More specifically, the IRS and Treasury clarified the exemptions for certain partners and certain transactions and confirmed that a reduced (or zero) withholding rate may be applied without obtaining written approval from the IRS (as is required in many FIRTPA transactions). Additionally, the updated “de minimis” exceptions may provide a broader exemption for foreign partners that have received allocations of $1 million or less in effectively connected taxable income (ECTI) for each of the three immediately preceding taxable years, as well as for disposition of interests in partnerships with less than 10 percent effectively connected assets
Foreign Partners Celebrate More Relaxed Procedures of Proposed Sec. 1446(f) Regs
Key guidance for foreign partners holding interests in partnerships that are engaged in a U.S. trade or business (USTB) was released on May 7, 2019, in the form of proposed regulations under Internal Revenue Code Section 1446(f). Section 1446(f) imposes a withholding obligation on the purchaser of an interest in a partnership that is engaged in a USTB. Many components of these proposed rules appear to fall on the “taxpayer-friendly” side by comparison to analogous rules and procedures prescribed under the Foreign Investment in Real Property Tax Act (FIRPTA), which imposes a similar withholding regime on a foreign person’s disposition of a U.S. real property interest.
