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U.S. Tax Withholding on Effectively Connected Income Allocable to Foreign Partners

International Tax Gap Series

IRS reminds all partnerships engaged in a U.S. trade or business who have foreign partners that IRC section 875(1) treats each foreign partner as being directly engaged in the same trade or business for U.S. federal tax purposes. Additionally, IRC Section 1446 imposes a partnership-level withholding tax (1446 tax) for each foreign partner's allocable share of the partnership’s effectively connected taxable income. The foreign partner, considered engaged in a U.S. trade or business, must also file the appropriate income tax return with the U.S.

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The International Tax Gap Series

Page Last Reviewed or Updated: 27-Nov-2015