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Who Must Withhold

The partnership, or a withholding agent for the partnership, must pay the withholding tax. A partnership that must pay the withholding tax but fails to do so, may be liable for the payment of the tax and any penalties and interest.

U.S. Partner

A partner that is a U.S. person should provide Form W-9 to the partnership.

A partnership may rely on a partner's certification of nonforeign status and assume that a partner is not a foreign partner unless the form:

  • Does not give the partner's name, U.S. taxpayer identification number, and address, or
  • Is not signed under penalties of perjury and dated.

The partnership must keep the certification for as long as it may be relevant to the partnership's liability for IRC section 1446 tax.

The partnership may not rely on the certification if it has actual knowledge or has reason to know that any information on the form is incorrect or unreliable.

If a partnership does not receive a Form W-9 (or similar documentation) the partnership must presume that the partner is a foreign person.

Foreign Partner

A partner that is a foreign person should provide the appropriate Form W-8 (as shown in the chart below) to the partnership.

Partners who have otherwise provided Form W-8 to a partnership for purposes of IRC sections 1441 or 1442 can use the same form for purposes of IRC section 1446 if they meet the requirements discussed under Documentation for those sections. However, a foreign simple trust that has provided documentation for its beneficiaries for purposes of IRC section 1441 must provide a Form W-8 on its own behalf for purposes of IRC section 1446.

The partnership may not rely on the certification if it has actual knowledge or has reason to know that any information on the form is incorrect or unreliable.

The partnership must keep the certification for as long as it may be relevant to the partnership's liability for IRC section 1446 tax.

Documentation for Foreign Partners*

Nonresident aliens W-8BEN
Foreign corporations W-8BEN
Foreign partnerships W-8IMY
Foreign governments W-8EXP
Foreign grantor trusts** W-8IMY
Certain foreign trusts and foreign estates W-8BEN
Foreign tax-exempt organizations
(including private foundations)
W-8EXP
Nominees W-8 used by beneficial owner
* A partnership may substitute its own form for the official version of Form W-8 to ascertain the identity of its partners.
**A domestic grantor trust must provide a statement as shown in Treasury Regulation section 1.1446-1(c)(2)(ii)(e) and documentation for its grantor.

Amount of Withholding Tax

The amount a partnership must withhold is based on its effectively connected taxable income that is allocable to its foreign partners for the partnership's tax year. However, refer to Publicly Traded Partnerships.

The foreign partner's share of the partnership's gross effectively connected income is reduced by:

  1. The partner's share of partnership deductions connected to that income for the year,
  2. The partner's tax treaty benefits related to that income, and
  3. The partner's allowable prior years' deductions and losses that the partnership takes into consideration.

For purposes of item (3), the partner must provide a certification of the information to the partnership. For information on this certification, see section 1.1446-6T of the regulations.

If a nonresident alien partner's investment in the partnership is the only activity producing effectively connected income and the IRC section 1446 tax is less than $1,000, the partnership is not required to withhold. For information on the certification in this situation, see section 1.1446-6T(c)(1)(iv) of the regulations.

Tax Rate

The withholding tax rate on a partner's share of effectively connected income is the highest rate under IRC sections 1 and 11(b), which is currently 35 percent. This rate may change from time to time based on new tax legislation. However, the partnership may withhold at the highest rate applicable to a particular type of income allocated to a noncorporate partner provided the partnership received the appropriate documentation. See section 1.1446-3(a)(2)(ii) of the regulations.

Amount of Installment Payment

A partnership must make installment payments of withholding tax on its foreign partners' share of effectively connected taxable income whether or not distributions are made during the partnership's tax year. The amount of a partnership's installment payment is the sum of the installment payments for each of its foreign partners. The amount of each installment payment can be figured by using Form 8804-W.

Date Payments are Due

Payments of withholding tax must be made during the partnership's tax year in which the effectively connected taxable income is derived. A partnership must pay the IRS a portion of the annual withholding tax for its foreign partners by the 15th day of the 4th, 6th, 9th, and 12th months of its tax year for U.S. income tax purposes. Any additional amounts due are to be paid with Form 8804, the annual partnership withholding tax return.

A foreign partner's share of withholding tax paid by a partnership is treated as distributed to the partner on the earliest of:

  • The day on which the tax was paid by the partnership,
  • The last day of the partnership's tax year for which the tax was paid, or
  • The last day on which the partner owned an interest in the partnership during that year.

The amount treated as distributed to the partner is generally treated as an advance or draw under section 1.731-1(a)(1)(ii) of the regulations to the extent of the partner's share of income for the partnership year.

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: 13-Feb-2014