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General Instructions

Purpose of Forms

Use Forms 8804, 8805, and 8813 to pay and report section 1446 withholding tax based on effectively connected taxable income allocable to foreign partners.

Use Form 8804, Annual Return for Partnership Withholding Tax (Section 1446), to report the total liability under section 1446 for the partnership's tax year. Form 8804 is also a transmittal form for Form(s) 8805.

Use Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, to show the amount of effectively connected taxable income and the total tax credit allowed to the foreign partner for the partnership's tax year.

File a separate Form 8805 for each foreign partner even if no section 1446 withholding tax was paid. Attach Copy A of each Form 8805 to the Form 8804 filed with the IRS.

Foreign partners must attach Form 8805 to their U.S. income tax returns to claim a credit for their shares of the section 1446 tax withheld by the partnership. A foreign partnership that receives a Form 8805 should see Tiered Partnerships on page 5. Any U.S. person erroneously subjected to the withholding tax would also receive Form 8805 from a partnership and should attach it to his or her income tax return.

Use Form 8813, Partnership Withholding Tax Payment Voucher (Section 1446), to pay the withholding tax under section 1446 to the United States Treasury. Form 8813 must accompany each payment of section 1446 tax made during the partnership's tax year.

Who Must File

All partnerships with effectively connected gross income allocable to a foreign partner in any tax year must file Forms 8804 and 8805 whether or not distributions were made during the partnership's tax year. The partnership may designate a person to file the forms. The partnership, or person it designates, must file these forms even if the partnership has no withholding tax liability under section 1446.

Publicly traded partnerships must file these forms only if they have elected to pay section 1446 withholding tax based on effectively connected taxable income allocable to its foreign partners. See Publicly Traded Partnerships on page 5.

When To File

Forms 8804 and 8805

File on or before the 15th day of the 4th month following the close of the partnership's tax year.

File Forms 8804 and 8805 separately from Form 1065, U.S. Return of Partnership Income, and Form 1065-B, U.S. Return of Income for Electing Large Partnerships.

If you need more time, you may file Form 2758, Application for Extension of Time To File Certain Excise, Income, Information, and Other Returns, to request an extension of time to file Form 8804. Generally, an extension will not be granted for more than 90 days. If you need more time, file a second Form 2758 for an additional 90-day extension. The total extension may generally not be for more than 6 months.

Form 8813

File on or before the 15th day of the 4th, 6th, 9th, and 12th months of the partnership's tax year for U.S. income tax purposes.

Where To File

File Forms 8804, 8805, and 8813 with: Internal Revenue Service Center, Philadelphia, PA 19255.

Taxpayer Identifying Number

To insure proper crediting of the withholding tax when reporting to the IRS, a partnership must provide a U.S. taxpayer identifying number (TIN) for each foreign partner. The partnership should notify any of its foreign partners without such a number of the necessity of obtaining a U.S. identifying number. An individual's identifying number is the individual's social security number (SSN) or individual taxpayer identification number (ITIN). Any other partner's identifying number is its U.S. employer identification number (EIN).

Certain aliens who cannot obtain SSNs can now apply for ITINs on Form W-7, Application for IRS Individual Taxpayer Identification Number.

Requirement To Make Withholding Tax Payments

A foreign or domestic partnership that has effectively connected taxable income allocable to a foreign partner must pay a withholding tax equal to the applicable percentage of the effectively connected taxable income that is allocable to its foreign partners. However, this requirement does not apply to a partnership treated as a corporation under the general rule of section 7704(a). Effectively connected taxable income is defined on page 2. Applicable percentage is defined on page 3.

Withholding Agents

General partners and limited liability company members are jointly and severally liable as withholding agents for the partnership. For ease of reference, these instructions refer to various requirements applicable to withholding agents as requirements applicable to partnerships themselves.

Determining If a Partner Is a Foreign Person

A partnership must determine if any partner is a foreign person subject to section 1446. Under section 1446, a foreign person is a nonresident alien individual, foreign corporation, foreign partnership, or foreign trust or estate. A partnership may determine a partner's status by relying on a certification of nonforeign status or by any other means.

Certification of Nonforeign Status

In general, a partnership may determine that a partner is not a foreign person by obtaining a certification of nonforeign status from the partner. A partnership that has obtained this certification may rely on it to establish the nonforeign status of a partner. See below.

Effect of certification.   Generally, a partnership that has obtained a certification of nonforeign status according to the rules in these instructions may rely on the certification to determine that the partner is not subject to withholding. If a partnership relies in good faith on the certification, but it is later determined that the certification was false, the partnership will not be held liable for payment of the tax, any applicable penalties, or interest. A certification that satisfies the requirements of these instructions will also satisfy the requirements for a certificate of nonforeign status under section 1445.

Once a partnership learns that the certification is false, it will no longer be entitled to rely on that certification. For this purpose, the knowledge of any general partner will be imputed to the partnership to cause a withholding liability. The knowledge of one of its limited partners will not be imputed to a partnership based solely on that partner's status as a limited partner. For a limited liability company or other entity classified as a partnership for Federal income tax purposes, any member with authority to manage or bind the entity is treated as a general partner.

Also, the partnership will be liable under section 1461 for any failure to pay the withholding tax under section 1446 for the tax year in which it learned that the certification is false. However, the partnership will not be liable for penalties for failure to make timely payments of installments of section 1446 withholding tax that were due prior to the time it learned that the certification was false.

Duration of certification.   A partnership may rely on a partner's certification of nonforeign status until the earliest of the following:

1. The end of the 3rd year after the tax year of the partnership during which the certification was obtained.
2. The date the partnership receives notice from the partner that it has become a foreign person.
3. The date the partnership learns that the partner is, or has become, a foreign person.

Form of certification.   No particular form nor any particular language is required for certification of nonforeign status. However, the certification must:

1. State that the partner is not a foreign person.
2. State the partner's name, U.S. taxpayer identifying number, and home address (for individuals) or office address (for entities).
3. State that the partner will notify the partnership within 60 days of a change to foreign status.
4. Be signed by or for the partner under penalties of perjury.

A certification of nonforeign status must be verified as true and signed under penalties of perjury by a responsible corporate officer for a corporation that is a partner, by a general partner for a partnership that is a partner, and by a trustee, executor, or equivalent fiduciary for a trust or estate that is a partner. A certification of nonforeign status may also be signed by a person authorized under a properly executed power of attorney, provided the power of attorney accompanies the certification.

How long to keep the certifications.   A partnership must keep a certification of nonforeign status until the end of the 5th tax year after the last tax year in which the partnership relied on the certification.

Special rule for widely held partnership.   In addition to relying on a certification of nonforeign status, a widely held partnership (a partnership that has more than 200 partners, including a publicly traded partnership) may rely on the information provided to it by partners on a Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, or Form W-9, Request for Taxpayer Identification Number and Certification.

Also, a widely held partnership may rely on a certification under penalties of perjury from a nominee about the nonforeign status of partners owning partnership interests through the nominee. No particular form is required for this certification, but it should identify the partner for whom the certification is made and indicate the basis for the certification. When making a certification, a nominee may also rely on a certification of nonforeign status or on information provided by Forms W-8BEN or W-9. A nominee and a partnership may not rely on any of those forms after the date that the forms must be re-executed, nor on a certification of nonforeign status based on an election under section 897(i).

A widely held partnership that relies in good faith on a certification of nonforeign status or Forms W-8BEN or W-9 in determining nonforeign status will not be held liable for payment of the tax, any applicable penalties, or interest. However, if a partnership learns that any of these forms contain false information, it may no longer rely on the form and will be liable under section 1461 for any failure to pay the withholding tax under section 1446 for the tax year in which it obtained that knowledge. The partnership will not be liable for penalties for failure to make timely payments of installments of the section 1446 withholding tax that were due prior to the time it learned that the information it properly relied on was false.

For a widely held partnership, the documentation used to determine the nonforeign status of a partner must be kept until the end of the 5th tax year following the last tax year in which the partnership properly relied on the documentation.

Use of Means Other Than Certification

A partnership is not required to obtain a certification of nonforeign status. It may rely on other means to learn the nonforeign status of the partner. But if the partnership relies on other means and erroneously determines that the partner was not a foreign person, the partnership will be held liable for payment of the tax, any applicable penalties, and interest. A partnership is not required to rely on other means to determine the nonforeign status of a partner and may demand a certification of nonforeign status.

Effectively Connected Taxable Income

Definition

Effectively connected taxable income is the excess of the gross income of the partnership that is effectively connected under section 864(c), or treated as effectively connected with the conduct of a U.S. trade or business, over the allowable deductions that are connected to such income. See Pub. 519, U.S. Tax Guide for Aliens, for detailed instructions regarding the computation of effectively connected taxable income. For purposes of these instructions, figure this income with the following adjustments:

1. Section 703(a)(1) does not apply.
2. The partnership is allowed a deduction for depletion of oil and gas wells, but the amount of the deduction must be determined without regard to sections 613 and 613A.
3. The partnership may not take into account items of income, gain, loss, or deduction allocable to any partner that is not a foreign partner.
4. The partnership may not take into account any net operating loss carryovers or charitable contributions.

A partnership's effectively connected taxable income includes partnership income subject to a partner's election under section 871(d) or 882(d) (election to treat real property income as income connected with a U.S. business). It also includes any partnership income treated as effectively connected with the conduct of a U.S. trade or business under section 897 (disposition of investment in U.S. real property), and other items of partnership income treated as effectively connected under other provisions of the Internal Revenue Code, regardless of whether those amounts are taxable to the partner.

Amount Allocable to Foreign Partners

The amount of a partnership's effectively connected taxable income for the partnership's tax year allocable to a foreign partner under section 704 equals (a) the foreign partner's distributive share of effectively connected gross income of the partnership for the partnership's tax year that is properly allocable to the partner under section 704, minus (b) the foreign partner's distributive share of deductions of the partnership for that year that are connected with that income under section 873 or section 882(c)(1) and that are properly allocable to the partner under section 704. This income must be computed by taking into account any adjustments to the basis of the partnership property described in section 743 according to the partnership's election under section 754. Also, a partnership's effectively connected taxable income is not allocable to a foreign partner to the extent the amounts are exempt from U.S. tax for that partner by a treaty or reciprocal agreement, or a provision of the Code.

Amount of Withholding Tax

Figuring the Tax Payments

Under section 1446, a partnership must make four installment payments of withholding tax during the tax year.

Amount of each installment payment of withholding tax.   In general, the amount of a partnership's installment payment is equal to the sum of the installment payments for each of the partnership's foreign partners. A partnership will generally determine the amount of the installment payment for each of its foreign partners by applying the principles of section 6655(e)(2). To do so, use the worksheet on page 4.

Alternatively, a partnership may make each installment payment during the tax year in an amount equal to 25% of the withholding tax that would be payable on the amount of its effectively connected taxable income allocable to foreign partners for the prior year if the following three conditions are met:

1. The prior tax year consisted of 12 months.
2. The partnership filed Form 1065 for the prior year.
3. The amount of effectively connected taxable income for the prior year was not less than 50% of the effectively connected taxable income on the current year's Form 8804.

Applicable percentage.   For partners taxed as corporations, the section 1446 applicable percentage is 35%. For partners not taxed as corporations (e.g., partnerships, individuals, estates), the applicable percentage is 38.6% for 2002 and 2003.

When to make the payment.   Make payments of the withholding tax under section 1446 with Form 8813 by its due date during the tax year of the partnership in which the income is earned.

Generally, pay any additional amounts due when filing Form 8804. However, if the partnership files Form 2758 to request an extension of time to file Form 8804, pay the balance of section 1446 withholding tax estimated to be due with Form 2758.

Coordination With Other Withholding Rules

Interest, Dividends, etc.

Fixed or determinable, annual or periodical income subject to tax under section 871(a) or 881 is not included in the partnership's effectively connected taxable income under section 1446. However, these amounts are independently subject to withholding under the requirements of sections 1441 and 1442 and their regulations.

Real Property Gains

Domestic partnerships.   Domestic partnerships subject to the withholding requirements of section 1446 are not also subject to the payment and reporting requirements of section 1445(e)(1) and its regulations for income from the disposition of a U.S. real property interest. A domestic partnership's compliance with the requirement to pay a withholding tax under section 1446 satisfies the requirements under section 1445 for dispositions of U.S. real property interests. However, a domestic partnership that would otherwise be exempt from section 1445 withholding by operation of a nonrecognition provision must continue to comply with the requirements of Regulations section 1.1445-5(b)(2).

Foreign partnerships.   A foreign partnership subject to withholding under section 1445(a) during a tax year will be allowed to credit the amount withheld under section 1445(a), to the extent such amount is allocable to foreign partners (as defined in section 1446(e)), against its liability to pay the section 1446 withholding tax for that year. This credit is allowed on line 7c of the Form 8804 filed by the foreign partnership.

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