IRS extends withholding date for certain PTP transfers, distributions.

• Author: Ferris, Tara
• Position: Publicly traded partnerships

The IRS announced in Notice 2021-51 that it will amend the regulations under Secs. 1446(a) and 1446(f) to defer the applicability date of certain provisions by one year to Jan. 1, 2023. The affected provisions relate to withholding (1) on transfers of interests in publicly traded partnerships (PTPs); (2) on distributions made with respect to PTP interests; and (3) by non--publicly traded partnerships on distributions to transferees who failed to withhold properly.

Taxpayers may rely on the modified applicability dates immediately.

Background

Sec. 864(c)(8) treats gain or loss from the disposition of an interest in a partnership that is engaged in a U.S. trade or business by a nonresident alien individual or foreign corporation as effectively connected with the conduct of that U.S. trade or business to the extent the gain or loss is allocable to the partnership's U.S. business assets.

Sec. 1446(f) is a collection mechanism for Sec. 864(c)(8). It generally requires transferees purchasing interests in such partnerships from non-U.S. transferors to deduct and withhold a 10% tax from the amount realized. The regulations on transfers of PTP interests require the tax to be withheld by the transferor's broker. Sec. 1446(f)(4) requires partnerships to withhold tax from future distributions (backstop withholding) to transferees that were required to withhold tax on the amount realized by the non-U.S. transferor but failed to withhold all the tax due. Backstop withholding continues until the amount not withheld, plus interest, is recovered.

The IRS released final regulations (T.D. 9926) under Sec. 1446(f) in October 2020. The regulations were supposed to apply to withholding on certain transfers and distributions on and after Jan. 1, 2022. The IRS said it received comments that taxpayers faced significant challenges to comply by that date.

Dates extended

In response to the comments, the IRS intends to amend the regulations to extend the applicability date for the following provisions:

* Withholding and reporting on transfers of PTP interests under Sec. 1446(f)(1) that occur on or after Jan. 1, 2023 (Regs. Sec. 1.1446(f)-4(f));

* Distributions with respect to PTP...