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Federal Register / Vol. 73, No. 83 / Tuesday, April 29, 2008 / Rules and Regulations
officer under the authority of § 41.105(a)
are considered papers submitted with
the alien’s application within the
meaning of INA 221(g)(1).
(3) Signature. The Form DS–160 shall
be signed electronically by clicking the
box designated ‘‘Sign Application’’ in
the certification section of the
application. This electronic signature
attests to the applicant’s familiarity with
and intent to be bound by all statements
in the NIV application under penalty of
perjury. Alternatively, except as
provided in paragraph (a)(2) of this
section, the Form DS–156 shall be
signed by the applicant, with intent to
be bound by all statement in the NIV
application under penalty of perjury.
(4) Registration. The Form DS–160 or
the Form DS–156, when duly executed,
constitutes the alien’s registration for
the purposes of INA 221(b).
6. Section 41.106 is revised to read as
follows:

■

§ 41.106

Processing.

Consular officers must ensure that the
Form DS–160 or, alternatively, Form
DS–156 is properly and promptly
processed in accordance with the
applicable regulations and instructions.
7. Section 41.113 is amended by
revising paragraphs (g) and (h) to read
as follows:

■

§ 41.113

Procedures in issuing visas.

*
*
*
*
(g) Delivery of visa. In issuing a
nonimmigrant visa, the consular officer
should deliver the visaed passport, or
the prescribed Form DS–232, which
bears the visa, to the alien or to the
alien’s authorized representative. Any
evidence furnished by the alien in
accordance with 41.103(b) should be
retained in the consular files, along with
Form DS–156, if received.
(h) Disposition of supporting
documents. Original supporting
documents furnished by the alien
should be returned for presentation, if
necessary, to the immigration
authorities at the port of entry.
Duplicate copies may be retained in the
consular files or scanned into the
consular system.
*
*
*
*
*
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*

Dated: April 22, 2008.
Janice L. Jacobs,
Assistant Secretary for Consular Affairs,
Acting, Department of State.
[FR Doc. E8–9336 Filed 4–28–08; 8:45 am]

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§ 1.501(c)(3)–1

[Amended]

Par. 2. Section 1.501(c)(3)–1 is
amended as follows:
■ 1. In paragraph (d)(1)(iii) Example 2.
(ii), in the second sentence, the language
‘‘As a result, the sole activity of O serves
the private interests of these artists.’’ is
removed and the language ‘‘As a result,
the principal activity of O serves the
private interests of these artists.’’ is
added in its place.
■ 2. In paragraph (f)(2)(iv) Example 2.
(iii), in the sixth sentence, the language
‘‘Beginning in Year 4, however, as O’s
exempt function activities grow, the size
and scope of the excess benefit
transactions that occurred in Year 3
become less and less significant as
compared to the size and extent of O’s
regular and ongoing exempt function
activities.’’ is removed and the language
‘‘Beginning in Year 4, however, as O’s
exempt function activities grow, the size
and scope of the excess benefit
transactions that occurred in Year 3
become less and less significant as
compared to the size and scope of O’s
regular and ongoing exempt function
activities.’’ is added in its place.
■ 3. In paragraph (f)(2)(iv) Example 4.
(iii), in the fourth sentence, the language
‘‘By adopting a conflicts of interest
policy and significant new contract
review procedures and by terminating
C, O has implemented safeguards that
are reasonably calculated to prevent
future violations.’’ is removed and the
language ‘‘By adopting a conflicts of
interest policy and new contract review
procedures and by terminating C, O has
implemented safeguards that are
reasonably calculated to prevent future
violations.’’ is added in its place.
*
*
*
*
*
■

Internal Revenue Service
26 CFR Part 1
[TD 9390]
RIN 1545–BE37

Standards for Recognition of TaxExempt Status if Private Benefit Exists
or if an Applicable Tax-Exempt
Organization Has Engaged in Excess
Benefit Transaction(s); Correction
Internal Revenue Service (IRS),
Treasury.
ACTION: Correcting amendment.
AGENCY:

SUMMARY: This document contains
corrections to final regulations (TD
9390) that were published in the
Federal Register on Friday, March 28,
2008 (73 FR 16519) clarifying the
substantive requirements for tax
exemption under section 501(c)(3) of the
Internal Revenue Code. These final
regulations also contain provisions that
clarify the relationship between the
substantive requirements for tax
exemption under section 501(c)(3) and
the imposition of section 4958 excise
taxes on excess benefit transactions.
DATES: This correction is effective April
29, 2008 and is applicable on March 28,
2008.
FOR FURTHER INFORMATION CONTACT:
Galina Kolomietz, (202) 622–7971 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:

Background
The final regulations that are the
subject of this document are under
sections 501(c)(3) and 4958 of the
Internal Revenue Code.
Need for Correction
As published, final regulations (TD
9390) contain errors that may prove to
be misleading and are in need of
clarification.

LaNita Van Dyke,
Chief, Publications and Regulations Branch,
Legal Processing Division, Associate Chief
Counsel (Procedure and Administration).
[FR Doc. E8–9362 Filed 4–28–08; 8:45 am]
BILLING CODE 4830–01–P

List of Subjects in 26 CFR Part 1

DEPARTMENT OF THE TREASURY

Income taxes, Reporting and
recordkeeping requirements.

Internal Revenue Service
26 CFR Parts 1, 301, and 602

Correction of Publication
Accordingly, 26 CFR part 1 is
corrected by making the following
correcting amendments:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *

BILLING CODE 4710–06–P

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DEPARTMENT OF THE TREASURY

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[TD 9394]
RIN 1545–BD80

Special Rules To Reduce Section 1446
Withholding
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
AGENCY:

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SUMMARY: This document contains final
regulations regarding when a
partnership may consider certain
deductions and losses of a foreign
partner to reduce or eliminate the
partnership’s obligation to pay
withholding tax under section 1446 on
effectively connected taxable income
allocable under section 704 to such
partner. The regulations will affect
partnerships engaged in a trade or
business in the United States that have
one or more foreign partners. The final
regulations also include conforming
amendments to §§ 1.1446–3 and 1.1446–
5 and to regulations under sections
1464, 6071, 6091, 6151, 6302, 6402,
6414, and 6722.
DATES: Effective Date: These regulations
are effective on April 29, 2008.
Applicability Dates: The regulations
are generally applicable for partnership
taxable years beginning after December
31, 2007. See § 1.1446–6(f). For a
transition rule see § 1.1446–6(g).
FOR FURTHER INFORMATION CONTACT:
Ronald M. Gootzeit at (202) 622–3860
(not a toll-free number).
SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

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The collection of information
contained in these final regulations has
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545–
1934. The collection of information in
these final regulations is in § 1.1446–
6(c) and (d). This information is
required to determine the extent to
which a partnership will consider
certifications of losses and deductions
in calculating the amount of
withholding tax it must pay with
respect to a foreign partner on the
partner’s allocable share of effectively
connected taxable income earned by
such partnership.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number.
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.
Background
On September 3, 2003, the IRS and
the Treasury Department published in
the Federal Register a notice of

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proposed rulemaking [REG–108524–00;
2003–42 IRB 869; 68 FR 52466],
corrected at 68 FR 62553 (November 5,
2003) under sections 871, 1443, 1446,
1461, 1462, 1463, 6109, and 6721 of the
Internal Revenue Code (Code). The
regulations provide guidance for
partnerships required to pay
withholding tax under section 1446 of
the Code (1446 tax). On May 18, 2005,
the IRS and the Treasury Department
issued final and temporary regulations
under section 1446. The 2005 final
regulations set forth the provisions of
the 2003 proposed regulations in final
form and the temporary regulations
established a new procedure by which
a partnership could consider certain
partner-level deductions and losses
when computing its 1446 tax. The
temporary regulations generally apply to
partnership taxable years beginning
after the date of their issuance, but an
election was provided that permitted a
partnership to apply the regulations to
partnership taxable years beginning
after December 31, 2004, provided the
partnership elected to apply the 2005
final regulations to partnership taxable
years beginning after December 31,
2004. On May 18, 2005, the IRS and the
Treasury Department also published in
the Federal Register a notice of
proposed rulemaking [REG–108524–00;
2005–1CB 1158; 70 FR 28701], under
sections 1464, 6071, 6091, 6151, 6302,
6402, 6414, and 6722 of the Code to
implement the section 1446 regime, as
well as cross-referencing the temporary
regulations under § 1.1446–6T (see 26
CFR Part 1, revised as of April 1, 2007).
Written comments were received in
response to the notice of proposed
rulemaking, and a public hearing was
held on November 16, 2005. After
consideration of all the comments, the
proposed regulations are adopted, as
revised by this Treasury decision and
the temporary regulations are removed.
Explanation of Provisions
Section 1446 requires a partnership to
pay section 1446 tax on a foreign
partner’s allocable share of effectively
connected taxable income (ECTI) from
the partnership. The temporary
regulations allow certain foreign
partners to certify certain deductions
and losses to a partnership to reduce the
1446 tax required to be paid by the
partnership with respect to ECTI
allocable to such partners. The
temporary regulations also permit a
nonresident alien partner to certify to
the partnership that the partnership
investment is (and will be) its only
activity for its taxable year that gives
rise to effectively connected income,
gain, deduction, or loss. In that case, the

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partnership is not required to pay 1446
tax (or any installment of such tax) with
respect to such partner if the
partnership estimates that the
annualized (or, in the case of a
partnership completing its Form 8804
‘‘Annual Return for Partnership
Withholding Tax (Section 1446),’’ the
actual) 1446 tax due with respect to
such nonresident alien partner is less
than $1,000.
I. Modifications to the Temporary
Regulations
A. Format of Certificate Submitted to a
Partnership
The temporary regulations state that
no particular form is required for the
partner’s certificate of deduction and
losses to the partnership. However, the
temporary regulations list 13 items the
certificate must contain and the caption
that must appear at the top of the
certificate. To ensure uniformity of the
certificates and to reduce the likelihood
of an inadvertently omitted item causing
the certificate to be defective, the IRS
developed a form (Form 8804–C,
‘‘Certificate of Partner-Level Items to
Reduce Section 1446 Withholding’’) to
be used by the partner providing a
certificate to the partnership. The IRS
and the Treasury Department believe
that the Form 8804–C will facilitate a
partner’s ability to provide original and
updated certificates.
B. Partners Entitled To Certify
Deductions and Losses
1. Filing period requirement: number
of years
To be eligible to provide a certificate
to a partnership the temporary
regulations require a partner to have
timely filed (or to represent that it will
timely file) a U.S. income tax return for
each of its preceding four taxable years
and for the taxable year during which
the certificate is provided and will be
considered by the partnership. The
partner is also required to have timely
paid (or to represent that it will timely
pay) all tax shown on such returns. The
final regulations clarify that only returns
that report income or gain effectively
connected with a U.S. trade or business
or deductions or losses properly
allocated and apportioned to such
activities will satisfy the tax return
filing requirement (for the current or
relevant prior years). Accordingly, the
partner may not fulfill this requirement
with a U.S. income tax return that
reports no items of income or gain
effectively connected with a U.S. trade
or business or deductions or losses
properly allocated and apportioned to
such activities.

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Federal Register / Vol. 73, No. 83 / Tuesday, April 29, 2008 / Rules and Regulations
Several commentators suggested
reducing the temporary regulations’
prior years U.S. tax return filing
requirement. One commentator
suggested reducing the requirement to
the lesser of the two prior years or the
number of years the partner has been a
partner in the relevant partnership.
Another commentator suggested
reducing the requirement from four to
two years.
The IRS and the Treasury Department
believe it appropriate to require the
foreign partner to have filed a certain
number of returns and paid any tax
relating to those returns regardless of
the number of years the partner has
been a member of the relevant
partnership. The IRS and the Treasury
Department do not believe that a
reduction to two years is appropriate.
Because the return for the year
immediately preceding the year a
partner submits a certificate to a
partnership may not have been filed by
the date when the certificate is
submitted, reducing the prior years
filing requirement to two years could
result in only one return being filed by
the date on which the certificate is
submitted. In response to these
comments, however, the IRS and the
Treasury Department have determined
that it is appropriate to reduce the prior
years filing requirement to three years.
The IRS and the Treasury Department
have also decided to modify the filing
requirement of a tax return for a
preceding taxable year in which the
partner did not submit a certificate to
any partnership, if the return has a due
date (without extensions) before the
beginning of the partnership taxable
year for which the certificate is
provided. The final regulations provide
that such returns must be filed and all
amounts due with such return
(including interest, penalties, and
additions to tax, if any) must be paid on
or before the earlier of: (1) The date that
is one year from the due date (without
extensions) of such return; or (2) The
date on which the certificate for the
current taxable year is submitted to the
partnership. Once a partner submits a
certificate to a partnership, however, it
must timely file all its subsequent years’
returns (and timely pay all amounts due
with the returns) to submit a certificate
to a partnership in a later year. The IRS
and the Treasury Department anticipate
that this modified rule will permit more
foreign partners to provide certificates
to partnerships under the final
regulations.
2. Trusts and estates
One commentator requested that the
IRS and the Treasury Department
explain why foreign estates and

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domestic or foreign trusts, other than
grantor trusts, are not permitted to
certify deductions and losses to
partnerships. Another commentator
asked that the decedent’s compliance
record be considered in determining
whether the estate can certify
deductions and losses to a partnership.
The final regulations do not modify the
treatment of estates and trusts. The IRS
and the Treasury Department continue
to believe, as stated in the preamble to
the temporary regulations, that because
trusts and estates are not always pure
conduits for tax purposes it is difficult
for a partnership to determine the
taxpayer (that is, the trust, estate or
beneficiary) that will pay tax on the
ECTI allocated to the trust or estate.
Further, a decedent’s filing history may
have limited relevance in predicting the
estate’s likely compliance.
3. Tiered partnerships
In a tiered partnership structure, a
lower-tier partnership must withhold
1446 tax on ECTI allocable to an uppertier foreign partnership that is a partner
in the lower-tier partnership. However,
if the upper-tier foreign partnership
provides sufficient information
regarding its partners to the lower-tier
partnership, the lower-tier partnership
may withhold 1446 tax based on the
partners in the upper-tier partnership.
These rules may also apply to upper-tier
domestic partnerships that have foreign
partners. See § 1.1446–5. Similarly, an
upper-tier partnership that receives
certificates of deductions and losses
from its foreign partners may provide
the certificates to the lower-tier
partnerships.
The final regulations add several rules
to ensure that deductions and losses
certified to an upper-tier partnership are
not taken into account by both the
upper-tier partnership and a lower-tier
partnership or by more than one lowertier partnership. A new rule is also
added requiring that sufficient
information regarding a partner in the
upper-tier partnership submitting the
certificate be provided to the lower-tier
partnership and then to the IRS so that
the IRS can reliably associate the ECTI
and the certificate with the partner in
the upper-tier partnership.
C. Submissions of Certificates
1. Time lags for submission of
certificates
The temporary regulations provide
that the partnership may rely on the first
certificate submitted by the foreign
partner for a partnership taxable year
only if the partnership receives the
certificate at least 30 days before the
installment due date or the annual Form
8804 filing due date (without regard to

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23071

extensions) for the partnership taxable
year for which the partner would like
the certificate to be considered in
computing the 1446 tax due with
respect to the partner. Updated
certificates may only be considered if
received at least ten days before the
installment due date or the Form 8804
filing date (without regard to
extensions). Several commentators
questioned the appropriateness of these
timing requirements if the partnership is
willing to rely on a certification
submitted at the last moment and remits
the 1446 tax installment or files the final
return on a timely basis. The IRS and
the Treasury Department agree with the
commentators and have removed these
requirements in the final regulations.
2. Resubmission of certificates
The temporary regulations require the
partnership to attach a copy of any
certificate, and the computation of 1446
tax due with respect to a partner, to both
the Form 8813, ‘‘Partnership
Withholding Tax Payment Voucher
(Section 1446),’’ and Form 8805,
‘‘Foreign Partner’s Information
Statement of Section 1446 Withholding
Tax,’’ filed with the IRS for any period
for which such certificate is considered
in computing the partnership’s 1446 tax
(or any installment of such tax). One
commentator suggested that a certificate
submitted with Form 8813 should not
be required to be submitted with
subsequent filings of Form 8813 or with
Form 8805. The IRS and the Treasury
Department agree with the comment
regarding Form 8813. The final
regulations provide that a partner’s
certificate need only be submitted for
the first installment period for which it
is considered. For subsequent
installment periods for which the
certificate is considered, the partnership
may instead attach a list of the name,
taxpayer identification number, and the
amount of certified deductions of each
foreign partner whose certificate was
previously considered during the
taxable year and whose certificate was
again considered in the subject
installment period. The partnership
would also indicate if it was relying on
the state and local taxes withheld and
remitted on behalf of the partner. If the
partnership is relying on the de minimis
rule for the partner, the partnership
would indicate that, in lieu of indicating
the amount of certified deductions.
However, if a partnership receives an
updated certificate from a partner, that
certificate must be attached with the
Form 8813 for the first installment
period it is considered. In all events, a
partnership must attach to the Form
8813 and Form 8805, a computation of
1446 tax due with respect to such

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partner for all periods for which a
certificate received from the partner is
considered by the partnership. In
addition, in all events the partnership
must attach to the Form 8805 a copy of
the partner’s original or updated
certificate, as appropriate.
3. Denying partnerships the ability to
submit certificates
Consistent with the temporary
regulations, the final regulations
provide that upon receipt of written
notification from the IRS that a foreign
partner’s certificate is defective, the
partnership may no longer rely on the
defective certificate or any other
certificate submitted by the partner until
the IRS notifies the partnership in
writing and revokes or modifies the
original notice. The final regulations
provide that the IRS may also notify the
partnership in writing if either a
substantial portion of the certificates
submitted by the partnership are
defective or a substantial amount of the
deductions and losses relied on by the
partnership in computing its 1446 tax
due are reported on one or more
defective certificates. Upon receiving
that notification the partnership may
not rely on any certificate submitted by
any partner for the partnership taxable
year in which such notification is
received or any subsequent partnership
taxable year, until the IRS notifies the
partnership again in writing and revokes
or modifies the original notice.
D. Deductions and Losses Certified to
the Partnership
1. Current year deductions
The temporary regulations provide
that a foreign partner can only certify
deductions and losses that are or will be
reflected on the partner’s U.S. income
tax return filed (or to be filed) for a
taxable year ending prior to the
installment due date or Form 8804 filing
date (without regard to extensions) for
the partnership taxable year for which
the certificate is considered. Therefore,
no anticipated deduction or loss with
respect to current operations may be
considered. One commentator suggested
that partners should be permitted to
certify current year deductions to the
partnership. The IRS and the Treasury
Department are concerned about the
uncertainty associated with fluctuations
in estimates of current-year activities
and therefore have not adopted this
suggestion.
2. Charitable deductions
One commentator requested that
partners be permitted to certify
charitable contribution deductions. The
IRS and the Treasury Department have
not adopted this recommendation
because of the difficulty a partnership

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would have in determining the amount
of a charitable contribution deduction
allowed to the foreign partner. Section
170 provides separate rules for
corporations and individuals, the type
of charity to which the contribution is
made, and the type of property
contributed to the charity. In addition,
separate rules apply to determine the
deduction amount in the case of
charitable contribution carryover.
3. Suspended losses
One commentator raised a concern
that a foreign partner could certify a
passive activity loss to a partnership
that conducts a different activity in
which the partner materially
participates. If the partnership took that
loss into account it would
inappropriately reduce its 1446 tax due
with respect to that partner. Because on
its income tax return the partner could
not offset the loss against its allocable
share of partnership ECTI, the partner
might inappropriately each year
recertify that loss to the partnership. To
address that concern the final
regulations clarify that a partner must
identify any certified deductions and
losses that are subject to special
limitations at the partner level and
provide information to the partnership
that will allow the partnership to take
into account the special limitations.
4. Net operating losses
The temporary regulations provide
that a partnership may not consider a
partner’s net operating loss (NOL)
deduction in an amount greater than 90
percent of the partner’s allocable share
of ECTI. Two commentators discerned
that this requirement reflects a concern
about the alternative minimum tax
(AMT) limitation on NOL deductions
and suggested the regulations should be
tied to the continuing applicability of
the 90 percent AMT limitation on the
use of NOL carryovers. The IRS and the
Treasury Department have adopted this
suggestion. One commentator further
suggested that if the 90 percent
limitation is retained, or as long as it
applies, the regulations should be
clarified to explain that the limitation
should be applied on a cumulative basis
for each installment period. This
suggestion has also been adopted. With
this clarification, if the partnership’s
annualized income changes during the
year, the NOL deduction that the
partnership may take into account can
increase or decrease accordingly.

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E. Partnership Items Allocable to
Partners That Give Rise to Partner Level
Deductions, Losses or Credits But Are
Not Partnership Allocations of
Deductions and Losses Under Section
704
1. State income taxes
One commentator suggested allowing
the partnership to reduce a foreign
partner’s ECTI by the amount of any
state and local taxes paid by the
partnership on behalf of the partner
with respect to the partner’s allocable
share of partnership income. The final
regulations adopt this recommendation
but provide that the partnership may
only consider 90 percent of the state and
local taxes withheld and remitted on
behalf of the partner but only with
respect to the partner’s allocable share
of ECTI. The partnership may consider
these amounts regardless of whether the
partner submits a certification of
deductions and losses or of its de
minimis status to the partnership for the
relevant partnership taxable year.
2. Section 199 deductions
One commentator suggested allowing
a partnership to consider a partner’s
available deduction under section 199
in determining its section 1446 tax with
respect to that partner. The section 199
deduction is a percentage of the lesser
of the qualified production activities
income (QPAI) of the taxpayer for the
taxable year or the taxpayer’s taxable
income or, in the case of an individual,
adjusted gross income determined
without regard to section 199 for the
taxable year. In addition, the deduction
is limited to 50 percent of the Form W–
2, ‘‘Wage and Tax Statement’’, wages for
the taxpayer for the taxable year.
Depending on a taxpayer’s gross receipts
and assets, there are up to three
permissible methods for calculating
QPAI.
In the case of a pass-through entity
(such as a partnership), section
199(d)(1)(A) provides that the section
199 deduction is calculated at the
partner level. A partner may be a
member of more than one partnership
and may engage in its own qualifying
activities under section 199. The QPAI
and Form W–2 wages, and any other
QPAI and Form W–2 wages reported by
a partnership to the partner, must be
added to the partner’s own calculation
of QPAI and Form W–2 wages.
Therefore, because of the difficulty in a
partnership determining the section 199
deduction of a partner, the IRS and the
Treasury Department determined it
would be inappropriate to allow a
partnership to consider the section 199
deduction of a partner in determining

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the amount of section 1446 tax to be
withheld with respect to that partner.
3. Section 470 deductions
One commentator suggested that the
regulations allow the partnership to
consider partner-level deductions
previously suspended under section 470
(limitation on deductions allocable to
property used by governments or other
tax-exempt entities) and relating to the
partnership, when the deductions
become available. Section 470 currently
allows the partnership to consider these
suspended partner-level deductions in
determining the partner’s ECTI.
Therefore, there is no need to modify
the regulations in response to this
suggestion.
4. Tax credits
One commentator suggested that a
foreign partner should be able to certify
credits to the partnership and that the
partnership be able to consider currentyear credits in determining the amount
of its 1446 tax. Section 1446 requires
that a partnership pay a withholding tax
on its ECTI allocable to foreign partners.
It provides no authority for partnerships
to consider credits in determining the
amount of 1446 tax the partnership is
required to withhold and pay.
Therefore, this suggestion has not been
adopted.
F. Effect on Reasonable Reliance on
Certificate of Deductions and Losses
The temporary regulations provide
that a partnership is not relieved from
liability for 1446 tax under section 1461
or for any applicable addition to the tax,
interest, or penalties if a partner’s
certificate is defective or the partner
submits an updated certificate that
increases the 1446 tax due with respect
to such partner. If a certificate is
determined to be defective for a reason
other than the amount or character of
the deductions and losses set forth on
such certificate (for example, the partner
failed to timely file a U.S. income tax
return), then the partnership is liable for
the entire 1446 tax amount under
section 1461 (or any installment of such
tax).
Further, under the temporary
regulations, if it is determined that a
certificate is defective because the
actual deductions and losses available
to the partner are less than the amount
certified to the partnership (other than
when it is determined that the partner
certified the same deduction or loss to
more than one partnership), the
partnership is liable for 1446 tax under
section 1461 (or any installment of such
tax) only to the extent the amount of
certified deductions and losses taken
into account by the partnership is
greater than the amount determined to

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be actually available to the partner and
permitted to be used under regulations.
Similarly, if it is determined that a
certificate is defective because the
character of the certified deductions and
losses is erroneous, the partnership is
liable for 1446 tax under section 1461
(or any installment of such tax) only to
the extent the actual character of the
deductions and losses results in an
increase in the 1446 tax due with
respect to such partner.
However, the temporary regulations
provide that the partnership is not liable
for the addition to tax under section
6655 (as applied though § 1.1446–3) for
the period during which the partnership
reasonably relied on the certificate.
Further, the temporary regulations
provide that although a partnership is
generally liable for the 1446 tax, any
addition to the tax, interest, and
penalties, the partnership may be
relieved of some penalties in certain
circumstances.
One commentator stated that
reasonable reliance on a certificate
should protect a partnership against
liability not only under section 6655,
but also for liability for the tax under
section 1461, interest on the tax under
section 6601, and various other penalty
provisions. The IRS and the Treasury
Department have not adopted this
recommendation. Use of the
certification procedures under § 1.1446–
6 is voluntary. The foreign partner is not
required to submit a certificate of
deductions and losses to the
partnership. Moreover, even if the
partnership receives a certificate it may
consider all, none or only a portion of
the certified deductions and losses
when calculating its payment of 1446
tax. Further, as the temporary
regulations stated, the partnership may
be relieved of some penalties in certain
circumstances.
G. Relief for a Partnership’s Failure To
Comply Timely With the Requirements
of This Section
Among other requirements, to apply
the rules of § 1.1446–6 the partnership
must receive a valid certificate from the
foreign partner and attach the
certificate, along with the computation
of 1446 tax due with respect to that
partner, to certain Forms 8813 and Form
8805 filed with respect to that partner.
The IRS and the Treasury Department
believe that a reasonable cause standard
should be applied to determine whether
a partnership that failed to attach the
certificate and 1446 tax computation to
the relevant filing is eligible for an
extension of time to comply with this
requirement.

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23073

Under the reasonable cause standard,
if a partnership that may otherwise rely
on a partner’s certificate fails to comply
timely with the requirements of
§ 1.1446–6, the partnership is
considered to have satisfied the
timeliness requirement if it
demonstrates, to the satisfaction of the
Area Director, Field Examination, Small
Business/Self-Employed or the Director,
Field Operations, Large and Mid-Size
Business (Director) having jurisdiction
of the partnership’s return for the
taxable year, that such failure was due
to reasonable cause and not willful
neglect. Once the partnership becomes
aware of the failure, the partnership
must demonstrate reasonable cause and
must satisfy the filing requirement by
attaching the certificate and the
partnership’s computation of 1446 tax
due with respect to that partner to an
amended Form 8813 or Forms 8804 and
8805 (that amends the tax return to
which the certificate and computation
should have been attached). A written
statement must be included that
explains the reasons for the failure to
comply.
In determining whether the
partnership has reasonable cause, the
Director shall determine whether the
partnership acted reasonably and in
good faith based on all the facts and
circumstances. The Director shall notify
the partnership in writing within 120
days of the filing if it is determined that
the failure to comply was not due to
reasonable cause or if additional time
will be needed to make such
determination. If the Director fails to
notify the partnership within 120 days
of the filing, the partnership shall be
considered to have demonstrated to the
Director that such failure was due to
reasonable cause and not willful
neglect.
H. Effective/Applicability Dates and
Transition Rule
The final regulations are effective for
partnership taxable years beginning
after December 31, 2007. However, any
certificate submitted on or before July
28, 2008 that met the requirements of
the temporary regulations shall not be
considered defective solely because it
does not meet the requirements of the
final regulations. However, any
certificate (including any updated
certificates and status reports)
submitted, or required to be submitted,
after July 28, 2008, must comply with
the requirements of these final
regulations.

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II. Modifications to the 2005 Final
Regulations

Department participated in their
development.

The final regulations make several
clarifying and conforming changes to
the 2005 final regulations including
with respect to the calculation of
installment payments of 1446 tax when
a partnership considers a certificate
received under § 1.1446–6 and the
information that a lower-tier partnership
must receive from an upper-tier
partnership when the lower-tier
partnerships pays 1446 tax on behalf of
the partners in the upper-tier
partnership. Also the prior year safe
harbor provision in § 1.1446–3 was
conformed with section 6655 to provide
that the partnership must compute its
current year 1446 tax installments based
on the total 1446 tax (without regard to
§ 1.1446–6) as computed for the prior
taxable year. These revisions are
effective for partnership taxable years
beginning after December 31, 2007.

List of Subjects

Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. It also has been
determined that section 553(b) of the
Administrative Procedures Act (5 U.S.C.
chapter 5) does not apply to these
regulations. It is hereby certified that the
collections of information contained in
these regulations will not have a
significant economic impact on a
substantial number of small entities.
This certification is based upon the fact
that only a few small entities are
expected to be impacted by these
collections and the burden associated
with such collections is estimated to be
0.5 hours. Moreover, the information
collection in § 1.1446–6 and its use is
voluntary. Therefore, a Regulatory
Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Code, the notice
of proposed rulemaking preceding the
final regulations was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on their impact on small business.
Drafting Information

jlentini on PROD1PC65 with RULES

The principal author of these
regulations is Ronald M. Gootzeit of the
Office of the Associate Chief Counsel
(International). However, other
personnel from the IRS and the Treasury

26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 301, and
602 are amended as follows:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
■ Par. 2. Section 1.1446–0 is amended
is as follows:
■ 1. Adding entries for § 1.1446–6.
■ 2. Removing entries for § 1.1446–6T.
■ 3. Revising the entry for § 1.1446–7.
The addition and revision read as
follows:

§ 1.1446–0

Table of contents.

*

*

*

*

*

§ 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.
(a) In general.
(1) Purpose and scope.
(2) Reasonable reliance on a certificate.
(b) Foreign partners to whom this section
applies.
(1) In general.
(2) Definitions.
(i) U.S. income tax return.
(ii) Timely-filed.
(iii) Qualifying U.S. income tax return.
(3) Special rules.
(c) Reduction of 1446 tax with respect to
a foreign partner.
(1) General rules.
(i) Certified deductions and losses.
(A) Deductions and losses from the
partnership.
(B) Deductions and loss from other sources.
(C) Limit on the consideration of a
partner’s net operating loss deduction.
(D) Limitation on losses subject to certain
partner level limitations.

(E) Certification of deductions and losses to
other partnerships.
(F) Partner level use of deductions and
losses certified to a partnership.
(ii) De minimis certificate for nonresident
alien individual partners.
(A) In general.
(B) Requirements for exception.
(iii) Consideration of certain current year
state and local taxes.
(2) Form and time of certification.
(i) Form of certification.
(ii) Time of certification provided to
partnership.
(A) First certificate submitted for a
partnership’s taxable year.
(B) Updated certificates and status updates.
(1) Preceding year tax returns not yet filed.
(2) Other circumstances requiring an
updated certificate.
(3) Form and content of updated certificate.
(4) Partnership consideration of an updated
certificate.
(3) Notification to partnership when a
partner’s certificate cannot be relied upon.
(4) Partner to receive copy of notice.
(5) Notification to partnership when no
foreign partner’s certificate can be relied
upon.
(6) Partnership notification to partner
regarding use of deductions and losses.
(7) Partner’s certificate valid only for
partnership taxable year for which submitted.
(d) Effect of certificate of deductions and
losses on partner and partnership.
(1) Effect on partner.
(i) No effect on liability for income tax of
foreign partner.
(ii) No effect on partner’s estimated tax
obligations.
(iii) No effect on partner’s obligation to file
U.S. income tax return.
(2) Effect on partnership.
(i) Reasonable reliance to relieve
partnership from addition to tax under
section 6665.
(ii) Continuing liability for withholding tax
under section 1461 and for applicable
interest and penalties.
(A) In general.
(B) Certificate defective because of amount
or character of deductions and losses.
(3) Partnership level rules and
requirements.
(i) Filing requirement.
(ii) Reasonable cause for failure to timely
file a valid certificate and computation.
(A) Determining reasonable cause.
(B) Notification.
(e) Examples.
(f) Effective/Applicability date.
(g) Transition rule.
§ 1.1446–7 Effective/Applicability date.
■ Par. 3. For each entry in the table in
the ‘‘Section’’ column remove the
phrase in the ‘‘Remove’’ column and
add the phrase in the ‘‘Add’’ column in
its place.

Section

Remove

1.1443–1(a) (First sentence) ...............................................................
1.1446–1(a) .........................................................................................
1.1446–1(b) .........................................................................................

1.1446–6T ................................................................
1.1446–6T ................................................................
§ 1.1446–6T .............................................................

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29APR1

1.1446–6
1.1446–6
§ 1.1446–6

23075

Federal Register / Vol. 73, No. 83 / Tuesday, April 29, 2008 / Rules and Regulations
Section

Remove

1.1446–1(c)(5) (Second sentence) .....................................................
1.1446–2(a) (Third sentence) ..............................................................
1.1446–2(b)(1) (Second sentence) .....................................................
1.1446–2(b)(1) (Last sentence) ...........................................................
1.1446–2(b)(3)(iii) (First sentence) ......................................................
1.1446–2(b)(3)(iii) (Second sentence) ................................................
1.1446–2(b)(3)(vii) ...............................................................................
1.1446–2(b)(5) Example 3 (Sixth sentence) .......................................
1.1446–3(b)(2)(v)(F) (Second sentence) ............................................
1.1446–3(d)(1)(i) (Third sentence) ......................................................
1.1446–3(d)(1)(iii) (Third sentence) ....................................................
1.1446–3(e)(3)(i) (Last sentence) .......................................................
1.1446–5(f) Example 1(i) (Ninth sentence) .........................................

1.1446–6T ................................................................
§ 1.1446–6T .............................................................
§ 1.1446–6T .............................................................
1.1446–6T ................................................................
§ 1.1446–6T .............................................................
§ 1.1446–6T .............................................................
§ 1.1446–6T .............................................................
§ 1.1446–6T .............................................................
§ 1.1446–6T .............................................................
§ 1.1446–6T .............................................................
§ 1.1446–6T .............................................................
§ 1.1446–6T .............................................................
§ 1.1446–6T .............................................................

■ Par. 4. Section 1.1446–3 is amended
by:
■ 1. Removing the acronym ‘‘ECTI’’
from the first sentence in paragraph
(b)(1) and adding the language
‘‘effectively connected taxable income
(ECTI)’’ in its place.
■ 2. Revising paragraphs (b)(2)(i) and
(b)(3)(i)(A).
The revisions read as follows:

§ 1.1446–3 Time and manner of calculating
and paying over the 1446 tax.

jlentini on PROD1PC65 with RULES

*

*
*
*
*
(b) * * *
(2) * * * (i) Application of the
principles of section 6655—(A) In
general. Installment payments of 1446
tax required during the partnership’s
taxable year are based upon partnership
ECTI for the portion of the partnership
taxable year to which the payments
relate, and, except as set forth in this
paragraph (b)(2) or paragraph (b)(3) of
this section, shall be calculated using
the principles of section 6655. The
principles of section 6655, except as
otherwise provided in § 1.6655–2, are
applied to annualize the partnership’s
items of effectively connected income,
gain, loss, and deduction to determine
each foreign partner’s allocable share of
partnership ECTI. Each foreign partner’s
allocable share of partnership ECTI is
then multiplied by the relevant
applicable percentage for the type of
income allocable to the foreign partner
under paragraph (a)(2) of this section.
The respective 1446 tax amounts are
then added for each foreign partner to
yield an annualized 1446 tax with
respect to such partner. The installment
of 1446 tax due with respect to a foreign
partner equals the excess of the section
6655(e)(2)(B)(ii) percentage of the
annualized 1446 tax for that partner (or,
if applicable, the adjusted seasonal
amount) for the relevant installment
period, over the aggregate amount of
1446 tax installment payments
previously paid with respect to that
partner during the partnership’s taxable
year. The partnership’s total 1446 tax

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installment payment equals the sum of
the installment payments due for such
period on behalf of all the partnership’s
foreign partners.
(B) Calculation rules when certificates
are submitted under § 1.1446–6—(1) To
the extent applicable, in computing the
1446 tax due with respect to a foreign
partner, a partnership may consider a
certificate received from such partner
under § 1.1446–6(c)(1)(i) or (ii) and the
amount of state and local taxes
permitted to be considered under
§ 1.1446–6(c)(1)(iii). For this purpose, a
partnership shall first annualize the
partner’s allocable share of the
partnership’s items of effectively
connected income, gain, deduction, and
loss before—
(i) Considering under § 1.1446–
6(c)(1)(i) the partner’s certified
deductions and losses;
(ii) Determining under § 1.1446–
6(c)(1)(ii) whether the 1446 tax
otherwise due with respect to that
partner is less than $1,000 (determined
with regard to any certified deductions
or losses); or
(iii) Considering under § 1.1446–6
(c)(1)(iii) the amount of state and local
taxes withheld and remitted on behalf of
the partner.
(2) The amount of the limitation
provided in § 1.1446–6(c)(1)(i)(C) shall
be based on the partner’s allocable share
of these annualized amounts. For any
installment period in which the
partnership considers a partner’s
certificate, the partnership must also
consider the following events to the
extent they occur prior to the due date
for paying the 1446 tax for such
installment period—
(i) The receipt of an updated
certificate or status update from the
partner under § 1.1446–6(c)(2)(ii)(B)
certifying an amount of deductions or
losses that is less than the amount
reflected on the superseded certificate
(see § 1.1446–6(e)(2) Example 4);
(ii) The failure to receive an updated
certificate or status update from the

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Add
1.1446–6
§ 1.1446–6
§ 1.1446–6
1.1446–6
§ 1.1446–6
§ 1.1446–6
§ 1.1446–6
§ 1.1446–6
§ 1.1446–6(c)(1)(ii)
§ 1.1446–6(d)(3)
§ 1.1446–6
§ 1.1446–6(d)(2)(i)
§ 1.1446–6

partner that should have been provided
under § 1.1446–6(c)(2)(ii)(B); and
(iii) The receipt of a notification from
the IRS under § 1.1446–6(c)(3) or (c)(5)
(see § 1.1446–6(e)(2) Example 5).
*
*
*
*
*
(3) * * * (i) * * *
(A) The average of the amount of the
current installment and prior
installments during the taxable year is at
least 25 percent of the total 1446 tax
(without regard to § 1.1446–6) for the
prior taxable year;
*
*
*
*
*
■ Par. 5. Section 1.1446–5(c)(2) is
amended by adding two new sentences
after the first sentence to read as
follows:
§ 1.1446–5

Tiered partnership structures.

*

*
*
*
*
(c) * * *
(2) * * * The lower-tier partnership
required to pay 1446 tax must be able
to provide the information necessary for
the IRS to determine the chain of
ownership, allocation of effectively
connected items at each partnership
level, as well as to the ultimate
beneficial owner of the effectively
connected items, and whether the
amount of 1446 tax paid was
appropriate. This information should
permit each partnership in the tiered
structure and the IRS to reliably
associate any effectively connected
items allocable to such upper-tier
partnership, as well as to the ultimate
beneficial owner of the effectively
connected items. * * *
§ 1.1446–6T

[Removed]

Par. 6. Section 1.1446–6T is removed.
■ Par. 7. Section 1.1446–6 is added 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.

(a) In general—(1) Purpose and scope.
This section provides rules regarding
when a partnership required to pay

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jlentini on PROD1PC65 with RULES

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Federal Register / Vol. 73, No. 83 / Tuesday, April 29, 2008 / Rules and Regulations

withholding tax under section 1446
(1446 tax), or an installment of 1446 tax,
may consider certain partner-level
deductions and losses in computing its
1446 tax obligation under § 1.1446–3, or
otherwise not pay a de minimis amount
of 1446 tax due with respect to a
nonresident alien individual partner. A
partnership determines the applicability
of the rules of this section on a partnerby-partner basis for each installment
period and when completing its Form
8804, ‘‘Annual Return for Partnership
Withholding Tax (Section 1446),’’ and
paying 1446 tax for the partnership
taxable year. Except with respect to
certain state and local taxes paid by the
partnership on behalf of the partner, to
apply the rules of this section with
respect to a foreign partner, the
partnership must receive a certificate
from such partner for each partnership
taxable year. Paragraph (b) of this
section identifies the foreign partners to
which this section applies. Paragraph (c)
of this section identifies the deductions
and losses that a foreign partner may
certify to the partnership as well as the
state and local taxes paid by the
partnership on behalf of the foreign
partner that can be taken into account
without a certification, and establishes
an exception that permits a partnership
to not pay a de minimis amount of 1446
tax with respect to a nonresident alien
partner. Paragraph (c) of this section
also sets forth the requirements for a
valid certificate. Paragraphs (a)(2) and
(d) of this section establish when a
partnership may rely on and consider a
foreign partner’s certificate in
computing its 1446 tax, and the effects
of relying on such a certificate.
Paragraph (d) of this section also
describes the effects of a partnership
relying on a certificate (including an
updated certificate) and the reporting
requirements of a partnership with
respect to a certificate. Paragraph (e) of
this section sets forth examples that
illustrate the rules of this section.
Paragraph (f) of this section provides the
Effective/Applicability date. Paragraph
(g) of this section provides a transition
rule.
(2) Reasonable reliance on a
certificate. Subject to § 1.1446–2 and the
rules of this section, a partnership
receiving a certificate (including an
updated certificate or status update
under paragraph (c)(2)(ii)(B) of this
section) of deductions and losses from
a partner provided in accordance with
the provisions of this section may
reasonably rely on such certificate (to
the extent of the certified deductions
and losses or other representations set
forth in the certificate) until such time

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that it has actual knowledge or reason
to know that the certificate is defective
or that the time for receiving an updated
certificate or status update from the
partner under paragraph (c)(2)(ii)(B) of
this section has expired. For this
purpose, a partnership shall be
considered to have actual knowledge or
reason to know that a certificate is
defective upon receipt of written
notification from the IRS under
paragraph (c)(3) or (c)(5) of this section.
(b) Foreign partner to whom this
section applies—(1) In general. Except
as otherwise provided in paragraph
(b)(3) of this section, a foreign partner to
whom this section applies is a foreign
partner that meets the requirements of
this paragraph (b)(1).
(i) The partner has provided valid
documentation to the partnership to
which a certificate is submitted under
this section in accordance with
§ 1.1446–1.
(ii) If the partner’s current taxable
year is the first taxable year in which
the partner submits a certificate to any
partnership, the partner has filed (or
will file) a qualifying U.S. income tax
return for each of its three taxable years
ending before the end of the
partnership’s taxable year for which the
partner is submitting a certificate
(regardless of whether it was a partner
in that partnership during each of these
years). A qualifying U.S. income tax
return for a taxable year that is prior to
the first taxable year the partner submits
a certificate to any partnership is a U.S.
income tax return filed within the time
specified in paragraph (b)(2)(iii) of this
section.
(iii) If the current taxable year of the
partner is not the first taxable year in
which the partner submits a certificate
to any partnership, the partner met the
requirements in paragraph (b)(1)(ii) of
this section for the first taxable year in
which it submitted a certificate to any
partnership and has filed (or will file) a
qualifying U.S. income tax return for its
first taxable year in which it submitted
a certificate to any partnership and each
subsequent taxable year ending before
the beginning of the current taxable year
(regardless of whether it was a partner
in any partnership during each of those
years). A qualifying U.S. income tax
return for a taxable year that is prior to
the taxable year the partner submits a
certificate to any partnership is a U.S.
income tax return filed within the time
specified in paragraph (b)(2)(iii) of this
section.
(iv) The partner files a qualifying U.S.
income tax return (within the meaning
of paragraph (b)(2)(iii) of this section)
for its taxable year in which a certificate
is provided to any partnership.

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(2) Definitions—(i) U.S. income tax
return. A U.S. income tax return means
a Form 1040NR, ‘‘U.S. Nonresident
Alien Income Tax Return,’’ in the case
of a nonresident alien individual and a
Form 1120F, ‘‘U.S. Income Tax Return
of a Foreign Corporation,’’ in the case of
a foreign corporation.
(ii) Timely-filed. Only for purposes of
this section, a U.S. income tax return
shall be considered timely-filed if the
return is filed on or before the due date
set forth in section 6072(c), plus any
extension of time to file such return
granted under section 6081.
(iii) Qualifying U.S. income tax
return. A U.S. income tax return shall
constitute a qualifying U.S. income tax
return if the return reports income or
gain that is effectively connected with a
U.S. trade or business or deductions or
losses properly allocated and
apportioned to such activities and if the
return is described in paragraph
(b)(2)(iii)(A), (B), or (C) of this section.
A protective return described in
§ 1.874–1(b)(6) or § 1.882–4(a)(3)(vi) is
not a qualifying U.S. income tax return
for purposes of this section.
(A) A U.S. income tax return for a
partner’s preceding taxable year in
which it did not submit a certificate to
any partnership (but not including a
taxable year following the first taxable
year in which the partner submitted a
certificate to any partnership), with a
due date as set forth in section 6072(c),
not including any extensions of time to
file, which falls before the beginning of
the current partnership taxable year for
which the certificate is provided is
described in this paragraph (b)(2)(iii)(A)
if the return is filed and all amounts due
with respect to such return (including
interest, penalties, and additions to tax,
if any) are paid on or before the earlier
of—
(1) The date that is one year after the
due date set forth in section 6072(c) for
such return, not including any
extensions of time to file; or
(2) The date on which the certificate
for the current partnership taxable year
is submitted to the partnership.
(B) A U.S. income tax return for a
partner’s preceding taxable year in
which it did not submit a certificate to
any partnership (but not including a
taxable year following the first taxable
year in which the partner submitted a
certificate to any partnership), with a
due date as set forth in section 6072(c),
not including any extensions of time to
file, which falls within the current
partnership taxable year for which the
certificate is provided is described in
this paragraph (b)(2)(iii)(B) if the return
is timely-filed and all amounts due with
respect to such return are timely paid.

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(C) A U.S. income tax return for a
taxable year in which the partner
submits a certificate to any partnership
and for a taxable year following the first
taxable year in which the partner
submits a certificate to any partnership
is described in this paragraph
(b)(2)(iii)(C) if the return is timely-filed
and all amounts due with such return
are timely paid with respect to such
return.
(3) Special rules—(i) In the case of a
partnership (upper-tier partnership) that
is a partner in another partnership
(lower-tier partnership)—
(A) The rules of this section may
apply to reduce or eliminate the 1446
tax (or any installment of such tax) of
the lower-tier partnership with respect
to a foreign partner of the upper-tier
partnership only to the extent the
provisions of § 1.1446–5 apply to look
through the upper-tier partnership to
the foreign partner of such upper-tier
partnership and the certificate described
in paragraph (c) of this section is
provided by such foreign partner to the
upper-tier partnership and, in turn,
provided to the lower-tier partnership
with other appropriate documentation
(see § 1.1446–5(c) and (e));
(B) An upper-tier partnership that
submits a certificate of deductions and
losses or a de minimis certificate to a
lower-tier partnership may not submit
that certificate to another lower-tier
partnership;
(C) An upper-tier partnership that
relies on a certificate submitted to it by
a foreign partner under this section for
computing its 1446 tax due on
effectively connected taxable income
(ECTI) allocable to that partner (other
than ECTI allocable to it from a lowertier partnership) may not submit that
certificate to any lower-tier partnership;
and
(D) In addition to any other
information required by this section, a
lower-tier partnership must submit with
a Form 8813, ‘‘Partnership Withholding
Tax Payment Voucher (Section 1446),’’
and Form 8805, ‘‘Foreign Partner’s
Information Statement of Section 1446
Withholding Tax,’’ for which it relies on
a certificate from an upper-tier
partnership to reduce the 1446 tax due
with respect to a foreign partner of the
upper-tier partnership, sufficient
information so that the IRS may reliably
associate the ECTI and the certificate of
deductions and losses with the partner
in the upper-tier partnership submitting
the certificate, including the name,
taxpayer identification number (TIN)
and allocation of effectively connected
items at each partnership tier, as well as
to the ultimate upper-tier partner
submitting the certificate.

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(ii) This section shall not apply to a
partner that is a foreign estate or its
beneficiaries.
(iii) This section shall not apply to a
partner that is a trust or to its
beneficiaries, except to the extent that
such trust is owned by a grantor or other
person under subpart E of subchapter J
of the Internal Revenue Code, the
documentation requirements of
§ 1.1446–1 have been met by the grantor
or other owner of such trust, and the
certificate described in paragraph (c) of
this section is provided by the grantor
or other owner of such trust to the
partnership.
(iv) This section shall not apply to a
partner in a publicly-traded partnership
subject to § 1.1446–4.
(c) Reduction of 1446 tax with respect
to a foreign partner—(1) General rules.
Under paragraph (c)(1)(i) of this section
a foreign partner to whom this section
applies may certify to a partnership for
a partnership taxable year that it has
certain deductions (other than
charitable deductions) and losses
properly allocated and apportioned to
gross income that is effectively
connected (or treated as effectively
connected) with the conduct of the
partner’s trade or business in the United
States, and that the partner reasonably
expects those deductions and losses to
be available and claimed on the
partner’s U.S. income tax return to be
filed for that taxable year. Under
paragraph (c)(1)(ii) of this section, a
nonresident alien individual partner to
whom this section applies may also
certify to a partnership for a partnership
taxable year that its only investment or
activity giving rise to effectively
connected items for the partnership’s
taxable year that ends with or within the
partner’s taxable year is (and will be)
the partner’s investment in the
partnership. A certificate submitted by a
foreign partner to a partnership under
this section must be in accordance with
the form and requirements set forth in
paragraph (c)(2)(ii) of this section.
Under paragraph (c)(1)(iii) of this
section, a partnership may take into
account certain state and local taxes
withheld by the partnership on behalf of
the partner.
(i) Certified deductions and losses—
(A) Deductions and losses from the
partnership. Under this paragraph
(c)(1)(i)(A), a partner may certify to a
partnership for a partnership taxable
year deductions (other than charitable
deductions) and losses properly
allocated and apportioned to gross
income which is effectively connected
(or treated as effectively connected)
with the conduct of the partner’s trade
or business in the United States, that are

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reported on a Form 1065 (Schedule K–
1), ‘‘Partner’s Share of Income, Credits,
Deductions, etc.,’’ issued (or to be
issued) to the partner by the partnership
for a prior partnership taxable year, that
are (or will be) reported on a qualifying
U.S. income tax return for a partner’s
taxable year that ends before the
installment due date or the close of the
partnership taxable year for which the
partner is certifying such deductions
and losses, and that the partner
reasonably expects to be available and
claimed on a qualifying U.S. income tax
return for the partner’s taxable year
ending with or after the close of the
partnership taxable year. A partner that
has a loss reported on a Form 1065
(Schedule K–1) issued (or to be issued)
to the partner by the partnership for a
prior partnership taxable year, but that
is not (and will not be) reported on a
qualifying U.S. income tax return for a
prior taxable year of the partner because
the loss is suspended under section
704(d) may also certify such suspended
loss to the partnership under this
paragraph (c)(1)(i)(A).
(B) Deductions and losses from other
sources. Under this paragraph
(c)(1)(i)(B), a foreign partner may certify
to a partnership for a partnership
taxable year deductions (other than
charitable deductions) and losses
properly allocated and apportioned to
gross income that is effectively
connected (or treated as effectively
connected) with the conduct of the
partner’s trade or business in the United
States and that are from sources other
than the partnership to whom the
certificate is submitted if the deductions
and losses are (or will be) reported on
a qualifying U.S. income tax return of
the partner for a taxable year that ends
before the installment due date or the
close of the partnership taxable year for
which the partner is certifying the
deductions and losses and the partner
reasonably expects the deductions and
losses to be available and claimed on
the qualifying U.S. income tax return
filed for its taxable year ending with or
after the close of the partnership taxable
year. Any deductions and losses
certified under this paragraph
(c)(1)(i)(B) that are allocated to the
partner from another partnership must
be reported on a Form 1065 (Schedule
K–1) issued (or to be issued) to the
partner by such other partnership.
However, the partner may not certify
any deduction or loss allocated to it
from another partnership that is
suspended under section 704(d).
(C) Limit on the consideration of a
partner’s net operating loss deduction.
A partnership may not consider a net
operating loss deduction (as determined

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under section 172) certified by the
partner under this paragraph (c)(1)(i) in
an amount greater than the percentage
limitation, if any, provided in section
56(a)(4) and (d) multiplied by the
partner’s allocable share of ECTI from
the partnership reduced by all other
certified deductions and losses whether
or not taken into account by the
partnership, as well as deductions
considered under paragraph (c)(1)(iii) of
this section.
(D) Limitation on losses subject to
certain partner level limitations.
Pursuant to paragraph (c)(2)(i) of this
section, a partner must identify any
certified losses or deductions that are
subject to special limitations at the
partner level (for example, sections 465
and 469) and provide information to the
partnership that will allow the
partnership to take the special
limitations into account. For example,
where a partner certifies a loss to the
partnership that is a passive activity loss
under section 469, the partner shall
identify the activities the partnership
conducts that the partner expects will
be passive activities. The partnership
shall then ensure that these limitations
are taken into account when
determining the 1446 tax due with
respect to the partner.
(E) Certification of deductions and
losses to other partnerships. Deductions
and losses certified to a partnership for
a taxable year of the partnership may
not be certified for the taxable year of
another partnership that begins or ends
with or within the taxable year of the
partnership to which the deductions
and losses were certified.
(F) Partner level use of deductions
and losses certified to a partnership.
Any deductions and losses certified to
a partnership for a taxable year of the
partner and considered by the
partnership in computing its section
1446 tax due may not be considered by
that partner for the same taxable year in
computing the amount of its required
installments under section 6654(d) or
6655(d) on income unrelated to the
partnership to which the partner has
submitted the certificate.
(ii) De minimis certificate for
nonresident alien individual partners—
(A) In general. Under this paragraph
(c)(1)(ii), a nonresident alien individual
partner to whom this section applies
and that satisfies the requirements of
paragraph (c)(1)(ii)(B) of this section
may certify to a partnership that its only
activity giving rise to effectively
connected income, gain, deduction, or
loss for the partnership’s taxable year
that ends with or within the partner’s
taxable year is (and will be) the
partner’s investment in the partnership.

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A partnership that receives a certificate
from a nonresident alien partner under
this paragraph (c)(1)(ii) and that may
reasonably rely on such certificate is not
required to pay 1446 tax (or any
installment of such tax) with respect to
such partner if the partnership estimates
that the annualized (or, in the case of a
partnership completing its Form 8804,
the actual) 1446 tax otherwise due with
respect to such partner is less than
$1,000, without taking into account any
deductions or losses certified by the
partner to the partnership under
paragraph (c)(1)(i) of this section or any
amounts under paragraph (c)(1)(iii) of
this section.
(B) Requirements for exception. The
requirements of this paragraph
(c)(1)(ii)(B) are met if the nonresident
individual alien partner’s only activity
giving rise to effectively connected
income, gain, deduction, or loss for the
partnership taxable year that ends with
or within the partner’s taxable year is
(and will be) the partner’s investment in
the partnership. For this purpose, if the
partner has (or has reason to expect to
have) income or gain described in
section 864(c)(6), such income or gain
shall be considered derived from a
separate investment activity. A
certificate submitted by a nonresident
alien individual partner under this
paragraph (c)(1)(ii) is valid even if such
certificate does not certify deductions
and losses to partnership under this
section. A nonresident alien individual
partner that submits a certificate to a
partnership under this paragraph
(c)(1)(ii) must notify the partnership in
writing and revoke such certificate
within 10 days of the date that the
partner invests or otherwise engages in
another activity that may give rise to
effectively connected income, gain,
deduction, or loss for the partner’s
taxable year. For example, while an
investment in a U.S. real property
interest (as defined in section 897(c))
would not give rise to an activity
requiring a notification (unless an
election is in effect under section
871(d)), the disposition of the U.S. real
property interest would give rise to an
activity requiring a notification.
(iii) Consideration of certain current
year state and local taxes. In addition to
any deductions and losses certified by a
foreign partner to a partnership under
paragraph (c)(1)(i) of this section, the
partnership may consider as a
deduction of such partner 90-percent of
any state and local income taxes
withheld and remitted by the
partnership on behalf of such partner
with respect to the partner’s allocable
share of partnership ECTI. The
partnership may consider the amount of

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state and local taxes of the foreign
partner determined under this
paragraph (c)(1)(iii) regardless of
whether the foreign partner submits a
certificate to the partnership under
paragraph (c)(1)(i) or (ii) of this section.
(2) Form and time of certification—(i)
Form of certification. A partner’s
certification to a partnership under
paragraph (c)(1)(i) or (iii) of this section
shall be made using Form 8804–C,
‘‘Certificate Of Partner-Level Items to
Reduce Section 1446 Withholding’’ in
accordance the instructions of the form
and the rules of this section.
(ii) Time for certification provided to
partnership—(A) First certificate
submitted for a partnership’s taxable
year. Provided the other requirements of
this section are met, a partnership may
only rely on the first certificate received
from a foreign partner for any 1446 tax
installment due or Form 8804 filing due
(without regard to extensions) on or
after the date on which the certificate is
received. See § 1.1446–3 for 1446 tax
installment due dates. See also
paragraph (e) of this section for
examples illustrating the rules of this
paragraph (c)(2).
(B) Updated certificates and status
updates—(1) Preceding year tax returns
not yet filed. If a foreign partner’s U.S.
income tax return for a preceding
taxable year has not been filed as of the
time the partner submits to the
partnership its first certificate under this
paragraph (c), the certificate shall
specify this fact and set forth the filing
due date for such return set forth in
section 6072(c), plus any extension of
time to file such return granted under
section 6081 and the regulations under
section 6081. The partner shall also
submit an updated certificate to the
partnership in accordance with this
paragraph (c) within 10 days of the date
the partner files its U.S. income tax
return for any such taxable year. In
addition, prior to the partnership’s final
1446 tax installment due date the
partner shall provide to the partnership,
under penalties of perjury, a status
update regarding any U.S. income tax
return for the prior taxable year that has
not (or will not) be filed as of the final
installment due date. The status update
must identify the due date, set forth in
section 6072(c), plus any extension of
time to file such return granted under
section 6081 and the regulations under
section 6081, for any un-filed return
identified in the first certificate and
state whether the first certificate
submitted may continue to be
considered by the partnership. If the
partnership does not receive an updated
certificate or a status update from the
partner prior to the partnership’s final

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installment due date, the partnership
shall disregard the partner’s certificate
when computing the 1446 tax due with
respect to that partner for the final
installment period and when
completing its Form 8804 for the taxable
year. In addition, the foreign partner
shall not be permitted to submit an
additional or substitute certificate for
the disregarded certificate. See
§ 1.1446–3(b)(2)(i) for computation
requirements for installment payments
of 1446 tax when a partnership receives,
or fails to receive, an updated certificate
or status update. See also paragraph
(e)(2) Examples 4 and 8 of this section.
Notwithstanding this paragraph
(c)(2)(ii)(B)(1), a partner that can meet
the requirements of this section for a
subsequent partnership taxable year
may submit a certificate to the
partnership under this section for such
taxable year.
(2) Other circumstances requiring an
updated certificate. If at any time during
the partnership taxable year the partner
determines that its most recent
certificate furnished to the partnership
for such taxable year is incorrect, then
the partner shall submit to the
partnership an updated certificate in
accordance with this paragraph (c)
within 10 days of such determination.
For example, if the partner determines
that the amount or character of the
certified deductions or losses is
incorrect, the partner shall submit an
updated certificate to the partnership.
See § 1.1446–3(b)(2)(i) for computation
requirements for installment payments
of 1446 tax when a partnership receives
an updated certificate.
(3) Form and content of updated
certificate. The updated certificate
required by this paragraph (c)(2)(ii)
must be provided using the form and
instructions identified in paragraph
(c)(2)(i) of this section. The updated
certificate must indicate that it is an
updated certificate filed in accordance
with this paragraph (c)(2)(ii). The
partner is not required to attach to the
updated certificate a copy of the
certificate that is being updated
(superseded certificate).
(4) Partnership consideration of an
updated certificate. A partnership may
consider an updated certificate, that
meets the requirements of this
paragraph (c), that is received prior to
an installment due date in the same
partnership taxable year for which the
superseded certificate was provided, or
prior to the due date of its Form 8804
(without regard to extensions) to be filed
for the year the superseded certificate
was provided. A partnership must
consider an updated certificate that
meets all the requirements of this

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paragraph (c) if it would increase the
amount of 1446 tax the partnership
would pay by the next installment due
date, if any, or the due date of its Form
8804. An updated certificate considered
by the partnership under this paragraph
(c)(2)(ii)(B)(4) supersedes all prior
certificates submitted by the foreign
partner for the same partnership taxable
year, beginning with the installment
period or Form 8804 filing date for
which the partnership considers the
updated certificate. See paragraph (e)(2)
Example 4 of this section.
(3) Notification to partnership when a
partner’s certificate cannot be relied
upon. If the IRS determines, in its
discretion based on all the facts and
circumstances, that a foreign partner’s
certificate is defective (or that it lacks
information sufficient to make this
determination after providing written
request for such information to the
partnership), the IRS shall notify the
partnership of such determination in
writing. Upon receipt of such written
notification, the partnership shall not
rely on any certificate submitted by that
foreign partner for the partnership
taxable year to which the defective
certificate relates (or any subsequent
partnership taxable year), until the IRS
provides written notification to the
partnership revoking or modifying the
original written notification. For
purposes of this section, a foreign
partner’s certificate of deductions and
losses shall be defective if—
(i) The partner is not described in
paragraph (b) of this section;
(ii) Any deductions or losses set forth
in such certificate are not described in
paragraph (c)(1)(i) of this section;
(iii) The timing requirements under
paragraph (c)(2) of this section for
submitting an original certificate, an
updated certificate or a status update to
the partnership are not met;
(iv) The certificate does not include
all of the information required by
paragraph (c)(2)(i) of this section;
(v) Any representation made on the
certificate is incorrect;
(vi) The actual amount of deductions
and losses available to the partner is less
than the amount of deductions and
losses certified to the partnership for the
partnership taxable year and considered
by the partnership in determining its
1446 tax due; or
(vii) There is a failure to comply with
any other provision of this section.
(4) Partner to receive copy of notice.
If the IRS notifies a partnership under
paragraph (c)(3) of this section that a
certificate of a foreign partner is
defective, the IRS shall send a copy of
such notice to the partner’s address as
shown on the certificate. The

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23079

partnership shall also promptly furnish
a copy of the IRS notice to such partner.
(5) Notification to partnership when
no foreign partner’s certificate can be
relied upon. If the IRS determines, in its
discretion based on all the facts and
circumstances, that there would be a
substantial reduction in section 1446 tax
as a result of the submission of one or
more defective certificates or that a
substantial portion of all certificates
being submitted by partners to the
partnership and by the partnership to
the IRS are defective (or lack
information sufficient to make this
determination), then the IRS shall notify
the partnership of such determination in
writing. Upon receipt of such written
notification, the partnership shall not
rely on any certificate submitted by any
partner for the partnership taxable year
to which the notice relates or any
subsequent partnership taxable year,
until the IRS provides written
notification to the partnership revoking
or modifying the original notice.
(6) Partnership notification to partner
regarding use of deductions and losses.
Unless § 1.1446–3(d)(1)(i)(A) or (B)
applies (relating to waiver of notice of
tax paid during the partnership taxable
year), a partnership must notify each
foreign partner of the amount of such
partner’s certified deductions and losses
and state and local taxes, if any, taken
into account under this paragraph (c) in
determining the 1446 tax due with
respect to such partner for each
installment period or Form 8804 filing
date, as applicable.
(7) Partner’s certificate valid only for
partnership taxable year for which
submitted. A partnership that receives a
certificate from a partnership under this
paragraph (c) shall consider such
certificate only for the partnership
taxable year for which the certificate is
submitted, as set forth on the certificate.
(d) Effect of certificate of deductions
and losses on partners and
partnership—(1) Effect on partner—(i)
No effect on liability for income tax of
foreign partner. A foreign partner that
certifies deductions and losses to a
partnership under this section is not
relieved of liability for income tax on its
allocable share of ECTI from the
partnership. Further, the submission of
a certificate under this section does not
constitute an acceptance by the IRS of
the amount or character of the
deductions or losses certified therein.
(ii) No effect on partner’s estimated
tax obligations. A foreign partner that
certifies deductions and losses to a
partnership under this section is not
relieved of any estimated tax obligation
otherwise applicable to such partner

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with respect to income or gain allocated
to such partner from the partnership.
(iii) No effect on partner’s obligation
to file U.S. income tax return. The
submission of a certificate under
paragraph (c) of this section does not
relieve the foreign partner from its
obligation to file a U.S. income tax
return even if as a result of the
partnership considering the certificate
the partner would have no additional
tax due with such return. See also
§ 1.1446–3(f).
(2) Effect on partnership—(i)
Reasonable reliance to relieve
partnership from addition to tax under
section 6655. A partnership that has
reasonably relied on a certificate
received from a foreign partner and
complied with the filing requirements of
paragraph (d)(3)(i) of this section, shall
not be liable for any addition to tax
under section 6655 (as applied through
§ 1.1446–3) for any period during which
the partnership reasonably relied on
such certificate, even if such certificate
is later determined to be defective or the
partner submits an updated certificate
under paragraph (c)(2) of this section
that increases the 1446 tax due with
respect to such partner.
(ii) Continuing liability for
withholding tax under section 1461 and
for applicable interest and penalties—
(A) In general. Except as otherwise
provided in this section, a partnership
that has reasonably relied on a
certificate received from a foreign
partner and complied with the filing
requirements of paragraph (d)(3)(i) of
this section, is not relieved from
liability for the 1446 tax (or any
installment of such tax) under section
1461, any additions to the tax, interest
or penalties. However, the partnership
may be relieved of additions to the tax
or penalties in certain circumstances.
See §§ 301.6651–1(c) and 301.6724–1 of
this chapter. Further, see § 1.1446–3(e)
which deems a partnership to have paid
1446 tax with respect to ECTI allocable
to a partner in certain circumstances.
See also paragraph (e)(2) Example 5 of
this section.
(B) Certificate defective because of
amount or character of deductions and
losses. If a certificate is determined to be
defective because the actual amount of
deductions and losses available to the
partner is less than the amount reflected
on the certificate (other than when it is
determined that the partner certified the
same deduction or loss to more than one
partnership), or because the character of
the certified deductions and losses is
erroneous, the partnership shall be
liable for 1446 tax under section 1461
(or any installment of such tax) with
respect to such partner to the extent the

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partnership considered an amount of
certified deductions and losses greater
than the amount actually available to
the partner and permitted to be used
under §§ 1.1446–1 through 1.1446–5
and this section, or to the extent that the
proper character of the certified
deductions and losses results in a
greater amount of 1446 tax due with
respect to such partner. See paragraph
(e)(2) Example 6 of this section.
(3) Partnership level rules and
requirements—(i) Filing requirement. A
partnership that relies in whole or in
part on a certificate received from a
partner under this section in computing
its 1446 tax due with respect to such
partner must still file Form 8813 or
Form 8804 and 8805, whichever is
applicable, for the period for which the
certificate is considered, even if as a
result of relying on the certificate no
1446 tax (or an installment of such tax)
is due with respect to such foreign
partner. See generally § 1.1446–3(d)(1).
Except as otherwise provided in this
paragraph (d)(3)(i), the partnership must
attach a copy of the foreign partner’s
certificate, and the computation of the
1446 tax due with respect to such
partner, to both the Form 8813 and
Form 8805 filed with the IRS for any
installment period or year for which
such certificate is considered in
computing the partnership’s 1446 tax.
See § 1.1446–3(d)(1)(iii) requiring the
partnership to furnish Form 8805 to the
IRS and such foreign partner even if no
1446 tax is paid on behalf of the partner.
The partnership must include in that
computation the amount of state and
local taxes described in paragraph
(c)(1)(iii) of this section taken into
account in computing the 1446 tax due
with respect to that partner. The
partnership must also attach a
computation of the 1446 tax due with
respect to a partner for whom only state
and local taxes described in paragraph
(c)(1)(iii) are taken into account. For an
installment period other than the first
installment period for which the
partnership considers a foreign partner’s
certificate or updated certificate, the
partnership may, instead of attaching
any partner’s certificate, attach to Form
8813 a list containing the name, TIN,
the amount of certified deductions and
losses, and the amount of state and local
taxes the partnership may consider
under paragraph (c)(1)(iii) of this section
for each foreign partner whose
certificate was relied upon. For
purposes of the preceding sentence, if
the partnership is relying on a certificate
received under paragraph (c)(1)(ii) of
this section, instead of providing the
amounts described in the prior

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sentence, it should attach a statement to
Form 8813 which provides that, relying
on that certificate, no 1446 tax is due
with respect to that partner.
(ii) Reasonable cause for failure to
timely file a valid certificate and
computation. This paragraph (d)(3)(ii)
provides the sole source of relief for a
partnership that fails to timely file a
valid certificate or attach a computation
of 1446 tax as required under paragraph
(d)(3)(i) of this section. To permit the
partnership to reasonably rely on such
certificate, the partnership shall be
considered to have satisfied the
requirements of paragraph (d)(3)(i) of
this section if the partnership
demonstrates to the Area Director, Field
Examination, Small Business/SelfEmployed or the Director, Field
Operations, Large and Mid-Size
Business (Director) having jurisdiction
of the partnership’s return for the
taxable year, that such failure was due
to reasonable cause and not willful
neglect and if once the partnership
becomes aware of the failure, the
partnership attaches the certificate and
computation, as well as a written
statement setting forth the reasons for
the failure to comply with the
requirements of paragraph (d)(3)(i) of
this section, to an amended Form 8813
or amended Forms 8804 and 8805 for
the relevant period.
(A) Determining reasonable cause. In
determining whether the partnership
has reasonable cause, the Director shall
consider whether the partnership acted
reasonably and in good faith
considering all the facts and
circumstances.
(B) Notification. If the IRS has
notified, as provided in paragraph (c)(3)
of this section, the partnership that the
certificate is defective or that no foreign
partner’s certificate may be relied upon,
as provided in paragraph (c)(5) of this
section, the partnership will be deemed
not to have acted reasonably and in
good faith. Otherwise, the Director shall
notify the partnership in writing within
120 days of the amended filing if it is
determined that the failure to comply
was not due to reasonable cause, or if
additional time will be needed to make
such determination. If the Director fails
to notify the partnership within 120
days of the amended filing, the
partnership shall be considered to have
demonstrated to the Director that such
failure was due to reasonable cause and
not willful neglect.
(e) Examples. (1) The rules of this
section are illustrated by the examples
in paragraph (e)(2) of this section.
Except as otherwise provided, in each
example assume:

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(i) Section 1.1446–3(b)(2)(v)(F)
(relating to the de minimis exception to
paying 1446 tax) does not apply;
(ii) Paragraph (c)(1)(ii) of this section
(relating to a nonresident alien
individual partner whose sole
investment generating effectively
connected income or gain is the
partnership) does not apply;
(iii) All income and losses are
ordinary;
(iv) For purposes of applying
paragraph (c)(1)(i)(C) of this section, the
percentage limitation under section
56(a)(4) and (d) is 90 percent;
(v) Any loss is not a passive activity
loss within the meaning of section 469;
(vi) The partnership uses an
acceptable annualization method under
§ 1.1446–3;
(vi) NRA is a nonresident alien
individual who maintains a calendar
taxable year for U.S. tax purpose;
(vii) B and C are U.S. individuals who
maintain a calendar taxable year; and
(viii) Any partnership maintains a
calendar taxable year.
(2) The examples are as follows:
Example 1. Qualifying U.S. income tax
return. (i) NRA and B form a partnership
(PRS) in year 4 to conduct a trade or business
in the United States. NRA and B provide PRS
appropriate documentation under § 1.1446–1
to establish their status for purposes of
section 1446. NRA submits a certificate to
PRS (using Form 8804–C) on March 20, year
4, to be considered by PRS in determining its
1446 tax due with respect to NRA for the first
installment period in the year 4. The Form
8804–C states that NRA reasonably expects to
have an effectively connected net operating
loss of $5,000 available to offset its allocable
share of ECTI from PRS in year 4. Prior to
year 4, NRA had not submitted a certificate
to a partnership under this section. NRA filed
(or will file) its year 1 U.S. income tax return
on March 11, year 3; its year 2 U.S. income
tax return on February 12, year 4; its year 3
U.S. income tax return on April 13, year 4;
and its year 4 U.S. income tax return on May
14, year 5. NRA paid or (will pay) all
amounts due with respect to the returns
(including interest, penalties, and additions
to tax, if any) by the date they are filed.
NRA’s years 1 though 3 U.S. income tax
returns report income or gain effectively
connected with a U.S. trade or business or
deductions or losses properly allocated and
apportioned to such activities.
(ii) To be eligible to submit a certificate of
deductions and losses to PRS under this
section, NRA must satisfy the requirements
of paragraph (b)(1) of this section. In
accordance with § 1.1446–1, NRA provided
valid documentation to PRS to establish its
status for purposes of section 1446. NRA’s
year 1 U.S. income tax return is a qualifying
U.S. income tax return because it reported
income or gain effectively connected with a
U.S. trade or business or deductions or losses
properly allocated and apportioned to such
activities and is described under paragraph
(b)(2)(iii)(A) of this section. Although NRA

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filed its year 1 return after the due date of
the return (determined under section 6072(c)
without regard to any extension of time to
file) the return was filed on March 11, year
3, which was on or before the earlier of June
15, year 3, the date one year after its section
6072(c) due date without regard to any
extension of time to file, and March 20, year
4, the date on which NRA submitted the
certificate to PRS. NRA’s year 2 U.S. income
tax return is a qualifying U.S. income tax
return because it reported income or gain
effectively connected with a U.S. trade or
business or deductions or losses properly
allocated and apportioned to such activities
and is described under paragraph
(b)(2)(iii)(A) of this section. Although NRA
filed its year 2 return after the due date of
the return (determined under section 6072(c)
without regard to any extension of time to
file) the return was filed on February 12, year
4, which was on or before the earlier of June
15, year 4, the date one year after its section
6072(c) due date without regard to any
extension of time to file, and March 20, year
4, the date on which NRA submitted the
certificate to PRS. NRA’s year 3 U.S. income
tax return is a qualifying U.S. income tax
return because it reported income or gain
effectively connected with a U.S. trade or
business or deductions or losses properly
allocated and apportioned to such activities
and is described under paragraph
(b)(2)(iii)(B) of this section. Because NRA
filed its year 3 U.S. income tax return on
April 13, year 4, the return will be
considered timely-filed under paragraph
(b)(2)(ii) of this section, as the due date under
section 6072(c) was June 15, year 4. NRA’s
year 4 U.S. income tax return is a qualifying
U.S. income tax return because it reported
income or gain effectively connected with a
U.S. trade or business or deductions or losses
properly allocated and apportioned to such
activities and is described under paragraph
(b)(2)(iii)(C) of this section. Because NRA
filed its year 4 U.S. income tax return on May
14, year 5, the return will be considered
timely-filed under paragraph (b)(2)(ii) of this
section. Accordingly, NRA meets the
conditions of paragraph (b)(1) of this section
and is eligible to provide a certificate of
deductions and losses to PRS for year 4.
Example 2. Subsequent year qualifying
U.S. income tax return. (i) Assume the same
facts as in Example 2. Further, NRA and C
form a second partnership (XYZ) in year 7 to
conduct a trade or business in the United
States. NRA and C provide XYZ appropriate
documentation under § 1.1446–1 to establish
their status for purposes of section 1446.
NRA did not submit a certificate under this
section to any partnership for years 5 and 6.
NRA submits a certificate to XYZ (using
Form 8804–C) on April 10, year 7, to be
considered by XYZ in determining its 1446
tax due with respect to NRA for its first
installment period in year 7. The certificate
states that NRA reasonably expects to have
an effectively connected net operating loss of
$8,000 available to offset its allocable share
of ECTI from XYZ in year 7. Further, the
certificate contains all of the necessary
representations required under this section.
NRA will file its U.S. income tax return for
year 5 on March 25, year 7, (after its section

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23081

6072(c) due date and any extension of time
to file that could have been granted under
section 6081), its U.S. income tax return for
year 6 on April 26, year 7; and its U.S.
income tax return for year 7 on May 27, year
8. NRA will pay all amounts due with the
returns (including interest, penalties, and
additions to tax, if any) by the dates they are
filed. NRA’s years 5, 6, and 7 U.S. income tax
returns will report income or gain that is
effectively connected with a U.S. trade or
business or deductions or losses properly
allocated and apportioned to such activities.
(ii) To be eligible to submit a certificate of
deductions and losses to XYZ under this
section, NRA must satisfy the requirements
of paragraph (b)(1) of this section. NRA
provided valid documentation to XYZ in
accordance with § 1.1446–1. As described in
Example 2, NRA’s year 4 U.S. income tax
return is a qualifying U.S. income tax return
because it will report income or gain
effectively connected with a U.S. trade or
business and is described under paragraph
(b)(2)(iii)(C) of this section. Although NRA’s
year 5 U.S. income tax return reports income
or gain effectively connected with a U.S.
trade or business or deductions or losses
properly allocated and apportioned to such
activities it is not a qualifying U.S. tax return
under paragraph (b)(2)(iii) of this section.
Because NRA submitted a certificate to PRS
in year 4, to constitute a qualifying U.S.
income tax return the year 5 U.S. income tax
return must be timely-filed and all amounts
due with such return must be timely paid.
See paragraph (b)(2)(iii)(C) of this section.
However, NRA will not file its U.S. income
tax return for year 5 until March 25, year 7,
(after its section 6072(c) due date and any
extension of time to file that could have been
granted under section 6081). Because the
year 5 tax return is not a qualifying U.S.
income tax return under paragraph (b)(2)(iii)
of this section, NRA does not satisfy the
requirements of paragraph (b)(1)(ii) of this
section and, therefore, may not submit a
certificate of deductions and losses to XYZ
under this section in year 7.
Example 3. General application of the rules
of this section. NRA and B form a partnership
(PRS) to conduct a trade or business in the
United States. NRA and B are equal partners
under the partnership agreement. NRA and B
provide PRS appropriate documentation
under § 1.1446–1 to establish their status for
purposes of section 1446. Prior to the
formation of PRS, NRA had not invested in
or engaged in the conduct of a U.S. trade or
business. PRS incurs a $1,500 effectively
connected net operating loss in years 1 and
2. The loss incurred in each is allocated
equally between NRA and B. NRA has filed
a qualifying U.S. income tax return (within
the meaning of paragraph (b)(2)(iii) of this
section) for years 1 and 2 that report its
allocable share of effective connected net
operating loss allocated to it from PRS, as
reported on the Form 1065 (Schedule K–1)
issued to NRA for each year.
(i) In year 3, NRA may not submit a
certificate to PRS under paragraph (c)
because it will not have filed qualifying U.S.
income tax returns for the preceding three
years. In year 3, PRS has ECTI of $1,000 that
is allocated equally between NRA and B. PRS

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satisfies its 1446 tax obligation with respect
to NRA for year 3.
(ii) In year 4, PRS estimates that it will
have ECTI of $4,000, which will be allocated
equally between NRA and B. On or before
April 15th of year 4 (the first installment due
date), NRA submits a certificate to PRS under
this section (using Form 8804–C) certifying
that it reasonably expects to have an
effectively connected net operating loss of
$1,000 ($750 loss in both years 1 and 2, less
$500 of income in year 3) available to offset
its allocable share of ECTI from PRS in year
4. As of the date the certificate is submitted,
NRA has received the Form 1065 (Schedule
K–1) from PRS for year 3 but has not yet filed
its U.S. income tax return for year 3.
(iii) With respect to year 4, and based upon
paragraph (b)(1) of this section, NRA can
include year 3 (NRA’s preceding taxable
year) as one of the preceding three years that
it has filed or will file qualifying U.S. income
tax returns (within the meaning of paragraph
(b)(2)(iii) of this section). Therefore, provided
PRS has, in accordance with paragraph (a)(2)
of this section, no actual knowledge or reason
to know the certificate is defective, PRS may
reasonably rely on NRA’s certificate.
Accordingly, PRS may consider NRA’s
certificate to reduce the 1446 tax that would
otherwise be required to be paid on NRA’s
behalf. Specifically, subject to paragraph
(c)(1)(i)(C) of this section, the $1,000 of net
losses that have been reported on Forms 1065
(Schedule K–1) issued to NRA that are
available to reduce NRA’s U.S. income tax on
NRA’s allocable share of effectively
connected income or gain allocable from PRS
may be used to reduce the $2,000 of ECTI
estimated to be allocable to NRA. As a result,
PRS must pay 1446 tax on only $1,100 of
NRA’s allocable share of partnership ECTI for
the first installment period in year 5
($2,000¥($1,000 × .90)). PRS must pay 1446
tax of $96.25 for its first installment period
with respect to the ECTI allocable to NRA
($1,100 (net ECTI after considering certified
losses) × .35 (withholding tax rate) × .25
(section 6655(e)(2)(B) percentage for the first
installment period)). See § 1.1446–3(b)(2).
Pursuant to paragraph (d)(3) of this section,
PRS must attach NRA’s certificate and PRS’s
computation of its 1446 tax obligation with
respect to NRA to its Form 8813,
‘‘Partnership Withholding Tax Payment
Voucher (Section 1446),’’ filed for the first
installment period. Under paragraph
(c)(2)(ii)(B) of this section, NRA is required
to provide an updated certificate on or before
the 10th day after NRA files its U.S. income
tax return for year 3, even if the updated
certificate results in no change to the amount
of deductions and losses reported on the
superseded certificate.
(iv) The results are the same if NRA had
not yet received a Form 1065 (Schedule K–
1) from PRS for year 3. See paragraph
(c)(1)(i)(A) of this section.
Example 4. Updated certificate submitted
for losses. On January 1, year 8, NRA and B
form a partnership (PRS) to conduct a trade
or business in the United States. NRA and B
are equal partners in PRS. NRA and B
provide PRS appropriate documentation
under § 1.1446–1 to establish their status for
purposes of section 1446. During years 1

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through 7 NRA held an interest in another
partnership (XYZ) that conducted a trade or
business in the United States. NRA timelyfiled (within the meaning of paragraph (b)(2)
of this section) a U.S. income tax return years
1 through 6 reporting its allocable year of
ECTI (or loss) from XYZ (and timely paid all
tax shown on such returns). NRA files its
U.S. income tax return for year 7 on June 9,
year 8 (and timely pays all tax due with such
return). Therefore, NRA has filed qualifying
U.S. income tax returns (within the meaning
of paragraph (b)(2)(iii) of this section) for
years 1 through 7. During years 1 through 7,
NRA’s only investment generating effectively
connected items was its interest in XYZ. The
XYZ partnership liquidated and ceased doing
business on December 31, year 7.
(i) On or before April 15, year 8, PRS
receives from NRA a valid certificate under
this section using Form 8804–C in which
NRA certifies that it reasonably expects to
have available effectively connected net
operating losses in the amount of $5,000.
Among other statements made in accordance
with paragraph (c) of this section, NRA
represents that it has not yet filed its year 7
U.S. income tax return, but will timely file
such return (and timely pay all tax due with
such return). For its first installment period
in year 8, PRS estimates that it will earn
taxable income of $10,000 for the year which
will be allocated equally to NRA and B
(NRA’s allocable share of PRS’s ECTI is
$5,000).
(ii) Provided PRS has, in accordance with
paragraph (a)(2) of this section, no actual
knowledge or reason to know the certificate
is defective, PRS may reasonably rely on
NRA’s certificate when computing its 1446
tax obligation for the first installment period.
PRS is limited under paragraph (c)(1)(i)(C) of
this section and PRS may only consider
$4,500 ($5,000 × .90) of the certified net
operating loss. After consideration of the
certified loss, PRS owes 1446 tax in the
amount of $43.75 for the first installment
period ($5,000 estimated allocable ECTI less
$4,500 (certified loss as limited under
paragraph (c)(1)(i)(C)) × .35 (1446 tax
applicable percentage) × .25 (section
6655(e)(2)(B) percentage for the first
installment period)). See § 1.1446–3(b)(2).
Pursuant to paragraph (d)(3) of this section,
PRS must attach a copy of NRA’s certificate
and the computation of 1446 tax due with
respect to NRA to the Form 8813 filed with
respect to NRA.
(iii) PRS’s estimate of ECTI allocable to
NRA for the second installment period
remains unchanged from the first installment
period. On June 10, year 8, NRA provides
PRS an updated certificate reporting that
NRA now reasonably expects to have an
effectively connected net operating loss of
$4,000 available to offset its allocable share
of ECTI from PRS in year 4. NRA provided
the updated certificate within 10 days of
filing its U.S. income tax return for the year
7 taxable year, as required by paragraph
(c)(2)(ii)(B) of this section. Provided the
updated certificate is otherwise valid, PRS
may rely on the updated certificate for the
second installment period (due date June 15,
year 8). Even if the updated certificate were
not valid, PRS could no longer rely on the
original certificate.

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(iv) Under paragraph (d) of this section,
PRS is not relieved from liability for the 1446
tax due with respect to NRA under section
1461 if it relies on a certificate determined
to be defective, or if it receives an updated
certificate reporting an amount of deductions
and losses less than the amount reported on
the superseded certificate. Under the
principles of section 6655 (as applied
through § 1.1446–3), PRS is required to have
paid 50-percent of the annualized 1446 tax
due with respect to NRA on or before the due
date of the second installment period (section
6655(e)(2)(B) percentage for the second
installment period). Under paragraph
(c)(2)(ii)(B) of this section, because NRA’s
updated certificate is valid for the second
installment period, if PRS considers a
certificate for that period it must consider the
updated certificate. Under paragraph
(c)(1)(i)(C) of this section, PRS can only
consider $3,600 ($4,000 × .90) of NRA’s
updated effectively connected net operating
loss. Assuming PRS considers NRA’s
updated certificate for the second installment
period, PRS must have paid a total of $245
of 1446 tax with respect to the ECTI
estimated to be allocable to NRA as of the
second installment due date ($1,400 ($5,000
ECTI less $3,600 net operating loss
deduction) × .35 (withholding tax rate) × .50
(section 6655(e)(2)(B) percentage for the
second installment period)). After
considering PRS’s payment of 1446 tax for
the first installment period, PRS is required
to pay $201.25 for the second installment
period ($245 less previous payment of
$43.75). See § 1.1446–3(b)(2). Further, if PRS
considers NRA’s updated certificate for the
second installment period, when PRS files
Form 8813 it must attach the updated
certificate along with PRS’s computation of
1446 tax due with respect to NRA.
(v) Under paragraph (d) of this section, PRS
is not liable for the addition to the tax under
section 6655 (as applied through § 1.1446–3)
for the first installment period because PRS
reasonably relied on NRA’s certificate of
losses for that period.
(vi) Assume that PRS’s estimate of its ECTI
allocable to NRA for the third and fourth
installment periods is the same as for the first
and second installment periods. Assume PRS
may reasonably rely on NRA’s updated
certificate in calculating its payment of 1446
tax for the third and fourth installment
periods. The third installment of 1446 tax
would be $122.50 (($5,000 ¥ $3,600) × .35
× .75 = $367.50 ¥ $245 (total previous
payments)). The fourth installment of 1446
tax would be $122.50 (($5,000 ¥ $3,600) ×
.35 × 1.00 = $490 ¥ $367.50 (total previous
payments)). See § 1.1446–3(b)(2). PRS must
attach to each Form 8813 a computation of
the 1446 tax due with respect to NRA that
takes into account the amount of effectively
connected net operating loss reported on
NRA’s updated certificate.
(vii) Because NRA’s certified net operating
loss has not changed for the third and fourth
installments, in lieu of attaching NRA’s
certificate, PRS may attach a statement
containing NRA’s name, TIN, and the
certified net operating loss amount. However,
PRS must attach NRA’s certificate and a
computation of the 1446 tax due with respect

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to NRA that takes into account NRA’s
certified net operating loss to the Form 8805
filed with respect to NRA. See paragraph
(d)(3) of this section.
Example 5. IRS determines in subsequent
taxable year that partner’s certificate is
defective because partner failed to timely file
a U.S. income tax return. NRA and B form
a partnership (PRS) in year 1 to conduct a
trade or business in the United States. NRA
and B provide PRS appropriate
documentation under § 1.1446–1 to establish
their status for purposes of section 1446. In
year 4, NRA timely submits a certificate
under this section (using Form 8804–C) to be
considered by PRS for its first installment
period. The certificate reports that NRA
reasonably expects to have an effectively
connected net operating loss of $5,000
available to offset its allocable share of ECTI
from PRS in year 4. Further, the certificate
contains all of the necessary representations
required under this section. PRS estimates for
each installment period that NRA’s allocable
share of ECTI will be $5,000 for the taxable
year. PRS’s actual operating results for the
year result in $5,000 of ECTI allocable to
NRA.
(i) PRS reasonably relies on (within the
meaning of paragraph (a)(2) of this section)
NRA’s certificate when computing each
installment payment during year 4 and the
1446 tax due on Form 8804 and
appropriately considers the limitation in
paragraph (c)(1)(i)(C) of this section. As a
result, PRS paid $175 of 1446 tax on behalf
of NRA for the taxable year ($5,000 of ECTI
less $4,500 net operating loss deduction × .35
applicable percentage). As required under
paragraph (d) of this section, PRS attached
the certificate to the Form 8813 for the first
installment period and the Form 8805 for
year 4. Because NRA did not submit an
updated certificate to PRS in year 4, PRS
attached to the Forms 8813 for the second,
third and fourth installment periods a
statement containing NRA’s name, TIN, and
the certified net operating loss as well as the
computation of 1446 tax due with respect to
NRA reflecting the amount of net operating
loss considered.
(ii) In year 5, NRA timely submits to PRS
a certificate under this section to be
considered for the first installment period.
The certificate represents that NRA
reasonably expects to have an effectively
connected net operating loss of $5,000
available to offset its allocable share of ECTI
from PRS in year 5. For the first installment
period, PRS estimates that NRA’s allocable
share of partnership ECTI is $5,000. PRS
reasonably relies on the certificate for the
first installment period and determines that
it is required to make a 1446 tax installment
payment of $43.75 ($5,000 allocable ECTI
less $4,500 (certified net operating loss as
limited under paragraph (c)(1)(i)(C) of this
section) × .35 (1446 tax applicable
percentage) × .25 (section 6655(e)(2)(B)
percentage for the first installment period)).
See § 1.1446–3(b)(2). PRS makes the
installment payment with the Form 8813
filed for the first installment period, and
complies with paragraph (d)(3) of this section
by attaching NRA’s certificate and the
computation of 1446 tax due with respect to
NRA to the Form 8813.

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(iii) The IRS provides written notification
to PRS on June 1, year 5, (pursuant to
paragraph (c)(3) of this section) that the
certificate received from NRA in year 4 is
defective because NRA failed to file a
qualifying U.S. income tax return (within the
meaning of paragraph (b)(2)(iii) of this
section) for one of the preceding taxable
years as required under paragraph (b)(1) of
this section. The notice further states that
PRS is not to rely on any certificate received
from NRA in year 5.
(iv) Under paragraph (d)(2)(ii) of this
section, because the certificate submitted by
NRA in year was determined to be defective
for a reason other than the amount or
character of the certified deductions and
losses, under section 1461 PRS is fully liable
for the 1446 tax due with respect to NRA’s
allocable share of ECTI year 4 without regard
to the certificate. The total 1446 tax due for
year 4 without regard to the certificate is
$1,750 ($5,000 ECTI × .35) and PRS paid
$175 of 1446 tax in year 4. Therefore, PRS
owes $1,575 of 1446 tax. However, PRS may
be deemed to have paid the outstanding 1446
tax due if NRA paid all of its U.S. tax due
in year 4. See § 1.1446–3(e).
(v) However, because PRS did not have
actual knowledge or reason to know that the
certificate NRA submitted in year 4 was
defective, PRS reasonably relied on the
certificate for purposes of paragraph (d)(2) of
this section. Therefore, PRS is not liable for
an addition to the tax with respect to its
underpayment of 1446 tax under the
principles of section 6655 (as applied
through § 1.1446–3) for any installment
period in year 4.
(vi) However, PRS is generally liable for
interest under section 6601 and for the
failure to pay addition to tax under section
6651(a)(2) on the $1,575 of 1446 tax due for
year 4 for the period from April 15, year 5
(last date prescribed for payment of 1446 tax)
to the date PRS pays the 1446 tax or is
deemed to have paid the 1446 tax under
§ 1.1446–3(e).
(vii) With respect to the year 5, PRS
reasonably relied on NRA’s certificate when
computing its first installment payment (due
on April 15, year 5). Therefore, in accordance
with paragraph (d)(2)(i) of this section, PRS
will not be liable for an addition to the tax
under the principles of section 6655 (as
applied through § 1.1446–3) for the first
installment period. However, because the IRS
provided written notification to PRS on June
1, year 5, to disregard any certificate received
from NRA for year 5, PRS may not rely on
any certificate received from NRA certificate
(or any new certificate provided by NRA)
when it computes its second installment
payment in year 5. PRS is not permitted to
consider any certificate submitted by NRA
until the IRS provides written notification to
PRS revoking or modifying the original
notice. PRS’s second installment payment in
year 5 must include the additional amount of
1446 tax it would have paid for the first
installment period without regard to the
certificate received from NRA.
Example 6. IRS determines in subsequent
taxable year that partner’s certificate is
defective because partner’s actual losses are
less than amount certified and considered by

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23083

the partnership. Assume the same facts as in
Example 5, except that the IRS determines
that NRA’s certificate submitted in year 4 is
defective because the actual effectively
connected net operating loss available to
NRA for year 4 was $1,000 rather than the
$5,000 certified.
(i) Under paragraph (d)(2)(ii) of this
section, PRS is not relieved from its liability
for 1446 tax under section 1461 when it
relies on a certificate of losses from a foreign
partner that is later determined to be
defective. However, when the IRS determines
that a partner’s certificate is defective
because of the amount of the certified
deductions and losses, the partnership is
liable for the 1446 tax, interest, additions to
tax, and penalties to the extent the amount
of certified deductions and losses taken into
account when computing 1446 tax (or, unless
there was reasonable reliance on the
certificate, any installment of such tax) is
greater than the actual amount of available
deductions and losses. Here, PRS considered
the certified deductions and losses in the
amount of $4,500. The IRS subsequently
determined that NRA only had $1,000 of
actual losses, only $900 of which were
permitted to be considered under paragraph
(c)(1)(i)(C) of this section. Accordingly, PRS
is liable for the 1446 tax due with respect to
the portion of the overstated losses that it
considered when computing its 1446 tax. The
remaining 1446 tax due for year 4 is $1,260
($3,600 ($4,500 less $900) of excess losses
considered × .35). However, PRS may be
deemed to have paid the $1,260 of 1446 tax
under § 1.1446–3(e) if NRA has paid all of
NRA’s U.S. income tax.
(ii) If PRS had considered only $900 (or a
lesser amount)) of NRA’s certified net
operating loss when computing and paying
its 1446 tax during year 4 then, under
paragraph (d)(2)(iii) of this section, PRS
would not be liable for 1446 tax because it
did not consider a net operating loss greater
than the amount actually available to NRA.
Example 7. Partner with different taxable
year than partnership. PRS partnership has
two equal partners, FC, a foreign corporation,
and DC, a domestic corporation. PRS
conducts a trade or business in the United
States and generates effectively connected
income. FC maintains a June 30 fiscal taxable
year end, while DC and PRS maintain a
calendar taxable year end. FC and DC
provide a valid Form W–8BEN and Form W–
9, respectively, to PRS. FC and DC are the
only persons that have ever been partners in
PRS. For its year 1 through year 3 taxable
years, PRS issued Forms 1065 (Schedule K–
1) reporting in the aggregate $100 of net loss
to each partner. For its year 4 taxable year,
PRS issued Forms 1065 (Schedule K–1) to its
partners reporting $150 of loss to each
partner. All of the losses reported on the
Forms 1065 (Schedule K–1) are effectively
connected to PRS’s and FC’s trade or
business in the United States.
(i) Assume that FC submits a valid
certificate under this section certifying losses
to the partnership for the partnership’s year
5 taxable year. Further, assume that FC’s only
source of effectively connected income, gain,
deduction, or loss is the activity of PRS.
(ii) For PRS’s first installment period in
year 5, FC may only certify deductions and

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Federal Register / Vol. 73, No. 83 / Tuesday, April 29, 2008 / Rules and Regulations

losses under this section in the amount of
$100 (the losses as reported on the Forms
1065 (Schedule K–1) issued for PRS’s year 1
through 3 taxable years). Under section 706,
the taxable income of a partner shall include
the income, gain, loss, deduction, or credit of
the partnership for the partnership taxable
year ending within or with the taxable year
of the partner. PRS’s year 4 calendar taxable
year ends during FC’s fiscal taxable year
ending June 30, year 5. Therefore, under
paragraph (c)(1) of this section, as of April
15, year 5 (the last date FC may submit its
first certificate under paragraph (c) of this
section to have it considered for PRS’s first
installment due date of April 15, year 5), FC’s
allocable share of the PRS losses for years 1
through 3 are the only losses that FC can
represent have been or will be reported on an
FC U.S. income tax return filed for a taxable
year ending prior to such installment due
date.
(iii) The result in paragraph (ii) of this
Example 7 is the same for the year 5 second
installment period, the due date of which is
June 15, year 5.
(iv) FC may submit an updated certificate
under this section after June 30, year 5,
which includes the $150 loss for year 4. PRS
may consider such an updated certificate for
its third installment period (due date
September 15, year 5), provided the updated
certificate is received by the due date for
such installment in accordance with
paragraph (c) of this section.
Example 8. Failure to provide status
update with respect to prior year unfiled
returns. FC, a foreign corporation, and DC, a
domestic corporation, form a partnership
(PRS) to conduct a trade or business in the
United States. FC and DC provide PRS
appropriate documentation under § 1.1446–1
to establish their status for purposes of
section 1446. FC and DC are equal partners
in PRS, and all partnership items are
allocated equally between FC and DC.
(i) In the current taxable year FC submits
a certificate under this section using Form
8804–C prior to PRS’s first installment due
date. FC represents that it has filed or will
file a qualifying U.S. income tax return
(within the meaning of paragraph (b)(2)(iii) of
this section) in each of the preceding three
taxable years. FC specifies that it has not
filed its U.S. income tax return for the
immediately preceding taxable year. FC also
represents that it will timely file its U.S.
income tax return for the partnership taxable
year during which the certificate is
considered (and will timely pay all tax due
with such return). Assume all other
requirements under paragraph (c) of this
section are met for FC’s certificate to be valid.
(ii) Provided that PRS does not possess
actual knowledge or reason to know that FC’s
certificate is defective under paragraph (a)(2)
of this section, PRS may reasonably rely on
FC’s certificate for its first, second, and third
installment payments.
(iii) If FC does not submit to PRS either an
updated certificate or a status update as
required by paragraph (c)(2)(ii)(B)(1) of this
section by December 15th (PRS’s final
installment due date), PRS must disregard
FC’s certificate when computing its fourth
installment payment of 1446 tax and when

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completing its Form 8804 for the taxable
year. PRS’s payment of 1446 tax for its fourth
installment period must include the
additional amount of 1446 tax it would have
paid in the first, second and third installment
periods had it not considered FC’s certificate.
Further, even if the status update is provided
by December 15th, PRS may only rely on the
certificate if the status update does not
contradict the original certificate and such
update indicates that the immediately
preceding year’s return will be timely filed.
Finally, even if the status update is provided
by December 15th, FC must also submit an
updated certificate to the partnership in
accordance with paragraph (c) of this section
within 10 days of the date FC timely files its
U.S. income tax return for the preceding
taxable year.
Example 9. Partnership consideration of
certified deductions and losses or de minimis
certificate. For purposes of this example
assume paragraph (c)(1)(ii) of this section
may apply. On January 1, year 4, NRA and
B form a partnership (PRS) to conduct a trade
or business in the United States. NRA and B
are equal partners in PRS and all partnership
items are shared equally. NRA and B provide
PRS appropriate documentation under
§ 1.1446–1 to establish their status for
purposes of section 1446. During years 1
through 3, NRA’s only activity generating
effectively connected items was an interest in
partnership XYZ. XYZ allocated NRA a loss
for all three years. NRA filed qualifying U.S.
income tax returns (within the meaning of
paragraph (b)(2)(iii) of this section) reporting
its allocable share of losses from XYZ in
years 1 through 3. The XYZ partnership
dissolved on December 31, year 3.
(i) In year 4, NRA’s only activity giving rise
to effectively connected income, gain,
deduction, or loss is its interest in PRS. NRA
submits to PRS a valid certificate (using Form
8804–C) certifying under paragraph (c)(1)(i)
its effectively connected net operating losses
from years 1 through 3 and under (c)(1)(ii) of
this section that its only activity giving rise
to effectively connected income, gain,
deduction, or loss for the PRS taxable year
that ends with or within its taxable year is
(and will be) its investment in PRS.
(ii) During year 4, PRS allocates ECTI to
NRA. If the 1446 tax otherwise due on the
annualized amount allocated to NRA is less
than $1,000, determined without regard to
any deductions and losses certified by NRA
under paragraph (c)(1)(i) of this section, PRS
may consider the certificate received from
NRA under paragraph (c)(1)(ii) of this section
and not pay 1446 tax (or any installment of
such tax) with respect to NRA. Alternatively,
PRS may consider the deductions and losses
certified by NRA under paragraph (c)(1)(i) of
this section.
(iii) Regardless of whether PRS considers
NRA’s certification under paragraph (c)(1)(i)
or (c)(1)(ii) of this section in computing its
1446 tax due with respect to NRA, PRS must
file Form 8813 for all installment periods as
well as a Form 8805 for NRA with its Form
8804. If PRS considers NRA’s certification
under paragraph (c)(1)(i) or (c)(1)(ii) of this
section, PRS must attach to each Form 8813,
as well as to the Form 8805, a computation
of the 1446 tax with respect to NRA that

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takes into account its consideration of NRA’s
certificate. In addition, PRS must attach
NRA’s certificate to the Form 8813 for the
first installment period it considers the
certificate, as well as to the Form 8805. For
all subsequent installment periods, PRS may
attach a statement containing NRA’s name,
and TIN. If PRS is relying on NRA’s certified
losses under paragraph (c)(1)(i) of this
section, the statement must indicate the
amount of losses and deductions NRA
certified. If PRS is relying on NRA’s
certification under paragraph (c)(ii) of this
section, the statement must indicate that it is
relying on NRA meeting the requirements
under paragraph (c)(1)(ii) of this section and
the 1446 tax on the annualized amount
allocated to NRA is less than $1,000. See
paragraph (d)(3)(i) of this section.
Example 10. Application of transition rule.
NRA and B form a partnership (PRS) on
January 1, 2004, to conduct a trade or
business in the United States. NRA and B are
equal partners in PRS and all partnership
items are shared equally. NRA and B provide
PRS appropriate documentation under
§ 1.1446–1 to establish their status for
purposes of section 1446. For its 2004
through 2007 tax years, PRS issued Forms
1065 (Schedule K–1) to NRA and B reporting
a $1,000 net loss from its U.S. trade or
business to each partner for each year (for an
aggregate loss of $4,000 per partner). During
the 2004 through 2007 tax years, NRA’s only
activity generating effectively connected
items was its investment in PRS.
(i) On February 10, 2008, NRA submitted
a certificate to PRS, reporting its aggregate
$4,000 effectively connected loss to PRS, that
met the requirements of § 1.1446–6T(c) (See
26 CFR Part 1, revised as of April 1, 2007),
as in effect before January 1, 2008. The
certificate stated that NRA had timely filed
its U.S. income tax returns for the 2004, 2005
and 2006 tax years, and that it would timely
file a U.S. income tax return for its 2007 tax
year. For the first and second installments
period in 2008, PRS estimates that it will
earn ECTI of $10,000.
(ii) Because the certificate submitted by
NRA to PRS on February 10, 2008, met the
requirements of § 1.1446–6T (See 26 CFR Part
1, revised as of April 1, 2007), as in effect
before January 1, 2008, PRS may consider
such certificate when computing its 1446 tax
due for the first and second installment
period even if the certificate does not meet
all the requirements of paragraph (c) of this
section.
(iii) NRA timely files its U.S. income tax
return for the 2007 tax year on July 24, 2008.
In accordance with paragraph (c)(2)(ii)(B)(1)
of this section, within 10 days of filing such
return NRA prepares an updated certificate to
be submitted to PRS certifying that it
reasonably expects to have only $3,500 of
losses available to reduce its allocable share
of ECTI from PRS. Because the updated
certificate will be submitted after July 28,
2008, to be valid the updated certificate must
meet the requirements of paragraph (c) this
section.

(f) Effective/Applicability date. Except
as otherwise provided in this paragraph
(f), the rules of this section are

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Federal Register / Vol. 73, No. 83 / Tuesday, April 29, 2008 / Rules and Regulations
applicable for partnership taxable years
beginning after December 31, 2007. The
rules of paragraphs (b)(3)(i)(B) through
(D) shall apply to partnership taxable
years beginning after July 28, 2008.
(g) Transition rule. A certificate that
met the requirements of § 1.1446–6T(c)
(See 26 CFR Part 1, revised as of April
1, 2007), as in effect before January 1,
2008, submitted on or before July 28,
2008 by a partner that met the
requirements of § 1.1446–6T(b) (See 26
CFR Part 1, revised as of April 1, 2007),
as in effect before January 1, 2008, shall
not be considered defective because it
does not meet the requirements of this
section. However, any certificate
(including any updated certificates and
status updates) submitted, or required to
be submitted, under paragraph (c) of
this section after July 28, 2008, must
meet the requirements of this section.
See paragraph (e)(2) Example 10 of this
section.
■ Par. 8. In § 1.1446–7, the section
heading is revised and two new
sentences are added at the end of the
paragraph to read as follows:
§ 1.1446–7

Effective/Applicability date.

* * * The revisions to §§ 1.1446–
3(b)(2), 1.1446–3(b)(3)(i)(A) and 1.1446–
5(c)(2) contained in the final regulations
published in 2008 apply to partnership
taxable years beginning after December
31, 2007. See § 1.1446–6(f) and (g) for
the Effective/Applicability date and
Transition rule for § 1.1446–6.
■ Par. 9. In § 1.1464–1, paragraph (a) is
amended by adding one sentence at the
end of the paragraph and new paragraph
(c) is added to read as follows:
§ 1.1464–1

Refunds or credits.

(a) * * * With respect to section
1446, this section shall only apply to a
publicly traded partnership described in
§ 1.1446–4.
*
*
*
*
*
(c) Effective/Applicability date. The
last two sentences in paragraph (a) of
this section shall apply to partnership
taxable years beginning after April 29,
2008.
■ Par. 10. In § 1.6071–1, paragraph
(c)(15) is revised and paragraph (d) is
added to read as follows:
§ 1.6071–1 Time for filing returns and
other documents.

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*
*
*
*
(c) * * *
(15) For provisions relating to the
time for filing an annual information
return on Form 1042–S, ‘‘Foreign
Person’s U.S. Source Income subject to
Withholding,’’ or Form 8805, ‘‘Foreign
Partner’s Information Statement of
Section 1446 Withholding Tax,’’ for any

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tax withheld under chapter 3 of the
Internal Revenue Code (relating to
withholding of tax on nonresident
aliens and foreign corporations and taxfree covenant bonds), see § 1.1461–1(c)
and § 1.1446–3(d).
*
*
*
*
*
(d) Effective/Applicability date. The
references to Form 8805 and § 1.1446–
3(d) in paragraph (c)(15) of this section
shall apply to partnership taxable years
beginning after April 29, 2008.
■ Par. 11. In § 1.6091–1, paragraph
(b)(17) and paragraph (c) are added to
read as follows:
§ 1.6091–1 Place for filing returns or other
documents.

*

*
*
*
*
(b) * * *
(17) For the place for filing
information returns on Form 8805,
‘‘Foreign Partner’s Information
Statement of Section 1446 Withholding
Tax,’’ with respect to certain amounts
paid on behalf of foreign partners, see
the instructions to the form.
(c) Effective/Applicability date.
Paragraph (b)(17) of this section shall
apply to partnership taxable years
beginning after April 29, 2008.
■ Par. 12. In § 1.6151–1, paragraph
(d)(2) is amended by adding one
sentence at the end of the paragraph and
paragraph (e) is added to read as
follows:
§ 1.6151–1 Time and place for paying tax
shown on returns.

*

*
*
*
*
(d) * * *
(2) * * * With respect to section
1446, the previous sentence shall apply
only to a publicly traded partnership
described in § 1.1446–4.
(e) Effective/Applicability date.
Paragraph (d)(2) of this section shall
apply to publicly traded partnerships
described in § 1.1446–4 for partnership
taxable years taxable years beginning
after April 29, 2008.
■ Par. 13. In § 1.6302–2, paragraphs
(a)(1)(i), (a)(2) and (g) are revised to read
as follows:
§ 1.6302–2 Use of Government
depositaries for payment of tax withheld on
nonresident aliens and foreign
corporations.

(a) * * * (1) * * *
(i) Monthly deposits. Except as
provided in paragraphs (a)(1)(ii) and (iv)
of this section, every withholding agent
who, pursuant to chapter 3 of the
Internal Revenue Code, has
accumulated at the close of any calendar
month beginning on or after January 1,
1973, an aggregate amount of
undeposited taxes of $200 or more shall

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23085

deposit such aggregate amount with an
authorized financial institution (see
paragraph (b)(1)(ii) of this section)
within 15 days after the close of such
calendar month. However, the
preceding sentence shall not apply if the
withholding agent has made a deposit of
taxes pursuant to paragraph (a)(1)(ii) of
this section with respect to a quarter
monthly period which occurred during
such month. With respect to section
1446, this section shall only apply to a
publicly traded partnership described in
§ 1.1446–4.
*
*
*
*
*
(2) Cross reference. For rules relating
to the adjustment of deposits, see
§§ 1.1461–2(b) and 1.6414–1. For rules
requiring payment of any undeposited
tax, see § 1.1461–1.
*
*
*
*
*
(g) Effective/Applicability date.
Except as otherwise provided, this
section shall apply to tax required to be
withheld under chapter 3 of the Internal
Revenue Code after 1966. The last
sentence of paragraph (a)(1)(i) of this
section shall apply to partnership
taxable years beginning after April 29,
2008.
Par. 14. Section 1.6414–1 is amended
by:
■ 1. Adding two sentences at the end of
paragraph (a)(2).
■ 2. Revising the third sentence of
paragraph (b).
■ 3. Adding paragraph (d).
The additions and revision read as
follows:
■

§ 1.6414–1 Credit or refund of tax withheld
on nonresident aliens and foreign
corporations.

(a) * * *
(2) * * * With respect to the payment
of withholding tax under section 1446,
this section shall only apply to a
publicly traded partnership described in
§ 1.1446–4. See § 1.1446–3(d)(2)(iv) for
rules regarding refunds to a withholding
agent under section 1446.
(b) * * * The amount claimed as a
credit may be applied, to the extent it
has not been applied under § 1.1461–
2(b), by the withholding agent to reduce
the amount of a payment or deposit of
tax required by § 1.1461–1 or § 1.6302–
2(a) for any payment period occurring in
the calendar year following the calendar
year of overwithholding. * * *
*
*
*
*
*
(d) Effective/Applicability date. The
last two sentences of paragraph (a) of
this section shall apply to partnership
taxable years beginning after April 29,
2008.

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Federal Register / Vol. 73, No. 83 / Tuesday, April 29, 2008 / Rules and Regulations

PART 301—PROCEDURE AND
ADMINISTRATION
Par. 15. The authority for 26 CFR part
301 continues to read in part as follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 16. In § 301.6402–3, the second
and third sentences of paragraph (e) are
revised and paragraph (f) is added to
read as follows:

■

§ 301.6402–3
income tax.

Special rules applicable to

*
*
*
*
(e) * * * Also, if the overpayment of
tax resulted from the withholding of tax
at source under chapter 3 of the Internal
Revenue Code, a copy of the Form
1042–S, ‘‘Foreign Person’s U.S. Source
Income subject to Withholding,’’ Form
8805, ‘‘Foreign Partner’s Information
Statement of Section 1446 Withholding
Tax,’’ or other statement (see § 1.1446–
3(d)(2) of this chapter) required to be
provided to the beneficial owner or
partner pursuant to § 1.1461–1(c)(1)(i) or
§ 1.1446–3(d) of this chapter must be
attached to the return. For purposes of
claiming a refund, the Form 1042–S,
Form 8805, or other statement must
include the taxpayer identification
number of the beneficial owner or
partner even if not otherwise required.
* * *
(f) Effective/Applicability date.
References in paragraph (e) of this
section to Form 8805 or other
statements required under § 1.1446–
3(d)(2) shall apply to partnership
taxable years beginning after April 29,
2008.
■ Par. 17. In § 301.6722–1, paragraph
(d)(3) is revised and paragraph (e) is
added to read as follows:

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*

section to Form 8805 shall apply to
partnership taxable years beginning
after April 29, 2008.
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 18. The authority citation for part
602 continues to read as follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 19. In § 602.101, paragraph (b) is
amended by removing the entry for
§ 1.1446–6T from the table, adding an
entry for § 1.1446–6, and revising the
entries to the table to read as follows:

■

§ 602.101

*

OMB Control numbers.

*
*
(b) * * *

*

*

CFR part or section where
identified and described
*
1.1446–1
1.1446–3
1.1446–4
1.1446–5
1.1446–6
*

Current
OMB control
No.

*
*
*
...............................
...............................
...............................
...............................
...............................
*
*
*

Linda E. Stiff,
Deputy Commissioner for Services and
Enforcement.
Approved: April 23, 2008
Eric Solomon,
Assistant Secretary of the Treasury.
[FR Doc. E8–9356 Filed 4–28–08; 8:45 am]
BILLING CODE 4830–01–P

ENVIRONMENTAL PROTECTION
AGENCY

§ 301.6722–1 Failure to furnish correct
payee statements.

40 CFR Part 52

*

[EPA–R05–OAR–2004–WI–0002;
FRL–8557–6]

*
*
*
*
(d) * * *
(3) Other items. The term payee
statement also includes any form,
statement, or schedule required to be
furnished to the recipient of any amount
from which tax is required to be
deducted and withheld under chapter 3
of the Internal Revenue Code (or from
which tax would be required to be so
deducted and withheld but for an
exemption under the Internal Revenue
Code or any treaty obligation of the
United States) (generally the recipient
copy of Form 1042–S, ‘‘Foreign Person’s
U.S. Source Income subject to
Withholding,’’ or Form 8805, ‘‘Foreign
Partner’s Information Statement of
Section 1446 Withholding Tax.’’)
(e) Effective/Applicability date. The
reference in paragraph (d)(3) of this

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1545–1934
1545–1934
1545–1934
1545–1934
1545–1934
*

Approval and Promulgation of Air
Quality Implementation Plans;
Wisconsin; Redesignation of the
Forest County Potawatomi Community
Reservation to a PSD Class I Area
Environmental Protection
Agency (EPA).
ACTION: Final rule.
AGENCY:

SUMMARY: In this final action, EPA is
approving the request by the Forest
County Potawatomi Community’s (FCP
Community) Tribal Council to
redesignate certain portions of the FCP
Community Reservation as a nonFederal Class I area under the Clean Air
Act (Act or CAA) program for the
Prevention of Significant Deterioration

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(PSD) of air quality. These regulations
are designed to preserve the air quality
in national parks and other areas that
are meeting the National Ambient Air
Quality Standards (NAAQS). The Class
I designation will result in lowering the
allowable increases in ambient
concentrations of particulate matter,
sulfur dioxide, and nitrogen dioxide on
the Reservation.
This final rule is effective on
May 29, 2008.

DATES:

EPA has established a
docket for this action under Docket ID
No. EPA–R05–OAR–2004–WI–0002. All
documents in the docket are listed on
the http://www.regulations.gov Web
site. Although listed in the index, some
information is not publicly available,
e.g., confidential business information
or other information whose disclosure is
restricted by statute. Certain other
material, such as copyrighted material,
is not placed on the Internet and will be
publicly available only in hard copy
form. Publicly available docket
materials are available either
electronically through http://
www.regulations.gov or in hard copy at
the Environmental Protection Agency,
Region 5, Air and Radiation Division, 77
West Jackson Boulevard, Chicago,
Illinois 60604–3507. This Facility is
open from 8:30 a.m. to 4:30 p.m. Central
Standard Time, Monday through Friday,
excluding legal holidays. We
recommend that you telephone
Constantine Blathras at 312–886–0671
before visiting Region 5’s office. Hard
copies of these docket materials are also
available in the EPA Headquarters
Library, Room Number 3334 in the EPA
West Building, located at 1301
Constitution Ave., NW, Washington,
DC. The EPA/DC Public Reading Room
hours of operation will be 8:30 a.m. to
4:30 p.m. Eastern Standard Time (EST),
Monday through Friday, excluding legal
holidays. The telephone number for the
Public Reading Room is (202) 566–1744.
ADDRESSES:

FOR FURTHER INFORMATION CONTACT:
Constantine Blathras, Air Permits
Section, Air Programs Branch (AR–18J),
Environmental Protection Agency,
Region 5, 77 West Jackson Boulevard,
Chicago, Illinois 60604–3507; telephone
number: 312–886–0671; fax number:
312–886–5824; e-mail address:
[email protected].
SUPPLEMENTARY INFORMATION:

Throughout this document whenever
‘‘we,’’ ‘‘us,’’ or ‘‘our’’ is used, we mean
EPA.

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29APR1