§ 1446. Withholding of tax on foreign partners’ share of effectively connected income

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 title XII § 1246(a) · 100 Stat. 2085

   Enacted · 26 U.S.C. § 1446

   Added Pub. L. 99–514, title XII, § 1246(a), Oct. 22, 1986, 100 Stat. 2582

   Source evidence

   Code source credit
   Added Pub. L. 99–514, title XII, § 1246(a), Oct. 22, 1986, 100 Stat. 2582

   Enacted provision · exact public law section
   (a) In General.— Subchapter A of chapter 3 (relating to withholding of tax on nonresident) is amended by adding at the end thereof the following new section: “SEC. 1446. WITHHOLDING TAX ON AMOUNTS PAID BY PARTNERSHIPS TO FOREIGN PARTNERS. “(a) General Rule.— Except as provided in this section, if a partnership has any income, gain, or loss which is effectively connected or treated as effectively connected with the conduct of a trade or business within the United States, any person described in section 1441(a) shall be required to deduct and withhold a tax equal to 20 percent of any amount distributed to a partner which is not a United States person. “(b) Limitation if Less Than 80 Percent of Gross Income is Effectively Connected With United States Trade or Business.— “(1) In general.— If the effectively connected percentage is less than 80 percent, only the effectively connected percentage of any distribution shall be taken into account under subsection “(2) Effectively connected percentage.— For purposes of paragraph (1) the term ‘effectively connected percentage’ means the percentage of the gross income of the partnership for the 3 taxable years preceding the taxable year of the distribution which is effectively connected (or treated as effectively connected) with the conduct of a trade or business within the United States. “(c) Exceptions.— “(1) Amounts on which tax withheld.— Subsection (a) shall not apply to that portion of any distribution with respect to which a tax is required to be deducted and withheld under section 1441 or 1442 (or would be required to be deducted and withheld but for a treaty). “(2) Partnerships with certain allocations.— Except as provided in regulations, subsection (a) shall not apply to any partnership with respect to which substantially all income from sources within the United States and substantially all income which is effectively connected with the conduct of a trade or business within the United States is properly allocated to United States persons. “(3) Coordination with section 1445.— Under regulations proper adjustments shall be made in the amount required to be deducted and withheld under subsection (a) for amounts deducted and withheld under section 1445. “(d) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.”

2. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 title I § 1012(s)(1)(A) · 102 Stat. 3342

   1. Amended · 26 U.S.C. § 1446

      Pub. L. 100–647 amended section generally

   2. Substituted · 26 U.S.C. § 1446

      Pub. L. 100–647 substituting provisions relating to withholding tax on foreign partners’ share of effectively connected income for provisions which related to withholding tax on amounts paid by partnerships to foreign partners

   Source evidence

   Code amendment note
   Pub. L. 100–647 amended section generally, substituting provisions relating to withholding tax on foreign partners’ share of effectively connected income for provisions which related to withholding tax on amounts paid by partnerships to foreign partners.

   Enacted provision · exact public law section
   (A) Section 1446 of the 1986 Code is amended to read as follows: “SEC. 1446. WITHHOLDING TAX ON FOREIGN PARTNERS’ SHARE OF EFFECTIVELY CONNECTED INCOME. “(a) General Rule.— If— “(1) a partnership has effectively connected taxable income for any taxable year, and “(2) any portion of such income is allocable under section 704 to a foreign partner, such partnership shall pay a withholding tax under this section at such time and in such manner as the Secretary shall by regulations prescribe. “(b) Amount of Withholding Tax.— “(1) In general.— The amount of the withholding tax payable by any partnership under subsection (a) shall be equal to the applicable percentage of the effectively connected taxable income of the partnership which is allocable under section 704 to foreign partners. “(2) Applicable percentage.— For purposes of paragraph (1), the term ‘applicable percentage’ means— “(A) the highest rate of tax specified in section 1 in the case of the portion of the effectively connected taxable income which is allocable under section 704 to foreign partners who are not corporations, and “(B) the highest rate of tax specified in section 11(b) in the case of the portion of the effectively connected taxable income which is allocable under section 704 to foreign partners which are corporations. “(c) Effectively Connected Taxable Income.— For purposes of this section, the term ‘effectively connected taxable income’ means the taxable income of the partnership which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States computed with the following adjustments: “(1) Paragraph (1) of section 703(a) shall not apply. “(2) The partnership shall be allowed a deduction for depletion with respect to oil and gas wells but the amount of such deduction shall be determined without regard to sections 613 and 613A. “(3) There shall not be taken into account any item of income, gain, loss, or deduction to the extent allocable under section 704 to any partner who is not a foreign partner. “(d) Treatment of Foreign Partners.— “(1) Allowance of credit.— Each foreign partner of a partnership shall be allowed a credit under section 33 for such partner’s share of the withholding tax paid by the partnership under this section. Such credit shall be allowed for the partner’s taxable year in which (or with which) the partnership taxable year (for which such tax was paid) ends. “(2) Credit treated as distributed to partner.— A foreign partner’s share of any withholding tax paid by the partnership under this section shall be treated as distributed to such partner by such partnership on the last day of the partnership’s taxable year (for which such tax was paid). “(e) Foreign Partner.— For purposes of this section, the term “foreign partner” means any partner who is not a United States person. “(f) Regulations.— The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations providing for the application of this section in the case of publicly traded partnerships.”

3. 1989

   Revenue Reconciliation Act of 1989

   Pub. L. 101–239 § 7811(i)(6)(A) · 103 Stat. 2106

   Substituted · 26 U.S.C. § 1446(b)(2)(B)

   Pub. L. 101–239, § 7811(i)(6)(A), substituted “section 11(b)(1)” for “section 11(b)”

   Source evidence

   Code amendment note
   Subsec. (b)(2)(B). Pub. L. 101–239, § 7811(i)(6)(A), substituted “section 11(b)(1)” for “section 11(b)”.

   Enacted provision · exact public law section
   (A) Subparagraph (B) of section 1446(b)(2) is amended by striking “section 11(b)” and inserting “section 11(b)(1)”.

4. 1989

   Revenue Reconciliation Act of 1989

   Pub. L. 101–239 § 7811(i)(6)(B) · 103 Stat. 2106

   Amended · 26 U.S.C. § 1446(d)(2)

   Pub. L. 101–239, § 7811(i)(6)(B), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “A foreign partner’s share of any withholding tax paid by the partnership under this section shall be treated as distributed to such partner by such partnership on the last day of the partnership’s taxable year (for which such tax was paid).”

   Source evidence

   Code amendment note
   Subsec. (d)(2). Pub. L. 101–239, § 7811(i)(6)(B), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “A foreign partner’s share of any withholding tax paid by the partnership under this section shall be treated as distributed to such partner by such partnership on the last day of the partnership’s taxable year (for which such tax was paid).”

   Enacted provision · exact public law section
   (B) Paragraph (2) of section 1446(d) is amended to read as follows: “(2) Credit treated as distributed to partner.— Except as provided in regulations, a foreign partner’s share of any withholding tax paid by the partnership under this section shall be treated as distributed to such partner by such partnership on the earlier of— “(A) the day on which such tax was paid by the partnership, or “(B) the last day of the partnership’s taxable year for which such tax was paid.”

5. 1989

   Revenue Reconciliation Act of 1989

   Pub. L. 101–239 § 7811(i)(6)(C) · 103 Stat. 2106

   Amended · 26 U.S.C. § 1446(f)

   Pub. L. 101–239, § 7811(i)(6)(C), amended subsec. (f) generally. Prior to amendment, subsec. (f) read as follows: “The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations providing for the application of this section in the case of publicly traded partnerships.”

   Source evidence

   Code amendment note
   Subsec. (f). Pub. L. 101–239, § 7811(i)(6)(C), amended subsec. (f) generally. Prior to amendment, subsec. (f) read as follows: “The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations providing for the application of this section in the case of publicly traded partnerships.”

   Enacted provision · exact public law section
   (C) Subsection (f) of section 1446 is amended to read as follows: “(f) Regulations.— The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including— “(1) regulations providing for the application of this section in the case of publicly traded partnerships, and “(2) regulations providing— “(A) that, for purposes of section 6655, the withholding tax imposed under this section shall be treated as a tax imposed by section 11 and any partnership required to pay such tax shall be treated as a corporation, and “(B) appropriate adjustments in applying section 6655 with respect to such withholding tax.”

6. 2017

   Pub. L. 115–97 § 13001(b)(3)(D) · 131 Stat. 2054

   Substituted · 26 U.S.C. § 1446(b)(2)(B)

   Pub. L. 115–97, § 13001(b)(3)(D), substituted “section 11(b)” for “section 11(b)(1)”

   Source evidence

   Code amendment note
   Subsec. (b)(2)(B). Pub. L. 115–97, § 13001(b)(3)(D), substituted “section 11(b)” for “section 11(b)(1)”.

   Enacted provision · exact public law section
   (D) Section 1446(b)(2)(B) 26 USC 1446. is amended by striking “section 11(b)(1)” and inserting “section 11(b)”.

   Effective date note
   Amendment by section 13001(b)(3)(D) of Pub. L. 115–97 applicable to distributions made after Dec. 31, 2017, see section 13001(c)(2) of Pub. L. 115–97, set out as a note under section 11 of this title. Pub. L. 115–97, title I, § 13501(c)(2), Dec. 22, 2017, 131 Stat. 2141, provided that: “The amendment made by subsection (b) [amending this section] shall apply to sales, exchanges, and dispositions after December 31, 2017.”

7. 2017

   Pub. L. 115–97 § 13501(b) · 131 Stat. 2054

   1. Added · 26 U.S.C. § 1446(f); 26 U.S.C. § 1446(g)

      Pub. L. 115–97, § 13501(b), added subsec. (f)

   2. Redesignated · 26 U.S.C. § 1446(f); 26 U.S.C. § 1446(g)

      Pub. L. 115–97, § 13501(b), redesignated former subsec. (f) as (g)

   Source evidence

   Code amendment note
   Subsecs. (f), (g). Pub. L. 115–97, § 13501(b), added subsec. (f) and redesignated former subsec. (f) as (g).

   Enacted provision · exact public law section
   (b) Withholding Requirements.— Section 1446 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following: “(f) Special Rules for Withholding on Dispositions of Partnership Interests.— “(1) In general.— Except as provided in this subsection, if any portion of the gain (if any) on any disposition of an interest in a partnership would be treated under section 864(c)(8) as effectively connected with the conduct of a trade or business within the United States, the transferee shall be required to deduct and withhold a tax equal to 10 percent of the amount realized on the disposition. “(2) Exception if nonforeign affidavit furnished.— “(A) In general.— No person shall be required to deduct and withhold any amount under paragraph (1) with respect to any disposition if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor’s United States taxpayer identification number and that the transferor is not a foreign person. “(B) False affidavit.— Subparagraph (A) shall not apply to any disposition if— “(i) the transferee has actual knowledge that the affidavit is false, or the transferee receives a notice (as described in section 1445(d)) from a transferor’s agent or transferee’s agent that such affidavit or statement is false, or “(ii) the Secretary by regulations requires the transferee to furnish a copy of such affidavit or statement to the Secretary and the transferee fails to furnish a copy of such affidavit or statement to the Secretary at such time and in such manner as required by such regulations. “(C) Rules for agents.— The rules of section 1445(d) shall apply to a transferor’s agent or transferee’s agent with respect to any affidavit described in subparagraph (A) in the same manner as such rules apply with respect to the disposition of a United States real property interest under such section. “(3) Authority of secretary to prescribe reduced amount.— At the request of the transferor or transferee, the Secretary may prescribe a reduced amount to be withheld under this section if the Secretary determines that to substitute such reduced amount will not jeopardize the collection of the tax imposed under this title with respect to gain treated under section 864(c)(8) as effectively connected with the conduct of a trade or business with in the United States. “(4) Partnership to withhold amounts not withheld by the transferee.— If a transferee fails to withhold any amount required to be withheld under paragraph (1), the partnership shall be required to deduct and withhold from distributions to the transferee a tax in an amount equal to the amount the transferee failed to withhold (plus interest under this title on such amount). “(5) Definitions.— Any term used in this subsection which is also used under section 1445 shall have the same meaning as when used in such section. “(6) Regulations.— The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this subsection, including regulations providing for exceptions from the provisions of this subsection.” .

   Effective date note
   Amendment by section 13001(b)(3)(D) of Pub. L. 115–97 applicable to distributions made after Dec. 31, 2017, see section 13001(c)(2) of Pub. L. 115–97, set out as a note under section 11 of this title. Pub. L. 115–97, title I, § 13501(c)(2), Dec. 22, 2017, 131 Stat. 2141, provided that: “The amendment made by subsection (b) [amending this section] shall apply to sales, exchanges, and dispositions after December 31, 2017.”

8. 2018

   Energy and Water Development and Related Agencies Appropriations Act, 2018

   Pub. L. 115–141 div. U title IV § 401(a)(199) · 132 Stat. 348

   Substituted · 26 U.S.C. § 1446

   Pub. L. 115–141 substituted “Withholding of tax” for “Withholding tax” in section catchline

   Source evidence

   Code amendment note
   Pub. L. 115–141 substituted “Withholding of tax” for “Withholding tax” in section catchline.

   Enacted provision · exact public law section
   Sec. 401. The Nuclear Regulatory Commission shall comply with the July 5, 2011, version of Chapter VI of its Internal Commission Procedures when responding to Congressional requests for information.

10 of 10 references resolved to an enrolled provision