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Rules Applicable to Publicly Traded Partnerships

Foreign Partner

The partnership determines whether a partner is a foreign partner using the rules discussed under Who Must Withhold - Foreign Partner

Nominee

The withholding agent under this section can be the Publicly Traded Partnerships (PTP) or a nominee. For this purpose, a nominee is a domestic person that holds an interest in a PTP on behalf of a foreign person. The nominee is treated as the withholding agent only to the extent of the amount specified in the qualified notice given to the nominee by the PTP. If a nominee is designated as the withholding agent, the obligation to withhold is imposed solely on the nominee. The nominee must report the distributions and withheld amounts on Forms 1042 and 1042-S. For more information, see Treasury Regulation sections 1.1446-4(b) and (d).

Distributions Subject to NRA Withholding

The publicly traded partnership must withhold tax on any actual distributions of money or property to foreign partners. In the case of a partnership that receives a partnership distribution from another partnership (a tiered partnership), the distribution also includes the tax withheld from that distribution.

If the distribution is in property other than money, the partnership cannot release the property until it has enough funds to pay over the withholding tax.

A publicly traded partnership that complies with these withholding requirements satisfies the requirements discussed under U. S. Real Property Interest. Distributions subject to withholding include:

  1. The fair market value of U. S. real property interests distributed to a partner and potentially subject to withholding under section 1445( e)( 4) of the Internal Revenue Code,
  2. Amounts subject to NRA withholding under section 1445( e)( 1) of the Internal Revenue Code on distributions pursuant to an election under section 1.1445- 5( c)( 3) of the regulations, and
  3. Amounts not subject to NRA withholding under section 1445 of the Internal Revenue Code because the distributee is a partnership or is a foreign corporation that has made an election to be treated as a domestic corporation.

Excluded Amounts

Partnership distributions are first considered to be paid out of the following types of income in the order listed. To the extent the partnership has this type of income, it is excluded from the distributions subject to withholding discussed in this section.

  1. Amounts of noneffectively connected income (also known as Fixed, Determinable, Annual, Periodical (FDAP)) distributed by the partnership and subject to NRA withholding.
  2. Amounts attributable to recurring dispositions of crops and timber that are subject to NRA withholding under section 1.1445- 5( c)( 3)(iv) of the regulations.
  3. Amounts attributable to the disposition of a U. S. real property interest subject to the withholding rules discussed under U. S. Real Property Interest.

For more information about the withholding requirements for publicly traded partnerships, refer to Treasury Regulation section 1.1446-4.

References/Related Topics

Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.

Page Last Reviewed or Updated: 24-Mar-2014