Foreign Partner

The partnership determines whether a partner is a foreign partner using the rules discussed under Who Must Withhold on Partnership Withholding.


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.

Distributions Subject to Nonresident Alien (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,
  2. Amounts subject to NRA withholding, and
  3. Amounts not subject to NRA withholding 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.
  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.

References/Related Topics