In response to public comments, the IRS today issued Notice 2018-08 that delays indefinitely withholding under new Code section 1446(f) with respect to dispositions of certain publicly traded partnerships.  Section 13501 of the enacted tax reform bill added a new Code section 1446(f) to impose a 10% withholding requirement on the amount of gain treated as effectively connected income under new Code section 864(c)(8).  Code section 864(c)(8) treats a portion of the gain or loss on the sale or exchange of a partnership interest by a foreign person as effectively connected income if that partnership is engaged in a U.S. trade or business.   The new provisions are generally effective for sales and exchanges on or after November 27, 2017, and the withholding provisions are effective for sales or exchanges after December 31, 2017.

In recognition of the significant practical problems that withholding under section 1446(f) with respect to the disposition of publicly traded partnership interests (such as the inability of the transferee to determine whether the transferor is foreign or domestic or whether any amount would be treated as effectively connected income).  The legislation addresses this by permitting a broker to deduct and withhold on behalf of the transferee for dispositions of publicly traded partnerships through a broker.  However, new withholding and reporting systems will be required before such withholding can be effectuated.

Notice 2018-08 provides that withholding will not be required under new section 1446(f) with respect to the disposition  publicly traded partnership interests until regulations or other guidance have been issued.  Withholding is required, however, with respect to dispositions of non-publicly traded partnership interests.  According to the notice, future regulations or guidance under section 1446(f) with respect to dispositions of publicly traded partnerships will be prospective and include transition rules to allow sufficient time for implementation.

Photo of S. Michael Chittenden S. Michael Chittenden

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden…

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden advises companies on their obligations under FATCA and assists in the development of comprehensive FATCA and Chapter 3 (nonresident alien reporting and withholding) compliance programs.

Mr. Chittenden advises large employers on their employment tax obligations, including the special FICA and FUTA rules for nonqualified deferred compensation, the successor employer rules, the voluntary correction of employment tax mistakes, and the abatement of late deposit and information reporting penalties. In addition, he has also advised large insurance companies and employers on the Affordable Care Act reporting requirements in Sections 6055 and 6056, and advised clients on the application of section 6050W (Form 1099-K reporting), including its application to third-party payment networks.

Mr. Chittenden counsels clients on mobile workforce issues including state income tax withholding for mobile employees and expatriate and inpatriate taxation and reporting.

Mr. Chittenden is a frequent commentator on information withholding, payroll taxes, and fringe benefits and regularly gives presentations on the compliance burdens for companies.