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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
Internal Revenue Service (IRS),
Treasury.
ACTION: Final rule.
AGENCY:

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 November 30, 2020.
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:
SUMMARY:

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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

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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 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
(REG–113604–18) 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. On
November 6, 2020, the Treasury
Department and the IRS published final
regulations (TD 9919) under section
864(c)(8) in the Federal Register (85 FR
70958) (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 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

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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 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).
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 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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While the final section 864(c)(8)
regulations generally require a threeyear 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). The 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).
The 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

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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.
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 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

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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 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

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rules that apply to a transfer of a PTP
interest, see section VI of this Summary
of Comments and Explanations of
Revisions.

applied to transfers of PTP interests.
The final regulations do not adopt this
recommendation for the reasons
described in the preceding paragraph.

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.

2. No Realized Gain Exception

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 NonForeign Status Exception provided in
proposed § 1.1446(f)–4(b)(2) as it

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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 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
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

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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 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
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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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 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

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§ 1.1446(f)–2(b)(4)(i)(A) and (B) into a
single rule; this simplification is
intended to be non-substantive.
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 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 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

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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-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)–

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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 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

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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 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 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

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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
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 W–8BEN 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

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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

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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 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.

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).

ii. Withholding Foreign Partnerships
and Withholding Foreign Trusts

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
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.

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 trusts that enter into

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

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76915

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 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

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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 § 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 FlowThrough 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).
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).

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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 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

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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, 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.

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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
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
1.1446(f)–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 1.1446(f)–5. The
final regulations, therefore, adopt the
relevant definitions provided in the
proposed regulations with respect to
QFPFs.

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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 regulations do not
adopt this recommendation. Valuation
issues are not unique to the application
of these final regulations; therefore,

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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 nonPTP 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 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

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76917

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 W–8IMY. 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
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

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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)–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 section 1446(f), and thus the

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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.
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

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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 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

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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 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 10percent 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 false qualified

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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 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

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76919

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 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

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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 information
about persons for whom it holds
interests in the partnership, including
information on transfers of partnership
interests).

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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 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

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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 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.

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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 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

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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 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

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the term broker includes a clearing
organization that effects 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 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

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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),
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

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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.
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.
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

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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 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).

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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 nonforeign 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 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 § 1.1441–1(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

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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.
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-byaccount 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 systemrelated 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 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

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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-bypayment 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 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

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76923

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). 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 § 1.1441–
1(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

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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 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 10percent 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).
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

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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
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

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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 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

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that requirement by incorporating a
standard generally similar to that in
§ 1.1441–1(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 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.

TKELLEY on DSKBCP9HB2PROD with RULES4

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.
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

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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 nonU.S. persons that provide a Form W–
8ECI and specify on the form that the
gain from the sale, exchange, or other
disposition of the PTP interest is
effectively connected with the conduct
of a trade or business within the United
States 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
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

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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 92day 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 10-percent
exception.
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

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determining the applicability of the 10percent exception. See § 1.1446(f)–
4(b)(3)(i); see also section V.B of this
Summary of Comments and Explanation
of Revisions.

TKELLEY on DSKBCP9HB2PROD with RULES4

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
§ 1.6045–1(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.
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

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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 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 § 1.1446–4(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

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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 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.

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Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Rules and Regulations
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 built-in 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
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

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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)
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 1.1461–1(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

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76927

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) 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 purposes
of section 1446(f), and to a nominee or
publicly traded partnership for purposes
of section 1446(a).

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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.

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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 § 1.1446–4(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
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

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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 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

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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 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 agreement,
these final regulations allow a publicly
traded partnership or nominee paying a

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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.
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), 1.1461–1(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

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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).
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
November 30, 2020, §§ 1.864(c)(8)–2(b)
and (c) and 1.6050K–1(c)(2) and (3)
apply to returns filed on or after
November 30, 2020, and § 1.864(c)(8)–
2(d) applies beginning on November 30,
2020. See §§ 1.864(c)(8)–2(e) and
1.6050K–1(h). Sections 1.1445–
2(b)(2)(v) and 1.1445–5(b)(3)(iv) apply
to the use of Forms W–9 for
certifications of non-foreign 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 November
30, 2020. The conforming changes in
§§ 1.1446–3 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 November 30,
2020. 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

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76929

before that date as of the relevant
effective dates of the Act and the
Surface Transportation Act.
The remaining provisions in these
final regulations are generally
applicable to transfers that occur on or
after January 29, 2021, 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), other
than section 11, is obsolete as of January
29, 2021. Section 11 of Notice 2018–29
is obsolete as of January 1, 2022.
Accordingly, the withholding
requirements for transfers of PTP
interests and withholding under section
1446(f)(4) remain suspended for
transfers occurring before January 1,
2022.
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 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

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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 trade
or business within the United States
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 PRA submission for Form
W–8ECI is provided in the Current
Status of PRA Submissions table.

CURRENT STATUS OF PRA SUBMISSIONS
Type of filer
Form W–8ECI ..........................................

OMB No(s).

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

1545–0123

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

https://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=1545-0123#.
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.

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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) and (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
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

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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, have foreign
persons as partners, and (v) brokers that
effect transfers of interests in publicly
traded partnerships.

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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

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Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Rules and Regulations
annually for inflation. This rule does
not 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
For the reasons set out in the
preamble, 26 CFR part 1 is amended as
follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by:
■ 1. Adding a sectional authority for
§ 1.864(c)(8)–2 in numerical order.
■ 2. Revising the sectional authorities
for §§ 1.1445–5 and 1.1445–8.
■ 3. Adding sectional authorities for
§§ 1.1446–3, 1.1446–4, and 1.1446(f)–1
through 1.1446(f)–5 in numerical order.
■ 4. Revising the sectional authority for
§ 1.6050K–1.
The additions and revisions read in
part as follows:
■

TKELLEY on DSKBCP9HB2PROD with RULES4

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).

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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).

*

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

■

§ 1.864(c)(8)–2
requirements.

Notification and reporting

(a) Notification by foreign transferor—
(1) In general. Except as provided in
paragraph (a)(2) of this section, a
notifying transferor that transfers an
interest in a specified partnership must
notify the partnership of the transfer in
writing within 30 days 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 (see §§ 601.601(d)(2) and
601.602 of this chapter).

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76931

(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
(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 K–1 (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

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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.
(2) Specified partnership. The term
specified partnership means a
partnership that is engaged in a trade or

§ 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) * * * Paragraph (b)(2)(v) of this
section applies to certifications
provided on or after May 7, 2019, except
that a taxpayer may choose to apply
paragraph (b)(2)(v) of this section with
respect to certifications provided before
May 7, 2019.
■ 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:

Paragraph

Remove

Add

(c)(1)(ii) first sentence ..........

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

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

The fiduciary must withhold 35 percent (or the highest
rate specified in section 1445(e)(1)).

(c)(1)(iv) ................................

The trustee or equivalent fiduciary of a trust that is subject to the provisions of subpart E of part 1 of subchapter J (sections 671 through 679) must withhold a
tax equal to 35 percent (or the highest rate specified
in section 1445(e)(1)).
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
1445(e)(2)).

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 fiduciary of a trust that is subject to the provisions of subpart E of part 1 of subchapter J (sections 671 through 679) must withhold a
tax equal to the rate specified in section 1445(e)(1)
multiplied by the amount.
A partnership or trust electing to withhold under this
paragraph (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) multiplied by.

(c)(3)(ii) .................................

(d)(1) first sentence ..............

3. Adding a sentence to the end of
paragraph (c)(1)(iii)(B) introductory text.
■ 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.

*

TKELLEY on DSKBCP9HB2PROD with RULES4

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 November 30, 2020.
Paragraphs (b) and (c) of this section
apply to returns filed on or after
November 30, 2020. Paragraph (d) of
this section applies beginning on
November 30, 2020.
■ 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:

*
*
*
*
(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) * * *

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(1) * * *
(iii) * * *
(B) * * * In 1994, the relevant rate of
withholding (that is, the rate specified
in section 1445(e)(1)) was 35%.
*
*
*
*
*
(h) * * * 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
May 7, 2019. Paragraphs (c) and (d) of
this section apply to distributions on or
after November 30, 2020.
Par. 5. Section 1.1445–8 is amended
by revising paragraphs (c)(2)(i) and (f)
and adding paragraph (j) to read as
follows:

■

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§ 1.1445–8 Special rules regarding publicly
traded partnerships, publicly traded trusts
and real estate investment trusts (REITs).

*

*
*
*
*
(c) * * *
(2) * * *
(i) In general. 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

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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 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 November 30,
2020. 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 an entry for § 1.1446–
3(c)(4).
■ 2. Revising the entry § 1.1446–4(d).
■ 3. Adding entries for § 1.1446–4(d)(1)
and (2).
■ 4. Revising the entry § 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 over the 1446 tax.

*

*
*
*
*
(c) * * *
(4) Coordination with section 1446(f).
*
*
*
*
*
§ 1.1446–4

Publicly traded partnerships.

*

*

*

*

*

§ 1.1446–7

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 designated 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:
■

Remove

(d)(2)(vi)(A) tenth, twelth, and thirteenth sentences.
(d)(2)(vi)(B) first sentence ..................................

$35 ...................................................................

$37.

Example 1 ........................................................

(d)(2)(vi)(C) first sentence ..................................

Example 1 ........................................................

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

$35 ...................................................................

paragraph
(Example
paragraph
(Example
$37.

5. In newly designated paragraph
(d)(2)(vi)(A), by revising the eighth
sentence.
■ 6. In newly designated paragraph
(d)(2)(vi)(B), by revising the third and
fourth sentences.
■ 7. In newly designated paragraph
(d)(2)(vi)(C), by revising the sixth
sentence.

Add

8. In paragraph (e)(4), by designating
Examples 1 through 3 as paragraphs
(e)(4)(i) through (iii), respectively.
■ 9. In newly designated paragraphs
(e)(4)(i) through (iii), by further
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) ....

Applicability dates.

■

Paragraph

■

TKELLEY on DSKBCP9HB2PROD with RULES4

*

(d) Rules for nominees required to
withhold tax under section 1446.
(1) In general.
(2) Exception to nominee’s
withholding.
*
*
*
*
*

(e)(4)(i)(A) through (H)

(d)(2)(vi)(A)
1).
(d)(2)(vi)(A)
1).

Old paragraphs

of

this

section

of

this

section

New paragraphs

(e)(4)(ii)(i) through (v) .....
(e)(4)(iii)(i) through (v) ....

(e)(4)(ii)(A) through (E)
(e)(4)(iii)(A) through (E)

10. 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

Remove

Add

(e)(4)(i)(B) second sentence ..............................
(e)(4)(i)(B) fifth sentence ....................................
(e)(4)(i)(E) third sentence ...................................
(e)(4)(i)(F) first sentence ....................................
(e)(4)(i)(G) second sentence ..............................
(e)(4)(ii) introductory text ....................................

$8.75 (.25 × ($100 × .35)) ...............................
$35 ...................................................................
$8.75 ................................................................
$35 ...................................................................
$35 ...................................................................
Example 1 ........................................................

(e)(4)(iii) introductory text ...................................

Example 2 ........................................................

(e)(4)(iii) introductory text ...................................
(e)(4)(iii)(A) .........................................................
(e)(4)(iii)(B) first sentence ...................................

April ..................................................................
April ..................................................................
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 ..................................................................
April ..................................................................
April ..................................................................
$35 ...................................................................

$9.25 (.25 × ($100 × .37))
$37
$9.25
$37
$37
paragraph (e)(4)(i)(A) of this section (Example
1)
paragraph (e)(4)(ii) introductory text of this
section (Example 2)
March
March
paragraphs (e)(4)(i) and (ii) of this section
(Examples 1 and 2), respectively
March
March
March
$37

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■

Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Rules and Regulations

11. By removing paragraph (g).
The addition reads as follows:

§ 1.1446–3 Time and manner of calculating
and paying over 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.
(d) * * *
(2) * * *
(vi) * * *
(A) * * * 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). * * *
(B) * * * 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
1446 tax PRS paid ($37 less $14.8 or
$60/$100 multiplied by $37).
(C) * * * 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).
*
*
*
*
*
■ 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 paragraphs (d) and (e).
■ 4. Adding a sentence after the fourth
sentence and revising the last five
sentences of paragraph (f)(1).
■ 5. Revising paragraph (f)(3).
The revisions and addition read as
follows:
§ 1.1446–4

Publicly traded partnerships.

TKELLEY on DSKBCP9HB2PROD with RULES4

*

*
*
*
*
(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 § 1.1441–1(b)(2)(iv)) with
respect to the distribution. For purposes

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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 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) 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

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(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 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
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 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 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

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Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Rules and Regulations
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.
(f) * * *
(1) * * * LTP makes a distribution
subject to section 1446 of $100 to UTP
during its taxable year beginning
January 1, 2020, 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.
*
*
*
*
*

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(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);
(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 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
paragraph 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 § 1.1446–3(c)(4) applies
to transfers of partnership interests that
occur on or after January 29, 2021,
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–

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76935

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
November 30, 2020. For partnership
taxable years beginning before
November 30, 2020, see those sections
as in effect and contained in 26 CFR
part 1, revised as of April 1, 2020.
Section 1.1446–4(b)(3) and (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) and (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. This section and
§§ 1.1446(f)–2 through 1.1446(f)–5
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 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 this section and
§§ 1.1446(f)–2 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

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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 (see paragraph
(c)(4) of this section).
(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)).
(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
more of the activities described in

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§ 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
this section and §§ 1.1446(f)–2 through
1.1446(f)–5.
(2) Certifications—(i) In general. This
paragraph (c)(2) provides rules that are
applicable to certifications described in
this section and §§ 1.1446(f)–2 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 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.

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(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 this
section and §§ 1.1446(f)–2 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 (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).
(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 W–
8IMY, 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 this section and
§§ 1.1446(f)–2 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 this section
and §§ 1.1446(f)–2 through 1.1446(f)–5

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supporting an exception from, or
adjustment to, the partnership’s
obligation to withhold. The
identification required by this paragraph
(c)(3) must be made no later than 30
days after the date of the transfer. The
partnership must retain the identified
information in its books and records for
the longer of five calendar years
following the close of the last calendar
year in which it relied on the
information or for as long as it may be
relevant to the determination of its
withholding obligation under section
1446(f) or its withholding tax liability
under section 1461.
(4) Determination date—(i) In general.
This paragraph (c)(4) provides rules for
the determination date. The same
determination date must be used for all
purposes with respect to a transfer. Any
statement, certification, or books and
records with regard to a transfer must
state the determination date. The
determination date of a transfer must be
one of the following—
(A) The date of the transfer;
(B) Any date that is no more than 60
days before the date of the transfer; or
(C) The date that is the later of—
(1) The first day of the partnership’s
taxable year in which the transfer
occurs, as determined under section
706; or
(2) The date, before the date of the
transfer, of the most recent event
described in § 1.704–1(b)(2)(iv)(f)(5) or
(b)(2)(iv)(s)(1) (revaluation event),
irrespective of whether the capital
accounts of the partners are adjusted in
accordance with § 1.704–1(b)(2)(iv)(f).
(ii) Controlling partner. The
determination date for a transferor that
is a controlling partner is determined
without regard to paragraph (c)(4)(i)(C)
of this section.
(5) IRS forms and instructions. Any
reference to an IRS form includes its
successor form. Any form must be filed
in the manner 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 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

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1445(e)(5) or 1446(f)(1). A transferee
that has complied with the withholding
requirements under either section
1445(e)(5) or 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
January 29, 2021.
§ 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 a foreign person, states
the transferor’s name, TIN, and address,
and is signed under penalties of perjury.
For purposes of this paragraph (b)(2), 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 the requirements of this
paragraph (b)(2).
(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

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76937

determination date (see § 1.1446(f)–
1(c)(4)). 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.
(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.

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(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) 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
(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

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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).
(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

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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
under § 1.1446–1(c)(2)(iv) (or an
applicable substitute form that meets
the requirements under § 1.1446–1(c)(5))
and that contains the information
necessary to support the claim for treaty
benefits. A transferee may rely on a
certification of treaty benefits only if,
within 30 days after the date of the
transfer, the transferee mails a copy of
the certification to the Internal Revenue
Service, at the address provided in
§ 1.1445–1(g)(10), together with a cover
letter providing the name, TIN, and
address of the transferee and the
partnership in which an interest was
transferred.
(ii) Treaty claim for less than all of the
gain. Paragraph (b)(7)(i) of this section
does not apply if treaty benefits apply
to only a portion of the gain from the
transfer. However, see paragraph
(c)(4)(vi) of this section for rules
applicable to situations in which treaty
benefits apply to only a portion of the
gain.
(iii) Exclusive means to claim an
exception from withholding based on
treaty benefits. A transferor claiming
treaty benefits with respect to all of the
gain from the transfer must use the
exception in this paragraph (b)(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
distribution may not rely on its books
and records if it knows, or has reason
to know, that the information is
incorrect or unreliable.

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

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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 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 purposes of this
paragraph (c)(2)(iv)(A), 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 purposes of this
paragraph (c)(2)(iv)(B), 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

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76939

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)(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 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

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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 (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;
(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—

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(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 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). 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

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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 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

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Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Rules and Regulations
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
January 29, 2021.

TKELLEY on DSKBCP9HB2PROD with RULES4

§ 1.1446(f)–3 Partnership’s requirement to
withhold under section 1446(f)(4) on
distributions to transferee.

(a) Partnership’s obligation to
withhold amounts not withheld by the
transferee—(1) In general. If a transferee
fails to withhold any amount required to
be withheld under § 1.1446(f)–2, the
partnership in which the interest was
transferred must withhold from any
distributions 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 nonforeign 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

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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).
(3) Subsequent transferees. A
partnership is not required to withhold
under paragraph (a)(1) or (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 § 1.1446(f)–2(d)(2)) 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—
(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

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76941

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 § 1.1446(f)–
2(d)(2)) 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
purposes of this paragraph (c)(2)(ii),
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 § 1.1446(f)–2(d)(2). 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.

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TKELLEY on DSKBCP9HB2PROD with RULES4

(d) Reporting and paying withheld
amounts. The partnership must report
and pay the tax withheld using Forms
8288, U.S. Withholding Tax Return for
Dispositions by Foreign Persons of U.S.
Real Property Interests, and 8288–C,
Statement of Withholding Under
Section 1446(f)(4) for Withholding on
Dispositions by Foreign Persons of
Partnership Interests, as provided in
forms, instructions, or other guidance.
(e) Effect of withholding on transferor
and transferee—(1) Transferor. The
withholding of tax by a partnership
under this section does not relieve a
foreign person from filing a U.S. income
tax return with respect to the transfer.
See §§ 1.6012–1(b)(1), 1.6012–2(g)(1),
and 1.6031(a)–1. Further, the
withholding of tax by a partnership does
not relieve a nonresident alien
individual or foreign corporation subject
to tax 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

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§ 1.1446(f)–2. Rather, any broker
required to withhold under paragraph
(a)(2) of this section must withhold a tax
equal to 10 percent of the amount
realized (as defined in paragraph (c)(2)
of this section) on the transfer of a PTP
interest, except as otherwise provided in
this section. For 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 secondmentioned 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.
(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 trade or
business within the United States) that
states that the U.S. branch agrees to be
treated as a U.S. person with respect to
the payment.

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(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 § 1.1461–
1(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 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 firstmentioned 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

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Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Rules and Regulations
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 (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 purposes of
chapter 4 of the Internal Revenue Code).
(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), (5), or (6)
of this section, a qualified notice
described in paragraph (b)(3) of this
section, or if the exception described in
paragraph (b)(4) of this section applies.

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A broker may not rely on a certification
described in this paragraph (b) if it has
actual knowledge that the certification
is incorrect or unreliable.
(2) Certification of non-foreign status.
A broker may rely on a certification of
non-foreign status that it obtains from
the transferor. A certification of nonforeign status under this section means
a Form W–9, Request for Taxpayer
Identification Number and Certification,
or valid substitute form, that meets the
requirements of § 1.1441–1(d)(2). For
purposes of this paragraph (b)(2), 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 the applicability of the 10percent 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

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76943

(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.
(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 10day period ending on the date of the
transfer, a broker may instead rely on
the immediately preceding qualified
notice (within the meaning of § 1.1446–
4(b)(4)) posted by the publicly traded
partnership, provided that it satisfies
the condition described in paragraph
(b)(3)(iii)(B) of this section.
(4) 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

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(Individuals), or Form W–8BEN–E,
Certificate of Status of Beneficial Owner
for United States Tax Withholding and
Reporting (Entities)) that meets the
requirements for validity under
§ 1.1446–1(c)(2)(iv) (or an applicable
substitute form that meets the
requirements under § 1.1446–1(c)(5))
and that contains the information
necessary to support the claim for treaty
benefits. For purposes of this paragraph
(b)(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.
The exception in this paragraph (b)(5)
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 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),

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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 purposes of this
paragraph (c)(2)(ii)(A), 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 (see § 1.1446(f)–
1(c)(4)). 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 purposes of this paragraph
(c)(2)(ii)(B), 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 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

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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 § 1.1446–4(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.
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

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Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Rules and Regulations
directly to the transferor must include
the TIN of the transferor unless the
broker does not know the TIN at the
time of issuance.
(e) Effect of withholding on
transferor—(1) In general. The
withholding of tax under this section
does not relieve a foreign person from
filing a U.S. tax return with respect to
the transfer. See §§ 1.6012–1(b)(1),
1.6012–2(g)(1), and 1.6031(a)–1.
Further, the withholding of tax by a
broker does not relieve a nonresident
alien individual or foreign corporation
subject to tax 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.

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§ 1.1446(f)–5
withhold.

Liability for failure to

(a) Liability for failure to withhold.
Every person required to withhold and
pay tax under section 1446(f), but that
fails to do so, is liable for the tax under
section 1461, plus any applicable
interest, penalties, or additions to tax. A
partnership that failed to 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.

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(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 a trade or business within the United
States 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)–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

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76945

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 this paragraph
(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 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
January 29, 2021.
■ 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 removing the word ‘‘and’’ at the
end of paragraph (c)(1)(ii)(B)(3).
■ 5. By removing the period at the end
of paragraph (c)(1)(ii)(B)(4) and adding
‘‘; and’’ in its place.
■ 6. By adding paragraph (c)(1)(ii)(B)(5).
■ 7. In paragraph (c)(2)(i) introductory
text, by revising the first sentence and
removing the second sentence.
■ 8. In paragraph (c)(2)(i)(N), by
removing the word ‘‘and’’ from the end
of the paragraph.
■ 9. In paragraph (c)(2)(i)(O), by
removing the period at the end of the
paragraph and adding a semicolon in its
place.
■ 10. By adding paragraphs (c)(2)(i)(P),
(Q), and (R).
■ 11. By adding a sentence at the end of
paragraph (c)(4)(ii)(A).
■ 12. Revising paragraph (i).
The revisions and additions read as
follows:
§ 1.1461–1
withheld.

Payment and returns of tax

(a) * * *
(1) * * * With respect to withholding
under section 1446, this section shall

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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 sections 1446(a) and 1446(f) and
penalties that apply for failure to
withhold under either of those sections.
*
*
*
*
*
(c) * * *
(1) * * *
(i) * * * Notwithstanding the
preceding sentence, any person that
withholds or is required to withhold an
amount under section 1441, 1442, or
1443 or § 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 partnerspecific documentation under § 1.1446–
4(e)) receiving a distribution from a
publicly traded partnership subject to
withholding under section 1446(a) and
§ 1.1446–4 on distributions of
effectively connected income, and a
partner (including a foreign partnership
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) * * * 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

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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
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 nonnetted amount), unless an exception to
withholding would apply under
§ 1.1446(f)–4(b)(2) or (3).
*
*
*
*
*
(4) * * *
(ii) * * *
(A) * * * 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).
■ 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

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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. The rules in the preceding
sentence 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) * * * 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. * * *
(d) 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 of the paragraph to read as
follows:
§ 1.1461–3
1446.

Withholding under section

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 January
29, 2021.
■ 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
income.

Tax paid by recipient of

(a) * * * See §§ 1.1446–3(e) and (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

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Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Rules and Regulations
under section 1446. The references in
the previous sentence to § 1.1446–3(e)
and (f) apply to partnership taxable
years beginning after May 18, 2005, or
such earlier time as the regulations
under §§ 1.1446–1 through 1.1446–5
apply by reason of an election under
§ 1.1446–7, and the reference in the
previous sentence to § 1.1446(f)–5(a)
shall apply to the tax required to be
withheld under section 1446(f) for
transfers that occur on or after January
29, 2021.
*
*
*
*
*
■ Par. 16. Section 1.1464–1 is amended
by revising the last sentence of
paragraph (a) and paragraph (c) to read
as follows:
§ 1.1464–1

Refunds or credits.

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(a) * * * 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) of this section
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:

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

applies to transfers that occur on or after
November 30, 2020.
■ Par. 18. Section 1.6302–2 is amended
by:
■ 1. Revising the last sentence of
paragraph (a)(1)(i).
■ 2. Revising the heading and second
sentence of paragraph (g).
The revisions read as follows:

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

§ 1.6302–2 Deposit rules for tax withheld
on nonresident aliens and foreign
corporations.

■

*

*
*
*
*
(c) * * *
(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 November 30,
2020. Paragraph (d)(3) of this section

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(a) * * *
(1) * * *
(i) * * * 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: October 1, 2020.
David J. Kautter,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2020–22619 Filed 11–27–20; 8:45 am]
BILLING CODE 4830–01–P

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