Page 48 - Withholding Taxes for Foreign Entities

10:50 - 14-Feb-2020
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
the installment payment date. No particular for when you must attach a copy of that form to A PTP is any partnership an interest in
form is required for this notification. For more in- Form 8813. which is regularly traded on an established se-
formation on the substance of the notification curities market or is readily tradable on a secon-
and exceptions, see Regulations section Penalties. A penalty may be imposed for fail- dary market. These rules do not apply to a PTP
1.1446-3(d)(1)(i). ure to file Form 8804 when due (including ex- treated as a corporation under section 7704 of
tensions). It generally is the same as the pen- the Code.
Real property gains. If a domestic partner- alty for not filing Form 1042, discussed earlier
ship disposes of a U.S. real property interest, under Failure to file Form 1042. Foreign partner. The partnership determines
the gain is treated as effectively connected in- A penalty may be imposed for failure to file whether a partner is a foreign partner using the
come and the partnership or withholding agent Form 8805 when due (including extensions) or rules discussed earlier under Foreign Partner.
must withhold following the rules discussed for failure to provide complete and correct infor-
here. A domestic partnership's compliance with mation. The amount of the penalty depends on Nominee. The withholding agent under this
these rules satisfies the requirements for with- when you file a correct Form 8805. The penalty section can be the PTP or a nominee. For this
holding on the disposition of U.S. real property for each Form 8805 is generally the same as purpose, a nominee is a domestic person that
interests (discussed later). the penalty for not filing Form 1042-S, dis- holds an interest in a PTP on behalf of a foreign
If a foreign partnership disposes of a U.S. cussed earlier under Failure to file correct Form person. The nominee is treated as the withhold-
property interest, the transferee must withhold 1042-S. ing agent only to the extent of the amount speci-
under section 1445(a), although the gain also is If you fail to provide a complete and correct fied in the qualified notice given to the nominee
treated as effectively connected income. The Form 8805 to each partner when due (including by the PTP. If a nominee is designated as the
foreign partnership may credit the amount with- extensions), a penalty may be imposed. The withholding agent, the obligation to withhold is
held under section 1445(a) that is allocable to amount of the penalty depends on when you imposed solely on the nominee. The nominee
foreign partners against its section 1446 tax lia- provide the correct Form 8805. The penalty for must report the distributions and withheld
bility. each Form 8805 is generally the same as the amounts on Forms 1042 and 1042-S. For more
penalty for not providing a correct and complete information, see Regulations sections
Reporting and Paying the Tax Form 1042-S on time, discussed earlier under 1.1446-4(b) and (d).
Failure to furnish Form 1042-S to recipient.
Three forms are required for reporting and pay- Exception. No penalty is imposed if you Distributions subject to withholding. The
ing over tax withheld on effectively connected meet certain requirements. The rules are the partnership or nominee must withhold tax on
any actual distributions of money or property to
income allocable to foreign partners. This does same as for Form 1042-S. See Exception in
not apply to publicly traded partnerships, dis- Failure to file correct Form 1042-S and Excep- foreign partners. The amount of the distribution
includes the amount of any section 1446 tax re-
cussed later. tion in Failure to furnish Form 1042-S to recipi- quired to be withheld. In the case of a partner-
Form 8804. The withholding tax liability of the ent, earlier. ship that receives a partnership distribution
If you intentionally disregard the requirement
partnership for its tax year is reported on Form from another partnership (a tiered partnership),
8804. Form 8804 also is a transmittal form for to file Form 8805 when due, to provide Form the distribution also includes the tax withheld
8805 to the recipient when due, or to report cor-
Forms 8805. rect information, the penalty for each Form from that distribution.
Any additional withholding tax owed for the 8805 (or statement to recipient) is the greater of If the distribution is in property other than
partnership's tax year is paid (in U.S. currency) $550 or 10% of the total amount of the items money, the partnership cannot release the
with Form 8804. that must be reported, with no maximum pen- property until it has enough funds to pay over
the withholding tax.
File Form 8804 by the 15th day of the alty. A PTP that complies with these withholding
DUE 3rd month after the close of the part- requirements satisfies the requirements dis-
nership's tax year. If you need more Identification numbers. A partnership that cussed later under U.S. Real Property Interest.
time to file Form 8804, file Form 7004 to request has not been assigned a U.S. EIN must obtain Distributions subject to withholding include:
an extension of time to file. Form 7004 does not one. If a number has not been assigned by the • Amounts subject to withholding under sec-
extend the time to pay the tax. due date of the first withholding tax payment, tion 1445(e)(1) of the Code on distributions
the partnership should enter the date the num- pursuant to an election under Regulations
Form 8805. This form is used to show the ber was applied for on Form 8813 when making section 1.1445-5(c)(3), and
its payment. As soon as the partnership re-
amount of effectively connected taxable income ceives its EIN, it must immediately provide that • Amounts not subject to withholding under
and any withholding tax payments allocable to a number to the IRS. section 1445 of the Code because the dis-
foreign partner for the partnership's tax year. At tributee is a partnership or is a foreign cor-
the end of the partnership's tax year, Form 8805 To ensure proper crediting of the withhold- poration that has made an election to be
must be sent to each foreign partner on whose ing tax when reporting to the IRS, the partner- treated as a domestic corporation.
behalf section 1446 tax was withheld or whose ship must include each partner's U.S. TIN on Ordering rules. Partnership distributions
Form 8804-C the partnership considered, Form 8805. If there are partners in the partner- are considered to be paid out of the following
whether or not any withholding tax is paid. It ship without identification numbers, the partner- types of income in the order listed.
must be delivered to the foreign partner by the ship should inform them of the need to get a
due date of the partnership return (including ex- number. See U.S. or Foreign TINs, earlier. 1. Amounts of noneffectively connected in-
tensions). A copy of Form 8805 for each foreign come distributed by the partnership and
partner also must be attached to Form 8804 Publicly Traded Partnerships subject to Chapter 3 withholding under
when it is filed. Also attach the most recent (PTPs) section 1441 or 1442, as discussed ear-
Form 8804-C, discussed earlier, to the Form lier.
8805 filed for the partnership's tax year in which A PTP that has effectively connected taxable in- 2. Amounts of effectively connected income
the Form 8804-C was considered. come must pay withholding tax on any distribu- not subject to withholding under section
A copy of Form 8805 must be attached to tions of that income made to its foreign part- 1446 (for example, amounts exempt by
the foreign partner's U.S. income tax return to ners. A PTP must use Forms 1042 and 1042-S treaty).
take a credit on its Form 1040NR or Form (Income Code 27) to report withholding from
1120-F. distributions. The rate of withholding is 37% for 3. Amounts subject to withholding under
noncorporate partners and 21% for corporate these rules.
Form 8813. This form is used to make pay- partners. 4. Amounts not listed in (1) through (3).
ments of withheld tax to the U.S. Treasury. Pay-
ments must be made in U.S. currency by the Depositing taxes a PTP withholds under
payment dates (see Date payments are due, section 1446. The general rules for making
earlier). See the Instructions for Form 8804-C
Page 46 Publication 515 (2020)