New IRC 864(c)(8) Withholding Rules on Partnership Sales: Calculations and Affidavit of Exemption

One of the more far-reaching provisions of the tax reform law of 2017 is Section 864(c)(8). This section imposes new requirements on foreign persons buying or selling any interest in a U.S. or non-U.S. partnership (or other entity that is treated as a partnership for U.S. federal income tax purposes) engaged in a U.S. trade or business. Partnership advisers must be keenly aware of the impact on both partnerships and their non-U.S. partners to avoid potentially costly tax consequences from the new rules.

Notably, Section 1446(f) requires a purchaser of an interest in a partnership with ECI in a U.S. trade or business to withhold 10% of the amount realized on the disposition and remit the amount to the IRS. If the purchasing partner fails to make the required withholding and payment, the partnership will be required to withhold the missing withholding amounts, plus interest and potential penalties.

The statute provides an exception to the withholding requirement under Section 1446(f) if the purchaser obtains an affidavit from the seller of the interest that no portion of the gain is attributable to a U.S. trade or business. This presents several significant challenges for partnerships and their advisers, particularly in identifying whether any partnership activity has ECI. The law contains no de minimis exception to the ECI determination, so even a miniscule amount of income attributable to a U.S. trade or business could translate to a 10% withholding on the entire purchase price.

Listen as our experienced panel provides a thorough and practical guide to the new partnership withholding on sale requirements of Section 864(c)(8).

1. Prior treatment of sale of partnership interest
2. New provisions of Section 864(c)(8)
   1. Gain on sale of interest in partnership with ECI to a U.S. trade or business
   2. Withholding requirements under Section 1446(f)
   3. Affidavit exception
3. Calculating withholding amounts
4. Burden on partnership if purchasing partner does not withhold
5. Planning implications for partnerships

The panel will discuss these and other important issues:

• Identifying instances of de minimis connection to U.S. trade or business activity that would make a partnership disposition subject to withholding under Section 864(c)(8)
• What goes into the calculation of the withholding amount under Sections 864(c)(8) and 1446(f)
• Non-foreign person affidavit to avoid withholding requirement
• Planning considerations to avoid or minimize the impact of 864(c)(8) on partnership transfers

Learning Objectives

After completing this course, you will be able to:

• Discern which partners and partnership interests are subject to withholding requirements under Sections 864(c)(8) and 1446(f)
• Determine how to calculate required withholding on interests in partnerships with income effectively connected to a U.S. trade or business
• Identify how to obtain and remit an affidavit of non-foreign person
• Recognize required planning steps to avoid unanticipated withholding requirements

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Specific knowledge and understanding of tax reporting and planning for partnership and other pass-through entities; familiarity with foreign effectively connected income with U.S. trade or business regulations

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).