In Notice 2018-08
, the IRS has temporarily suspended certain withholding obligations enacted under new Section 1446(f), which was enacted as part of the Tax Cut and Jobs Act in December. The suspension applies only to dispositions of interests in publicly traded partnerships and does not extend to non-publicly traded partnership interests.
New Section 1446(f) requires that a transferee withholds 10% of the amount realized by the transferor of a disposition of partnership interest occurring after Dec. 31, 2017, to the extent that the transferor recognizes a gain that is treated as effectively connected with the conduct of a trade or business within the United States as provided in new Section 864(c)(8).
The new provisions apply to transferors that are nonresident alien individuals or foreign corporations and are based on whether the transferor would have had effectively connected gain or loss if the partnership had sold all of its assets at fair market value on the date of the disposition of the partnership interest.
Stakeholders raised concerns of significant practical problems that the new withholding obligation would impose on the disposition of publicly traded partnership interests. For example, a transferee may not know at the time whether a transferor is foreign or domestic or if any gain on the disposition of the partnership interest would be treated as effectively connected gain. Similar issues exist with respect to brokers that may withhold from such dispositions on behalf of transferees.
Principal, Partnership Tax Technical Leader, Washington National Tax Office
+1 202 521 1590
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