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Tax Traps for U.S. Partnerships With Foreign Partners: Distributions, Sale of Interests, Withholding and Reporting

IRC 871 and 881, IRC 1446(f), FIRPTA, IRC 864(c)(8), Issues for Tiered Partnerships, and More

Recording of a 90-minute premium CLE/CPE webinar with Q&A

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Conducted on Tuesday, October 6, 2020

Recorded event now available

or call 1-800-926-7926

This CLE/CPE course will provide tax counsel and other tax professionals an in-depth analysis of critical tax challenges for partnerships with foreign partners. The panel will discuss tax considerations when making partnership distributions to foreign partners, withholding and reporting requirements, recent IRS guidance, and issues for tiered partnerships, as well as offer planning techniques for transfers of interests by non-U.S. partners.

Description

U.S. partnerships with foreign partners are subject to a complex set of tax laws and treaties. Potential tax issues stem from partnership distributions, additional withholding and reporting obligations, and transfers of interest. Tax counsel and advisers must grasp a complete understanding of these rules and implement tax planning techniques to minimize unintended tax liability for both the U.S. partnership and foreign partner.

Foreign entities and individuals investing in partnerships located in the U.S. or selling their interest in these partnerships are subject to a variety of tax implications. Under IRC Section 1446(a), a partnership that has income that is effectively connected with a U.S. trade or business must pay a withholding tax on the effectively connected income allocable to its foreign partners. Failure to do so can result in penalties and tax liability for the partnership in addition to the foreign partner's U.S. tax liability.

Furthermore, IRC Sections 871(a) and 881(a) impose a tax on fixed and determinable annual or periodical (FDAP) income received from sources within the U.S. by nonresident aliens. For purposes of FDAP, U.S. partnerships must deduct and withhold such tax, which can be difficult for tiered partnership structures.

For sales of a foreign partner's interest, IRC Sections 1446(f) and 864(c)(8) require the transferee to withhold, report, and pay taxes on the amount realized by the foreign partner upon disposition of their partnership interest. This requirement has limited exceptions and adds a layer of compliance issues for foreign partners and U.S. partnerships.

Listen as our panel provides an in-depth analysis of the tax challenges of U.S. partnerships with foreign partners and offers tax planning techniques and best practices for tax counsel and advisers.

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Outline

  1. Overview of key tax issues
  2. Issues for tiered partnerships
  3. Distributions and transfers of interest
  4. Estate planning issues
  5. Withholding and reporting
  6. Use of income tax treaties

Benefits

The panel will review these and other key issues:

  • What are the key tax challenges for U.S. partnerships with foreign partners?
  • What issues arise when making distributions to foreign partners?
  • How are transfers of foreign partners' interest treated under current U.S. tax law?
  • What are the key estate planning issues?
  • What are the withholding and reporting requirements for both the U.S. partnership and foreign partner?
  • What issues arise for tiered partnerships?
  • How can income tax treaties be used by foreign partners?
  • What are the tax traps to avoid and best practices for tax counsel and advisers?

Faculty

Garcia, Rolando
Rolando Garcia, JD, CPA
Tax Director
Doeren Mayhew

Mr. Garcia brings more than 20 years of experience to his role in areas such as ensuring U.S. tax compliance for...  |  Read More

Mills, Darren
Darren J. Mills, Esq., CPA, ChFC, CLU
Attorney
Widerman Malek

Mr. Mills has more than 20 years of experience advising both middle market companies and large multi-nationals...  |  Read More

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