26 USC 1446 – Withholding of tax on foreign partners’ share of effectively connected income
(a) General rule
If—
(1) a partnership has effectively connected taxable income for any taxable year, and
(2) any portion of such income is allocable under section 704 to a foreign partner,
such partnership shall pay a withholding tax under this section at such time and in such manner as the Secretary shall by regulations prescribe.
(b) Amount of withholding tax
(1) In general
The amount of the withholding tax payable by any partnership under subsection (a) shall be equal to the applicable percentage of the effectively connected taxable income of the partnership which is allocable under section 704 to foreign partners.
(2) Applicable percentage
For purposes of paragraph (1), the term “applicable percentage” means—
(A) the highest rate of tax specified in section 1 in the case of the portion of the effectively connected taxable income which is allocable under section 704 to foreign partners who are not corporations, and
(B) the highest rate of tax specified in section 11(b) in the case of the portion of the effectively connected taxable income which is allocable under section 704 to foreign partners which are corporations.
(c) Effectively connected taxable income
Terms Used In 26 USC 1446
- Affidavit: A written statement of facts confirmed by the oath of the party making it, before a notary or officer having authority to administer oaths.
- foreign: when applied to a corporation or partnership means a corporation or partnership which is not domestic. See 26 USC 7701
- including: when used in a definition contained in this title shall not be deemed to exclude other things otherwise within the meaning of the term defined. See 26 USC 7701
- partner: includes a member in such a syndicate, group, pool, joint venture, or organization. See 26 USC 7701
- Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
- partnership: includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a trust or estate or a corporation. See 26 USC 7701
- person: shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation. See 26 USC 7701
- Real property: Land, and all immovable fixtures erected on, growing on, or affixed to the land.
- Secretary: means the Secretary of the Treasury or his delegate. See 26 USC 7701
- taxable year: means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. See 26 USC 7701
- taxpayer: means any person subject to any internal revenue tax. See 26 USC 7701
- trade or business: includes the performance of the functions of a public office. See 26 USC 7701
- United States: when used in a geographical sense includes only the States and the District of Columbia. See 26 USC 7701
- United States person: means &mdash. See 26 USC 7701
For purposes of this section, the term “effectively connected taxable income” means the taxable income of the partnership which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States computed with the following adjustments:
(1) Paragraph (1) of section 703(a) shall not apply.
(2) The partnership shall be allowed a deduction for depletion with respect to oil and gas wells but the amount of such deduction shall be determined without regard to sections 613 and 613A.
(3) There shall not be taken into account any item of income, gain, loss, or deduction to the extent allocable under section 704 to any partner who is not a foreign partner.
(d) Treatment of foreign partners
(1) Allowance of credit
Each foreign partner of a partnership shall be allowed a credit under section 33 for such partner’s share of the withholding tax paid by the partnership under this section. Such credit shall be allowed for the partner’s taxable year in which (or with which) the partnership taxable year (for which such tax was paid) ends.
(2) Credit treated as distributed to partner
Except as provided in regulations, a foreign partner’s share of any withholding tax paid by the partnership under this section shall be treated as distributed to such partner by such partnership on the earlier of—
(A) the day on which such tax was paid by the partnership, or
(B) the last day of the partnership’s taxable year for which such tax was paid.
(e) Foreign partner
For purposes of this section, the term “foreign partner” means any partner who is not a United States person.
(f) Special rules for withholding on dispositions of partnership interests
(1) In general
Except as provided in this subsection, if any portion of the gain (if any) on any disposition of an interest in a partnership would be treated under section 864(c)(8) as effectively connected with the conduct of a trade or business within the United States, the transferee shall be required to deduct and withhold a tax equal to 10 percent of the amount realized on the disposition.
(2) Exception if nonforeign affidavit furnished
(A) In general
No person shall be required to deduct and withhold any amount under paragraph (1) with respect to any disposition if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor’s United States taxpayer identification number and that the transferor is not a foreign person.
(B) False affidavit
Subparagraph (A) shall not apply to any disposition if—
(i) the transferee has actual knowledge that the affidavit is false, or the transferee receives a notice (as described in section 1445(d)) from a transferor’s agent or transferee’s agent that such affidavit or statement is false, or
(ii) the Secretary by regulations requires the transferee to furnish a copy of such affidavit or statement to the Secretary and the transferee fails to furnish a copy of such affidavit or statement to the Secretary at such time and in such manner as required by such regulations.
(C) Rules for agents
The rules of section 1445(d) shall apply to a transferor’s agent or transferee’s agent with respect to any affidavit described in subparagraph (A) in the same manner as such rules apply with respect to the disposition of a United States real property interest under such section.
(3) Authority of Secretary to prescribe reduced amount
At the request of the transferor or transferee, the Secretary may prescribe a reduced amount to be withheld under this section if the Secretary determines that to substitute such reduced amount will not jeopardize the collection of the tax imposed under this title with respect to gain treated under section 864(c)(8) as effectively connected with the conduct of a trade or business with in the United States.
(4) Partnership to withhold amounts not withheld by the transferee
If a transferee fails to withhold any amount required to be withheld under paragraph (1), the partnership shall be required to deduct and withhold from distributions to the transferee a tax in an amount equal to the amount the transferee failed to withhold (plus interest under this title on such amount).
(5) Definitions
Any term used in this subsection which is also used under section 1445 shall have the same meaning as when used in such section.
(6) Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this subsection, including regulations providing for exceptions from the provisions of this subsection.
(g) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including—
(1) regulations providing for the application of this section in the case of publicly traded partnerships, and
(2) regulations providing—
(A) that, for purposes of section 6655, the withholding tax imposed under this section shall be treated as a tax imposed by section 11 and any partnership required to pay such tax shall be treated as a corporation, and
(B) appropriate adjustments in applying section 6655 with respect to such withholding tax.