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Payments to Withholding Foreign Partnerships

If you are making payments to a Withholding Foreign Partnership (WP), you do not have to withhold if the WP is acting in that capacity. The WP must assume NRA withholding responsibility for amounts (subject to NRA withholding) that are distributed to, or included in the distributive share of, any direct partner. The WP must withhold the amount required to be withheld. A WP must provide you with a Form W–8IMY that certifies that the WP is acting in that capacity and a written statement identifying the amounts for which it is so acting. The Form W–8IMY must contain the WP–EIN.

Responsibilities of WP

The WP must withhold on the date it makes a distribution of an amount subject to NRA withholding to a direct foreign partner based on the Forms W–8 or W–9 it receives from its partners. If the partner´s distributive share has not been distributed, the WP must withhold on the partner´s distributive share on the earlier of the date that the partnership must mail or otherwise provide to the partner a Schedule K–1 (Form 1065) or the due date for furnishing the statement (whether or not the WP is required to furnish the statement).

The WP may determine the amount of withholding based on a reasonable estimate of the partner´s distributive share of income subject to withholding for the year. The WP must correct the estimated withholding to reflect the actual distributive share on the earlier of the dates mentioned in the preceding paragraph. If that date is after the due date for filing the WP's Forms 1042 and 1042–S (including extensions for the calendar year), the WP may withhold and report any adjustments in the following calendar year.

Form 1042 filing

The WP must file Form 1042 even if no amount was withheld. In addition to the information that is required for the Form 1042, the WP must attach a statement showing the amounts of any over- or under-withholding adjustments and an explanation of those adjustments.

Form 1042-S Reporting

The WP can elect to report payments made to its direct partners on a pooled basis rather than reporting payments to each direct partner. This election must be made when the WP withholding agreement is executed with the IRS. If the election was not made, the WP must file separate Forms 1042–S for each direct partner whose distributive share included an amount subject to NRA withholding.

Smaller Partnerships and Trusts

Under a special rule, a WP that has made a pooled reporting election can treat partners of certain smaller partnerships and beneficiaries or owners of certain smaller trusts as direct partners. These rules only apply to a partnership or trust that meets the following conditions.

  1. It is a foreign partnership or foreign simple or grantor trust.
  2. It is a direct partner of the WP.
  3. It does not have any partner, beneficiary, or owner that is a U.S. person or a pass- through partner, beneficiary, or owner.

For more information on applying these rules, see section 10.01 of the WP agreement found in Revenue Procedure 2003-64. See also Revenue Procedure 2004-21, and Revenue Procedure 2005-77.

Related Partnerships and Trusts

Under a special rule, a WP that has made a pooled reporting election can treat direct partners of certain related partnerships and direct beneficiaries or owners of certain related trusts as direct partners. These rules only apply to a partnership or trust that meets the following conditions.

  1. It is a foreign partnership or foreign simple or grantor trust.
  2. It is either:
    1. A direct partner of the WP, or
    2. An indirect partner of the WP that is a partner, beneficiary, or owner of a partnership or trust to which the WP has applied this rule.
  3. It has the WP as a general partner of the partnership or a trustee of the trust.

For more information on applying these rules see section 10.02 of the WP agreement found in Revenue Procedure 2003-64. See also Revenue Procedure 2004-21, and Revenue Procedure 2005-77.

Not Acting as WP

A foreign partnership that is not acting as a WP is a nonwithholding foreign partnership. This occurs if a WP is not acting in that capacity for some or all of the amounts it receives from you. Also, a WP generally is a nonwithholding foreign partnership for amounts distributed to, or included in the distributive share of, pass-through partners or indirect partners.

You must treat payments made to a nonwithholding foreign partnership as made to the partners of the partnership. The partnership must provide you with a Form W–8IMY (with Part VI completed), a withholding statement identifying the amounts, the withholding certificates or documentary evidence of the partners, and the information shown earlier under Withholding statement under Nonqualified Intermediaries.

References/Related Topics

Page Last Reviewed or Updated: 24-Mar-2014