IRS extends withholding date for certain PTP transfers, distributions

By Tara Ferris, Hoboken, N.J., and Jonathan Jackel, J.D., Washington, D.C.

Editor: Susan Minasian Grais, CPA, J.D.,LL.M.

The IRS announced in Notice 2021-51 that it will amend the regulations under Secs. 1446(a) and 1446(f) to defer the applicability date of certain provisions by one year to Jan. 1, 2023. The affected provisions relate to withholding (1) on transfers of interests in publicly traded partnerships (PTPs); (2) on distributions made with respect to PTP interests; and (3) by non—publicly traded partnerships on distributions to transferees who failed to withhold properly.

Taxpayers may rely on the modified applicability dates immediately.


Sec. 864(c)(8) treats gain or loss from the disposition of an interest in a partnership that is engaged in a U.S. trade or business by a nonresident alien individual or foreign corporation as effectively connected with the conduct of that U.S. trade or business to the extent the gain or loss is allocable to the partnership's U.S. business assets.

Sec. 1446(f) is a collection mechanism for Sec. 864(c)(8). It generally requires transferees purchasing interests in such partnerships from non-U.S. transferors to deduct and withhold a 10% tax from the amount realized. The regulations on transfers of PTP interests require the tax to be withheld by the transferor's broker. Sec. 1446(f)(4) requires partnerships to withhold tax from future distributions (backstop withholding) to transferees that were required to withhold tax on the amount realized by the non-U.S. transferor but failed to withhold all the tax due. Backstop withholding continues until the amount not withheld, plus interest, is recovered.

The IRS released final regulations (T.D. 9926) under Sec. 1446(f) in October 2020. The regulations were supposed to apply to withholding on certain transfers and distributions on and after Jan. 1, 2022. The IRS said it received comments that taxpayers faced significant challenges to comply by that date.

Dates extended

In response to the comments, the IRS intends to amend the regulations to extend the applicability date for the following provisions:

  • Withholding and reporting on transfers of PTP interests under Sec. 1446(f)(1) that occur on or after Jan. 1, 2023 (Regs. Sec. 1.1446(f)-4(f));
  • Distributions with respect to PTP interests that occur on or after Jan. 1, 2023 (Regs. Sec. 1.1446-4 (as listed in Regs. Sec. 1.1446-7)); and
  • Requiring partnerships to withhold under Sec. 1446(f)(4) on transfers that occur on or after Jan. 1, 2023 (Regs. Sec. 1.1446(f)-3(f)).

The securities industry has consistently told the government that it needs about 18 months to implement a complicated new regime, but it was only given about 15 months from the release of the regulations in October 2020 to the previous effective date of Jan. 1, 2022. There are many unique challenges in implementing Sec. 1446(f) on PTP interest transfers, and the industry can put the additional time to good use.

The extension buys critical time for the IRS to complete additional guidance and for the industry to incorporate that guidance into its procedures. For example, updates to Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, and its instructions are still needed to fully implement PTP withholding. In addition, the IRS is still revising the qualified intermediary withholding agreement, which allows foreign withholding agents to opt in to special documentation and reporting rules, to incorporate Sec. 1446 withholding for the first time.


Susan Minasian Grais, CPA, J.D., LL.M., is a managing director at Ernst & Young LLP in Washington, D.C. For additional information about these items, contact Ms. Grais at 202-327-8788 or

Contributors are members of or associated with Ernst & Young LLP.

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