Instructions for Form 8804 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
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 allocable 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 withholding credit for their shares of
the section 1446 tax
withheld by the partnership. 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 to claim a withholding credit. A partnership that receives a Form 8805 from a lower-tier
partnership should
see Tiered Partnerships, on page 4.
Form 8805 may also be completed, in some cases, by a foreign trust or estate. A foreign partner that is a foreign trust or
estate must complete
Schedule T of Form 8805 to report to the trust or estate's beneficiaries the section 1446 withholding tax that may be claimed
as a withholding tax
credit on the beneficiaries income tax return. See Schedule T-Beneficiary Information, on page 5 for details.
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.
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.
Generally, file these forms on or before the 15th day of the 4th month following the close of the partnership's tax year.
For partnerships that
keep their records and books of account outside the United States and Puerto Rico, the due date is the 15th day of the 6th
month following the close
of the partnership's tax year. If the partnership is permitted to file these forms on or before the 15th day of the 6th month,
check the box at the
top of Form 8804.
If a due date falls on a Saturday, Sunday, or legal holiday, file by the next business day.
File Forms 8804 and 8805 separately from Form 1065, U.S. Return of Partnership Income, or Form 1065-B, U.S. Return of Income
for Electing Large
Partnerships.
If you need more time, you may file Form 7004, Application for Automatic 6-Month Extension of Time To File Certain Business
Income Tax,
Information, and Other Returns, to request an extension of time to file Form 8804. The extension may not be for more than
6 months except for
taxpayers who are abroad. Form 7004 does not extend the time for payment of tax.
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.
File Forms 8804, 8805, and 8813 with:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409
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 do not have and are not eligible to get an SSN may apply for an ITIN on Form W-7, Application for IRS Individual
Taxpayer
Identification Number. The application is also available in Spanish.
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.
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. A foreign person is any person that
is not a U.S. person
within the meaning of section 7701(a)(30). As such, a foreign person includes a nonresident alien individual, foreign corporation,
foreign
partnership, foreign trust or estate, or a foreign organization described in section 501(c).
A partnership may determine a partner's foreign or nonforeign status by relying on a W-8 form (for example, Form W-8BEN),
Form W-9, an acceptable
substitute form, or by other means. See Form of certification and Use of Means Other Than Certification below. Also, see
Regulations section 1.1446-1(c) for additional information.
Certification of Nonforeign Status
In general, a partnership may determine that a partner is not a foreign person by obtaining a Form W-9 from the partner. A
partnership that has
obtained this certification may rely on it to establish the nonforeign status of a partner. See Effect of certification below.
Form of certification.
Generally, a partnership may determine a partner's foreign or nonforeign status by obtaining one of the following
withholding certificates from the
partner.
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Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding.
-
W-8ECI, Certificate of Foreign Person's Claim That Income is Effectively Connected With the Conduct of a Trade or Business
in the United
States.
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W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding.
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W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding.
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Form W-9, Request for Taxpayer Identification Number and Certification.
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An acceptable substitute form (as described in Regulations section 1.1446-1(c)(5)).
-
A statement required from a domestic grantor trust (as described in Regulations section 1.1446-1(c)(2)(ii)(E)) with the necessary
documentation required for the trust and the grantor.
Effect of certification.
Generally, a partnership that has obtained a withholding certificate (for example, a Form W-8 or W-9) according to
the rules in these instructions
may rely on the certification to determine whether the partner is a foreign or nonforeign partner for purposes of computing
section 1446 tax, and if
such partner is a foreign partner, to determine whether or not such partner is a corporation for U.S. tax purposes. The partnership
may also use the
withholding certificate to determine that the partner is not subject to withholding. A partnership may not rely on a withholding
certificate if it
knows or has reason to know that any information provided on the withholding certificate is incorrect or unreliable, and based
on that information the
partnership should pay more section 1446 withholding tax. Under those circumstances, the certificate is not valid.
The partnership will not be subject to penalties for its failure to pay the section 1446 withholding tax prior to
the date that it knows or has
reason to know that the certificate is not valid. However, the partnership is fully liable for section 1446 withholding tax
for the year, as well as
penalties and interest, starting with the installment period or Form 8804 filing period during which it knows or has reason
to know that the
certificate is not valid. See Regulations section 1.1446-1(c)(2)(iii).
Requirements for certificates to be valid.
Generally, the validity of a Form W-9 is determined under section 3406 and Regulations section 31.3406(h)-3(e). A
Form W-8 is only valid if:
-
Its validity period has not expired,
-
The partner submitting the form has signed it under penalties of perjury, and
-
It contains all the required information.
See Regulations section 1.1446-1(c)(2)(iv) for more details.
Change in circumstances.
A partner must provide a new withholding certificate when there is a change in circumstances. The principles of Regulations
section
1.1441-1(e)(4)(ii)(D) shall apply when a change in circumstances has occurred (including situations where the status of a
U.S. person changes) that
requires a partner to provide a new withholding certificate.
How long to keep the certifications.
A partnership or nominee who has responsibility for paying section 1446 withholding tax must retain each withholding
certificate, statement, and
other information received from its direct and indirect partners for as long as it may be relevant to the determination of
the withholding agent's
section 1446 tax liability under section 1461 and the regulations thereunder.
Use of Means Other Than Certification
A partnership is not required to obtain a Form W-9. 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 Form W-9. If a certification is not provided, the partnership may withhold tax under section 1446
of the Code and will be
considered for purposes of section 1461 through section 1463, to have been required to withhold such tax.
Effectively Connected Taxable Income (ECTI)
“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 statutory adjustments:
-
Section 703(a)(1) does not apply.
-
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.
-
The partnership may not take into account items of income, gain, loss, or deduction allocable to any partner that is not a
foreign
partner.
See Regulations section 1.1446-2 for additional adjustments that may be required.
A partnership's ECTI 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.
See Regulations section 1.1446-2 for additional information for computing ECTI.
Amount Allocable to Foreign Partners
The amount of a partnership's ECTI 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 ECTI 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.
Certification of Deductions and Losses
A foreign partner, in certain circumstances, may certify to the partnership that it has deductions and losses it reasonably
expects to be available
to reduce the partner's U.S. income tax liability on the partner's allocable share of effectively connected income or gain
from the partnership. In
certain circumstances, the partnership may consider and rely on these deductions and losses to reduce the partnership's section
1446 tax. See
Regulations section 1.1446-6T for additional information.
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 and Regulations section 1.1446-3. To do so, use Form 8804-W, Installment Payments of Section 1446 Tax for Partnerships.
Applicable percentage.
For all foreign partners, the section 1446 applicable percentage is generally 35%. However, in some circumstances,
the partnership may consider the
highest rate applicable to a particular type of income allocated to a non-corporate partner if such partner would be entitled
to use a preferential
rate on such income or gain. See Regulations section 1.1446-3(a)(2) for additional information.
When to make the payment.
Make installment payments of the withholding tax under section 1446 with Form 8813 by the applicable due dates during
the tax year of the
partnership in which the income is earned. The partnership must generally make the installment payments for each foreign partner
on or before the 15th
day of the 4th, 6th, 9th, and 12th month of the partnership's tax year.
Generally, pay any additional amounts due when filing Form 8804. However, if the partnership files Form 7004 to request
an extension of time to
file Form 8804, pay the balance of section 1446 withholding tax estimated to be due with Form 7004 in order to avoid the late
payment penalty.
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
ECTI under
section 1446. However, these amounts are independently subject to withholding under the requirements of sections 1441 and
1442 and their regulations.
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 6c of the Form 8804 filed by the foreign partnership.
When making a payment of withholding tax to the IRS under section 1446, a partnership must notify all foreign partners of
their allocable shares of
any section 1446 tax paid to the IRS by the partnership. The partners use this information to adjust the amount of estimated
tax that they must
otherwise pay to the IRS. The notification to the foreign partners must be provided within 10 days of the installment due
date, or, if paid later, the
date the installment payment is made. See Regulations section 1.1446-3(d)(1)(i) for information that must be included in the
notification and for
exceptions to the notification requirement.
If a partnership has ECTI, it must file a Form 8804 and it must file a separate Form 8805 for each partner for whom it paid
tax. In addition, if
the partnership relies on a certificate it receives from a partner under Regulations section 1.1446-6T, it must complete a
Form 8805 for the partner
even if no tax is paid on behalf of the partner. The foreign partner must also receive a copy of its Form 8805 by the due
date of the partnership
return (including extensions) .
If the foreign partner is a foreign trust or estate, the foreign trust or estate must provide to each of its beneficiaries
a Form 8805 completed as
described under Schedule T-Beneficiary Information on page 5.
Interest is charged on taxes not paid by the due date, even if an extension of time to file is granted. Interest is also charged
on penalties
imposed for failure to file, negligence, fraud, and substantial understatements of tax from the due date (including extensions)
to the date of
payment. The interest charge is figured at a rate determined under section 6621.
A partnership that fails to file Form 8804 when due (including extensions of time to file) generally may be subject to a penalty
of 5% of the
unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The penalty will
not apply if the
partnership can show reasonable cause for filing late. If the failure to timely file is due to reasonable cause, attach an
explanation to Form 8804.
Late Filing of Correct Form 8805
A penalty may be imposed for failure to file each Form 8805 when due (including extensions). The penalty may also be imposed
for failure to include
all required information on Form 8805 or for furnishing incorrect information. The penalty is based on when a correct Form
8805 is filed. The penalty
is:
-
$15 per Form 8805 if the partnership correctly files within 30 days; maximum penalty of $75,000 per year ($25,000 for a small
business). A
“small business” has average annual gross receipts of $5 million or less for the most recent 3 tax years (or for the period of time the business
has existed, if shorter) ending before the calendar year in which the Forms 8805 were due.
-
$50 per Form 8805 if the partnership files more than 30 days after the due date or does not file a correct Form 8805; maximum
penalty of
$250,000 per year ($100,000 for a small business).
If the partnership intentionally disregards the requirement to report correct information, the penalty per Form 8805 is increased
to $100 or, if
greater, 10% of the aggregate amount of items required to be reported, with no maximum penalty. For more information, see
sections 6721 and 6724.
Failure To Furnish Correct Forms 8805 to Recipient
A penalty of $50 may be imposed for each failure to furnish Form 8805 to the recipient when due. The penalty may also be imposed
for each failure
to give the recipient all required information on each Form 8805 or for furnishing incorrect information. The maximum penalty
is $100,000 for all
failures to furnish correct Forms 8805 during a calendar year.
If the partnership intentionally disregards the requirement to report correct information, the penalty is increased to $100
or, if greater, 10% of
the aggregate amount of items required to be reported and the $100,000 maximum penalty does not apply. For more information,
see sections 6722 and
6724.
The penalty for not paying tax when due is usually ½ of 1% of the unpaid tax for each month or part of a month the tax is
unpaid.
The penalty cannot exceed 25% of the unpaid tax. The penalty will not apply if the partnership can show reasonable cause for
paying late. If the
failure to timely pay is due to reasonable cause, attach an explanation to the form.
Failure To Withhold and Pay Over Tax
Any person required to withhold, account for, and pay over the withholding tax under section 1446, but who fails to do so,
may be subject to a
civil penalty under section 6672. The civil penalty is equal to the amount that should have been withheld and paid over.
Penalties may also be imposed, absent reasonable cause and good faith, for failing to accurately report the amount of tax
required to be shown on a
return, if any portion of the resulting underpayment is attributable to negligence, substantial understatement of income tax,
valuation misstatement,
or fraud. See sections 6662 and 6663.
A partnership's payment of section 1446 withholding tax on ECTI allocable to a foreign partner generally relates to the partner's
U.S. income tax
liability for the partner's tax year in which the partner is subject to U.S. tax on that income.
Amounts paid by the partnership under section 1446 on ECTI allocable to a partner are allowed to the partner as a credit under
section 33. The
partner may not claim an early refund of withholding tax paid under section 1446.
Amounts paid by a partnership under section 1446 for a partner are to be treated as distributions made to that partner on
the earliest of the
following:
-
The day on which this tax was paid by the partnership.
-
The last day of the partnership's tax year for which the amount was paid.
-
The last day on which the partner owned an interest in the partnership during that year.
However, the amount of section 1446 withholding paid during a tax year by the partnership is generally treated as an advance
or draw under
Regulations section 1.731-1(a)(1)(ii) to the extent of the partner's share of income for the partnership year. See Regulations
section
1.1446-3(d)(2)(v) for more details.
A partner that wishes to claim a credit against its U.S. income tax liability for amounts withheld and paid under section
1446 must attach Copy C
of Form 8805 to its U.S. income tax return for the tax year in which it claims the credit.
See Regulations section 1.1446-3(d)(2) for additional information.
Publicly Traded Partnerships (PTP)
A “publicly traded partnership” is any partnership whose interests are regularly traded on an established securities market (regardless of the
number of its partners). However, it does not include a publicly traded partnership treated as a corporation under the general
rule of section
7704(a).
A publicly traded partnership that has effectively connected income, gain, or loss, must withhold tax on distributions of
that income made to its
foreign partners. The rate is 35%. The publicly traded partnership may not consider preferential rates when computing the
section 1446 tax for a
partner. The partnership uses Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons; Form 1042-S,
Foreign Person's U.S.
Source Income Subject to Withholding; and Form 1042-T, Annual Summary and Transmittal of Forms 1042-S, to report withholding
from distributions
instead of following these instructions. It also must comply with the regulations under section 1461 and Regulations section
1.6302-2.
The term “tiered partnership” describes the situation in which a partnership owns an interest in another partnership. The former is an
“upper-tier partnership” and the latter is a “lower-tier partnership.” An upper-tier partnership that owns a partnership interest in a
lower-tier partnership is allowed a credit against its own section 1446 liability for any section 1446 tax paid by the lower-tier
partnership for that
partnership interest.
If an upper-tier partnership provides appropriate documentation to a lower-tier partnership, the lower-tier partnership may
look through the
partnership to the partners of such upper-tier partnership in determining its section 1446 tax due. The look through will
occur only with respect to
the portion of the upper-tier partnership's allocation that is allocable to partners of such partnership for which appropriate
documentation has been
received. For more information, see Regulations section 1.1446-5(c) for upper-tier foreign partnerships and Regulations section
1.1446-5(e) for
upper-tier domestic partnerships.
Note.
The look-through rules referred to above apply only for purposes of the lower-tier partnership's computation of its section
1446 tax liability. It
does not affect the upper-tier partnership's reporting requirements with respect to Forms 8804 and 8805 as set forth in the
next paragraph and
elsewhere in these instructions.
An upper-tier partnership that has had section 1446 tax payments made on its behalf by a lower-tier partnership will receive
a copy of Form 1042-S
or Form 8805 from the lower-tier partnership. The upper-tier partnership must in turn file these forms with its Form 8804
and treat the amount
withheld by the lower-tier partnership as a credit against its own liability to withhold under section 1446. This credit is
allowed on line 6b of the
Form 8804 filed by the upper-tier partnership. The upper-tier partnership must also provide to its partners the information
described in
Reporting to Partners on page 3. These statements and forms will enable those partners to obtain appropriate credit for tax withheld under
section 1446.
See Regulations section 1.1446-5 for additional information.
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