§ 1.1446(f)-4 — Withholding on the transfer of a publicly traded partnership interest.

26 CFR § 1.1446(f)-4

• Title: Title 26: Internal Revenue
• Part: Part 1: Income Taxes
• Source: eCFR (current through Mar 20, 2026)

Text

§ 1.1446(f)-4 Withholding on the transfer of a publicly traded partnership interest.

(a) Obligation to withhold on a transfer of a PTP interest—(1) In general. If a transfer of a PTP interest is effected through one or more brokers (as defined in § 1.1446(f)-1(b)(1)), the transferee is not required to withhold under section 1446(f)(1) and§ 1.1446(f)-2. Rather, any broker required to withhold under paragraph (a)(2) of this section must withhold a tax equal to 10 percent of the amount realized (as defined in paragraph (c)(2) of this section) on the transfer of a PTP interest, except as otherwise provided in this section. For cases in which a publicly traded partnership is liable for withholding under this section, see paragraphs (b)(3)(i) and (c)(2)(iii) of this section.

(2) Broker's requirement to withhold—(i) In general. Except as otherwise provided in this section, a broker is required to withhold under this section if it pays an amount realized to another broker that it is required to treat as a foreign person, or if a broker pays an amount realized to a foreign transferor that is its customer.

(ii) Payments to foreign brokers. A broker that pays an amount realized from the transfer of a PTP interest to another broker that it is required to treat as a foreign person must withhold under this section unless the first-mentioned broker obtains documentation on which it may rely establishing that the second-mentioned broker is described in paragraph (a)(2)(ii)(A) or (B) of this section. A broker must treat any broker to which it pays an amount realized from the transfer of a PTP interest as a foreign person unless it obtains, or already possesses, documentation (including a certification of non-foreign status) on which it may rely that establishes that the other broker is a U.S. person. A broker may rely on documentation described in this paragraph (a)(2)(ii), or in paragraph (a)(2)(ii)(A) or (B) of this section, unless it has actual knowledge that the documentation is unreliable or incorrect.

(A) A broker is described in this paragraph (a)(2)(ii)(A) if it is a qualified intermediary (as defined in § 1.1441-1(e)(5)(ii)) that provides a valid qualified intermediary withholding certificate (as described in § 1.1441-1(e)(3)(ii)) that states that it assumes primary withholding responsibility for the payment.

(B) A broker is described in this paragraph (a)(2)(ii)(B) if it is a U.S. branch of a foreign person (as described in § 1.1441-1(b)(2)(iv)) that provides a valid U.S. branch withholding certificate (as described in § 1.1441-1(e)(3)(v), but without regard to the requirement in § 1.1441-1(e)(3)(v) that the certificate state that the amount is not effectively connected with a trade or business within the United States) that states that the U.S. branch agrees to be treated as a U.S. person with respect to the payment.

(iii) Payments to foreign transferors that are customers of the broker. A broker that pays an amount realized to a foreign transferor that is its customer (as defined in § 1.6045-1(a)(2)) from the transfer of a PTP interest is required to withhold under this section unless an exception under paragraph (b) of this section applies.

(3) Exception from certain withholding by U.S. clearing organizations. A broker that is a U.S. clearing organization clearing or settling a sale of a PTP interest is not required to withhold on the amount realized from the sale. However, see § 1.1461-1(c)(2)(i)(R)(2) for the requirement that a U.S. clearing organization acting as a central counterparty report on Form 1042-S sales of PTP interests that it clears and settles on a net basis.

(4) Exception when withholding already satisfied. A broker that receives from another broker an amount realized from the transfer of a PTP interest is required to withhold under this section unless the other broker has withheld the full amount required. A broker that receives from another broker an amount realized from the transfer of a PTP interest may treat the withholding as having been satisfied on the full amount required unless it knows or has reason to know that the withholding obligation has not already been satisfied. A broker that is a qualified intermediary determines its withholding requirement for purposes of this paragraph (a)(4) in accordance with its qualified intermediary agreement.

(5) Documentation obtained from another person to determine a broker's status. A U.S. clearing organization may act as an agent for a broker receiving an amount realized from another broker that is a member of the clearing organization for purposes of furnishing valid documentation described in paragraph (a)(2) of this section of the first-mentioned broker's status to such other broker, provided the clearing organization notifies the first-mentioned broker and such broker has the ability to opt out. A broker that obtains documentation from a clearing organization under this paragraph (a)(5) for a broker to which the first-mentioned broker is paying an amount realized may rely on such documentation unless it has actual knowledge that the documentation is incorrect or unreliable.

(6) Date of withholding with respect to a transfer other than a distribution. For a transfer of a PTP interest that is not a distribution, a broker is required to apply the principles of § 31.3406(a)-4(b)(1) of this chapter to determine the date on which to withhold under this section.

(7) Payments to qualified intermediaries not assuming primary withholding responsibility. With respect to the transfer of a PTP interest, if a broker pays the amount realized to a foreign person that the broker may treat as a qualified intermediary (as defined in § 1.1441-1(e)(5)(ii)) that does not assume primary withholding responsibility for the payment based on a valid qualified intermediary withholding certificate described in § 1.1441-1(e)(3)(ii) upon which the broker may rely under paragraph (a)(2) of this section, the broker may withhold as provided in this paragraph (a)(7). Under this paragraph (a)(7), a broker may withhold under this section by reference to the amount of the payment that the broker can reliably determine, based on the withholding statement provided with the withholding certificate, is allocable to—

(i) Foreign transferors included in a chapter 3 withholding rate pool (as described in § 1.1441-1(e)(5)(v)(C)) that are subject to a 10 percent rate of withholding on the payment of the amount realized;

(ii) Foreign transferors included in a chapter 3 withholding rate pool (as described in § 1.1441-1(e)(5)(v)(C)) that qualify for an exception from withholding on the payment of the amount realized under paragraph (b) of this section;

(iii) Each foreign transferor for which a form acceptable under § 1.1446-1 is provided; or

(iv) U.S. transferors, based on a valid Form W-9 provided for each such transferor to the extent that the transferor is not included in a chapter 4 withholding rate pool of U.S. payees (as described in § 1.1441-1(e)(5)(v)(C), to the extent permitted for purposes of chapter 4 of the Internal Revenue Code).

(8) Qualified intermediary or U.S. branch withholding requirement. A broker that is a qualified intermediary (as defined in § 1.1441-1(e)(5)(ii)) or U.S. branch must assume primary withholding responsibility under this section for a distribution from a publicly traded partnership for which the qualified intermediary or U.S. branch acts as a nominee for purposes of section 1446(a). See § 1.1446-4(b)(3).

(b) Exceptions to withholding—(1) In general. A broker is not required to withhold under this section if it properly relies on a certification described in paragraph (b)(2), (5), or (6) of this section, a qualified notice described in paragraph (b)(3) of this section, or if the exception described in paragraph (b)(4) of this section applies. A broker may not rely on a certification described in this paragraph (b) if it has actual knowledge that the certification is incorrect or unreliable.

(2) Certification of non-foreign status. A broker may rely on a certification of non-foreign status that it obtains from the transferor. A certification of non-foreign status under this section means a Form W-9, Request for Taxpayer Identification Number and Certification, or valid substitute form, that meets the requirements of § 1.1441-1(d)(2). For purposes of this paragraph (b)(2), a broker may rely on a valid form that it already possesses from the transferor. A broker may instead rely on certification from a second broker (as defined in § 1.6045-1(a)(1)) that acts as an agent for the transferor when the second broker does not receive the amount realized from the transfer of the PTP interest. This certification must state that the second broker has collected a valid certification of non-foreign status (within the meaning of this paragraph (b)(2)) from the transferor, and it must include the transferor's TIN and status as a foreign or U.S. person.

(3) Less than 10 percent effectively connected gain by partnership—(i) In general. A broker may rely on a qualified notice described in paragraph (b)(3)(iii) of this section that states that the 10-percent exception applies, as determined under paragraph (b)(3)(ii) of this section. In a case in which a broker properly relies on a qualified notice under paragraph (b)(1) of this section that results in underwithholding on a transfer of a PTP interest, the publicly traded partnership that issued the notice is solely liable for the underwithheld tax under section 1461. A publicly traded partnership's liability referenced in the preceding sentence, however, applies only when the publicly traded partnership fails to make a reasonable estimate of the amounts required for determining the applicability of the 10-percent exception.

(ii) 10-percent exception—(A) In general. The 10-percent exception applies to a transfer if, on the PTP designated date described in paragraph (b)(3)(ii)(B) of this section—

(1) If the publicly traded partnership sold all of its assets at fair market value in the manner described in § 1.864(c)(8)-1(c), either—

(i) The amount of net gain that would have been effectively connected with the conduct of a trade or business within the United States would be less than 10 percent of the total net gain; or

(ii) No gain would have been effectively connected with the conduct of a trade or business in the United States; or

(2) The partnership was not engaged in a trade or business within the United States at any time during the taxable year of the partnership through the PTP designated date.

(B) PTP designated date. The PTP designated date for a transfer is any date for a deemed sale determination that is designated by the publicly traded partnership in a qualified notice described in paragraph (b)(3)(iii) of this section, provided that the PTP designated date occurs on or after the date that is 92 days before the date on which the publicly traded partnership posted the qualified notice naming the PTP designated date.

(iii) Qualified notice—(A) In general. Except as provided in paragraphs (b)(3)(iii)(B) and (C) of this section, a qualified notice described in this paragraph (b)(3)(iii) is the most recent qualified notice (within the meaning of § 1.1446-4(b)(4)) posted by the publicly traded partnership.

(B) Qualified notice posting date requirement. A qualified notice is described in this paragraph (b)(3)(iii) only if the publicly traded partnership has posted it within the 92-day period ending on the date of the transfer. For a transfer that is a distribution by the publicly traded partnership, the qualified notice is described in paragraph (b)(3)(iii) of this section only if the qualified notice is posted with respect to the distribution.

(C) Recent posting of qualified notice. If the most recent qualified notice posted by the publicly traded partnership was posted during the 10-day period ending on the date of the transfer, a broker may instead rely on the immediately preceding qualified notice (within the meaning of § 1.1446-4(b)(4)) posted by the publicly traded partnership, provided that it satisfies the condition described in paragraph (b)(3)(iii)(B) of this section.

(4) Amount subject to withholding under section 3406. A broker is not required to withhold under this section if the amount realized from the transfer of the PTP interest is subject to withholding under § 31.3406(b)(3)-2 of this chapter.

(5) Income tax treaties. A broker may rely on a certification from the transferor that states that the transferor is not subject to tax on any gain from the transfer pursuant to an income tax treaty in effect between the United States and a foreign country if the requirements of this paragraph (b)(5) are met. The transferor makes the certification on a withholding certificate (on a Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), or Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)) that meets the requirements for validity under § 1.1446-1(c)(2)(iv) (or an applicable substitute form that meets the requirements under § 1.1446-1(c)(5)) and that contains the information necessary to support the claim for treaty benefits. For purposes of this paragraph (b)(5), a broker may rely on a withholding certificate that it already possesses from the transferor that meets the requirements of this paragraph (b)(5) unless it has actual knowledge that the information is incorrect or unreliable. The exception in this paragraph (b)(5) does not apply if treaty benefits apply to only a portion of the gain from the transfer.

(6) Foreign dealers that provide Form W-8ECI. A broker may rely on a certification provided by a transferor that certifies that it is a dealer in securities (as defined in section 475(c)(1)) and that any gain from the transfer of the PTP interest is effectively connected with the conduct of a trade or business within the United States without regard to the provisions of section 864(c)(8). The certification described in the preceding sentence is made on a Form 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, that meets the requirements for validity under § 1.1446-1(c)(2)(iv) (or an applicable substitute form that meets the requirements under § 1.1446-1(c)(5)) and that contains any other information required in the instructions to the form. A broker may rely on a withholding certificate that it already possesses from the transferor that meets the requirements of this paragraph (b)(6) unless it has actual knowledge that the information is incorrect or unreliable.

(c) Determining the amount to withhold—(1) In general. A broker that is required to withhold under this section must withhold 10 percent of the amount realized on the transfer of the PTP interest, except as provided in this paragraph (c). Any procedures in this paragraph (c) apply solely for purposes of determining the amount to withhold under section 1446(f)(1) and this section. A broker may not rely on a certification described in this paragraph (c) if it has actual knowledge that the certification is incorrect or unreliable.

(2) Amount realized—(i) In general. Solely for purposes of this section, the amount realized is the amount of gross proceeds (as defined in § 1.6045-1(d)(5)) paid or credited upon the transfer to the customer or other broker (as applicable), or, in the case of a distribution, the amount determined under paragraph (c)(2)(iii) of this section.

(ii) Certification by a foreign partnership of modified amount realized—(A) In general. When a transferor is a foreign partnership, a broker may use the procedures of this paragraph (c)(2)(ii) to determine the amount realized. For purposes of this paragraph (c)(2)(ii)(A), the broker may treat the modified amount realized as the amount realized to the extent it may rely on a certification from the transferor providing the modified amount realized.

(B) Determining modified amount realized. The modified amount realized is determined by multiplying the amount realized (as determined under this paragraph (c)(2), without regard to this paragraph (c)(2)(ii)) by the aggregate percentage computed as of the determination date (see § 1.1446(f)-1(c)(4)). The aggregate percentage is the percentage of the gain (if any) arising from the transfer that would be allocated to presumed foreign taxable persons. For purposes of this paragraph (c)(2)(ii)(B), a presumed foreign taxable person is any direct or indirect partner of the transferor that has not provided either a certification of non-foreign status that meets the requirements of paragraph (b)(2) of this section or a certification of treaty benefits that states that the partner is not subject to tax on any gain from the transfer pursuant to an income tax treaty in effect between the United States and a foreign country. A valid certification of treaty benefits must meet the requirements of paragraph (b)(5) of this section (as applied to the partner claiming treaty benefits). For purposes of this paragraph (c)(2)(ii), an indirect partner is a person that owns an interest in the transferor indirectly through one or more foreign partnerships.

(C) Certification. The certification is made by providing a withholding certificate (on Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting) that includes a withholding statement that provides the percentage of gain allocable to each direct or indirect partner and that provides whether each such person is a United States person, a foreign partner eligible for treaty benefits, or a presumed foreign taxable person. The certification must also include the certification of non-foreign status or the certification of treaty benefits from each direct or indirect partner that is not a presumed foreign taxable person. For purposes of this paragraph (c)(2)(ii), a broker may rely on a withholding certificate and withholding statement that it already possesses from the partnership unless it has actual knowledge that the information is incorrect or unreliable.

(iii) Determination of amount realized on a distribution. The amount realized on a distribution from a publicly traded partnership is the amount of the distribution reduced by the portion of the distribution that is attributable to the cumulative net income of the partnership. The cumulative net income is the net income earned by the publicly traded partnership since its formation that has not been previously distributed by the partnership. A publicly traded partnership identifies such excess portion of the distribution as an amount in excess of cumulative net income on a qualified notice (within the meaning of § 1.1446-4(b)(4)) posted with respect to the distribution. If a broker properly withholds based on the qualified notice (applying the rules of § 1.1446-4(d)(1) to the distribution), the broker is not liable for any underwithholding on any amount attributable to an amount in excess of cumulative net income. Rather, the publicly traded partnership that issued the qualified notice is solely liable for the underwithheld tax under section 1461 on such amount that results from a broker's reliance on the notice.

(d) Reporting and paying withheld amounts. A broker that is required to withhold under this section must pay the withheld tax pursuant to the deposit rules in § 1.6302-2. For rules regarding reporting on Forms 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, that apply to a broker that withholds under this section, see § 1.1461-1(b) and (c). For rules regarding when an amount realized on the transfer of a PTP interest is reportable on a Form 1042-S (including in certain cases in which withholding is not required), see § 1.1461-1(c)(2)(i)(Q) and (R). A broker that pays the amount realized to a foreign partnership must issue a Form 1042-S directly to the partnership rather than issuing a form to each of the partners of the partnership. See § 1.1461-1(c)(1)(ii)(A)(8) (treating the foreign partnership as a recipient for reporting purposes). A broker making a payment to a U.S. branch treated as a U.S. person must not treat the branch as a U.S. person for purposes of reporting the payment made to the branch. Therefore, a payment to that U.S. branch must be reported on Form 1042-S. See § 1.1461-1(c). A Form 1042-S issued directly to the transferor must include the TIN of the transferor unless the broker does not know the TIN at the time of issuance.

(e) Effect of withholding on transferor—(1) In general. The withholding of tax under this section does not relieve a foreign person from filing a U.S. tax return with respect to the transfer. See §§ 1.6012-1(b)(1), 1.6012-2(g)(1), and 1.6031(a)-1. Further, the withholding of tax by a broker does not relieve a nonresident alien individual or foreign corporation subject to tax on gain by reason of section 864(c)(8) from paying any tax due with the return that has not been fully satisfied through withholding.

(2) Manner of obtaining credit—(i) Individuals and corporations. An individual or corporation may claim a credit under section 33 for the amount withheld under this section by attaching to its applicable return a copy of a Form 1042-S that includes its TIN (or as otherwise provided in IRS forms or instructions).

(ii) Partnerships, trusts, or estates. For a rule allowing a foreign partnership that is a transferor to claim a credit for the amount withheld under this section against its obligation to withhold under section 1446(a), see § 1.1446-3(c)(4). For the rule providing the extent to which a foreign trust or estate may claim a credit for an amount withheld under this section, see § 1.1462-1. A foreign partnership, trust, or estate claiming a credit for an amount withheld must attach to its applicable return the Form 1042-S provided to it under paragraph (d) of this section (or as otherwise provided in IRS forms or instructions). A foreign trust or estate must also provide any information required in forms or instructions to any beneficiary or owner that is liable for tax on any of the gain under section 864(c)(8).

(f) Applicability date. This section applies to transfers that occur on or after January 1, 2022.

[T.D. 9926, 85 FR 76935, Nov. 30, 2020]