Code of Federal Regulations · Section

§ 1.1446-4 — -4 Publicly Traded Partnerships

26 C.F.R. § 1.1446-4

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(a) In general. This section sets forth rules for applying the section 1446 withholding tax (1446 tax) to publicly traded partnerships. A publicly traded partnership (as defined in paragraph (b) of this section) that has effectively connected gross income, gain or loss must pay 1446 tax by withholding from distributions to a foreign partner. Publicly traded partnerships that withhold on distributions must pay over and report any 1446 tax as provided in paragraph (c) of this section, and generally are not to pay over and report the 1446 tax under the rules in § 1.1446-3. The amount of the withholding tax on distributions, other than distributions excluded under paragraph (f) of this section, that are made during any partnership taxable year, equals the applicable percentage (defined in paragraph (b)(2) of this section) of such distributions. For penalties and additions to the tax for failure to comply with this section, see §§ 1.1461-1 and 1.1461-3.

(b) Definitions—(1) Publicly traded partnership. For purposes of this section, the term publicly traded partnership has the same meaning as in section 7704 (including the regulations thereunder), but does not include a publicly traded partnership treated as a corporation under that section.

(2) Applicable percentage. For purposes of this section, applicable percentage shall have the meaning as set forth in § 1.1446-3(a)(2), except that the partnership or nominee required to pay 1446 tax may not consider a preferential rate in computing the 1446 tax due with respect to a partner.

(3) Nominee. For purposes of this section, the term nominee means a person that holds an interest in a publicly traded partnership on behalf of a foreign person and that is either a U.S. person, a qualified intermediary (as defined in § 1.1441-1(e)(5)(ii)) that assumes primary withholding responsibility for the distribution, or a U.S. branch of a foreign person that agrees to be treated as a U.S. person (as described in § 1.1441-1(b)(2)(iv)) with respect to the distribution. For purposes of this paragraph (b)(3), a U.S. branch or a qualified intermediary is a nominee only if it assumes primary withholding responsibility for the distribution for all purposes of chapters 3 and 4 of subtitle A of the Code.

(4) Qualified notice. For purposes of this section, a qualified notice is a notice from a publicly traded partnership that states the amount of a distribution that is attributable to each type of income described in paragraphs (f)(3)(i) through (v) of this section. A qualified notice may also include the information described in § 1.1446(f)-4(b)(3) (relating to the 10-percent exception to withholding under section 1446(f)(1)) and the information described in § 1.1446(f)-4(c)(2)(iii) (relating to an adjustment to the amount realized for withholding under section 1446(f)(1)). The notice must be posted in a readily accessible format in an area of the primary public website of the publicly traded partnership that is dedicated to this purpose, and a copy of the notice must be delivered to any registered holder that is a nominee. A qualified notice must be posted and delivered to the registered holder by the date required for providing notice with respect to distributions described in 17 CFR 240.10b-17(b)(1) or (3) issued pursuant to the Securities Exchange Act of 1934 (15 U.S.C. 78a) and contain the information described therein as it would relate to the distribution. The publicly traded partnership must keep the notice accessible to the public for ten years on its primary public website or the primary public website of any successor organization. No specific format is required unless otherwise prescribed by the Commissioner in forms or instructions or in publications or guidance published in the Internal Revenue Bulletin (see §§ 601.601(d)(2) and 601.602 of this chapter). See paragraph (d) of this section regarding when a nominee is considered to have received a qualified notice.

(c) Paying and reporting 1446 tax. The withholding tax required under this section is to be paid pursuant to the rules and procedures of section 1461, §§ 1.1461-1, 1.1461-2, and 1.6302-2, as supplemented by the rules of this section. A withholding agent under this section must use Form 1042, “Annual Withholding Tax Return for U.S. Source Income of Foreign Persons,” and Form 1042-S, “Foreign Person's U.S. Source Income Subject to Withholding,” to report withholding from distributions under this section. See § 1.1461-1(b). Further, a withholding agent under this section may obtain a refund for 1446 tax paid in accordance with section 1464 and the regulations thereunder. See § 1.1446-3(d)(1)(iv) and (vii) (relating to a foreign trust or estate that holds an interest in a publicly traded partnership) and § 1.1446-5(d) (relating to a publicly traded partnership that is part of a tiered partnership structure) for additional guidance.

(d) Rules for nominees required to withhold tax under section 1446—(1) In general. A nominee that receives a distribution from a publicly traded partnership (or another nominee) that is to be paid to (or for the account of) any foreign person is treated as a withholding agent under this section. A nominee that fails to withhold pursuant to this section is subject to liability under section 1461, as well as applicable penalties and interest, as if the nominee were the partnership responsible for withholding. A nominee that receives a qualified notice that meets the requirements in paragraph (b)(4) of this section must withhold based on the amounts specified on the qualified notice. A nominee is treated as receiving a qualified notice on the date that the notice is posted to the publicly traded partnership's website or is received by the nominee in accordance with paragraph (b)(4) of this section. If a nominee properly withholds based on the amounts specified on a qualified notice, the nominee is not liable for any underwithholding on amounts that are effectively connected income, gain, or loss. Rather, the publicly traded partnership that issued the qualified notice is liable under section 1461 for underwithholding on such amounts. If a nominee does not receive a qualified notice that meets the requirements in paragraph (b)(4) of this section, or to the extent the qualified notice does not specify an amount, the nominee must withhold on the full amount of the distribution with respect to—

(i) A foreign partner that is a corporation, at the greater of the highest rate of tax specified in section 11(b) or 881 (without regard to any reduction in the rate of tax permitted under an applicable income tax treaty);

(ii) A foreign partner that is not a corporation, at the greater of the highest rate of tax specified in section 1 or 871 (without regard to any reduction in the rate of tax permitted under an applicable income tax treaty); or

(iii) A foreign partner whose classification cannot be determined, at the higher of the rate determined under paragraph (d)(1)(i) or (ii) of this section.

(2) Exception to nominee's withholding. A nominee is not required to withhold under paragraph (d)(1) of this section to the extent that it makes a payment of a distribution to a qualified intermediary or U.S. branch that is also a nominee for the distribution under paragraph (b)(3) of this section. For purposes of the preceding sentence, a nominee may treat a qualified intermediary or U.S. branch as a nominee for a distribution based on, respectively, a valid qualified intermediary withholding certificate described in § 1.1441-1(e)(3)(ii) or a valid U.S. branch withholding certificate described in § 1.1446(f)-4(a)(2)(ii)(B) on which the qualified intermediary or U.S. branch represents that it assumes primary withholding responsibility with respect to the distribution.

(e) Determining foreign status of partners. Except as provided in this paragraph (e), the rules of § 1.1446-1 shall apply in determining whether a partner of a publicly traded partnership is a foreign partner for purposes of the 1446 tax. A partnership or nominee obligated to withhold under this section shall be entitled to rely on any of the forms acceptable under § 1.1446-1 that it receives from persons on whose behalf it holds interests in the partnership to the same extent a partnership is entitled to rely on such forms under those rules. If a partnership or nominee pays a distribution to an entity that provides a valid qualified intermediary withholding certificate described in § 1.1441-1(e)(3)(ii) indicating that the entity does not assume primary withholding responsibility for the distribution, for withholding under this section the partnership or nominee may instead rely on a withholding statement that allocates the distribution to—

(1) A chapter 3 withholding rate pool (as described in § 1.1441-1(e)(5)(v)(C)) consisting of account holders that are foreign persons subject to withholding at the highest rate of tax specified in section 1;

(2) A chapter 3 withholding rate pool (as described in § 1.1441-1(e)(5)(v)(C)) consisting of account holders that are foreign persons subject to withholding at the highest rate of tax specified in section 11(b);

(3) A chapter 3 withholding rate pool (as described in § 1.1441-1(e)(5)(v)(C)) consisting of account holders that are foreign persons not subject to withholding; or

(4) Each account holder for which a form acceptable under § 1.1446-1 is provided.

(f) Distributions subject to withholding—(1) In general. Except as provided in this paragraph (f)(1), a publicly traded partnership must withhold at the applicable percentage with respect to any actual distribution made to a foreign partner. The amount of a distribution subject to 1446 tax includes the amount of any 1446 tax required to be withheld on the distribution. In the case of a partnership (upper-tier partnership) that receives a partnership distribution from another partnership in which it is a partner (lower-tier partnership) (i.e., a tiered structure described in § 1.1446-5), any 1446 tax that was paid by the lower-tier partnership may be credited by the upper-tier partnership and shall be treated as a distribution under section 1446. For example, a foreign publicly traded partnership, UTP, owns an interest in domestic publicly traded partnership, LTP. LTP makes a distribution subject to section 1446 of $100 to UTP during its taxable year beginning January 1, 2020, and withholds 37 percent (the highest rate in section 1) ($37) of that distribution under section 1446. UTP receives a net distribution of $63 which it immediately redistributes to its partners. UTP has a liability to pay 37 percent of the total actual and deemed distribution it makes to its foreign partners as a section 1446 withholding tax. UTP may credit the $37 withheld by LTP against this liability as if it were paid by UTP. See §§ 1.1462-1(b) and 1.1446-5(b)(1). When UTP distributes the $63 it actually receives from LTP to its partners, UTP is treated for purposes of section 1446 as if it made a distribution of $100 to its partners ($63 actual distribution and $37 deemed distribution). UTP's partners (U.S. and foreign) may claim a credit against their U.S. income tax liability for their allocable share of the $37 of 1446 tax paid on their behalf.

(2) In-kind distributions. If a publicly traded partnership distributes property other than money, the partnership shall not release the property until it has funds sufficient to enable the partnership to pay over in money the required 1446 tax.

(3) Ordering rule relating to distributions. Distributions from publicly traded partnerships are deemed to be paid out of the following types of income in the order indicated—

(i) Amounts attributable to income described in section 1441 or 1442 that are not effectively connected with the conduct of a trade or business in the United States and are subject to withholding under § 1.1441-2(a);

(ii) Amounts attributable to income described in section 1441 or 1442 that are not effectively connected with the conduct of a trade or business in the United States and are not subject to withholding under § 1.1441-2(a);

(iii) Amounts attributable to income effectively connected with the conduct of a trade or business in the United States that are not subject to withholding under §§ 1.1446-1 through 1.1446-6;

(iv) Amounts subject to withholding under §§ 1.1446-1 through 1.1446-6; and

(v) Amounts not listed in paragraphs (f)(3)(i) through (iv) of this section.

(4) Coordination with section 1445(e)(1). Except as otherwise provided in this section, a publicly traded partnership that complies with the requirements of withholding under section 1446 and this section will be deemed to have satisfied the requirements of section 1445(e)(1) and the regulations thereunder. Notwithstanding the excluded amounts set forth in paragraph (f)(3) of this section, distributions subject to withholding at the applicable percentage shall include the following—

(i) Amounts subject to withholding under section 1445(e)(1) upon distribution pursuant to an election under § 1.1445-5(c)(3) of the regulations; and

(ii) Amounts not subject to withholding under section 1445 because the distributee is a partnership or is a foreign corporation that has made an election under section 897(i).

26 C.F.R. § 1.1446-3 26 C.F.R. § 1.1446-5

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