Gain on Sales of U.S. Partnership Interests by Foreign Partners: Sections 864(c)(8) and 1446(f)

Tax reform ushered in significant changes to international taxation, including a provision that supersedes the Tax Court's decision in Grecian Magnesite with amended Sections 864(c)(8) and 1446(f). Tax counsel and advisers must navigate the filing requirements under current tax law and implement effective planning techniques to limit tax liability upon foreign persons' disposition of U.S. partnership interests.

The sale, exchange, or other disposition of a partnership interest held by foreign persons may trigger the withholding and filing requirements under Sections 864(c)(8) and 1446(f). Under current tax law, dispositions of partnership interests by foreign owners include all partnership assets that are effectively connected to a U.S. trade or business. Section 864(c)(8) of the Internal Revenue Code provides that effectively-connected income (ECI) includes the gain or loss on the sale of an interest in a partnership engaged in a U.S. trade or business.

Section 1446(f) provides that if any gain from a sale or exchange of an interest in a partnership is treated under Section 864(c)(8) as effectively connected with the conduct of a trade or business within the U.S., then the transferee must collect a 10 percent withholding tax from any seller of a partnership interest. If the buyer fails to withhold any amount required under Section 1446(f), the issuer partnership is liable for the unpaid withholding tax.

Listen as our experienced panel critically examines the structuring and reporting impacts of the new tax law provisions on non-U.S. persons holding U.S. partnership interests.