March 5, 2023

In addition to the filing of Form 1065, U.S. Return of Partnership Income, a partnership (including an LLC filing as a partnership) with foreign partners could be responsible for complying with other filing requirements such as Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), Partnership Withholding, and NRA Withholding.


If a partnership acquires a U.S. real property interest from a foreign person, the partnership may have to withhold 15% tax under IRC section 1445 (FIRPTA) on the amount it pays for the property. If a seller is a foreign person and you fail to withhold, you may be held liable for the tax. For cases where a U.S. partnership disposes of a U.S. real property interest, the business entity itself is the withholding agent.

 If a domestic partnership that is not publicly traded disposes of a U.S. real property interest at a gain, the gain is treated as effectively connected income and is subject to the rules explained under Partnership Withholding on Effectively Connected Income, and would not be subject to withholding under the FIRPTA provisions.

Partnership Withholding on Effectively Connected Income

It is important to note that if during a partnership’s tax year the partnership has taxable income effectively connected with the conduct of a trade or business within the United States that is allocable to a foreign partner, the Internal Revenue Code requires the partnership to report and pay a withholding tax under IRC Section 1446 to the IRS. The partnership must pay the IRC section 1446 withholding tax regardless of the amount of foreign partners’ ultimate U.S. tax liability and regardless of whether the partnership makes any distributions during its tax year. A partnership that fails to comply with IRC section 1446 reporting and withholding requirements may be subject to penalties and interest.

(Refer to Form 8804, Annual Return for Partnership Withholding Tax (Section 1446), Form 8805, Foreign Partner’s Information Statement of Section 1446 Withholding Tax, and Form 8813, Partnership Withholding Tax Payment Voucher (Section 1446), for further guidance on reporting and paying the IRC section 1446 withholding tax.)

NRA Withholding

In addition to the requirement to withhold under IRC section 1446, U.S. source income that is not effectively connected with the partnership’s U. S. trade or business may be subject to withholding as required under IRC sections 1441, 1442, and 1443.

(Refer to Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons and Form(s) 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding)

Is It Time to Update Foreign Partners’ U.S. TINs’?

For a foreign partner to claim a refund a valid Taxpayer Identification Number (TIN) is required. A foreign partner must file an income tax return (Form 1040NR, Form 1120F, etc.) with a valid TIN.

Are Your Foreign Partners Aware of This?

This is especially important with respect to partnership withholding. A foreign or domestic partnership that has effectively connected taxable income allocable to a foreign partner must pay a withholding tax under IRC section 1446 equal to the applicable percentage of the effectively connected taxable income that is allocable to its foreign partners. A partnership must pay the withholding tax for a foreign partner even if the partnership does not have a U.S. TIN for that partner.

Foreign partners must attach Form 8805 to their U.S. income tax returns to claim a credit for their share of the IRC section 1446 tax withheld by the partnership. To ensure proper crediting of the withholding tax when reporting to the IRS, a partnership must provide a U.S. taxpayer identification number (TIN) for each foreign partner. The partnership should notify foreign partners without a valid TIN of the necessity of obtaining a U.S. taxpayer identification number. An individual’s taxpayer identification number is the individual’s social security number (SSN) or individual taxpayer identification number (ITIN). An ITIN will always begin with a 9, and the middle two digits will be in the range of 70 to 80. It is also possible that a partner’s TIN could be its U.S. employer identification number (EIN).

Partnerships should review their files and/or contact their foreign partners to verify that each foreign partner has a valid TIN.

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