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If there are nonresident Partners in a partnership tax return filing, is there anything special you are required to file with the return?

Partnership Tax Return
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Tax Professional Answers

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Gary Carter, PhD, MT, CPA
Under IRC Section 1446, a partnership that has income effectively connected with a U.S. trade or business must pay a withholding tax on the effectively connected taxable income that is allocable to its foreign partners. The partnership must pay the withholding tax, and is subject to penalties and interest for failure to do so. The amount of tax the partnership must withhold for a foreign individual partner is 39.6% in 2013. Additionally, if the partnership has non-effectively connected income allocable to a foreign partner, the general withholding rate (absent a treaty reduction) is 30%.

There are several items that reduce the required withholding on effectively connected income, such as a treaty exemption, state and local taxes the partnership pays on behalf of the partner, and partner-level deductions and losses that the foreign partner certifies to the partnership on Form 8804-C. If the partner's investment in the partnership is the only activity producing effectively connected income and the withholding tax is less than $1,000, no withholding is required.
Leave a Comment 269 weeks ago

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Douglas Stransky
Although the question relates to the partnership, it is worth noting that under U.S. federal income tax law, if the partnership is engaged in a U.S. trade or business, the nonresident, as a partner in the partnership, is also considered to have a U.S. trade or business with respect to the business activities performed by the partnership in the United States. See, e.g., I.R.C. § 875(1); Treas. Reg. § 1.875-1; Rev. Rul. 91-32, 1991-1 C.B. 107. As a result, income “effectively connected” with that U.S. trade or business is subject to U.S. federal income tax for the non-resident (whether an individual or a foreign corporation). I.R.C. §§ 871(b)(1) and 882(a)(1) tax a nonresident alien individual or foreign corporation on “taxable income which is effectively connected with the conduct of a U.S. trade or business within the United States.” I.R.C. § 641(b) treats a foreign trust, and Treas. Reg. § 1.871-2(a) treats a foreign fiduciary, as a nonresident alien individual for U.S. federal income tax purposes.
Leave a Comment 269 weeks ago

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