Proposed rules would govern withholding on transfers of partnership interests

By Sally P. Schreiber, J.D.

The IRS issued proposed regulations (REG-105476-18) on the operation of new Sec. 1446(f), which requires withholding on the transfer of a partnership interest described in Sec. 864(c)(8) (gain or loss of foreign persons from the sale or exchange of certain partnership interests). Sec. 1446(f) was added to the Code by the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97.

Except as otherwise provided in Sec. 1446(f), Sec. 1446(f)(1) requires the transferee to deduct and withhold a tax equal to 10% of the amount realized on the disposition if a portion of the gain would be treated under Sec. 864(c)(8) as effectively connected with the conduct of a trade or business within the United States.

Sec. 1446(f)(2)(A) provides an exception to the Sec. 1446(f)(1) general withholding requirement if the transferor furnishes an affidavit to the transferee stating, under penalties of perjury, the transferor’s U.S. taxpayer identification number (TIN) and that the transferor is not a foreign person. Sec. 1446(f)(2)(B)(i) provides that the exception to withholding will not apply if the transferee has actual knowledge that the affidavit is false or if the transferee receives a notice from a transferor’s agent or a transferee’s agent that the affidavit is false.

Under Sec. 1446(f)(3), if the transferor or transferee requests, the IRS may prescribe a reduced amount to be withheld if the IRS determines that reducing the amount to be withheld will not jeopardize the collection of tax on gain treated under Sec. 864(c)(8) as effectively connected with the conduct of a trade or business within the United States. Sec. 1446(f)(4) provides that if a transferee fails to withhold any amount required to be withheld under Sec. 1446(f)(1), then the partnership must deduct and withhold from distributions to the transferee an amount equal to the amount the transferee failed to withhold, plus interest.

The proposed regulations contain rules governing those requirements. They include:

  • Reporting requirements for foreign transferors and partnerships with foreign transferors;
  • Definitions and general rules of applicability;
  • Withholding on the transfer of a non–publicly traded partnership (PTP) interest by a foreign person, including exceptions to withholding;
  • A partnership’s Sec. 1446(f)(4) requirement to withhold on distributions to a transferee;
  • Withholding on the transfer of a PTP interest by a foreign person;
  • Liability for failure to withhold; and
  • Amendments to existing Sec. 1446 regulations relating to distributions by PTPs.

The IRS is requesting comments and/or requests for a public hearing on the proposed rules by July 12, 2019, and has provided for the regulations to be effective for transfers that occur on or after the date that is 60 days after the date that these regulations are published as final in the Federal Register.

— Sally P. Schreiber, J.D., ( is a Tax Adviser senior editor.

Tax Insider Articles


Business meal deductions after the TCJA

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.


Quirks spurred by COVID-19 tax relief

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.