b)(4)(i)(A) and (B) to allow partnerships to make the relevant determination
at the partnership level as of the determination date, without regard to the transferor’s
distributive share of net effectively connected gain. §1.1446(f)-2(b)(4)(i)(A)(1). For this
purpose, however, the final regulations simplify the partnership-level exception to
withholding by combining proposed §1.1446(f)-2(b)(4)(i)(A) and (B) into a single rule;
this simplification is intended to be non-substantive.

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These final regulations do not adopt the suggestion in the comment regarding the
transferor’s eligibility for benefits under an income tax treaty. With respect to treaty
benefits, the Treasury Department and the IRS believe that existing exceptions and
adjustments, including modifications provided in this rulemaking, adequately address
that aspect of the comment. See, e.g., §1.1446(f)-2(b)(7) (exception to withholding
when a treaty claim covers all of the gain from the transfer); §1.1446(f)-2(c)(2)(iv) and
section IV.B.3 of this Summary of Comments and Explanation of Revisions (modified
amount realized procedures for transferors that are foreign partnerships); and
§1.1446(f)-2(c)(4) (adjustments to the amount to withhold based on the transferor’s
maximum tax liability).
ii. Partnership not engaged in a trade or business within the United States
Section 864(c)(8), by its terms, applies only to a transfer of an interest in a
partnership that is engaged in a trade or business within the United States (a USTB
partnership). See section 864(c)(8)(A); see also §1.864(c)(8)-1(b)(1). When a
partnership holds U.S. real property interests and is also subject to section 864(c)(8)
because it is engaged in a trade or business within the United States, the computations
provided in §1.864(c)(8)-1(c) take into account any U.S. real property interests held by
the partnership. §1.864(c)(8)-1(d). Alternatively, for a partnership that is not a USTB
partnership (for example, the partnership’s only assets consist of foreign business
assets and U.S. real property interests that are not used in the conduct of a trade or
business within the United States, such as shares of a United States real property
holding corporation), §1.864(c)(8)-1(d) provides that the rules of section 864(c)(8) and
§1.864(c)(8)-1 do not apply to a transfer of an interest in that partnership. One
comment requested that the final regulations coordinate section 1446(f)(1) withholding
15

with the rule provided in §1.864(c)(8)-1(d) by clarifying that, for a partnership that is not
described in §1.1445-11T(d)(1), the EC Gain Exception applies to situations in which
the partnership would not have effectively connected gain as of the determination date
without the application of section 897(a). The comment noted that under the proposed
regulations, no exception to withholding is provided for a transfer that would not be
subject to section 864(c)(8) because the partnership is not a USTB partnership.
The Treasury Department and the IRS agree that a transfer of an interest in a
partnership that is not engaged in a trade or business in the United States is not subject
to section 864(c)(8) and, therefore, should be excepted from withholding under section
1446(f). Accordingly, §1.1446(f)-2(b)(4)(i)(B) provides that the transferee may rely on a
certification from the partnership stating that the partnership was not engaged in a trade
or business within the United States at any time during the taxable year of the
partnership through the date of transfer (that is, the partnership was not a USTB
partnership at any time during the period beginning on the first day of the partnership’s
taxable year in which the transfer occurs and ending on the close of the date of
transfer). While this modification takes into account the general scenario described in
the comment (that is, the partnership only holds foreign business assets and U.S. real
property interests that are not part of a trade or business and thus is not a USTB
partnership), this modification also applies to any situation in which a partnership whose
interest is transferred is not a USTB partnership during the relevant period, regardless
of whether that partnership holds U.S. real property interests. For USTB partnerships
that hold U.S. real property interests, deemed sale gain attributable to U.S. real property
interests continues to be treated as effectively connected gain for purposes of the 10-

16

percent prong of the EC Gain Exception provided in §1.1446(f)-2(b)(4)(i)(A). Finally, for
partnerships that are described in §1.1445-11T(d)(1), see §1.1446(f)-1(d).
Similar changes are made to the EC Gain Exception as it applies to transfers of
PTP interests. See section VI.B.2 of this Summary of Comments and Explanation of
Revisions and §1.1446(f)-4(b)(3).
4. 10-percent ECI Exception
Proposed §1.1446(f)-2(b)(5) provided an exception to withholding if the
transferee relies on a certification from the transferor providing, in relevant part, that the
transferor was a partner in the partnership for the immediately prior taxable year and the
two preceding taxable years and the transferor’s allocable share of effectively
connected taxable income (determined under §1.1446-2) (ECTI) was less than 10
percent of the transferor’s total distributive share of net income received from the
partnership, and less than $1 million, in each of those years. For this purpose,
proposed §1.1446(f)-2(b)(5) provided that the transferor’s allocable share of ECTI is
determined by reference to Form 8805, Foreign Partner’s Information Statement of
Section 1446 Withholding Tax, unless the transferor was allocated an allocable share of
loss that is effectively connected with the conduct of a trade or business within the
United States, or had deductions that are properly allocated and apportioned to income
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). As a result, the exception provided in proposed
§1.1446(f)-2(b)(5) could be used only if a transferor was allocated either a positive
amount of ECTI (as reported on Form 8805) or an effectively connected loss (such that

17

no Form 8805 was provided) in each year. Additionally, under proposed §1.1446(f)2(b)(5)(iv), a transferor could not provide the certification required for the exception if
the transferor did not have a distributive share of net income from the partnership for
each year described in proposed §1.1446(f)-2(b)(5)(i)(A). Finally, the proposed
regulations provided that a transferee may not rely on a certification provided by the
transferor if the transferor was not a partner in the partnership for each year described
in proposed §1.1446(f)-2(b)(5)(i)(A).
Comments explained that in some cases partnership investments are structured
to minimize the risk that a foreign partner will have effectively connected income or loss;
and, for this purpose, a foreign partner in such a structure will not have an allocable
share of ECTI or effectively connected loss under the partnership agreement. As a
result, if that foreign partner transfers its interest in the partnership, it would not qualify
for the exception to withholding provided in proposed §1.1446(f)-2(b)(5) because it
would not receive a Form 8805 nor have an effectively connected loss for each of the
taxable years described in proposed §1.1446(f)-2(b)(5)(i)(A). To address this issue, one
of the comments suggested that the final regulations modify proposed §1.1446(f)2(b)(5) to provide relief to transferors with neither an allocable share of ECTI nor an
effectively connected loss.
The same comment suggested that, for situations in which a foreign partner is
allocated effectively connected items, the exception should look to allocations of gross
amounts rather than net amounts in order to more accurately reflect the partnership’s
capacity to produce effectively connected income or gain. The comment explained that
this change would serve as a more accurate proxy for the tax consequences that would

18

occur under section 864(c)(8) by reason of the transfer. For example, a partnership
may generate significant amounts of losses or deductions during the relevant period
resulting in small amounts of net ECTI, but nevertheless hold assets with significant
amounts of built-in gain that would be treated as effectively connected gain on a
deemed sale. In that case, the transferor would be able to use the exception to
withholding provided in proposed §1.1446(f)-2(b)(5) even though the transferor may
realize a significant amount of gain under section 864(c)(8) by reason of the transfer.
Finally, with respect to the period during which the transferor was required to be a
partner in the partnership, the comment recommended changing the period provided in
proposed §1.1446(f)-2(b)(5)(i)(A) to allow for an exception to withholding when the
transferor was not a partner in the partnership for the transferor’s immediately prior
taxable year and the two preceding taxable years (the look-back period), provided the
transferor was a partner in the partnership long enough to receive at least one Schedule
K-1 (Form 1065).
In response to comments, these final regulations modify the exception to
withholding under §1.1446(f)-2(b)(5). Under the exception in these final regulations (the
ECI Exception), a transferor may qualify if its distributive share of gross effectively
connected income from the partnership for each taxable year within the look-back
period was less than $1 million and less than 10 percent of the transferor’s total
distributive share of gross income from the partnership for that year, with both amounts
reflected on a Schedule K-1 (Form 1065) (or other statement furnished to the partner)
received from the partnership for each year. Because the ECI Exception looks to the
transferor’s share of effectively connected income (as reported on a Schedule K-1 or

19

other statement furnished to the partner), rather than its allocable share of ECTI, a
transferor that is not allocated any effectively connected income or loss in any relevant
year can still use the exception even if it has not received a Form 8805 for that year.
The ECI Exception also adopts the suggestion in the comment to look to gross amounts
of income, rather than net amounts of income, for purposes of determining whether the
transferor’s distributive share of effectively connected income was less than 10 percent
of the transferor’s total distributive share of income from the partnership. As suggested
by the comment, this change is intended to provide a more accurate proxy for the tax
consequences that would arise under section 864(c)(8) by reason of the transfer.
Consistent with this change, the rule provided in proposed §1.1446(f)-2(b)(5)(iv) is
modified to state that a transferor cannot provide the certification required for the ECI
Exception if the transferor did not have a distributive share of gross income from the
partnership in each of the relevant years. §1.1446(f)-2(b)(5)(iii). Therefore, a transferor
will generally be able to use the ECI Exception even if it is allocated a distributive share
of net loss from the partnership for the relevant taxable year.
These final regulations do not adopt the recommendation in the comment with
respect to the relevant holding period because the Treasury Department and the IRS
have determined that reducing a transferor’s required length of time to be a partner in a
partnership for purposes of the ECI Exception would not provide an adequate indication
of the amount of the transferor’s effectively connected gain realized in connection with
the transfer.
5. Claims for Treaty Benefits

20

Under the proposed regulations, a transferor may claim an exception or
adjustment to withholding when it qualifies for treaty benefits with respect to a transfer
of a partnership interest (including a transfer of a PTP interest). See proposed
§§1.1446(f)-2(b)(7) and 1.1446(f)-4(b)(6). These rules required that the certification to
claim treaty benefits include an applicable withholding certificate that contains the
information necessary to support the claim. Comments requested clarification of the
information required to be provided on 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) in order to claim treaty benefits for purposes of
section 1446(f).
To address the comments, the IRS intends to revise the instructions to Forms W8BEN and W-8BEN-E to describe the information required to be provided for making a
treaty claim for purposes of section 1446(f), including a treaty claim made with respect
to a transfer of a PTP interest. To make the rules regarding claims for treaty benefits
more administrable, these final regulations allow a transferor to use the applicable
withholding certificate as the certification for making a claim for benefits under an
income tax treaty.
6. Additional Comments Regarding Exceptions to Withholding
i. Disguised sales
Proposed §1.864(c)(8)-1(g)(5) defined a transfer for purposes of the section
864(c)(8) proposed regulations as including a transfer treated as a sale or exchange
under section 707(a)(2)(B) (a disguised sale). One comment requested an exception

21

from section 1446(f) withholding for certain transactions that occur in connection with
the formation and initial funding of an investment partnership, as well as redemptions
and admissions of new partners over time, that could be characterized as disguised
sales of partnership interests. The comment acknowledged that addressing the
substantive issue regarding what constitutes a disguised sale of a partnership interest is
beyond the scope of this rulemaking. Nonetheless, the comment recommended an
exception from section 1446(f) withholding for certain transactions involving the
formation and funding of a partnership and redemptions and admissions of new
partners over time. The final regulations do not adopt the recommendation provided in
this comment. If a contributing partner is treated as acquiring a partnership interest
from a foreign person for Federal income tax purposes, it is appropriate to impose a
withholding obligation on the contributing partner to ensure the collection of tax on gain
under section 864(c)(8). Further, as the comment noted, the issue of what constitutes a
disguised sale of a partnership interest and the tax consequences flowing from that
treatment are not unique to the application of these final regulations. After studying the
issue, the Treasury Department and the IRS have determined that adding an exception
to withholding to take certain cases into account would require a determination, at least
in part, of what constitutes a disguised sale of a partnership interest in this context, and
the issue is, therefore, outside the scope of this rulemaking.
ii. Withholding foreign partnerships and withholding foreign trusts
Comments requested an exception to withholding for transferors that are
withholding foreign partnerships (WPs) and withholding foreign trusts (WTs) if they
assume withholding under section 1446(f). WPs and WTs are foreign partnerships and

22

trusts that enter into agreements with the IRS to assume primary withholding and
reporting responsibilities on payments subject to withholding under chapters 3 and 4
with respect to their partners, owners, or beneficiaries (as applicable). One of the
comments suggested that without such a rule, partners of a WP would be subject to
duplicative withholding.
The final regulations do not adopt the suggestions contained in these comments.
First, a rule allowing WPs and WTs to assume withholding under section 1446(f) would
create complexity and require extensive coordination with the existing provisions for
withholding and reporting in the agreements that WPs and WTs have entered into with
the IRS. The comments do not provide any suggestions on how to address the many
issues that would arise if such a rule were adopted. Further, the comments do not
indicate that such a rule would have a material impact on taxpayers that would justify
the allocation of resources necessary to provide guidance to these taxpayers. Second,
any concerns regarding duplicative withholding were already addressed under the
proposed regulations, which allow a foreign partnership to credit any withholding under
section 1446(f) against its own section 1446(a) withholding liability. See §§1.1446(f)2(e)(2)(ii) and 1.1446(f)-4(e)(2)(ii).
iii. Earnout payments
A comment noted that a transfer of a partnership interest may be subject to an
earnout provision that entitles the transferor to future payments based on the
achievement of specific goals. The comment requested guidance clarifying that these
future payments will be subject to an exception to withholding to the extent that the
original transfer qualified for an exception to withholding. Under the proposed

23

regulations, an exception to withholding in §1.1446(f)-2 eliminates any requirement to
withhold on the amount realized from the transfer of a partnership interest. Thus, if an
exception to withholding applies at the time of the transfer of a partnership interest, it
will also apply to any future payments made to the transferor that are treated as an
amount realized from such transfer. As a result, no change is needed in response to this
comment.
B. Determining the amount to withhold
If an exception to withholding under proposed §1.1446(f)-2(b) does not apply,
proposed §1.1446(f)-2(c)(1) provided that a transferee is required to withhold 10 percent
of the amount realized on the transfer of the partnership interest. Proposed §1.1446(f)2(c) provided guidance for determining the amount to withhold and provided certain
procedures that allow for adjustments to the amount to withhold that are intended to
better reflect the transferor’s tax liability on gain under section 864(c)(8). A transferee
may use these adjustment procedures when it relies on a certification from the
transferor (or, if applicable, from the partnership). The procedures for determining the
amount to withhold, therefore, employ the same self-certification procedure provided in
proposed §1.1446(f)-2(b). See generally section IV.A of this Summary of Comments
and Explanation of Revisions.
1. Definition of Amount Realized
Proposed §1.1446(f)-2(c)(2)(i) provided generally that the amount realized on a
transfer of a partnership interest is determined, in part, under section 752 (including
§1.752-1 through 1.752-7); accordingly, the amount realized includes any reduction in
the transferor’s share of partnership liabilities. One comment requested that the final

24

regulations modify the amount realized definition to exclude any reduction to the
transferor’s share of partnership liabilities. The comment pointed to the potential
liquidity concerns that could occur when the amount of liabilities assumed exceeds the
cash or other property exchanged in the transfer. The Treasury Department and the
IRS have determined that it is inappropriate to exclude a reduction in a transferor’s
share of partnership liabilities from amount realized. Further, proposed §1.1446(f)2(c)(3), which is retained in these final regulations, addresses the liquidity concerns
raised in this comment. That provision determines the amount to withhold without
regard to any decrease in the transferor’s share of partnership liabilities, but only if the
amount otherwise required to be withheld would exceed the amount realized
(determined without regard to any decrease in the transferor’s share of partnership
liabilities).
2. Modified Amount Realized for Transfers by Foreign Partnerships
Proposed §1.1446(f)-2(c)(2)(iv) provided a procedure to determine the amount
realized when the transferor of a partnership interest is a foreign partnership.
Specifically, when a foreign partnership transfers an interest in a partnership, proposed
§1.1446(f)-2(c)(2)(iv) provided that the transferee of the interest may rely on a
certification provided by the transferor partnership that provides a modified amount
realized. The modified amount realized is determined by multiplying the amount
realized on the transfer (as determined under proposed §1.1446(f)-2(c)(2)) by the
percentage of the gain from the transfer that would be allocated to presumed foreign
taxable persons, which include any direct or indirect partners of the transferor
partnership that have not provided a certification of non-foreign status. Proposed

25

§1.1446(f)-2(c)(2)(iv)(B). To make the certification, the transferor partnership 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, a withholding statement allocating the gain to each partner, and a
certification of non-foreign status for each partner that is treated as a U.S. person. See
proposed §1.1446(f)-2(c)(2)(iv)(C). If the transferee may rely on the certification, the
modified amount realized is treated as the amount realized on the transfer.
One comment recommended that the final regulations expand this approach for
determining the modified amount realized on a transfer to take into account situations in
which a foreign partner (direct or indirect) in the transferor partnership is eligible for
treaty benefits. These final regulations adopt this recommendation. Accordingly, these
final regulations modify proposed §1.1446(f)-2(c)(2)(iv) to allow for a reduction of the
amount realized when a transferor that is a foreign partnership has a direct or indirect
partner that is not subject to tax on gain from a transfer pursuant to an applicable U.S.
income tax treaty. Specifically, this modification provides that a treaty-eligible partner is
not a presumed foreign taxable person for purposes of determining the modified amount
realized under §1.1446(f)-2(c)(2)(iv). A foreign partnership that provides a certification
of modified amount realized must include, in addition to the Form W-8IMY and a
withholding statement, the certification of treaty benefits (on a Form W-8BEN or Form
W-8BEN-E) from each direct or indirect partner that is not a presumed foreign taxable
person. §1.1446(f)-2(c)(2)(iv)(C).

26

Similar changes are made to the modified amount realized procedure for
transfers of PTP interests. See section VI.C.1 of this Summary of Comments and
Explanation of Revisions and §1.1446(f)-4(c)(2)(ii).
3. Certification of Maximum Tax Liability
Proposed §1.1446(f)-2(c)(4) provided a procedure to determine the amount to
withhold under section 1446(f)(1) and proposed §1.1446(f)-2(a) that is intended to
estimate the amount of tax that the transferor is required to pay on gain under section
864(c)(8). Specifically, the procedure allows a transferee to withhold based on a
certification received from the transferor containing certain information relating to the
transferor and the transfer, including the transferor’s maximum tax liability (as
determined under proposed §1.1446(f)-2(c)(4)(ii)) on the transfer. A transferee may rely
on a certification received from a transferor that is a foreign corporation, a nonresident
alien individual, or a foreign partnership regarding the transferor’s maximum tax liability.
Proposed §1.1446(f)-2(c)(4)(i). A transferor that is a foreign partnership is treated as a
nonresident alien individual for purposes of determining the transferor’s maximum tax
liability. Id. A comment pointed out that this rule adopts an entity approach with respect
to determining a foreign partnership’s maximum tax liability that presumes the
partnership is liable for tax on its full distributive share of the effectively connected items
from the transfer at individual tax rates, regardless of whether any partners in the
partnership are United States persons. The comment suggested that the final
regulations modify this rule for determining a foreign partnership’s maximum tax liability
based on the look-through principles used in proposed §1.1446(f)-2(c)(2)(iv); that is, this
modification would allow a foreign partnership to be treated as a United States person

27

to the extent that its partners provide certifications of non-foreign status or to the extent
that its partners would be eligible for treaty benefits.
These final regulations do not adopt the suggestion contained in this comment.
The Treasury Department and the IRS have determined that adopting this suggestion
could result in significant complexity and would increase the administrative burden on a
transferee that receives a certification of maximum tax liability. The approach
suggested in the comment also raises potentially broader issues, including
computational issues, that are outside the scope of these final regulations. Finally, the
Treasury Department and the IRS have determined that the modifications to §1.1446(f)2(c)(2)(iv), which allows claims for treaty benefits to be taken into account for purposes
of determining the modified amount realized, provide sufficient relief in many of the
cases in which the concerns raised in this comment would arise. See section IV.B.2 of
this Summary of Comments and Explanation of Revisions.
In response to informal comments, these final regulations modify the proposed
regulations to allow transferors that are foreign trusts to use the maximum tax liability
procedure in §1.1446(f)-2(c)(4) to reduce the amount to withhold. Similar to the
approach taken with respect to foreign partnerships, these rules treat the foreign trust
as a nonresident alien individual for purposes of computing its maximum tax liability
under §1.1446(f)-2(c)(4).
C. Other comments and changes to the proposed regulations
1. Determining Basis
A comment asserted that it is often difficult for the transferor of a partnership
interest to know its basis in the transferred interest at the time of transfer; that is,

28

regardless of the §1.706-4 method used, a transferor usually has to wait to receive its
Schedule K-1 (Form 1065) for the taxable year of the transfer before determining its
basis accurately. As a result, the comment recommended a rule that would allow
transferors and transferees to calculate the basis of a transferred partnership interest
(solely for purposes of section 1446(f)) by reference to reasonable assumptions that can
be made with certainty at the time of the transfer.
The Treasury Department and the IRS have determined that the concern raised
by the comment was already sufficiently addressed in the proposed regulations.
Specifically, the determination date rules of §1.1446(f)-1(c)(4), which appeared in the
proposed regulations and are retained in the final regulations, provide substantial
flexibility with respect to making certain determinations under section 1446(f)(1). For
example, a transferor (other than a controlling partner) could determine its adjusted
basis in the transferred partnership interest as of the first day of the partnership’s
taxable year in which the transfer occurs. See §§1.1446(f)-1(c)(4)(i)(C)(1) and
1.1446(f)-2(c)(4)(iii)(B). Additionally, the No Realized Gain exception provided in
§1.1446(f)-2(b)(3) similarly allows the transferor to make the relevant determinations as
of the determination date.
2. Qualified Foreign Pension Funds
Section 1446(f)(5) provides that any term used in both section 1446(f) and
section 1445 will have the meaning provided in section 1445. Section 1445(f)(3)
defines a foreign person as any person other than (i) a United States person and (ii)
except as otherwise provided by the Secretary, an entity with respect to which section
897 does not apply due to section 897(l). Section 897(l), in turn, excludes qualified

29

foreign pension funds (QFPFs) from the application of section 897. Accordingly, QFPFs
are not treated as foreign persons under section 1445.
Section 1446(f)(6) provides the Secretary of the Treasury authority to prescribe
regulations that are necessary to carry out the purposes of section 1446(f). Pursuant to
this authority, the proposed regulations provided a definition of foreign person that
applies for purposes of the regulations under section 1446(f). Specifically, proposed
§1.1446(f)-1(b)(4) defined a foreign person as a person that is not a United States
person. Proposed §1.1446(f)-1(b)(13) defined a United States person as a person
described in section 7701(a)(30). Because QFPFs are not persons described in section
7701(a)(30), they are foreign persons for purposes of §§1.1446(f)-1 through -5.
One comment requested that these final regulations clarify that QFPFs are
foreign persons for purposes of section 1446(f). The Treasury Department and the IRS
have determined that the proposed regulations provided sufficient clarity regarding the
treatment of QFPFs by specifically defining the term foreign person for purposes of
§§1.1446(f)-1 through -5. The final regulations, therefore, adopt the relevant definitions
provided in the proposed regulations with respect to QFPFs.
3. Valuation of Partnership Property
One comment described a situation in which the transferor and transferee of a
partnership interest value partnership assets differently than the partnership does. The
comment recommended, where relevant, a clarification to the final regulations allowing
for a valuation of partnership assets based on the transferor’s amount realized on a per
transfer basis, provided that any valuation is supported by an arm’s length price on
which the transferor and transferee have agreed to execute the transaction. The final

30

regulations do not adopt this recommendation. Valuation issues are not unique to the
application of these final regulations; therefore, providing an explicit valuation rule in
these final regulations that would take into account the situation described in the
comment goes beyond the scope of this rulemaking.
4. Credit for Amounts Withheld on Partnerships, Trusts, or Estates
The proposed regulations provided rules prescribing the manner in which a credit
for an amount withheld under section 1446(f) may be claimed by a foreign individual,
corporation, or partnership. The proposed regulations provided in §1.1446-3(c)(4) that
a foreign partnership that was withheld upon under section 1446(f) could credit the
amount withheld against its tax liability under section 1446(a) to the extent the amount
is allocable to foreign partners. The Treasury Department and the IRS intend to amend
the instructions to Forms 8804, 8805, and 8813 to provide that to obtain a credit against
its section 1446(a) liability, a foreign partnership withheld upon under section 1446(f) on
the sale of its non-PTP interest must attach to its Form 8804, Annual Return for
Partnership Withholding Tax (Section 1446), a stamped copy of Form 8288-A,
Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property
Interests.
These final regulations provide guidance for foreign trusts or estates that are
withheld upon under section 1446(f). Specifically, §1.1446(f)-2(e)(2)(ii) provides that a
foreign trust or estate may claim a credit for an amount withheld under section 1446(f) in
accordance with §1.1462-1. Thus, the trust or estate may claim a credit to the extent it
is ultimately liable for tax on the gain under section 864(c)(8). Similar guidance is

31

provided for foreign trusts or estates claiming credit for amounts withheld on transfers of
PTP interests. See §1.1446(f)-4(e)(2)(ii).
5. Certifications Provided by Grantor Trusts
Under proposed §1.1446(f)-1(c)(2)(vii), a certification provided by a transferor
that is a grantor or other owner of a grantor trust was required to identify the portion of
the amount realized attributable to the grantor or owner. These final regulations retain
this rule, but also include a mechanism for the grantor trust to provide the certification
on behalf of the transferor to a transferee. Under this allowance, a foreign grantor trust
may provide to the transferee a Form W-8IMY, a withholding statement that provides
the percentage of the amount realized allocable to each grantor or owner of the trust,
and any applicable certification for each grantor or owner. A domestic grantor trust that
has a foreign grantor or other owner may provide a similar statement in lieu of Form W8IMY. The allowance described in this paragraph may also be applied in the context of
a grantor or other owner of a grantor trust transferring a PTP interest.
V. Partnership’s Requirement to Withhold under Section 1446(f)(4) on Distributions to
Transferee
Section 1446(f)(4) provides that if a transferee fails to withhold any amount
required to be withheld under section 1446(f)(1), 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). Proposed §1.1446(f)-3 provided rules that
implement a partnership’s requirement to withhold under section 1446(f)(4), including
rules for determining when a partnership is required to withhold and report under
section 1446(f)(4), rules for determining if an exception to withholding applies, and rules
for determining the amount required to be withheld (including the computation of
32

interest). Proposed §1.1446(f)-3 also provided rules regarding the effect of section
1446(f)(4) withholding on the transferee and transferor, including procedures that
require the partnership to make any claim (on behalf of the transferee) for credit or
refund for amounts overwithheld under section 1446(f)(4).
A. Scope of withholding obligation under §1.1446(f)-3
Proposed §1.1446(f)-3(a)(1) provided that if a transferee fails to withhold any
amount required to be withheld under proposed §1.1446(f)-2, the partnership whose
interest was transferred must withhold from any distributions made to the transferee in
accordance with the rules provided in proposed §1.1446(f)-3. To determine its
withholding obligation under proposed §1.1446(f)-3, if any, a partnership may rely on
information provided in a certification received from the transferee described in
proposed §1.1446(f)-2(d)(2) (a certification of withholding) unless it knows, or has
reason to know, that the certification is incorrect or unreliable. Proposed §1.1446(f)3(a)(1). The proposed regulations, therefore, required the partnership to review any
certification of withholding received from the transferee, including any underlying
certification from a transferor claiming an exception or adjustment to withholding,
because the partnership could have information suggesting that the certification is
incorrect or unreliable, and that information may not be available to the transferee (for
example, if the information was contained in the partnership’s books and records). See
generally section IV.B of the Explanation of Provisions section of the preamble to the
proposed regulations. The transferee must provide the certification of withholding to the
partnership within 10 days after the date of the transfer and deposit any tax due under
section 1446(f)(1) within 20 days after the date of the transfer. Proposed §1.1446(f)-

33

2(d). If a partnership does not receive, or cannot rely on, a certification of withholding, it
must withhold on the entire amount of each distribution made to the transferee until it
may rely on a certification of withholding to determine that it has satisfied its section
1446(f)(4) liability. Proposed §1.1446(f)-3(c).
1. Partnership’s Review of a Certification of Withholding
A comment stated that the rule in proposed §1.1446(f)-3(a)(1) is problematic as it
may require a partnership to withhold under section 1446(f)(4) on a transferee that has
fully complied with its withholding obligations under section 1446(f)(1) by properly
relying on a certification from the transferor to reduce or eliminate withholding. This
situation could occur, for example, if the partnership receives an underlying certification
that a transferee has properly relied on, and the partnership has information in its
possession indicating that the information contained in the certification is incorrect or
unreliable. The comment therefore asserted that this rule is inconsistent with the
statute, which imposes section 1446(f)(4) withholding when a transferee fails to withhold
any amount required to be withheld under section 1446(f)(1). The comment also stated
that the rule in proposed §1.1446(f)-3(a)(1) essentially holds the transferee strictly liable
for any underwithholding, which is inconsistent with the approaches taken in other
withholding regimes, such as those provided under sections 1441 through 1443 and
section 1445. Therefore, the comment recommended that the final regulations
eliminate a partnership’s requirement to withhold under section 1446(f)(4) when a
transferee properly relies on a certification to reduce or eliminate the withholding tax.
The Treasury Department and the IRS have determined that the approach
provided in proposed §1.1446(f)-3(a)(1) is consistent with the language and purpose of

34

section 1446(f), and thus the approach is retained in the final regulations. Unlike the
withholding regimes under sections 1441 through 1443 and 1445, section 1446(f)
explicitly provides a withholding obligation on a secondary party to the transfer, the
partnership. Section 1446(f)(4) states that if a transferee fails to withhold any amount
required to be withheld under section 1446(f)(1), the partnership must withhold from
distributions to the transferee in an amount equal to the amount the transferee failed to
withhold (plus any interest). Under section 1446(f)(1), a transferee is generally required
to withhold 10 percent of the amount realized on a transfer subject to section 864(c)(8).
While the proposed regulations allow the amount required to be withheld under section
1446(f)(1) to be reduced when a transferee relies on a claim for an exception or
adjustment to withholding, this allowance is conditioned on proper review and
acceptance of the claim by the partnership. If the conditions of the proposed
regulations are not met, a transferee is required to withhold at the statutory rate under
section 1446(f)(1) or will be subject to withholding under section 1446(f)(4).
To limit when withholding under section 1446(f)(4) is imposed on a transferee
that properly relied on a certification from a transferor, the proposed regulations
provided sufficient time for a transferee to consult with the partnership regarding the
accuracy of the certification. Specifically, the proposed regulations require the
transferee to provide a certification of withholding to the partnership within 10 days after
the transfer and to deposit any withheld tax with the IRS within 20 days of the transfer.
Therefore, a transferee may choose to withhold 10 percent of the amount realized on
the transfer, and depending on the outcome of its consultation with the partnership,
either repay the withheld amount to the transferor or deposit it with the IRS.

35

The final regulations adopt these rules from the proposed regulations and add a
rule to limit the instances of withholding under section 1446(f)(4) on certain transferees,
and to reduce the compliance burden on such transferees. This rule allows a
partnership to determine that it does not have a withholding obligation under §1.1446(f)3 if it already possesses a Form W-9, Request for Taxpayer Identification Number and
Certification, for the transferor that meets the requirements provided in §1.1446(f)2(b)(2) to establish non-foreign status, even if the transferee does not provide a
certification of withholding to the partnership under §1.1446(f)-2(d)(2). See §1.1446(f)3(a)(1). Consistent with the general rules for partnerships that rely on information in
their books and records, a partnership may not apply this rule when it knows, or has
reason to know, that the Form W-9 that it possesses is incorrect or unreliable.
2. Partnership’s Discretion to Withhold
A comment also questioned the application of proposed §1.1446(f)-3(a)(1) if the
partnership receives a certification from the transferee and the partnership does not
know or have reason to believe that the certification is incorrect or unreliable.
Specifically, the comment noted that proposed §1.1446(f)-3(a) states that a partnership
may rely on a certification of withholding, which suggests that reliance on the
certification is permissive and not mandatory. The comment suggested that, as a result,
a partnership may choose to disregard a certification received from a transferee, and
thus withhold on distributions to the transferee, even if the partnership does not know,
and has no reason to believe, that the information contained in the statement is
incorrect or unreliable. The comment noted that the resulting burden on the transferee
is exacerbated because only the partnership, rather than the transferee, can directly

36

obtain a refund of amounts withheld on distributions to the transferee under section
1446(f)(4). The comment recommended, therefore, that the final regulations clarify that
a partnership must (rather than may) rely on a certification received from a transferee if
the partnership does not know or have reason to know that the information contained in
the certification is incorrect or unreliable.
The final regulations do not adopt this comment. The approach taken in the
proposed regulations is consistent with other withholding regimes, which allow a
withholding agent discretion in determining whether to rely on documentation that
supports a claim for a reduced amount of withholding or an exception to withholding.
See, e.g., §1.1441-1(b)(1). This discretion is afforded to the withholding agent because
it is generally the party liable for any failure to withhold under section 1461. Further,
because a withholding agent is liable under section 1461 only for underwithholding, it is
unclear how a withholding agent that failed to reduce (or eliminate) the amount of
withholding under such a rule could be held liable. Finally, because transferees are
partners in the partnership, partnerships generally would have an incentive to review
and accept valid certifications of withholding provided by transferees, rather than
withhold unnecessarily on them. For these reasons, the final regulations allow the
partnership to determine whether to rely on a certification of withholding for purposes of
section 1446(f)(4).
These final regulations do, however, modify the proposed regulations to allow the
transferee, rather than the partnership, to obtain a refund of overwithholding for
amounts withheld under section 1446(f)(4). As suggested by the comment, this

37

modification mitigates some of the effect of any overwithholding. See section V.C of
this Summary of Comments and Explanation of Revisions.
B. Removal of withholding under section 1446(f)(4) by publicly traded partnerships
Under proposed §1.1446(f)-4(b)(3) and (4), a broker was not required to withhold
on a transfer of a PTP interest when the publicly traded partnership claims on a
qualified notice that an exception applies based on either of the following statements: (i)
a statement that less than 10 percent of the total gain on a deemed sale of the publicly
traded partnership’s assets would be effectively connected gain, or no gain would have
been effectively connected gain (the 10-percent exception); or (ii) a statement that the
entire amount of a distribution is a qualified current income distribution, defined as a
distribution that does not exceed the net income of the publicly traded partnership since
the date of the last distribution (the qualified current income exception). Under the
proposed regulations, a publicly traded partnership was required to withhold under
section 1446(f)(4) only if the partnership posted a qualified notice that falsely stated that
one of those exceptions to withholding under section 1446(f)(1) applied to a transfer
(including a transfer that is a distribution), and a broker underwithheld in reliance on the
qualified notice. The requirement for a publicly traded partnership to withhold under
section 1446(f)(4) was included to ensure that publicly traded partnerships exercise due
diligence when representing information on a qualified notice related to either exception
given that a broker may rely on the notice to apply an exception to withholding under
section 1446(f)(1).
Comments suggested that publicly traded partnerships would be unlikely to claim
the exceptions to withholding on a qualified notice due to the consequences of issuing a

38

false qualified notice, and that this would result in overwithholding on transfers of PTP
interests. Further, comments pointed out that it would be difficult for publicly traded
partnerships to determine the amount of underwithholding by brokers relying on a false
qualified notice because publicly traded partnerships generally do not have information
on transfers effected through brokers. A comment noted that a false qualified notice
may result in a large amount of underwithholding because a broker may rely on the
qualified notice for all transfers made between the time the notice is issued and the date
of the next qualified notice (which is usually provided quarterly).
A comment also noted concerns with the rule in proposed §1.1446(f)3(c)(1)(ii)(C), which requires publicly traded partnerships to continue withholding on
distributions under section 1446(f)(4) even when the transferee no longer owns an
interest in the partnership. The comment noted that this rule could negatively affect
market values of PTP interests because every person acquiring a PTP interest would be
subject to the risk that future distributions may be reduced or even eliminated, even if
the qualified notice has not yet been declared false. The comment suggested taking the
approach in the proposed regulations that applied to transfers of non-PTP interests,
which would allow the partnership to stop withholding on distributions when the
transferee no longer owns an interest in the partnership, unless the partnership has
actual knowledge that any successor to the transferee is related to the transferee or
transferor.
In addition, a comment raised a practical concern about the timing of the
withholding required under proposed §1.1446(f)-3(c)(1)(i), which requires withholding to
begin on the later of the date that is 30 days after the date of transfer, or 15 days after

39

the date on which the partnership acquires actual knowledge that the transfer has
occurred. The comment noted that a publicly traded partnership would be unable to
withhold until it knows that it has issued a false qualified notice, and the comment
therefore requested that any withholding obligation begin after the publicly traded
partnership acquires knowledge that the qualified notice is incorrect.
The comments regarding the application of section 1446(f)(4) to publicly traded
partnerships also included suggestions to address the concerns raised with respect to
the withholding requirement. Several comments suggested removing the requirement
for a publicly traded partnership to withhold under section 1446(f)(4) entirely. One
comment suggested replacing the withholding requirement for a false qualified notice
with an information reporting penalty (or other quantifiable penalty). Another comment
suggested instead imposing a penalty on a preparer of a qualified notice if the preparer
acts in bad faith or without a requisite standard of care. Other comments requested
clarification on whether a “false” qualified notice is limited to a willfully false notice rather
than any erroneous qualified notice.
The Treasury Department and the IRS have determined that a publicly traded
partnership should not be required to withhold under section 1446(f)(4). This
withholding would have necessarily impacted the distributions made to a transferee (or
subsequent transferee) who bears no responsibility for the underwithholding resulting
from an erroneous qualified notice (unlike the case of a transfer of a non-PTP interest).
Rather, as it is the partnership that determines the contents of its qualified notice, the
partnership should bear the consequences resulting from its representations on the
notice rather than any specific transferee. As a result, these final regulations remove

40

the requirement in the proposed regulations that a publicly traded partnership withhold
on a transferee under §1.1446(f)-3 and add instead provisions imposing liability for
underwithholding under section 1461 on the partnership that issued the qualified notice.
See §1.1446(f)-4(b)(3)(i) and (c)(2)(iii) and sections VI.B.2 and VI.C.2 of this Summary
of Comments and Explanation of Revisions. By removing the requirement for the
partnership to withhold under section 1446(f)(4) on any transferees, this modification
also addresses the comments noting concerns that withholding on specific transferees
could negatively affect the market values of PTP interests. This modification also
alleviates the need to address those comments concerning when withholding under
section 1446(f)(4) would begin to apply.
These final regulations do not apply information reporting penalties in lieu of
imposing a section 1461 liability on a publicly traded partnership. The comment to
impose an information reporting penalty in lieu of a withholding requirement was not
adopted in these final regulations due to concerns that a qualified notice may not be
treated as an information return or a payee statement under section 6724(d) for
purposes of applying penalties under section 6721 or 6722.
With respect to the comments suggesting that a publicly traded partnership
would be unable to obtain the information necessary to determine the underwithholding
resulting from a broker’s reliance on a qualified notice, for this determination, the
Treasury Department and the IRS note that a publicly traded partnership should be able
to obtain information on transfers of PTP interests from nominees holding interests in
the partnership under §1.6031(c)-1T (generally requiring a nominee to provide certain

41

information about persons for whom it holds interests in the partnership, including
information on transfers of partnership interests).
C. Credits and refunds for amounts withheld under section 1446(f)(4)
Proposed §1.1446(f)-3(e)(2) provides that a transferee may not obtain a refund if
the amount of tax withheld under proposed §1.1446(f)-3 exceeds the transferee’s
withholding tax liability under proposed §1.1446(f)-2; instead, only the partnership may
claim a refund on behalf of the transferee for the excess amount withheld under
proposed §1.1446(f)-3. The preamble to the proposed regulations provided that the
purpose of this rule is to make the refund process more administrable and requested
comments on this issue.
Comments requested that the transferee be allowed to directly claim a refund for
the excess amount withheld under §1.1446(f)-3. The comments explained that it would
be neither practical, nor reasonable, to expect the partnership to claim the refund on
behalf of the transferee in most circumstances. Thus, if the partnership does not seek a
refund on behalf of the transferee for the excess amount withheld, the transferee may
have no way to obtain the overwithheld amounts from the IRS.
One comment requested clarification regarding the manner in which proposed
§1.1446(f)-3(e)(2) measures the excess of the amount of tax withheld under §1.1446(f)3 over the transferee’s withholding tax liability under §1.1446(f)-2. The comment
suggested, for example, computing the excess amount as the difference between the
sum of any withholding under §§1.1446(f)-2 and 1.1446(f)-3, plus any tax on gain paid
by reason of §1.864(c)(8)-1, and the total tax liability of the foreign transferor (as defined
in §1.864(c)(8)-1(g)(3)) for the year in which the transfer occurred. Alternatively, the

42

comment suggested computing the excess amount as the difference between the sum
of any withholding under §§1.1446(f)-2 and 1.1446(f)-3 and the tax liability of the foreign
transferor under §1.864(c)(8)-1 on the transfer.
The Treasury Department and the IRS agree with these comments and modify
these final regulations to allow a transferee to directly claim and obtain a refund for the
excess amount withheld under §1.1446(f)-3. Specifically, these final regulations modify
§1.1446(f)-3, in relevant part, to provide that a transferee may obtain a refund of the
excess amount if it has made payments in excess of the tax which is properly due by
the transferee for the tax period. Accordingly, under these final regulations, the
partnership is not permitted to claim a refund on behalf of the transferee for the excess
amount withheld under §1.1446(f)-3.
The final regulations also clarify that the excess amount withheld under
§1.1446(f)-3 is the amount of tax and interest withheld under §1.1446(f)-3 that exceeds
the transferee’s withholding tax liability under §1.1446(f)-2 and any interest owed by the
transferee with respect to such liability. §1.1446(f)-3(e)(2). This rule retains the general
approach in the proposed regulations that computes the excess amount as the
difference between the amount withheld under §1.1446(f)-3 and the transferee’s
withholding tax liability under §1.1446(f)-2, but clarifies that both amounts are computed
by including interest, and a refund may be claimed only to the extent that the excess
amount produces an overpayment. While the final regulations do not explicitly adopt
either of the specific suggestions made in the comment, this approach is generally
consistent with the alternative suggestion described in the comment as the final
regulations also allow a transferee to establish that it has a reduced withholding tax

43

liability under §1.1446(f)-2 based on the amount of tax due by the foreign transferor on
gain subject to §1.864(c)(8)-1, or that tax has already been paid by the foreign
transferor. See §1.1446(f)-5(b) and section IV.A of this Summary of Comments and
Explanation of Revisions. In order to coordinate a partnership’s obligation to withhold
with the transferee’s withholding liability, these final regulations modify §1.1446(f)2(d)(2) to provide that a transferee’s withholding tax liability under §1.1446(f)-2 is not
satisfied if a partnership knows or has reason to know that a certification relied on by
the transferee to reduce or eliminate withholding is incorrect or unreliable. See section
V.A.1 of this Summary of Comments and Explanation of Revisions.
D. Liability of a related person to the transferee
The proposed regulations generally did not require a partnership to continue
withholding under section 1446(f)(4) on distributions made after the transferee disposed
of its interest. However, if the interest were transferred to a person that is related to the
transferee or the transferor from which the transferee acquired its interest (that is, a
subsequent transferee that bears a relationship described in sections 267(b) or
707(b)(1) with respect to the relevant party), and if the partnership had actual
knowledge of the subsequent transferee’s relationship to the relevant party, proposed
§1.1446(f)-3(c)(1)(ii)(C) required the partnership to withhold on distributions made to the
subsequent transferee. This rule was intended to prevent a transferee (or any
subsequent transferee) from avoiding withholding under section 1446(f)(4) by
transferring its interest to a related person. Consistent with this intent, the final
regulations clarify that a related person is treated as liable for tax under section 1461 to
the same extent to which the transferee is liable under §1.1446(f)-2. This clarification is

44

meant to prevent the related person that is withheld upon under section 1446(f)(4) from
making a claim for a credit or refund of the withheld amount. These final regulations,
therefore, ensure that a credit or refund is permitted only for an amount that exceeds
the amount that the transferee failed to withhold.
VI. Withholding on the Transfer of a PTP Interest by a Foreign Person
Proposed §1.1446(f)-4(a) implemented the withholding requirement under
section 1446(f) on transfers of PTP interests. Under this rule, any broker that effects a
transfer of a PTP interest on behalf of a foreign partner and receives the amount
realized on behalf of the transferor is generally required to withhold a tax equal to 10
percent of the amount realized. Proposed §1.1446(f)-4(b) provided certain exceptions
to this requirement, and proposed §1.1446(f)-4(c) provided rules for determining the
amount realized for purposes of withholding on a transfer of a PTP interest. Proposed
revisions to §1.1461-1 provided rules for a broker to report the amount realized and tax
withheld from a transfer of a PTP interest.
A. Scope of withholding obligation
1. Qualified Intermediary Agreement
The preamble to the proposed regulations stated that the Treasury Department
and the IRS intend to modify the qualified intermediary agreement (QI agreement) set
forth in Revenue Procedure 2017-15, 2017-3 I.R.B. 437, to allow qualified
intermediaries (QIs) to assume primary withholding responsibilities on amounts realized
under section 1446(f) and on distributions by publicly traded partnerships under section
1446(a). Comments requested that the revisions to the QI agreement be set forth in
proposed form before the modified QI agreement is published. In response to those
comments, this section VI of this Summary of Comments and Explanation of Revisions
45

describes certain requirements specific to QIs to preview several intended revisions to
the QI agreement that relate to §1.1446(f)-4. Additionally, section VII of this Summary
of Comments and Explanation of Revisions describes certain requirements included in
§1.1446-4 of these final regulations that apply to QIs that receive distributions made by
publicly traded partnerships. Since the QI agreement expires at the end of the 2022
calendar year, provisions related to these final regulations applicable to QIs will be
incorporated into a revised QI agreement effective for the 2023 calendar year. As the
provisions of these final regulations that relate to withholding with respect to transfers of
PTP interests and distributions by publicly traded partnerships apply to QIs starting
January 1, 2022, the requirements for QIs related to section 1446(a) and (f) for the 2022
calendar year will be set forth in a rider to the QI agreement. See section VIII of this
Summary of Comments and Explanation of Revisions for a discussion of the
applicability dates of these final regulations. A QI will not be required to include in a
periodic review for the 2022 calendar year any review procedures with respect to the
QI’s compliance with sections 1446(a) and (f); therefore, the rider will not include any
review procedures related to those sections, nor will the rider include any new
certifications or information for purposes of Appendix I of the QI agreement for a QI with
a certification period ending December 31, 2022.
2. Transfers of PTP Interests that are Cleared and Settled at a Clearing Organization
The proposed regulations generally defined a broker as any person that, in the
ordinary course of business, 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. Proposed §1.1446(f)-1(b)(1). The proposed
regulations provided that the term broker includes a clearing organization that effects
46

the transfer of a PTP interest on behalf of the transferor. Id. In addition, the proposed
regulations generally provided that a broker that pays the amount realized to a foreign
broker is required to withhold unless the foreign broker is a QI that assumes primary
withholding responsibility or is a U.S. branch treated as a U.S. person. Proposed
§1.1446(f)-4(a).
The Treasury Department and the IRS received comments requesting various
exclusions and special rules for brokers effecting trades that are cleared and settled at a
clearing organization. One comment requested that U.S. clearing organizations be
excluded from the definition of broker in §1.1446(f)-1(b)(1) in connection with their roles
in the clearance and settlement of sales of PTP interests. The comment noted that U.S.
clearing organizations perform a critical role in ensuring the functioning of the U.S.
capital markets, and that imposing withholding requirements on U.S. clearing
organizations may be disruptive to the market for trading PTP interests.
The comment also explained that within U.S. clearing organizations, trades of
securities (including PTP interests) are frequently processed through a netting system,
whereby each security and related money settlement obligation is netted to one net
security and payment position per broker, with the clearing organization as the central
counterparty. The netting system creates efficiencies that ensure the prompt clearance
and settlement of securities transactions and increases liquidity in the market. The
comment noted that this netting process is critical to orderly and efficient trading in the
capital markets, and that withholding under section 1446(f) on a gross basis may cause
netting to be impacted with respect to the clearance and settlement of PTP interests.
The comment also noted that the Treasury Department and the IRS have historically

47

recognized this issue by creating exceptions or special rules for clearing organizations
in similar contexts. See §§1.1473-1(a)(3)(i)(C) and 1.6045-1(b), Example 2(vii).
The comment further explained that a U.S. clearing organization may also
process bilateral transactions between members of the clearing organization for which
the cash and securities exchanged are not netted by the clearing organization as
described in the preceding paragraph. These transactions may include, among others,
the transfer of cash and securities between a seller’s broker and custodian in order to
settle a trade. For example, a member broker effecting a sale of a PTP interest for a
seller may make a payment of the gross proceeds to the custodian for the seller when
the seller engages a broker that is not its custodian to effect the sale of the PTP interest
through a clearing organization. The comment requested that withholding on such
transactions be the responsibility of the member making the gross payment and not the
clearing organization. The comment stated that the members of a U.S. clearing
organization are in the better position to withhold on such transactions because they
possess the information about the transaction necessary to determine whether
withholding is required, whereas the role of the clearing organization in such cases is
generally limited to transferring securities and cash based on instructions provided by
the members.
Another comment requested a special rule for so-called “delivery versus
payment” transactions. The comment noted that regulations under section 6045 (which
require reporting by brokers of gross proceeds from sales of securities by U.S.
nonexempt recipients) provide that in the case of a sale of securities through a “cash on
delivery” or “delivery versus payment” account (or other similar account or transaction),

48

only the broker that receives the gross proceeds from the sale against delivery of the
securities sold is required to report the sale. See §1.6045-1(c)(3)(iv). The comment
requested that in the case of a “delivery versus payment” transaction, for purposes of
section 1446(f), only the custodian for the seller should report and withhold on the sale,
and not the broker paying the gross proceeds to the custodian. The comment noted
that without such a rule for section 1446(f), certain brokers that are not currently
documenting and reporting payments of gross proceeds for purposes of section 6045
would be required to create systems to document and, if necessary, withhold on and
report payments to a custodian holding a PTP interest on behalf of a transferor and
receiving the amount realized for purposes of section 1446(f).
The comment also noted that because brokers are not currently required to
obtain documentation on custodians to which they make payments in connection with
“delivery versus payment” transactions, a custodian may not be willing to provide
documentation to the broker or accept less than the entire amount of gross proceeds
from the sale, causing the trade to “fail” (in other words, the trade would not be settled
with respect to the transferor holding the PTP interest through the custodian). However,
the comment acknowledged that if the withholding responsibility is only on the
custodian, there is a risk that a custodian would be a nonqualified intermediary (NQI)
and would not document or withhold on the transferor under section 1446(f). The
comment suggested that this risk could be mitigated by requiring a clearing organization
to withhold on these sales, and noted that U.S. clearing organizations already collect
documentation on their members that are custodians for purposes of meeting other
withholding requirements.

49

These final regulations retain the rule in the proposed regulations that a broker
includes a clearing organization. However, the final regulations provide that a broker
that is a U.S. clearing organization is not required to withhold on an amount realized on
trades of PTP interests that are netted and that have a U.S. clearing organization as the
central counterparty. The Treasury Department and the IRS have determined a U.S.
clearing organization should not be required to withhold on such transactions under
section 1446(f) at this time. The Treasury Department and the IRS understand that
withholding by a U.S. clearing organization on a gross basis on such trades may be
disruptive to the efficiency and liquidity of the trading of PTP interests in the capital
markets. The Treasury Department and the IRS also understand that there are no NQI
direct clearing members that participate directly in the net settlement system at a U.S.
clearing organization at the present time. Therefore, there is no risk of underwithholding
due to this exception based on current market practice. Further, the Treasury
Department and the IRS understand that it is highly unlikely that a NQI would become
such a member in the future because of restrictions in U.S. securities and banking laws
on foreign banks and brokers, as well as the practical barriers to becoming a direct
clearing member at a U.S. clearing organization. After carefully weighing the burdens
and benefits of the possible approaches, the Treasury Department and the IRS have
determined that the risk of any possible market disruption outweighs any benefit of
imposing a withholding requirement on a U.S. clearing organization in these final
regulations at the present time on trades settled through a net settlement system at the
U.S. clearing organization.

50

However, in order to ensure that withholding on sales of PTP interests that have
undergone a netting process at a U.S. clearing organization is satisfied by the member
brokers and that there are no NQI direct clearing members participating in the net
settlement system with respect to PTP interests, a U.S. clearing organization is required
in these final regulations to report such sales (on a non-netted basis) for each direct
clearing member on Form 1042-S, Foreign Person’s U.S. Source Income Subject to
Withholding (unless an exception applies). If this reporting on Form 1042-S indicates
that an NQI is a direct clearing member of a U.S. clearing organization, the Treasury
Department and the IRS will issue proposed guidance that would revise these final
regulations to require withholding by the U.S. clearing organization on such NQIs.
With respect to transfers of cash and securities on a gross basis by a U.S.
clearing organization at the instruction of its members in order to settle a trade of a PTP
interest, these final regulations do not require withholding and reporting by the U.S.
clearing organization. However, the Treasury Department and the IRS decline to adopt
an exclusion from withholding and reporting with respect to brokers (other than U.S.
clearing organizations) for “delivery versus payment” transactions. Therefore, under
these final regulations, a broker paying an amount realized to a foreign custodian is
required to withhold and report on the amount realized (unless an exception applies).
This determination follows from concerns with cases in which brokers may pay amounts
realized to custodians that are NQIs. To address the concerns raised in the comments
about the difficulty of obtaining documentation on custodians in order to determine
whether withholding or reporting applies, these final regulations permit a U.S. clearing
organization to provide documentation on a member custodian to a member broker

51

paying an amount realized to such custodian, subject to the notification and opt-out
requirements described in the final regulations, and a broker may rely on such
documentation. See §1.1446(f)-4(a)(4). The Treasury Department and the IRS
understand that it is possible for brokers to create a mechanism for imposing
withholding on amounts realized paid to custodians that are NQIs (and thus avoiding
failed trades).
3. Documentation of Non-foreign Status of Broker
The proposed regulations provided 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. See proposed §1.1446(f)4(a)(2)(iv).
One comment requested that the presumption rules under §1.1441-1(b)(3)(iii)
that apply to a payment subject to withholding under sections 1441 and 1442 also apply
for purposes of section 1446(f) when a broker does not obtain documentation on
another broker. In certain cases, this change would allow a broker to treat another
broker, including a custodian, to which it pays an amount realized as a non-foreign
person even when it does not obtain the documentation of non-foreign status required
under the proposed regulations. This suggestion is not adopted in these final
regulations. The presumption rules in §1.1441-1(b)(3)(iii) are generally aimed at
withholding agents that have an ongoing relationship with the payee and make periodic
payments to the payee and, therefore, are likely to have some information on the payee
in the withholding agent’s account files or in documentation associated with a payment.
Furthermore, many withholding agents that are required to withhold under sections

52

1441 and 1442 are generally subject to anti-money laundering/know your customer
(AML/KYC) obligations that require the collection of customer information on account
opening. Therefore, in most instances where the presumption rules in §1.14411(b)(3)(iii) apply, the presumption would be foreign status. Those rules would not be
appropriate in a transactional context where a broker may not have an ongoing
relationship with another broker to which it pays an amount realized. The application of
such rules to brokers required to withhold on sales of PTP interests under section
1446(f) in those cases would generally result in a presumption of U.S. status, which
would disincentivize brokers from collecting tax documentation on another broker to
which it pays an amount realized. Further, the Treasury Department and the IRS
understand that there are a limited number of custodians for which a broker would need
to obtain documentation. Accordingly, documenting a broker as a U.S. person would
generally be a one-time event because a Form W-9 generally has indefinite validity
(absent a change in circumstances).
However, in order to provide additional flexibility in cases in which a broker may
have an existing relationship with another broker, these final regulations permit a broker
to rely on documentation that it already possesses from the payee broker (rather than
requiring new documentation for each transaction when the same payee broker is
used). Additionally, these final regulations provide a further allowance for a broker to
rely on documentation required for transfers of PTP interests that is collected by a
clearing organization. See section VI.A.2 of this Summary of Comments and
Explanation of Revisions.

53

These final regulations also include a technical correction to the definition of
foreign person to account for certain QIs that are not foreign entities. The term foreign
person is defined in these final regulations to include QI branches of U.S. financial
institutions. See §1.1446(f)-1(b)(4). This definition is consistent with the definition of
foreign person for purposes of sections 1441 through 1443, 1461, and the regulations
under those sections. See §1.1441-1(c)(2)(i).
4. QIs Assuming Section 1446(f) Withholding Responsibility
Under proposed §1.1446(f)-4, a broker was not required to withhold on an
amount realized paid to another broker that is a QI that represents on its withholding
certificate (as described in §1.1441-1(e)(3)(ii)) its assumption of primary withholding
responsibility for chapter 3 withholding. With respect to a distribution made by a publicly
traded partnership, the proposed regulations provided a similar allowance for a QI to
assume primary withholding responsibility under section 1446(a) by acting as a
nominee for the distribution. See proposed §1.1446-4(b)(3).
The QI agreement generally permits a QI to assume primary withholding
responsibilities on an account-by-account basis rather than on all payments made by a
withholding agent to a QI. Comments requested generally similar flexibility for QIs
assuming withholding responsibilities under sections 1446(a) and 1446(f), noting that
the proposed regulations do not clearly state whether a QI would need to assume
section 1446 withholding responsibilities as part of its overall withholding
responsibilities. One comment noted the different system-related considerations in
withholding on sale proceeds as opposed to withholding on payments of periodic
income. To better match systems capabilities of withholding agents and QIs and

54

provide for a more efficient withholding process, comments therefore requested that the
regulations be clarified to permit a QI to assume primary withholding responsibilities
under section 1446(a) and (f) regardless of whether the QI assumes primary withholding
responsibilities for other payments subject to withholding under chapters 3 and 4. A
comment requested that a QI be permitted to assume withholding responsibility under
section 1446(a) but not section 1446(f), and vice versa. Another comment requested
that a QI be permitted to assume withholding responsibility under section 1446(f)
resulting from a sale of a PTP interest independent of whether the QI assumes primary
withholding responsibility under section 1446(f) on distributions made by the publicly
traded partnership.
The Treasury Department and the IRS agree that QIs should be permitted
appropriate flexibility to make appropriate arrangements to assume, or not assume,
certain withholding responsibilities. These final regulations allow a QI to assume
primary withholding responsibility under section 1446(f) on a payment-by-payment
basis. For example, a QI may assume primary withholding responsibility under section
1446(f) for a sale of a PTP interest but not a distribution, and vice versa. Further, a QI
is permitted to assume (or not assume) primary withholding responsibility under section
1446(f) on a sale of a PTP interest regardless of whether the QI assumes primary
withholding responsibilities under sections 1441 and 1442. However, under these final
regulations a QI that assumes withholding responsibilities on any portion of a
distribution from a publicly traded partnership will be required to assume withholding
responsibilities for the entire distribution (in other words, a QI must either assume
withholding responsibilities on the distribution for purposes of chapter 3 (including

55

section 1446(a) and (f)) and chapter 4, or not assume withholding responsibilities for
any of those purposes). See §§1.1446(f)-4(a)(8) and 1.1446-4(b)(3). This requirement
will make withholding and reporting on distributions with respect to PTP interests more
efficient because one party will perform the withholding and reporting on a distribution.
The Treasury Department and the IRS intend for the revised QI agreement to
incorporate the requirements for a QI that assumes primary withholding responsibility
under section 1446(a) or (f).
Similar changes to those described above for QIs are included in these final
regulations with respect to payments of amounts realized made to U.S. branches that
agree to act as U.S. persons under section 1446(a) or (f). Additionally, these final
regulations clarify in §1.1446(f)-4(a)(2)(i)(B) that the requirements for a U.S. branch
withholding certificate under §1.1441-1(e)(3)(v) apply without regard to the requirement
that the certificate include a representation that the income is not effectively connected
with the conduct of a trade or business within the United States.
5. QIs Not Assuming Section 1446 Withholding Responsibility
Under the current QI agreement, a QI is not required to assume primary
withholding responsibilities under chapters 3 and 4. In such cases, a QI provides
withholding rate pool information on its account holders that are foreign persons (rather
than specific information about each such account holder) to the withholding agent
sufficient for the withholding agent to determine the amounts to withhold. The proposed
regulations permitted an exception to withholding on an amount realized paid to a QI
only when the QI assumes primary withholding responsibility, but provided no special
rules for when a QI does not assume withholding responsibility under section 1446(f).

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Comments requested that a QI be permitted to not assume primary withholding
responsibility under section 1446(f) if it provides to the broker paying an amount
realized a withholding statement that allocates the amount realized to account holders
of the QI selling their PTP interests in withholding rate pools, similar to the allowance for
a QI to pass up withholding rate pools for purposes of section 1441. See §1.14411(b)(2)(vii)(C) and (e)(5)(v)(C). In addition, for accounts not designated by a QI as
accounts for which it acts under the QI agreement, a comment requested that the final
regulations also permit a QI not assuming primary withholding responsibility under
section 1446(f) to represent its status as a QI and provide to the broker a withholding
statement allocating the amount realized to each account holder of the QI selling its
PTP interest in the same transaction, along with specific account holder documentation,
sufficient for the broker to determine the amount to withhold. This allowance would
avoid any additional withholding that might apply were the QI instead required to
represent its status as an NQI in those cases, as described in section VI.A.6 of this
Summary of Comments and Explanation of Revisions, and would relieve a QI from filing
a Form 1042-S in such a case. Comments also requested that a QI be permitted to
report on Form 1042-S on a pooled basis (rather than to specific recipients) for section
1446(f) purposes to the same extent permitted for other payments covered by the QI
agreement.
In response to these comments, the final regulations provide that a broker may
determine the amount to withhold under section 1446(f) on an amount realized paid to a
QI that does not assume primary withholding responsibility under section 1446(f) based
on aggregate information (in other words, in withholding rate pools) about the account

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holders of the QI that are transferring PTP interests. See §1.1446(f)-4(a)(7). Under
these final regulations, a broker may rely on a QI’s allocation of an amount realized to a
pool of foreign transferors subject to 10-percent withholding, a pool of foreign
transferors that are excepted from withholding under §1.1446(f)-4(b), and, to the extent
permitted under chapter 4, U.S. transferors included in a chapter 4 withholding rate pool
of U.S. payees. This allowance provides parity with sections 1441 and 1442 with
respect to a QI’s requirements for its withholding statements (and associated
documentation) and will provide QIs and brokers making payments of amounts realized
to QIs greater flexibility in meeting their section 1446(f) requirements. Additionally,
under these final regulations a broker may also rely on specific payee information
provided by a QI with respect to foreign transferors (rather than pooled information),
thereby permitting the broker to withhold based on this information rather than treating
the QI as an NQI in such a case (as would generally be the case for other amounts
subject to withholding under chapter 3). See §1.1446(f)-4(a)(7)(iii). A broker may also
withhold as described in the preceding sentence for purposes of section 1446(a) under
these final regulations in order to coordinate the rules applicable to QIs under both
sections 1446(a) and (f). See §1.1446-4(e) and section VII.C of this Summary of
Comments and Explanation of Revisions. These final regulations also provide that in
cases where a QI passes up specific payee information for a partner receiving a
distribution or an amount realized, the nominee or broker shall treat the partner (that is,
the QI’s account holder) as the recipient for purposes of reporting on Form 1042-S. See
§1.1461-1(c)(1)(ii)(A)(8).

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The revised QI agreement incorporates the allowances described in the
preceding paragraph, including an allowance relieving a QI from filing a Form 1042-S to
the extent that it has provided specific payee information to a broker that has issued a
Form 1042-S to one or more account holders of the QI (although such a case will be
within the scope of a QI’s activities under the QI agreement). In addition, as requested
by comments, the revised QI agreement will permit a QI to report on Form 1042-S on a
pooled basis (rather than to specific recipients) for amounts subject to withholding under
section 1446(a) or (f) to the same extent generally permitted for other payments to
foreign account holders under the QI agreement. To ensure that account holders that
are foreign partners will have the information necessary to satisfy their own U.S. income
tax reporting requirements, the requirements of §1.6031(c)-1T will be incorporated into
the QI agreement. See §§1.6012-1(b)(1), 1.6012-2(g)(1), and 1.6031(a)-1. Since
foreign partners are required to file U.S. income tax returns to report their effectively
connected income and may request Forms 1042-S from QIs to support amounts
withheld that are reported on their returns, these partners are able to obtain refunds of
taxes overwithheld under section 1446(f) when making their required filings. Therefore,
the revised QI agreement will not allow a QI to use the collective refund procedures for
amounts withheld under section 1446(a) or (f) with respect to its account holders that
are foreign partners.
6. Withholding under Section 1446(f) on Payments to NQIs
As discussed in section VI.A.5 of this Summary of Comments and Explanation of
Revisions, these final regulations permit a broker to determine its withholding obligation
under section 1446(f) by relying on certain account holder information provided by a QI

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that does not assume primary withholding responsibility. One comment requested a
similar allowance that would permit a broker to rely on a certification from an NQI for
calculating the broker’s withholding under section 1446(f) in a case in which the NQI
provides specific partner information to the broker (thus avoiding withholding on the full
amount paid to the NQI in certain cases). The comment noted that requiring
withholding on amounts realized allocable to U.S. partners that are NQI account holders
would result in excessive withholding. Another comment noted that the requested
allowance would relieve an NQI from reporting on Form 1042-S as its broker would
have the information to report the amount realized that is allocated to each foreign
partner in the publicly traded partnership. See §1.1461-1(c)(1)(ii)(A)(8) (requiring
reporting of amounts realized paid to foreign partners of publicly traded partnerships).
Even though overwithholding could occur in certain cases absent the requested
change, the Treasury Department and the IRS have determined that a broker should
not be relieved of withholding at the full amount under section 1446(f) on amounts
realized that are paid to NQIs (except when the NQI maintains a U.S. branch that
assumes the withholding). This determination reflects the view that in general NQIs are
not required to account to the IRS with respect to their compliance with the withholding
and reporting requirements of section 1446(f). As in the proposed regulations,
therefore, a broker will be required to withhold at the full 10-percent rate on an amount
realized paid to an NQI when no exception to withholding applies under these final
regulations. However, a partner that is an account holder of an NQI that is subject to
withholding under section 1446(f) will be entitled to claim a credit under section 33 for
the amount withheld when the partner is provided a Form 1042-S supporting the claim

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from the NQI (or as otherwise provided in IRS forms or instructions). See §1.1446(f)4(e)(2).
7. Broker’s Determination of Prior Broker Withholding under Section 1446(f)
Under proposed §1.1446(f)-4(a)(2)(iii), a broker is not required to withhold on an
amount realized from the sale of a PTP interest when it knows that the withholding
obligation has been satisfied by another broker. A comment requested a specific
documentation rule (such as a certification from the paying broker) to provide more
certainty to the receiving broker that the withholding requirement has been satisfied with
respect to the payment.
The regulations under section 1441 provide a standard different than that
included in the proposed regulations for when a withholding agent may treat a payment
as already subjected to withholding (thus avoiding duplicative withholding). That rule
provides that an NQI receiving a payment from a withholding agent is not required to
withhold when the NQI has provided a Form W-8IMY, withholding statement, and
attached documentation to the withholding agent and does not know or have reason to
know that another withholding agent failed to withhold the correct amount. See
§1.1441-1(b)(6). In the case of a QI receiving the payment, however, §1.1441-1(b)(6)
provides that a QI determines its withholding requirement in accordance with the QI
agreement. To address the concern raised in the comment regarding the difficulty for a
broker to show that withholding was applied by another broker, these final regulations
amend that requirement by incorporating a standard generally similar to that in §1.14411(b)(6). See §1.1446(f)-4(a)(4). Therefore, a broker acting as an intermediary for an
amount realized is not required to withhold when it receives the amount from another

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broker unless it knows, or has reason to know, that the paying broker did not withhold
on the full amount required (or, in the case of a QI receiving the amount realized, as
required in accordance with the QI agreement).
8. Withholding Date for Sales of PTP Interests
A comment requested that the date for withholding with respect to a sale of a
PTP interest should be the settlement date (as opposed to the trade date), consistent
with the rule in §31.3406(a)-4(b)(1) for when backup withholding under section 3406 is
required on certain payments of amounts reportable under section 6045. In response to
this comment, these final regulations include a cross-reference to §31.3406(a)-4(b)(1) to
clarify the date of withholding under section 1446(f) for a transfer of a PTP interest other
than a distribution.
B. Exceptions to withholding
Proposed §1.1446(f)-4(b) provided exceptions to the withholding requirement
that applies to a broker paying an amount realized from the transfer of a PTP interest,
including exceptions that apply to distributions by publicly traded partnerships and
exceptions dependent on certifications obtained from transferors. These final
regulations modify certain of these exceptions and add an exception for certain
transferors (the ECI exception). These final regulations also remove the exception to
withholding for a qualified current income distribution in proposed §1.1446(f)-4(b)(4),
and replace that exception with a provision for determining the amount realized in the
case of a distribution by a publicly traded partnership such that withholding is required
only to the extent a distribution is not attributable to net income. A QI will be permitted
to apply these same exceptions to withholding under the revised QI agreement.

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1. ECI Exception
Comments requested an exception to withholding if a valid Form W-8ECI,
Certificate of Foreign Person’s Claim that Income is Effectively Connected with the
Conduct of Trade or Business in the United States, is provided under certain new
conditions. The comments explained that certain foreign persons not eligible for the
section 864(b) trading safe harbor, such as dealers in securities, buy and sell PTP
interests as part of their trade or business in the United States, such that gain or loss on
the transfer of the PTP interests would be effectively connected with the conduct of a
trade or business within the United States without regard to section 864(c)(8). The
comments requested a limited exception for non-U.S. persons that provide a Form W8ECI and specify on the form that the gain from the sale, exchange, or other disposition
of the PTP interest is effectively connected with a U.S. trade or business without regard
to the application of section 864(c)(8).
The Treasury Department and the IRS have determined that it is appropriate to
provide relief from withholding for transferors that certify on a Form W-8ECI that the
transferor is a dealer in securities (as defined in section 475(c)(1)) and that any gain
from the transfer of a PTP interest is effectively connected with the conduct of a trade or
business within the United States without regard to section 864(c)(8). The final
regulations add this exception in §1.1446(f)-4(b)(6).
2. 10-Percent Exception
The proposed regulations provided that a broker may rely on a qualified notice
stating that the exception to withholding described in proposed §1.1446(f)-4(b)(3) (the
10-percent exception) applies. The proposed regulations required that this exception

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apply as of the PTP designated date for a transfer of a PTP interest. The PTP
designated date was defined as the date for a deemed sale determination that is
designated by a publicly traded partnership in a qualified notice, provided that the date
is not earlier than 92 days before the date that the publicly traded partnership posts the
qualified notice. In addition, the proposed regulations limited reliance on a qualified
notice depending on the date of posting. Specifically, a broker may in general only rely
on the most recent qualified notice that is posted by the publicly traded partnership
within the 92-day period ending on the date of the transfer.
One comment requested that, for purposes of the exception, a broker be
permitted to rely on the qualified notice for 183 days from the date of posting by the
publicly traded partnership instead of the 92-day period provided in the proposed
regulations. This comment noted that qualified notices issued with respect to
distributions that are made late in the year complicate the withholding and reporting
process.
As noted in the preamble to the proposed regulations, the 92-day period was
provided to limit the availability of the 10-percent exception to situations in which a
publicly traded partnership has designated a deemed sale date occurring within the
most recent calendar quarter given that publicly traded partnerships are in a position to
determine the value of their assets quarterly. The proposed regulations limit reliance on
a qualified notice to a notice posted within the 92-day period ending on the date of
transfer in order to ensure that the broker is using the most recent information available.
Therefore, these final regulations retain the 92-day period for purposes of the 10percent exception.

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A comment stated that the 10-percent exception should only account for the
publicly traded partnership’s effectively connected gain under section 864(c)(8), without
taking into account any effectively connected gain under section 897. According to the
comment, this would ensure that the transfer of an interest in a partnership that is not
engaged in a trade or business within the United States, but that holds U.S. real
property interests, is not subject to withholding under section 1446(f). This comment is
not adopted because it is appropriate to account for effectively connected gain under
section 897 when applying the 10-percent exception. However, to address the concern
raised in the comment, these final regulations add an exception to withholding similar to
the one described in section IV.A.3.ii of this Summary of Comments and Explanation of
Revisions that applies when a non-publicly traded partnership certifies that it is not
engaged in a trade or business within the United States (including when the partnership
is not engaged in a trade or business within the United States and only holds U.S. real
property interests that are not part of a trade or business). A publicly traded partnership
states that this exception applies by providing on a qualified notice that it is not engaged
in a trade or business within the United States.
Finally, these final regulations add a provision for certain cases in which a
publicly traded partnership is liable under section 1461 for underwithholding by a broker
on a transfer when the partnership issues a qualified notice that incorrectly states the
applicability of the 10-percent exception. However, this liability applies only when the
publicly traded partnership fails to make a reasonable estimate of the amounts required
for determining the applicability of the 10-percent exception. See §1.1446(f)-4(b)(3)(i);
see also section V.B of this Summary of Comments and Explanation of Revisions.

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C. Determining the amount to withhold
If an exception to withholding under proposed §1.1446(f)-4(b) does not apply,
proposed §1.1446(f)-4(c) provided rules for a broker to determine the amount realized
for purposes of computing the amount to withhold on the transfer of a PTP interest.
Proposed §1.1446(f)-4(c) included a general rule for determining the amount realized
based on the amount of gross proceeds paid on the transfer (as defined in §1.60451(d)(5)) and a procedure for modifying the amount realized when the transferor is a
foreign partnership that has domestic partners.
1. Modified Amount Realized for Transfers by Foreign Partnerships
Proposed §1.1446(f)-4(c)(2) provided, in the event of a transfer of a PTP interest
by a foreign partnership, a procedure that allows a broker to reduce the amount realized
on the transfer to the extent the amount realized is allocable to partners that are U.S.
persons. A foreign partnership may claim this modified amount realized by providing a
Form W-8IMY, a withholding statement allocating the percentage of gain from the
transfer allocable to each direct or indirect partner that is a U.S. person or a presumed
foreign person, and a certification of non-foreign status for each partner that is a U.S.
person. As described in section IV.B.2 of this Summary of Comments and Explanation
of Revisions, these final regulations expand the analogous procedure under §1.1446(f)2(c)(2)(iv) that applies to transfers of non-PTP interests to take into account situations in
which a foreign partner (direct or indirect) in the transferor partnership is eligible for
treaty benefits. In response to a comment, the same modification is made in these final
regulations for transfers of PTP interests.

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Another comment requested an allowance for the transferor partnership to
provide to the broker the aggregate percentage of gain allocable to its partners that are
U.S. persons as opposed to the requirement to include on the withholding statement the
percentage of gain allocable to each partner that is a U.S. person. The comment
reflects a concern that a broker using the procedure under the proposed regulations
may be considered to have actual knowledge of the extent to which proceeds from the
transfer are paid to each partner that is a U.S. person, thereby resulting in a
requirement for the broker to report these gross proceeds under section 6045. See
§§1.6045-1(g)(1)(i) and 1.6049-5(d)(3)(i).
The Treasury Department and the IRS have determined that any additional
reporting under section 6045 that results from this requirement is an appropriate
consequence of the rule. Additionally, this rule provides information useful to the IRS.
See, however, §§1.6049-4(c)(4) and 1.6045-1(g)(1)(iv) (providing coordination of
chapter 61 reporting with reporting by certain foreign financial institutions under chapter
4).
Under the revised QI agreement, a QI will be permitted to adjust an amount
realized in accordance with the procedures described in this section VI.C.1 of this
Summary of Comments and Explanation of Revisions with respect to any direct account
holder of the QI that is a foreign partnership or a direct account holder of another QI that
is a foreign partnership to which the first-mentioned QI pays the amount realized.
2. Determining Amount Realized with Respect to Distributions
Under the proposed regulations, in the event of a distribution by a publicly traded
partnership that is treated as a transfer for purposes of section 1446(f), the entire

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amount of a distribution was treated as the amount realized. Proposed §1.1446(f)4(c)(2). In general, under section 731(a), a partner recognizes gain on a distribution
from a partnership to the extent that any money distributed exceeds the partner’s basis
in its interest in the partnership. Under section 705(a)(1), a partner’s basis in its interest
is increased by its distributive share of income for the taxable year. Proposed
§1.1446(f)-4(b)(4) provided an exception to a broker’s requirement to withhold on a
distribution by a publicly traded partnership if the entire amount of the distribution is
designated on the publicly traded partnership’s qualified notice (as defined in §1.14464(b)(4)) as a qualified current income distribution. The proposed regulations defined a
qualified current income distribution as a distribution that does not exceed the net
income that the publicly traded partnership earned since the record date of the publicly
traded partnership’s last distribution. This exception was intended to eliminate
withholding under section 1446(f)(1) on a distribution by a publicly traded partnership
when the partner would not likely recognize gain from the distribution under section
731(a) due to the basis increase under section 705(a)(1) for partnership income
allocable to a partner.
Comments suggested various alternatives to the qualified current income
distribution exception. Two comments requested that withholding under section 1446(f)
not apply to any distributions by a publicly traded partnership. One of those comments
asserted that any unrealized effectively connected gain attributable to assets of the
publicly traded partnership would eventually be taxed through withholding under either
section 1446(a) when the publicly traded partnership disposes of those assets or
section 1446(f) when the partner sells its PTP interest. Certain comments suggested

68

modifying the requirements for the exception. One comment suggested that, for
purposes of applying the exception, a broker should be permitted to treat a distribution
as made out of current net income unless the qualified notice states otherwise. This
comment noted that publicly traded partnerships may not publish qualified notices
designating the distribution as a qualified current income distribution due to concerns
about liability under proposed §1.1446(f)-3(b)(2)(ii) if the qualified notice is false.
Another comment suggested modifying the qualified current income distribution
exception so that withholding under section 1446(f)(1) would not apply to the extent that
cumulative distributions by a publicly traded partnership do not exceed its cumulative
net income earned over time.
Other comments focused on alternatives for coordinating withholding under
section 1446(f) on distributions by publicly traded partnerships with withholding under
other sections of the Code, noting that a distribution by a publicly traded partnership
would be subject to withholding under section 1446(f) as well as withholding under
sections 1441, 1442, 1443, and 1446(a) (to the extent applicable) when the qualified
current income distribution exception would not apply. For example, a comment
suggested reducing the tax liability under section 1446(a) by amounts withheld under
section 1446(f) dollar-for-dollar, or exempting distributions from withholding under
section 1446(f) to the extent those distributions are subject to withholding under section
1446(a) (or vice versa). Another comment requested more broadly that withholding
under section 1446(f) not apply to a distribution made by a publicly traded partnership
when withholding under section 1441, 1442, 1443, or 1446(a) applies to the payment.

69

Section 1446(f)(1) requires withholding if any portion of the gain on a disposition
of an interest in a partnership would be treated under section 864(c)(8) as effectively
connected gain. Section 1446(f) ensures that tax is collected on gain under section
864(c)(8). The Treasury Department and IRS have determined that eliminating
withholding entirely on distributions by publicly traded partnerships would undermine the
purpose of section 1446(f) in certain cases. For example, there may not be a
subsequent sale of the PTP interest subject to withholding under section 1446(f),
particularly if the distribution is in redemption of the PTP interest. Alternatively, the
value of a publicly traded partnership’s assets (or the amount of unrealized effectively
connected gain) may change between the date of a distribution and either the date on
which the partnership sells the assets or the date on which the partner sells its PTP
interest.
The Treasury Department and the IRS do not agree with the comments
requesting an offset against section 1446(f) withholding for amounts withheld under
section 1446(a). Section 1446(a) withholding applies to effectively connected taxable
income earned by the partnership that is allocated and distributed to its partners. In
contrast, section 1446(f) withholding applies to ensure the collection of tax on the builtin gain of the partnership’s assets under section 864(c)(8). Thus, each withholding
regime applies to a separate item of taxable income.
For these reasons, the final regulations continue to require withholding under
section 1446(f) on a distribution made with respect to a PTP interest. However,
because the exception for a qualified current income distribution provided relief only
when a publicly traded partnership made a distribution entirely out of current net

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income, these final regulations replace this exception with a procedure in §1.1446(f)4(c)(2)(iii) for adjusting the amount realized to the amount of a distribution in excess of
cumulative net income. Thus, if a portion of a distribution made by a publicly traded
partnership is attributable to an amount in excess of cumulative net income, a broker is
required to withhold only on this portion for purposes of section 1446(f), rather than on
the entire amount of the distribution. Also, in response to a comment, this rule looks to
the amount in excess of the cumulative net income, rather than the current net income
(as was required under the proposed regulations). The cumulative net income is the net
income earned by the partnership since the formation of the partnership that has not
been previously distributed by the partnership. As a result of this change, these final
regulations remove the general rule included in the proposed regulations that defined
the amount realized from a PTP distribution as the amount of cash and the fair market
value of property distributed or to be distributed.
Under the final regulations, the publicly traded partnership identifies the portion of
a distribution attributable to an amount in excess of cumulative net income on a
qualified notice. If a broker properly withholds based on the qualified notice (applying
the rules of §1.1446-4(d)(1) to the distribution), the broker is not liable for any
underwithholding on any amount attributable to an amount in excess of cumulative net
income. Instead, if a publicly traded partnership issues a qualified notice that causes a
broker to underwithhold with respect to an amount in excess of cumulative net income,
the partnership is liable under section 1461 for any underwithholding on such amount.
D. Form 1042-S reporting under section 1446(f)

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The proposed regulations included requirements for reporting with respect to
transfers of PTP interests on Form 1042-S. As part of these requirements, a broker is
generally required to report on Form 1042-S a payment of an amount realized from the
transfer of a PTP interest made to a foreign transferor or broker.
One comment requested clarification that reporting on Form 1042-S is performed
on an aggregate basis (that is, a broker reports on a single Form 1042-S all transfers of
PTP interests with respect to a customer for a calendar year). The proposed
regulations added to §1.1461-1(c)(1)(i) the general requirement that a broker report on
Form 1042-S amounts realized as determined under section 1446(f). Section 1.14611(c)(1)(i) generally provides that a Form 1042-S shall be prepared for each recipient of
an amount subject to reporting and for each single type of income payment, in such
manner as the form and accompanying instructions prescribe. The IRS intends to
amend the instructions to Form 1042-S to clarify that aggregate reporting is used with
respect to amounts realized by a transferor on transfers of PTP interests.
As described in section VI.A.6 of this Summary of Comments and Explanation of
Revisions, these final regulations require a broker to withhold on an amount realized
paid to an NQI effecting a transfer of a PTP interest for an account holder. A comment
requested that the regulations clarify how a broker reports the payment to the NQI, and
suggested that the broker report the amount as paid to an unknown account holder, with
the NQI reported as an intermediary for the amount (rather than as the recipient). The
Treasury Department and the IRS agree with the manner of reporting noted in this
comment, which is already generally reflected in §1.1461-1(c)(1)(ii)(B)(1) and
(c)(4)(ii)(A) (addressing payments to persons that are not recipients, including NQIs)

72

and §1.1461-1(c)(1)(ii)(B)(5) (excluding as a recipient a broker withheld upon under
§1.1446(f)-4(a)(2)(i)). In response to this comment, the IRS also intends to amend the
instructions to Form 1042-S to indicate the reporting that applies in this case.
A comment requested clarification that a foreign partnership subject to
withholding under §1.1446(f)-4 may use the Form 1042-S that it receives from the
broker to substantiate the foreign partnership’s credit of such withholding against its tax
liability under section 1446(a). In response to this comment, the Treasury Department
and the IRS intend to amend the instructions to Forms 8804, 8805 and 8813 to provide
that a foreign partnership withheld upon under section 1446(f) on the transfer of a PTP
interest must attach Form 1042-S in order to credit such amount against its liability
under section 1446(a).
As discussed in section VI.A.2 of this Summary of Comments and Explanation of
Revisions, under these final regulations a U.S. clearing organization will be required to
report on Form 1042-S the non-netted amounts realized by a foreign broker with respect
to sales of PTP interests that are cleared and settled on a net basis through the clearing
organization.
Finally, under §1.1461-1(a)(1), a withholding agent that withholds tax pursuant to
chapter 3 is required to deposit the tax as provided in §1.6302-2(a). Consistent with the
proposed regulations, these final regulations amend §1.1461-1(a)(1) to incorporate the
requirement to deposit tax withheld under section 1446(f). These final regulations
include a conforming change to §1.6302-2(a)(1)(i) to provide that the requirement to
deposit tax under §1.6302-2 applies to a broker or publicly traded partnership for

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purposes of section 1446(f), and to a nominee or publicly traded partnership for
purposes of section 1446(a).
E. Synthetic interests
A comment requested clarification that the proposed regulations apply only to
physical interests in publicly traded partnerships and not synthetic interests. A
subsequent comment submitted by the same commenter suggested that the final
regulations clarify this point by explicitly defining the term “interest” as “an interest as a
partner in the partnership.” The question of when a contract or other financial
instrument denominated as a synthetic interest in a partnership interest may be treated
as ownership of a partnership interest is beyond the scope of these regulations.
VII. Amendments to Existing Section 1446 Regulations Relating to Distributions by
Publicly Traded Partnerships
A. Method of providing a qualified notice
The proposed regulations contained changes to the existing qualified notice rules
and rules for nominees that apply to distributions of effectively connected income, gain,
or loss made by publicly traded partnerships to foreign partners. Proposed §1.14464(b)(4) revised the method for a publicly traded partnership to provide a qualified notice
to a nominee 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. Two comments requested that a requirement be added to require the
publicly traded partnership to furnish a copy of the qualified notice to the publicly traded
partnership’s registered holders that are nominees. PTP interests are generally
immobilized at a central depository and registered in the name of the depository’s
nominee. The comments state that furnishing the qualified notice to the publicly traded
74

partnership’s registered holders that are nominees would facilitate the dissemination of
information provided on the qualified notice to relevant market participants. Another
comment noted the burden on brokers to find qualified notices posted on publicly traded
partnerships’ websites and suggested requiring all qualified notices to be posted on a
central public website.
The Treasury Department and the IRS have determined that the delivery
requirements for qualified notices should be aimed at ensuring that all relevant market
participants receive the information necessary to comply with their withholding and
reporting obligations. Therefore, these final regulations include a requirement for a
publicly traded partnership to provide a qualified notice to any registered holder that is a
nominee for a distribution. Because the requirements provided will generally ensure
that brokers receive the information necessary to meet their withholding obligations
under §1.1446(f)-4, these final regulations do not adopt the comment to require publicly
traded partnerships to post their qualified notices to a central website.
B. Default withholding rule
The proposed regulations also added a default withholding rule (the default
withholding rule) for cases in which a qualified notice fails to provide sufficient detail for
a nominee to determine the amounts subject to withholding on a publicly traded
partnership distribution (a deficient qualified notice). Under this rule, to the extent that a
deficient qualified notice fails to specify the type of income from which a distribution is
made, the nominee must withhold at the highest rate specified in section 11(b) or 881
for a partner that is a foreign corporation, or the highest rate specified in section 1 or
871 for a foreign partner that is not a corporation. See proposed §1.1446-4(d). One

75

comment requested that a broker be permitted to adjust the rate of withholding under
the default withholding rule by considering the status of a partner for purposes of taking
into account a lower treaty rate.
The Treasury Department and the IRS have concluded that a nominee applying
the default withholding rule should withhold based on the statutory withholding rates
determined under the proposed regulations, without regard to any lower rate that might
apply under an applicable income tax treaty. Determinations by nominees of lower
rates that might otherwise apply under a treaty would depend on information from
publicly traded partnerships about the characterization of the income attributable to the
distribution. Because this information would not be provided to the nominee on a
qualified notice, these final regulations clarify that a lower treaty rate is not considered
for purposes of determining the amount to withhold under the default withholding rule.
The comment also requested that the final regulations clarify that a nominee is
required to apply the default withholding rule to a distribution for which no qualified
notice is issued. Proposed §1.1446-4(d) modified the existing rule to provide that a
nominee is a withholding agent for the entire distribution that it receives from a publicly
traded partnership (rather than only to the extent of the amount specified on a qualified
notice). These final regulations add language to clarify that a nominee must apply the
default withholding rule when a publicly traded partnership fails to issue a qualified
notice for a distribution under §1.1446-4(b)(4) of these final regulations.
The default withholding rule in the proposed regulations did not address a case in
which a nominee has no information about the status of a partner, including whether the
partner is a corporation for determining the withholding rate on effectively connected

76

income paid to the partner. As a result, these final regulations add that if a nominee
cannot determine the status of a partner as a corporation, for purposes of the default
withholding rule the nominee is required to use the higher of the following rates: (1) the
rate of withholding applicable to a foreign person that is a corporation, and (2) the rate
of withholding applicable to a foreign person that is not a corporation.
C. Modifications related to QIs
The proposed regulations expanded the definition of a nominee to include a QI
that assumes primary withholding responsibility for a distribution and a U.S. branch of a
foreign person that agrees to be treated as a U.S. person for withholding on a
distribution from a publicly traded partnership. To address cases in which a distribution
by a publicly traded partnership is paid through multiple nominees that might each be
required to withhold under proposed §1.1446-4(d), these final regulations add an
exception to withholding for a nominee paying the distribution to a QI or U.S. branch
that is also a nominee for the distribution.
Under the QI agreement, a QI may choose not to assume primary withholding
responsibilities and in certain of those cases may provide withholding rate pools, rather
than specific payee documentation, to the withholding agent that makes a payment to
the QI. Because the QI agreement applies only to amounts subject to withholding under
chapter 3 (defined as sections 1441 through 1443), chapter 4 (sections 1471 through
1474), or section 3406, the IRS intends to update the QI agreement to extend this
treatment to amounts subject to withholding under section 1446(a) to the same extent
generally permitted for payments received by QIs on behalf of their foreign account
holders under the QI agreement. To coordinate with the intended updates to the QI

77

agreement, these final regulations allow a publicly traded partnership or nominee paying
a distribution under section 1446(a) to a QI that does not assume primary withholding
responsibilities to rely on an allocation of the distribution to an applicable withholding
rate pool provided by the QI by specifying the withholding rate pools permitted for
withholding under section 1446(a).
In addition, these final regulations allow a broker to withhold under section
1446(a) based on specific payee documentation provided by a QI. See §1.1446-4(e)
and section VI.A.5 of this Summary of Comments and Explanations of Revisions.
Additionally, as discussed in section VI.A.4 of this Summary of Comments and
Explanations of Revisions, these final regulations require a QI or U.S. branch that acts
as a nominee under section 1446(a) for a distribution made by a publicly traded
partnership to assume all other required withholding responsibilities with respect to the
distribution. These provisions (as applicable to QIs) will be incorporated into the revised
QI agreement.
VIII. Applicability Dates
The proposed regulations generally provided that the regulations would apply 60
days after final regulations are issued. Comments requested additional time before
withholding on transfers of PTP interests is required, noting that the rules in the
proposed regulations would require brokers to update systems, processes, and
procedures. The comments generally requested an extension of the applicability date
to 18 months following the finalization of all guidance with respect to this requirement.
Another comment requested that the same extension apply to QIs, noting the time
required for QIs to review the regulations and anticipated revisions to the QI agreement,
and to implement the necessary updates to their systems and procedures.
78

The provisions in these final regulations relating to transfers of PTP interests
apply to transfers that occur on or after January 1, 2022. See §§1.1446(f)-4(f), 1.14611(i), 1.1461-2(d), and 1.1464-1(c). Similarly, §1.6302-2(g) applies to tax required to be
withheld on or after January 1, 2022 with respect to section 1446(f). The provisions
included in these final regulations that are applicable to QIs will apply beginning January
1, 2022. See section VI.A.1 of this Summary of Comments and Explanations of
Revisions. The Treasury Department and the IRS have determined that this
applicability date should provide sufficient time for taxpayers to prepare to implement
the regulations relating to transfers of PTP interests. Additionally, certain allowances in
the final regulations, such as the allowances for brokers to rely on documentation from
clearing organizations in certain cases and documentation already in the broker’s
possession, should reduce the time needed for brokers to update their systems. See
section VI.A.3 of this Summary of Comments and Explanation of Revisions.
Other provisions in the final regulations that require systems adjustments by
publicly traded partnerships, such as the procedures for qualified notices, are similarly
applicable on January 1, 2022. Specifically, the requirements with respect to publicly
traded partnership distributions under §1.1446-4 of these final regulations apply to
distributions made on or after January 1, 2022. See §1.1446-7. In addition, the
requirements with respect to distributions that are attributable to dispositions of U.S. real
property interests under §1.1445-8(f) apply to distributions made on or after January 1,
2022. See §1.1445-8(j).

79

Further, in order to provide partnerships with time to implement withholding under
section 1446(f)(4), §1.1446(f)-3 applies to transfers that occur on or after January 1,
2022. See §1.1446(f)-3(f).
As contemplated in the proposed regulations, §1.864(c)(8)-2(a) applies to
transfers that occur on or after [INSERT DATE OF PUBLICATION IN THE FEDERAL
REGISTER], §§1.864(c)(8)-2(b) and (c) and 1.6050K-1(c)(2) and (3) apply to returns
filed on or after [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER],
and §1.864(c)(8)-2(d) applies beginning on [INSERT DATE OF PUBLICATION IN THE
FEDERAL REGISTER]. See §§1.864(c)(8)-2(e) and 1.6050K-1(h). Sections 1.14452(b)(2)(v) and 1.1445-5(b)(3)(iv) apply to the use of Forms W-9 for certifications of nonforeign status provided on or after May 7, 2019, except that a taxpayer may choose to
apply those provisions with respect to certifications provided before that date. See
§§1.1445-2(e) and 1.1445-5(h).
The conforming changes in §§1.1445-5 and 1.1445-8 resulting from the rate
changes made by the Act apply to distributions on or after [INSERT DATE OF
PUBLICATION IN THE FEDERAL REGISTER]. The conforming changes in §§1.14463 and 1.1446-4 resulting from the rate changes made by the Act and the change to the
due date of Form 8804 made by the Surface Transportation Act apply to partnership
taxable years beginning on or after [INSERT DATE OF PUBLICATION IN THE
FEDERAL REGISTER]. Although the applicability date of the changes to the
regulations described in this paragraph is based on the date of publication of this
document in the Federal Register, the same results apply before that date as of the
relevant effective dates of the Act and the Surface Transportation Act.

80

The remaining provisions in these final regulations are generally applicable to
transfers that occur on or after [INSERT DATE 60 DAYS AFTER PUBLICATION IN
THE FEDERAL REGISTER], as contemplated in the proposed regulations. See
§§1.1446(f)-1(e), 1.1446(f)-2(f), 1.1446(f)-5(d), 1.1461-3, and 1.1463-1(a).
Effect on Other Documents
Notice 2018-08 (2018-7 I.R.B. 352) is obsolete as of January 1, 2022. Notice
2018-29 (2018-16 I.R.B. 495) is obsolete as of [INSERT DATE 60 DAYS AFTER
PUBLICATION IN THE FEDERAL REGISTER].
Statement of Availability of IRS Documents
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 Publishing Office, Washington, DC
20402, or by visiting the IRS website at http://www.irs.gov.
Special Analyses
I. Regulatory Planning and Review
These regulations are 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 collections of information in these final regulations are in §1.864(c)(8)-2
regarding reporting for transactions described in section 864(c)(8) and §1.864(c)(8)-1;
§§1.1446(f)-1 through 1.1446(f)-4 regarding the withholding, reporting, and paying of tax

81

under section 1446(f) following the transfer of an interest described in section 864(c)(8)
and §1.864(c)(8)-1; and §1.6050K-1(c) regarding reporting of section 751(a) exchanges.
Section II.A of this Special Analyses describes the changes made in these final
regulations to the collections of information in the proposed regulations that will be
conducted using IRS forms. Section II.B of this Special Analyses describes the
changes made in these final regulations to the collections of information in the proposed
regulations that will not be conducted using IRS forms.
A. Collections of Information Conducted Using IRS Forms
These final regulations include an exception from withholding for amounts
realized paid to certain foreign banks and securities dealers. §1.1446(f)-4(b)(6). The
collection of information in §1.1446(f)-4(b)(6) is provided by the transferor by submitting
a certification as part of Form W-8ECI, Certificate of Foreign Person’s Claim that
Income is Effectively Connected with the Conduct of Trade or Business in the United
States, to the broker and is optional. The information will be used by the broker to
determine whether an exception to withholding applies if the gain from the transfer of a
PTP interest is effectively connected with the conduct of a U.S. trade or business
without regard to section 864(c)(8).
The Treasury Department and the IRS intend that the information collection
requirement described in this section II.A will be set forth on Form W-8ECI. As a result,
for purposes of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. (PRA), the
reporting burden associated with the collection of information in this form will be
reflected in the PRA submission associated with the form. The current status of the

82

PRA submission for Form W-8ECI is provided in the Current Status of PRA
Submissions table.
Current Status of PRA Submissions

Form W-8ECI

Type of Filer

OMB
Number(s)

Business
(NEW Model)

1545-0123

Status
Approved 01/30/2019 until 01/30/21.

https://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=15450123#

All other filers
(Legacy
system)

1545-1621

Approved 12/19/2018 until
12/31/2021.

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

B. Collections of Information Not Included on IRS Forms
These final regulations contain collections of information that are not on existing
or new IRS forms, and include minor modifications to the collections of information in
the proposed regulations relating to certain certifications that may be provided to obtain
an exception to withholding or an adjustment to the amount to withhold. See
§1.1446(f)-2(b)(4), (b)(5), and (c)(2). See sections IV.A.3, VI.A.4, and IV.B.2 of the
Summary of Comments and Explanation of Revisions for explanations of the changes to
these certifications.
Section II.B of the Special Analyses of the proposed regulations provided
estimates of the cost of certain collections of information contained in the proposed
regulations. A comment suggested that the cost of collections of information for a
broker was too high. However, the comment misinterpreted the data provided in section
II.B of the Special Analyses of the proposed regulations. The estimated total annual
monetized cost provided in section II.B of the Special Analyses of the proposed

83

regulations was the estimated cost of all collections of information not on existing or
new IRS forms for all respondents (generally transferors of partnership interests), not
the estimated cost of compliance for a broker.
The collections of information contained in these final regulations have been
reviewed and approved by the Office of Management and Budget in accordance with
the PRA under control number 1545-2292.
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 these final regulations 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 final 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 a trade or business
within the United States (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 interests in partnerships engaged in a
trade or business within the United States, (iv) partnerships that, directly or indirectly,

84

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 final regulations.
However, entities potentially affected by these final regulations are generally not small
entities, because of the resources and investment necessary to acquire a partnership
interest from a foreign person or, in the case of a partnership, to, directly or indirectly,
have foreign persons as partners. Therefore, the Treasury Department and the IRS
have determined that there will not be a substantial number of domestic small entities
affected by the final regulations. Consequently, the Treasury Department and the IRS
certify that the final regulations will not have a significant economic impact on a
substantial number of small entities.
Pursuant to section 7805(f) of the Code, the proposed regulations preceding
these final regulations were submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on their impact on small businesses, and no
comments were received.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that
agencies assess anticipated costs and benefits and take certain other actions before
issuing a final rule that includes any Federal mandate that may result in expenditures in
any one year by a state, local, or tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for inflation. This rule does not

85

include any Federal mandate that may result in expenditures by state, local, or tribal
governments, or by the private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (titled “Federalism”) prohibits an agency from publishing
any rule that has federalism implications if the rule either imposes substantial, direct
compliance costs on state and local governments, and is not required by statute, or
preempts state law, unless the agency meets the consultation and funding requirements
of section 6 of the Executive Order. This final rule does not have federalism
implications and does not impose substantial direct compliance costs on state and local
governments or preempt state law within the meaning of the Executive Order.
Drafting Information
The principal authors of these regulations are Chadwick Rowland, Subin Seth,
Ronald M. Gootzeit, and Charles Rioux, Office of the Associate Chief Counsel
(International). However, other personnel from the Treasury Department and the IRS
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements
Amendments to the Regulations
PART 1-- INCOME TAXES
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, 1.6050K-1, and 1.6302-2 in numerical order to read in
part as follows:

86

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).
*****
Section 1.1445-5 also issued under 26 U.S.C. 1445(e)(7).
*****
Section 1.1445-8 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).
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).
*****
Section 1.6302-2 also issued under 26 U.S.C. 6302(h).
*****
Par. 2. Section 1.864(c)(8)-2 is added to read as follows:
§1.864(c)(8)-2 Notification and reporting requirements.

87

(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
after 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
(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 prescribed by the Commissioner in forms or
instructions or in publications or guidance published in the Internal Revenue Bulletin

88

(see §§601.601(d)(2) and 601.602 of this chapter).
(b) Reporting by specified partnerships with notifying transferor--(1) In general--(i)
Requirement to provide statement. 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
specified 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);
(ii) Whether the items described in paragraph (b)(2)(i) of this section were
determined (in whole or in part) under §1.864(c)(8)-1(c)(2)(ii)(E) (material change in
circumstances rule for determining deemed sale EC gain or deemed sale EC loss from
a deemed sale of the partnership’s inventory property or intangibles); and

89

(iii) Any other information as may be prescribed by the Commissioner in forms,
instructions, publications, or guidance published in the Internal Revenue Bulletin (see
§§601.601(d)(2) and 601.602 of this chapter).
(3) Time for furnishing statement. The specified partnership must furnish the
required information on or before the due date (with extensions) for issuing Schedule K1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., or other statement
required to be furnished under §1.6031(b)-1T, to the notifying transferor for the year of
the transfer. See §1.6031(b)-1T(b).
(4) Manner of furnishing statement. The statement required to be furnished
under paragraph (b)(1) of this section must be provided on Schedule K-1 (Form 1065),
Partner’s Share of Income, Deductions, Credits, etc., or other statement required to be
furnished under §1.6031(b)-1T.
(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 specified 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.

90

(2) Specified partnership. The term specified partnership means a partnership
that is engaged in a trade or business within the United States or that owns (directly or
indirectly) an interest in a partnership that is engaged in a trade or business within the
United States.
(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 [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER].
Paragraphs (b) and (c) of this section apply to returns filed on or after [INSERT DATE
OF PUBLICATION IN THE FEDERAL REGISTER]. Paragraph (d) of this section
applies beginning on [INSERT DATE OF PUBLICATION 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:
§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 choose to

91

apply paragraph (b)(2)(v) of this section with respect to certifications provided before
that date.
Par. 4. Section 1.1445-5 is amended by:
1. Adding paragraph (b)(3)(iv).
2. In each paragraph listed in the first column in the table, removing the language
in the second column and adding in its place the language in the third column as set
forth below:

92

Paragraph
(c)(1)(ii) first sentence

(c)(1)(iii)(A) third sentence

(c)(1)(iv)

(c)(3)(ii)

(d)(1) first sentence

Remove
A partnership must
withhold a tax equal to 35
percent (or the highest rate
specified in section
1445(e)(1))
The fiduciary must
withhold 35 percent (or the
highest rate specified in
section 1445(e)(1))

Add
A partnership must
withhold a tax equal to the
rate specified in section
1445(e)(1) multiplied by
the amount
The fiduciary must
withhold a tax equal to the
rate specified in section
1445(e)(1) multiplied by
the amount
The trustee or equivalent
The trustee or equivalent
fiduciary of a trust that is
fiduciary of a trust that is
subject to the provisions of subject to the provisions of
subpart E of part 1 of
subpart E of part 1 of
subchapter J (sections 671 subchapter J ( sections
through 679) must
671 through 679) must
withhold a tax equal to 35
withhold a tax equal to the
percent (or the highest rate rate specified in section
specified in section
1445(e)(1) multiplied by
1445(e)(1))
the amount
A partnership or trust
electing to withhold under
this § 1.1445–5(c)(3) shall
withhold from each
distribution to a foreign
person an amount equal
to 35 percent (or the
highest rate specified in
section 1445(e)(1))
A foreign corporation
that distributes a U.S.
real property interest
must deduct and
withhold a tax equal to
35 percent (or the rate
specified in section
93

A partnership or trust
electing to withhold under
this § 1.1445–5(c)(3) shall
withhold from each
distribution to a foreign
person an amount equal to
the rate specified in
section 1445(e)(1)
multiplied by
A foreign corporation
that distributes a U.S.
real property interest
must deduct and
withhold a tax equal to
the rate specified in
section 1445(e)(2)

1445(e)(2))

multiplied by

3. Adding a sentence to the end of paragraph (c)(1)(iii)(B).
4. Adding two sentences to the end of paragraph (h).
The additions 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.
*****
(c) * * *
(1) * * *
(iii) * * *
(B) * * * In 1994, the relevant rate of withholding (that is, the rate specified in
section 1445(e)(1)) was 35%.
*****
(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 choose to
apply paragraph (b)(3)(iv) of this section with respect to certifications provided before

94

that date. Paragraphs (c) and (d) apply to distributions on or after [INSERT DATE OF
PUBLICATION IN THE FEDERAL REGISTER].
Par. 5. Section 1.1445-8 is amended by:
1. Revising paragraph (c)(2)(i).
2. Revising paragraph (f).
3. Adding paragraph (j).
The revisions and addition read as follows:
§1.1445-8 Special rules regarding publicly traded partnerships, publicly traded trusts
and real estate investment trusts (REITs).
*****
(c) * * *
(2) * * *
(i) The amount to be withheld with respect to a distribution by a REIT, under this
section shall be equal to the highest rate specified in section 1445(e)(1) multiplied by
the amount described in paragraph (c)(2)(ii) of this section.
*****
(f) Qualified notice. 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 respect to each share or
certificate of beneficial interest. A deemed designation under paragraph (c)(2)(ii)(A) of
95

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).
(j) Applicability dates. Paragraph (c)(2)(i) of this section applies to distributions on
or after [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER]. Paragraph
(f) of this section applies to distributions made on or after January 1, 2022. For
distributions made before January 1, 2022, see §1.1445-8(f) as contained in 26 CFR
part 1, revised as of April 1, 2020.
*****
Par. 6. Section 1.1446-0 is amended by:
1. Adding a new heading for §1.1446-3(c)(4).
2. Revising the heading for §1.1446-4(d).
3. Adding a new heading for §1.1446-4(d)(1).
4. Adding a new heading for §1.1446-4(d)(2).
5. Revising the heading for §1.1446-7.
The additions and revisions read as follows:
§1.1446-0 Table of Contents.
*****
§1.1446-3 Time and manner of calculating and paying the 1446 tax.
*****
(c) * * *
(4) Coordination with section 1446(f).
*****
§1.1446-4 Publicly traded partnerships.
*****
(d) Rules for nominees required to withhold tax under section 1446.
(1) In general.
(2) Exception to nominee’s withholding.

96

*****
§1.1446-7 Applicability dates.

Par. 7. 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).
3. In paragraph (d)(2)(vi), by designating Examples 1 through 3 as paragraphs
(d)(2)(vi)(A) through (C), respectively.
4. In each newly redesignated paragraph listed in the first column in the table, by
removing the language in the second column and adding in its place the language in the
third column as set forth below:
Paragraph

Remove

Add

(d)(2)(vi)(A) fifth sentence

PRS pays installments of
1446 tax based upon its
estimates and timely pays
a total of $35 of 1446 tax
over the course of the
partnership's taxable year
($100 ECTI × .35).
$35

PRS pays installments of
1446 tax based upon its
estimates and timely pays
a total of $37 of 1446 tax
over the course of the
partnership's taxable year
($100 ECTI × .37).
$37

Pursuant to paragraph
(d)(2)(iii) of this section, FT
may claim a $14 credit
under section 33 for the
1446 tax PRS paid
($40/$100 multiplied by
$35).
NRA is required to include
the $60 of the ECTI in
gross income under
section 652 (as ECTI) and
may claim a $21 credit
under section 33 for the

Pursuant to paragraph
(d)(2)(iii) of this section, FT
may claim a $14.8 credit
under section 33 for the
1446 tax PRS paid
($40/$100 multiplied by
$37).
NRA is required to include
the $60 of the ECTI in
gross income under
section 652 (as ECTI) and
may claim a $22.2 credit
under section 33 for the

(d)(2)(vi)(A) seventh and
eighth sentences
(d)(2)(vi)(B) third sentence

(d)(2)(vi)(B) fourth
sentence

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(d)(2)(vi)(C) fifth sentence
(d)(2)(vi)(C) sixth sentence

1446 tax PRS paid ($35
less $14 or $60/$100
multiplied by $35).
$35
NRA is required to include
$100 of the ECTI in gross
income under section 662
(as ECTI) and may claim a
$35 credit under section 33
for the 1446 tax paid by
PRS ($35 less $0).

1446 tax PRS paid ($37
less $14.8 or $60/$100
multiplied by $37).
$37
NRA is required to include
$100 of the ECTI in gross
income under section 662
(as ECTI) and may claim a
$37 credit under section 33
for the 1446 tax paid by
PRS ($37 less $0).

5. In paragraph (e)(4), by designating Examples 1 through 3 as paragraphs
(e)(4)(i) through (iii), respectively.
6. In newly redesignated paragraphs (e)(4)(i) through (iii), by redesignating the
paragraphs in the first column in this table as the paragraphs in the second column as
set forth below:
Old Paragraphs

New Paragraphs

(e)(4)(i)(i) through (viii)
(e)(4)(ii)(i) through (v)
(e)(4)(iii)(i) through (iv)

(e)(4)(i)(A) through (H)
(e)(4)(ii)(A) through (E)
(e)(4)(iii)(A) through (D)

7. In each newly redesignated paragraph listed in the first column in this table,
by removing the language in the second column and adding in its place the language in
the third column as set forth below:
Paragraph
(e)(4)(i)(B) second
sentence
(e)(4)(i)(B) third sentence
(e)(4)(i)(E) third sentence
(e)(4)(i)(F) first sentence
(e)(4)(i)(G) second
sentence
(e)(4)(iii)
(e)(4)(iii)(A)

Remove
$8.75 (.25 X ($100 X .35))

Add
$9.25 (.25 X ($100 X .37))

$35
$8.75
$35
$35

$37
$9.25
$37
$37

April
April

March
March
98

(e)(4)(iii)(B) first sentence

Example 1 and Example 2

(e)(4)(iii)(B) second
sentence
(e)(4)(iii)(C) first and
second sentences
(e)(4)(iii)(D) first through
third sentences
(e)(4)(iii)(D) first sentence

April

Example 1 and Example 2
in paragraphs (e)(4)(i) and
(e)(4)(ii) of this section,
respectively
March

April

March

April

March

$35

$37

8. By deleting paragraph (g).
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. 8. Section 1.1446-4 is amended by:
1. Revising paragraphs (b)(3) and (4).
2. Removing the second sentence of paragraph (c).
3. Revising paragraph (d).
4. Revising paragraph (e).
5. Revising the fifth through tenth sentences of paragraph (f)(1).
6. Revising paragraph (f)(3).
99

The revisions 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 the distribution, or a U.S. branch of a
foreign person that agrees to be treated as a U.S. person (as described in §1.14411(b)(2)(iv)) with respect to the distribution. For purposes of this paragraph (b)(3), a
U.S. branch or a qualified intermediary is a nominee only if it assumes primary
withholding responsibility for the distribution for all purposes of chapters 3 and 4 of
subtitle A of the Code.
(4) Qualified notice. For purposes of this section, a qualified notice is a notice
from a publicly traded partnership that states the amount of a 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 the 10-percent exception to withholding under section 1446(f)(1)) and
the information described in §1.1446(f)-4(c)(2)(iii) (relating to an adjustment to the
amount realized for withholding under section 1446(f)(1)). 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, and a copy of the notice must be
delivered to any registered holder that is a nominee. A qualified notice must be posted

100

and delivered to the registered holder by the date required for providing notice with
respect to distributions 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 otherwise prescribed by the
Commissioner in forms or instructions or in publications or guidance published in the
Internal Revenue Bulletin (see §§601.601(d)(2) and 601.602 of this chapter). See
paragraph (d) of this section regarding when a nominee is considered to have received
a qualified notice.
*****
(d) Rules for nominees required to withhold tax under section 1446--(1) In
general. A nominee that receives a distribution from a publicly traded partnership (or
another nominee) that is to be paid to (or for the account of) any foreign person is
treated as a withholding agent under this section. A nominee that fails to withhold
pursuant to this section is subject to liability under section 1461, as well as applicable
penalties and interest, as if the nominee were the partnership responsible for
withholding. A nominee that receives a qualified notice that meets the requirements in
paragraph (b)(4) of this section must withhold based on the amounts specified on the
qualified notice. A nominee is treated as receiving a qualified notice on the date that the
notice is posted to the publicly traded partnership’s website or is received by the
nominee in accordance with paragraph (b)(4) of this section. If a nominee properly

101

withholds based on the amounts specified on a qualified notice, the nominee is not
liable for any underwithholding on amounts that are effectively connected income, gain,
or loss. Rather, the publicly traded partnership that issued the qualified notice is liable
under section 1461 for underwithholding on such amounts. If a nominee does not
receive a qualified notice that meets the requirements in paragraph (b)(4) of this
section, or to the extent the qualified notice does not specify an amount, the nominee
must withhold on the full amount of the distribution with respect to-(i) A foreign partner that is a corporation, at the greater of the highest rate of tax
specified in section 11(b) or section 881 (without regard to any reduction in the rate of
tax permitted under an applicable income tax treaty);
(ii) A foreign partner that is not a corporation, at the greater of the highest rate of
tax specified in section 1 or section 871 (without regard to any reduction in the rate of
tax permitted under an applicable income tax treaty); or
(iii) A foreign partner whose classification cannot be determined, at the higher of
the rate determined under paragraph (d)(1)(i) or (ii) of this section.
(2) Exception to nominee’s withholding. A nominee is not required to withhold
under paragraph (d)(1) of this section to the extent that it makes a payment of a
distribution to a qualified intermediary or U.S. branch that is also a nominee for the
distribution under paragraph (b)(3) of this section. For purposes of the preceding
sentence, a nominee may treat a qualified intermediary or U.S. branch as a nominee for
a distribution based on, respectively, a valid qualified intermediary withholding certificate
described in §1.1441-1(e)(3)(ii) or a valid U.S. branch withholding certificate described

102

in §1.1446(f)-4(a)(2)(ii)(B) on which the qualified intermediary or U.S. branch represents
that it assumes primary withholding responsibility with respect to the distribution.
(e) Determining foreign status of partners. Except as provided in this paragraph
(e), the rules of §1.1446-1 shall apply in determining whether a partner of a publicly
traded partnership is a foreign partner for purposes of the 1446 tax. A partnership or
nominee obligated to withhold under this section shall be entitled to rely on any of the
forms acceptable under §1.1446-1 that it receives from persons on whose behalf it
holds interests in the partnership to the same extent a partnership is entitled to rely on
such forms under those rules. If a partnership or nominee pays a distribution to an
entity that provides a valid qualified intermediary withholding certificate described in
§1.1441-1(e)(3)(ii) indicating that the entity does not assume primary withholding
responsibility for the distribution, for withholding under this section the partnership or
nominee may instead rely on a withholding statement that allocates the distribution to-(1) A chapter 3 withholding rate pool (as described in 1.1441-1(e)(5)(v)(C))
consisting of account holders that are foreign persons subject to withholding at the
highest rate of tax specified in section 1;
(2) A chapter 3 withholding rate pool (as described in 1.1441-1(e)(5)(v)(C))
consisting of account holders that are foreign persons subject to withholding at the
highest rate of tax specified in section 11(b);
(3) A chapter 3 withholding rate pool (as described in 1.1441-1(e)(5)(v)(C))
consisting of account holders that are foreign persons not subject to withholding; or
(4) Each account holder for which a form acceptable under §1.1446-1 is
provided.

103

(f) * * *
(1) * * * LTP makes a distribution subject to section 1446 of $100 to UTP during
its taxable year beginning January 1, 2005, and withholds 37 percent (the highest rate
in section 1) ($37) of that distribution under section 1446. UTP receives a net
distribution of $63 which it immediately redistributes to its partners. UTP has a liability to
pay 37 percent of the total actual and deemed distribution it makes to its foreign
partners as a section 1446 withholding tax. UTP may credit the $37 withheld by LTP
against this liability as if it were paid by UTP. See §1.1462-1(b) and §1.1446-5(b)(1).
When UTP distributes the $63 it actually receives from LTP to its partners, UTP is
treated for purposes of section 1446 as if it made a distribution of $100 to its partners
($63 actual distribution and $37 deemed distribution). UTP's partners (U.S. and foreign)
may claim a credit against their U.S. income tax liability for their allocable share of the
$37 of 1446 tax paid on their behalf.
*****
(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 and
are subject to withholding under §1.1441-2(a);
(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 under §1.1441-2(a);

104

(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;
(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. 9. Section 1.1446-6 is amended by adding a new sentence after the first
sentence of paragraph (e)(1) to read as follows:
§1.1446-6 Special rules to reduce a partnership's 1446 tax with respect to a foreign
partner's allocable share of effectively connected taxable income.
*****
(e) * * *
(1) * * * In 2008, the relevant rate of withholding for foreign partners that were
not corporations (that is, the highest rate in section 1 as specified in §1.1446-3(a)(2)(i))
was 35%, and the due date for filing Form 8804 for domestic calendar year partnerships
(that is, the date specified in §1.1446-3(d)(1)(iii)) was April 15. * * *
*****
Par. 10. Section 1.1446-7 is amended by revising the section heading and
adding six sentences at the end of the section to read as follows:
§1.1446-7 Applicability dates.
* * * Section 1.1446-3 generally applies to returns filed on or after January 30,
2020 and §1.1446-3T (as contained in 26 CFR part 1, revised as of April 1, 2019)
generally applies to returns filed before January 30, 2020. The addition of §1.14463(c)(4) applies to transfers of partnership interests that occur on or after [INSERT DATE
105

60 DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER], except that a
taxpayer may choose to apply §1.1446-3(c)(4) to transfers of partnership interests that
occur on or after January 1, 2018. Sections 1.1446-3(a)(2)(i), (d)(2)(vi) and (e)(4) and
§1.1446-4(f)(1) apply to partnership taxable years beginning on or after [INSERT DATE
OF PUBLICATION IN THE FEDERAL REGISTER]. For partnership taxable years
beginning before [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER],
see those sections as in effect and contained in 26 CFR part 1, revised as of April 1,
2020. Sections 1.1446-4(b)(3), (b)(4), (c), (d), (e) and (f)(3) apply to distributions made
on or after January 1, 2022. For distributions made before January 1, 2022, see
§§1.1446-4(b)(3), (b)(4), (c), (d), (e) and (f)(3), as contained in 26 CFR part 1, revised
as of April 1, 2020.
Par. 11. Sections 1.1446(f)-1 through 1.1446(f)-5 are added to read as follows:
§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 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

106

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 includes a
clearing organization (as defined in §1.1471-1(b)(21)). In the case of a U.S. clearing
organization clearing or settling sales of PTP interests, however, see §1.1446(f)-4(a)(3)
for an exception from the requirement to withhold on a sale of a PTP interest. The term
broker does not include an escrow agent that does not effect sales other than
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 section 267(b) or 707(b)(1) to the partner, owns
directly or indirectly a 50 percent or greater interest in the capital, profits, deductions, or
losses of the partnership at any time within 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,
including a QI branch of a U.S. financial institution (as defined in §1.1471-1(b)(109)).

107

(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.
(7) The term TIN means the tax identifying number assigned to a person under
section 6109.
(8) The term transfer means a sale, exchange, or other disposition, and includes
a distribution from a partnership to a partner, as well as a transfer treated as a sale or
exchange under section 707(a)(2)(B).
(9) 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.
(10) 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 such other person.
(11) 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

108

more of the activities described in §1.1445-4(f)(3) (relating to activities of settlement
officers and clerical personnel).
(12) 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 as may be prescribed by the Commissioner in forms or
instructions or in publications or guidance published in the Internal Revenue Bulletin
(see §§601.601(d)(2) and 601.602 of this chapter). 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 associated 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

109

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 other individual that has authority
to sign for the entity under local law.
(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 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. The recipient of a certification is not required to mail a
copy to the 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 as may be prescribed by the
Commissioner in forms or instructions or in publications or guidance published in the
Internal Revenue Bulletin (see §§601.601(d)(2) and 601.602 of this chapter).

110

(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. A certification provided by a foreign grantor
trust on behalf of a transferor that is a grantor or owner must also include a Form W8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S.
Branches for United States Tax Withholding and Reporting), (or similar statement for a
domestic grantor trust with a foreign grantor or owner), that includes a withholding
statement that provides the percentage of the amount realized allocable to each grantor
or owner of the trust, and any applicable certification for each grantor or owner. In the
case of a certification so provided, a grantor or owner of the trust is treated as having
provided the certification to the transferee (or broker).
(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

111

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 adjusted in accordance with §1.7041(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 prescribed by the Commissioner
in forms or instructions or in publications or guidance published in the Internal Revenue
Bulletin (see §§601.601(d)(2) and 601.602 of this chapter).
(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

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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
withholding requirement.
(e) Applicability date. This section applies to transfers that occur on or after
[INSERT DATE 60 DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER].
§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 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

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a foreign person, states the transferor’s name, TIN, and address, and is signed under
penalties of perjury. For this purpose, a certification of non-foreign 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 the
application of section 751 and §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) No section 751 income. For purposes of paragraph (b)(3)(i) of this section, a
transferor may rely on a certification from the partnership stating that the transfer of the
partnership interest would not result in any ordinary income arising from the application
of section 751 and §1.751-1 to the transferor as of the determination date. The
certification from the partnership must be attached to, and forms part of, the certification
of no realized gain that the transferor provides to the transferee.
(iii) 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.

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(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-(A) 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—
(1) The partnership would have no gain that would have been effectively
connected with the conduct of a trade or business within the United States, or, if the
partnership would have a net amount of such gain, the amount of the partnership’s 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
(2) The transferor would not have a distributive share of net gain from the
partnership that would have been effectively connected with the conduct of a trade or
business in the United States, or, if the transferor would have a distributive share of
such gain from the partnership, the transferor’s distributive share of net gain from the
partnership 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 transferor’s
distributive share of the total net gain from the partnership; or
(B) The partnership was not engaged in a trade or business within the United
States at any time during the taxable year of the partnership through the date of
transfer.
(ii) Partnership distributions. A partnership that is a transferee because it makes
a distribution may rely on its books and records to determine that paragraph (b)(4)(i)(A)

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of this section is satisfied as of the determination date or paragraph (b)(4)(i)(B) of this
section is satisfied for the taxable year of the partnership through the date of transfer.
(5) Less than 10 percent effectively connected income--(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—
(A) The transferor was a partner in the partnership throughout the look-back
period described in paragraph (b)(5)(ii) of this section;
(B) The transferor’s distributive share of gross effectively connected income from
the partnership, as reported on a Schedule K-1 (Form 1065), Partner’s Share of
Income, Deductions, Credits, etc., or other statement required to be furnished under
§1.6031(b)-1T, including any gross effectively connected income included in the
distributive share of a partner that bears a relationship to the transferor described in
section 267(b) or 707(b)(1), was less than $1 million for each of the taxable years within
the look-back period described in paragraph (b)(5)(ii) of this section;
(C) The transferor’s distributive share of gross effectively connected income from
the partnership, as reported on a Schedule K-1 (Form 1065), or other statement
required to be furnished under §1.6031(b)-1T, for each of the taxable years within the
look-back period described in paragraph (b)(5)(ii) of this section, was less than 10
percent of the transferor’s total distributive share of gross income from the partnership
for that year as determined under subchapter K of the Internal Revenue Code (as
provided on a Schedule K-1 (Form 1065) or other statement required to be furnished
under §1.6031(b)-1T); and

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(D) The transferor’s distributive share of income or gain from the partnership 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 within the look-back period described in paragraph (b)(5)(ii) 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 have 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) Look-back period--(A) In general. The transferor’s look-back period is the
transferor’s immediately prior taxable year and the two preceding taxable years.
(B) Immediately prior taxable year. 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.
(C) 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)(B) of this section.
(iii) No distributive share of gross income. A transferor that did not have a
distributive share of gross income in any year described in paragraph (b)(5)(ii)(A) of this
section cannot provide the certification described in this paragraph (b)(5).

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(iv) 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) and (iii) 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.
(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 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
makes the certification on 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

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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 §1.14451(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)(7) 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 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

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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

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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)
and before the date of the transfer 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 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 and before the date on which the partnership provides the certification to the
transferee 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

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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 modified amount realized--(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 treat the modified amount realized as the amount realized
to the extent that it may rely on a certification from the transferor providing the modified
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
taxable persons. For this purpose, a presumed foreign taxable person is any direct or
indirect partner of the transferor that has not provided either a certification of nonforeign status that meets the requirements of paragraph (b)(2) of this section or a
certification of treaty benefits that states that the partner 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. A valid certification of treaty benefits must meet the requirements

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of paragraph (b)(7) of this section (as applied to the partner claiming treaty benefits),
including the requirement that the transferee mail a copy of the certification to the IRS
within the time prescribed. 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) that includes 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,
a foreign partner eligible for treaty benefits, or a presumed foreign taxable person. The
certification must also include the certification of non-foreign status or the certification of
treaty benefits from each direct or indirect partner that is not a presumed foreign taxable
person.
(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

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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,
a foreign partnership, or a foreign trust 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 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 or a foreign trust 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, a foreign partnership, or a foreign trust;
(B) The transferor’s adjusted basis in the transferred interest on the
determination date;

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(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, if applicable; 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.
(v) Partial nonrecognition. If a nonrecognition provision applies to only a portion
of the gain realized on the transfer, a certification described in paragraph (c)(4)(i) may

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be relied upon only if the certification also includes the information required in
paragraph (b)(6) of this section (substituting “a portion of the gain or loss” for “any gain
or loss” in paragraph (b)(6)(i) 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 requirements of paragraph (b)(7)(i) of this section have been met, including
the requirement to obtain the applicable withholding certificate indicating that the gain
from the transfer is not subject to tax pursuant to an income tax treaty (substituting “a
portion of the gain” for “any gain” in paragraph (b)(7)(i) of this section), and the
requirement to mail a copy of the withholding certificate 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).

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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. 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 under paragraph (c) of this section. A transferee that
relied on a certification to apply an exception or adjustment to withholding remains liable
under this section when the partnership knows, or has reason to know, that the
certification is incorrect or unreliable. 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 on gain by reason of
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 or corporations. Except as provided
in paragraph (e)(3) of this section, an individual or corporation may claim a credit under

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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.
(ii) Partnerships, trusts, or estates. 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). For the rule providing the extent to
which a foreign trust or estate may claim a credit for an amount withheld under this
section, see §1.1462-1. Except as provided in paragraph (e)(3) of this section, a foreign
partnership, trust, or estate claiming a credit for an amount withheld must attach to its
applicable return the stamped copy of Form 8288-A provided to it under paragraph
(d)(1) of this section. A foreign trust or estate must also provide any other information
required in forms or instructions to any beneficiary or owner that is liable for tax on any
of the gain under section 864(c)(8).
(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
[INSERT DATE 60 DAYS AFTER PUBLICATION 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
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§1.1446(f)-2, the partnership in which the interest was transferred must withhold from
any distributions with respect to the transferred interest pursuant to this section. To
determine its withholding obligation under this paragraph (a)(1), a partnership may rely
on a certification received from the transferee described in §1.1446(f)-2(d)(2) unless it
knows, or has reason to know, that the certification is incorrect or unreliable. A
partnership that already possesses a certification of non-foreign status (including a
Form W-9) for the transferor that meets the requirements provided in §1.1446(f)-2(b)(2)
may instead rely on this certification to determine that it has no withholding obligation
under this paragraph (a)(1) unless it knows, or has reason to know, that the certification
is incorrect or unreliable. A partnership that receives a certification described in
§1.1446(f)-2(d)(2) that is inconsistent with the information on the certification of nonforeign status in its possession is treated as having actual knowledge, or reason to
know, that the certification of non-foreign status 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 with respect to the transferred interest
made on or after the date that is 15 days after it receives the notification. The IRS will
not issue a notification on the basis that the amount realized on the certification
described in §1.446(f)-2(d)(2) is incorrect if it determines that the transferee properly
relied on a certification that included the incorrect information to compute the amount
realized pursuant to §1.1446(f)-2(c)(2).

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(3) Subsequent transferees. A partnership is not required to withhold under
paragraph (a)(1) or (a)(2) of this section on distributions that are made after the date on
which the transferee disposes of the transferred interest, unless the partnership has
actual knowledge that any person that acquires the transferee’s interest in the
partnership is a related person, i.e., 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. A related person that acquires the transferee’s
interest is treated as liable for tax under section 1461 to the same extent that the
transferee is liable for its failure to withhold under §1.1446(f)-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. A partnership is not required to withhold under this section on
distributions made with respect to a PTP 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 with respect to a transferred interest beginning on the later of--

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(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 with respect to a transferred interest 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; or
(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).
(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
with respect to the transferred interest until it has withheld-(A) A tax of 10 percent of the amount realized (determined solely under
§1.1446(f)-2(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 of this chapter if the amount that should have
been withheld by the transferee was considered an underpayment of tax. For this

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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 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 with respect to a transferred interest 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

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not relieve a nonresident alien individual or foreign corporation subject to tax on gain by
reason of 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) 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. An excess
amount under this section is the amount of tax and interest withheld under this section
that exceeds the transferee’s withholding tax liability under §1.1446(f)-2 plus any
interest owed by the transferee with respect to such liability. A transferee may claim a
refund for the excess amount if payments have been made in excess of the tax which is
properly due by the transferee for the tax period.
(f) Applicability date. This section applies to transfers that occur on or after
January 1, 2022.
§1.1446(f)-4 Withholding on the transfer of a publicly traded partnership interest.
(a) 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 (as defined in
§1.1446(f)-1(b)(1)), 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

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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 cases in which a publicly traded partnership is liable for
withholding under this section, see paragraphs (b)(3)(i) and (c)(2)(iii) of this section.
(2) Broker’s requirement to withhold—(i) In general. Except as otherwise
provided in this section, a broker is required to withhold under this section if it pays an
amount realized to another broker that it is required to treat as a foreign person, or if a
broker pays an amount realized to a foreign transferor that is its customer.
(ii) Payments to foreign brokers. A broker that pays an amount realized from the
transfer of a PTP interest to another broker that it is required to treat as a foreign person
must withhold under this section unless the first-mentioned broker obtains
documentation on which it may rely establishing that the second-mentioned broker is
described in paragraph (a)(2)(ii)(A) or (B) of this section. A broker must treat any broker
to which it pays an amount realized from the transfer of a PTP interest as a foreign
person unless it obtains, or already possesses, documentation (including a certification
of non-foreign status) on which it may rely that establishes that the other broker is a
U.S. person. A broker may rely on documentation described in this paragraph (a)(2)(ii),
or in paragraph (a)(2)(ii)(A) or (B) of this section, unless it has actual knowledge that the
documentation is unreliable or incorrect.
(A) A broker is described in this paragraph (a)(2)(ii)(A) if it is 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 for the payment.

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(B) A broker is described in this paragraph (a)(2)(ii)(B) if it is 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), but without regard to the
requirement in §1.1441-1(e)(3)(v) that the certificate state that the amount is not
effectively connected with a conduct of a U.S. trade or business) that states that the
U.S. branch agrees to be treated as a U.S. person with respect to the payment.
(iii) Payments to foreign transferors that are customers of the broker. A broker
that pays an amount realized to a foreign transferor that is its customer (as defined in
§1.6045-1(a)(2)) from the transfer of a PTP interest is required to withhold under this
section unless an exception under paragraph (b) of this section applies.
(3) Exception from certain withholding by U.S. clearing organizations. A broker
that is a U.S. clearing organization clearing or settling a sale of a PTP interest is not
required to withhold on the amount realized from the sale. However, see §1.14611(c)(2)(i)(R)(2) for the requirement that a U.S. clearing organization acting as a central
counterparty report on Form 1042-S sales of PTP interests that it clears and settles on a
net basis.
(4) Exception when withholding already satisfied. A broker that receives from
another broker an amount realized from the transfer of a PTP interest is required to
withhold under this section unless the other broker has withheld the full amount
required. A broker that receives from another broker an amount realized from the
transfer of a PTP interest may treat the withholding as having been satisfied on the full
amount required unless it knows or has reason to know that the withholding obligation
has not already been satisfied. A broker that is a qualified intermediary determines its

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withholding requirement for purposes of this paragraph (a)(4) in accordance with its
qualified intermediary agreement.
(5) Documentation obtained from another person to determine a broker’s status.
A U.S. clearing organization may act as an agent for a broker receiving an amount
realized from another broker that is a member of the clearing organization for purposes
of furnishing valid documentation described in paragraph (a)(2) of this section of the
first-mentioned broker’s status to such other broker, provided the clearing organization
notifies the first-mentioned broker and such broker has the ability to opt out. A broker
that obtains documentation from a clearing organization under this paragraph (a)(5) for
a broker to which the first-mentioned broker is paying an amount realized may rely on
such documentation unless it has actual knowledge that the documentation is incorrect
or unreliable.
(6) Date of withholding with respect to a transfer other than a distribution. For a
transfer of a PTP interest that is not a distribution, a broker is required to apply the
principles of §31.3406(a)-4(b)(1) of this chapter to determine the date on which to
withhold under this section.
(7) Payments to qualified intermediaries not assuming primary withholding
responsibility. With respect to the transfer of a PTP interest, if a broker pays the
amount realized to a foreign person that the broker may treat as a qualified intermediary
(as defined in §1.1441-1(e)(5)(ii)) that does not assume primary withholding
responsibility for the payment based on a valid qualified intermediary withholding
certificate described in §1.1441-1(e)(3)(ii) upon which the broker may rely under
paragraph (a)(2) of this section, the broker may withhold as provided in this paragraph

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(a)(7). Under this paragraph (a)(7), a broker may withhold under this section by
reference to the amount of the payment that the broker can reliably determine, based on
the withholding statement provided with the withholding certificate, is allocable to—
(i) Foreign transferors included in a chapter 3 withholding rate pool (as described
in §1.1441-1(e)(5)(v)(C)) that are subject to a 10 percent rate of withholding on the
payment of the amount realized;
(ii) Foreign transferors included in a chapter 3 withholding rate pool (as described
in §1.1441-1(e)(5)(v)(C)) that qualify for an exception from withholding on the payment
of the amount realized under paragraph (b) of this section;
(iii) Each foreign transferor for which a form acceptable under §1.1446-1 is
provided; or
(iv) U.S. transferors, based on a valid Form W-9 provided for each such
transferor to the extent that the transferor is not included in a chapter 4 withholding rate
pool of U.S. payees (as described in §1.1441-1(e)(5)(v)(C), to the extent permitted for
chapter 4 purposes).
(8) Qualified intermediary or U.S. branch withholding requirement. A broker that
is a qualified intermediary (as defined in §1.1441-1(e)(5)(ii)) or U.S. branch must
assume primary withholding responsibility under this section for a distribution from a
publicly traded partnership for which the qualified intermediary or U.S. branch acts as a
nominee for purposes of section 1446(a). See §1.1446-4(b)(3).
(b) Exceptions to withholding--(1) In general. A broker is not required to withhold
under this section if it properly relies on a certification described in paragraph (b)(2),
(b)(5), or (b)(6) of this section, a qualified notice described in paragraph (b)(3) of this

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section, or if the exception described in paragraph (b)(4) 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 nonforeign status that it obtains from the transferor. A certification of non-foreign 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 non-foreign 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. In a case in which a broker properly relies on a qualified notice
under paragraph (b)(1) of this section that results in underwithholding on a transfer of a
PTP interest, the publicly traded partnership that issued the notice is solely liable for the
underwithheld tax under section 1461. A publicly traded partnership’s liability
referenced in the preceding sentence, however, applies only when the publicly traded
partnership fails to make a reasonable estimate of the amounts required for determining

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the applicability of the 10-percent exception.
(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-(1) If 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-(i) 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
(ii) No gain would have been effectively connected with the conduct of a trade or
business in the United States; or
(2) The partnership was not engaged in a trade or business within the United
States at any time during the taxable year of the partnership through the PTP
designated date.
(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
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 paragraphs
(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.

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(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. For a transfer that is a distribution by
the publicly traded partnership, the qualified notice is described in paragraph (b)(3)(iii) of
this section only if the qualified notice is posted with respect to the distribution.
(C) Recent posting of qualified notice. If the most recent qualified notice posted
by the publicly traded partnership was posted during the 10-day 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) 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.
(5) 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)(5) are met. The transferor makes the certification on
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-8BENE, 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

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purposes of this paragraph (b)(5), a broker may rely on a withholding certificate that it
already possesses from the transferor that meets the requirements of this paragraph
(b)(5) 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.
(6) Foreign dealers that provide Form W-8ECI. A broker may rely on a
certification provided by a transferor that certifies that it is a dealer in securities (as
defined in section 475(c)(1)) and that any gain from the transfer of the PTP interest is
effectively connected with the conduct of a trade or business within the United States
without regard to the provisions of section 864(c)(8). The certification described in the
preceding sentence is made on a Form W-8ECI, Certificate of Foreign Person’s Claim
That Income Is Effectively Connected With the Conduct of a Trade or Business in the
United States, 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 any other information required in the instructions to the form. A broker may
rely on a withholding certificate that it already possesses from the transferor that meets
the requirements of this paragraph (b)(6) unless it has actual knowledge that the
information is incorrect or unreliable.
(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

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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 determined under paragraph (c)(2)(iii) of this section.
(ii) Certification by a foreign partnership of modified amount realized--(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 treat the modified amount realized as the amount realized to the extent it may rely
on a certification from the transferor providing the modified 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
(if any) arising from the transfer that would be allocated to presumed foreign taxable
persons. For this purpose, a presumed foreign taxable person is any direct or indirect
partner of the transferor that has not provided either a certification of non-foreign status
that meets the requirements of paragraph (b)(2) of this section or a certification of treaty
benefits that states that the partner 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. A valid certification of treaty benefits must meet the requirements of paragraph
(b)(5) of this section (as applied to the partner claiming treaty benefits). For purposes of

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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) that includes 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,
a foreign partner eligible for treaty benefits, or a presumed foreign taxable person. The
certification must also include the certification of non-foreign status or the certification of
treaty benefits from each direct or indirect partner that is not a presumed foreign taxable
person. 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.
(iii) Determination of amount realized on a distribution. The amount realized on a
distribution from a publicly traded partnership is the amount of the distribution reduced
by the portion of the distribution that is attributable to the cumulative net income of the
partnership. The cumulative net income is the net income earned by the publicly traded
partnership since its formation that has not been previously distributed by the
partnership. A publicly traded partnership identifies such excess portion of the
distribution as an amount in excess of cumulative net income on a qualified notice
(within the meaning of §1.1446-4(b)(4)) posted with respect to the distribution. If a
broker properly withholds based on the qualified notice (applying the rules of §1.14464(d)(1) to the distribution), the broker is not liable for any underwithholding on any

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amount attributable to an amount in excess of cumulative net income. Rather, the
publicly traded partnership that issued the qualified notice is solely liable for the
underwithheld tax under section 1461 on such amount that results from a broker’s
reliance on the notice.
(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 reportable on a Form 1042-S (including in certain cases in which
withholding is not required), see §1.1461-1(c)(2)(i)(Q) and (R). 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 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.

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Further, the withholding of tax by a broker does not relieve a nonresident alien individual
or foreign corporation subject to tax on gain by reason of 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 (or as otherwise provided in IRS forms or instructions).
(ii) Partnerships, trusts, or estates. 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). For the rule providing
the extent to which a foreign trust or estate may claim a credit for an amount withheld
under this section, see §1.1462-1. A foreign partnership, trust, or estate claiming a
credit for an amount withheld must attach to its applicable return the Form 1042-S
provided to it under paragraph (d) of this section (or as otherwise provided in IRS forms
or instructions). A foreign trust or estate must also provide any information required in
forms or instructions to any beneficiary or owner that is liable for tax on any of the gain
under section 864(c)(8).
(f) Applicability date. This section applies to transfers that occur on or after
January 1, 2022.
§1.1446(f)-5 Liability for failure to withhold.
(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,
plus any applicable interest, penalties, or additions to tax. A partnership that failed to

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withhold and pay tax under §1.1446(f)-3 is liable only 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) Tax liability otherwise satisfied. Under section 1463, if the tax required to be
withheld under section 1446(f) is paid by another person required to withhold under
section 1446(f), or by the nonresident alien individual or foreign corporation subject to
tax on gain resulting from section 864(c)(8), the tax will not be recollected. The person
required to withhold must establish proof of payment by another person required to
withhold or by the nonresident alien individual or foreign corporation subject to the tax
on gain resulting from section 864(c)(8). The person required to withhold may show
that a reduced rate of withholding was appropriate by establishing the amount of tax
due by the foreign transferor (as defined in §1.864(c)(8)-1(g)(3)) on gain resulting from
section 864(c)(8). The person required to withhold under section 1446(f) is not relieved
from liability for any interest, penalties, or additions to tax that would otherwise apply.
However, if the person required to withhold establishes to the satisfaction of the
Commissioner that no gain on the transfer is treated as effectively connected with the
conduct of U.S. trade or business under section 864(c)(8), no interest, penalties, or
additions to tax will apply.
(c) 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 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)-

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4 that the agent knows is false. A person required to withhold may not rely on a
certification if it receives the notice described in this paragraph (c)(1).
(2) Procedural requirements. Any agent who is required to provide notice under
paragraph (c)(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(c)(2).
(3) Failure to provide notice. Any agent who is required to provide notice under
paragraph (c)(1) of this section, but fails to do so in the manner required in paragraph
(c)(2) of this section, is liable for the tax that the person who should have been provided
notice in accordance with paragraph (c)(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 (c)(3) of this
section is limited to the amount of compensation that the agent derives from the

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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.
(d) Applicability date. This section applies to transfers that occur on or after
[INSERT DATE 60 DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER].
Par. 12. Section 1.1461-1 is amended:
1. By revising the fourth and fifth sentences of paragraph (a)(1) and removing
the sixth sentence.
2. By revising the second sentence and removing the third sentence of
paragraph (c)(1)(i).
3. By revising paragraph (c)(1)(ii)(A)(8).
4. By adding paragraph (c)(1)(ii)(B)(5).
5. In paragraph (c)(2)(i) introductory text, by revising the first sentence and
removing the second sentence.
6. In paragraph (c)(2)(i)(N), by removing the word “and” that follows the semicolon.
7. In paragraph (c)(2)(i)(O), by removing the period at the end of the paragraph
and adding “;” in its place.
8. By adding paragraphs (c)(2)(i)(P), (Q), and (R).
9. By adding a sentence at the end of paragraph (c)(4)(ii)(A).
10. Revising paragraph (i).
The revisions and additions read as follows:
§1.1461-1 Payment and returns of tax withheld.

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(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 and publicly traded partnerships that withhold (or are
otherwise liable for underwithholding) under §1.1446(f)-4 on transfers of publicly traded
partnership interests. See §1.1461-3 regarding withholding tax liabilities under section
1446(a) and section 1446(f) and penalties that apply for failure to withhold under either
of those sections.
*****
(c) * * *
(1) * * *
(i) 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 a trade or
business and whether or not the payment is an amount subject to reporting. * * *
*****
(ii) * * *
(A) * * *
(8) A partner (including a foreign partnership or a partner for which a qualified
intermediary provides partner-specific documentation under §1.1446-4(e)) receiving a
distribution from a publicly traded partnership subject to withholding under section

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1446(a) and §1.1446-4 on distributions of effectively connected income, and a partner
(including a foreign partnership or a partner for which a qualified intermediary provides
partner-specific documentation under §1.1446(f)-4(a)(7)) receiving an amount realized
from a transfer of a publicly traded partnership interest under section 1446(f)(1) and
§1.1446(f)-4.
*****
(B) * * *
(5) A foreign broker withheld upon under §1.1446(f)-4(a)(2)(ii) 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), distributions of effectively connected income
under §1.1446-4, or amounts realized from transfers of PTP interests under §1.1446(f)4.
*****
(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 or a U.S. branch of a foreign person that agrees to be treated as a U.S.
person;
(Q) Except with respect to a broker that is a U.S. clearing organization, an

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amount realized on the transfer of a PTP interest under §1.1446(f)-4 (unless an
exception to withholding applies under §1.1446(f)-4(b)(2) through (4)); and
(R) In the case of a broker that is a U.S. clearing organization-(1) An amount realized (as determined under §1.1446(f)-4(c)(2)(iii)) on a
distribution made by a publicly traded partnership for which withholding is required
under §1.1446(f)-4(a); and
(2) An amount realized on the sale of a PTP interest cleared and settled through
a net settlement system maintained by the clearing organization acting as a central
counterparty in the sale (with the reporting on the non-netted amount), unless an
exception to withholding would apply under §1.1446(f)-4(b)(2) or (3).
*****
(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. This section applies to payments made on or after January
1, 2022. For payments made before January 1, 2022, see this section as in effect and
contained in 26 CFR part 1, as revised April 1, 2020.
Par. 13. Section 1.1461-2 is amended by:
1. Revising paragraph (a)(1).

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2. Revising the first sentence and removing the last sentence of paragraph (b).
3. Revising paragraph (d).
The revisions 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 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.
*****
(b) Withholding of additional tax when underwithholding occurs. 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 an interest in a publicly traded partnership 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.
*****

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(d) Effective/applicability date. This section applies to payments made on or after
January 1, 2022. For payments made before January 1, 2022, see this section as in
effect and contained in 26 CFR part 1, as revised April 1, 2020.
Par. 14. Section 1.1461-3 is amended by revising the first sentence and last
sentence to read as follows:
§1.1461-3 Withholding under section 1446.
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 respect to returns for transfers that occur on or after [INSERT DATE 60
DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER].
Par. 15. Section 1.1463-1 is amended by revising the fourth and fifth sentences
of paragraph (a) to read as follows:
§1.1463-1 Tax paid by recipient of income.
(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

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§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 [INSERT DATE 60 DAYS AFTER PUBLICATION IN
THE FEDERAL REGISTER].
*****
Par. 16. 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(a), this section applies only to a
publicly traded partnership or nominee described in §1.1446-4 and, with respect to
section 1446(f), only to a publicly traded partnership or broker described in §1.1446(f)4.
*****
(c) Applicability date. The last sentence of paragraph (a) applies to nominees
and publicly traded partnerships described in §1.1446-4 for partnership taxable years
beginning after April 29, 2008, and to brokers required to withhold and publicly traded
partnerships liable for underwithholding under §1.1446(f)-4 on transfers that occur on or
after January 1, 2022.
Par. 17. Section 1.6050K-1 is amended by:
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 newly-redesignated paragraph (c)(1).
3. Adding paragraphs (c)(2) and (3), (d)(3), and (h).

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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 [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER].
Paragraph (d)(3) of this section applies to transfers that occur on or after [INSERT
DATE OF PUBLICATION IN THE FEDERAL REGISTER].
Par. 18. Section 1.6302-2 is amended by:
1. Revising the last sentence of paragraph (a)(1)(i).
2. Revising the paragraph heading and second sentence of paragraph (g).
The revisions read as follows:

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§1.6302-2 Deposit rules for tax withheld on nonresident aliens and foreign corporations.
(a) Time for making deposits—(1) Deposits—(i) Monthly deposits. * * * With
respect to section 1446(a), this section applies only to a publicly traded partnership or
nominee described in §1.1446-4 and, with respect to section 1446(f), only to a publicly
traded partnership or broker described in §1.1446(f)-4.
*****
(g) Applicability dates. * * * In the last sentence of paragraph (a)(1)(i) of this
section, the reference to §1.1446-4 shall apply to partnership taxable years beginning
after April 29, 2008, and the reference to §1.1446(f)-4 shall apply to tax required to be
withheld on or after January 1, 2022. * * *
Sunita Lough,
Deputy Commissioner for Services and Enforcement.

Approved:

David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).

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