Bulletin No. 2020–51

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2020–51

December 14, 2020

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

REG-123652-18, page 1652.

This notice of proposed rulemaking contains proposed

regulations that implement the special enforcement provisions described in section 6241(11) of the centralized

partnership audit regime enacted by the BBA in November 2015. The Tax Technical Corrections Act of 2018

(TTCA), which was enacted into law on March 23, 2018 as

part of the Consolidated Appropriations Act, 2018, added, among other things, section 6241(11) to the Code.

Section 6241(11) provides authority for the Secretary to

issue regulations that determine that the centralized partnership audit regime, or portions of it, do not apply to

certain items if such items involve special enforcement

matters. Section 6241(11) also authorizes the IRS to prescribe regulations adopting special rules related to such

items. This notice of proposed rulemaking adds proposed

§301.6241-7, provides rules regarding special enforcement matters under section 6241(11). In addition, this notice of proposed rulemaking includes some amendments

to some of the final regulations under BBA to conform

to the addition of the regulations implementing section

6241(11), to account the addition of section 6232(f) in the

TTCA, to implement one of the items in Notice 2019-06,

and to make some clarifying amendments to the previously finalized rules.

EMPLOYEE PLANS

NOTICE 2020-85, page 1645.

This notice sets forth the updated mortality improvement

rates and static mortality tables that are used for purposes

of determining minimum funding requirements under § 430(h)

(3) for 2022 and minimum present value under § 417(e)(3)

Finding Lists begin on page ii.

for distributions with annuity starting dates that occur during

stability periods beginning in the 2022 calendar year.

EXCISE TAX

NOTICE 2020-84, page 1645.

Sections 4375 and 4376, added to the Code by the Affordable Care Act, impose a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured

health plans to help fund the Patient-Centered Outcomes Research Trust Fund (PCORTF). The fee originally expired on

October 1, 2019, but was extended by the Further Consolidated Appropriations Act, 2020, Pub. L. 116-94, 133 Stat.

2534 (2019). This notice provides that the adjusted applicable dollar amount that applies for determining the PCORTF

fee for policy years and plan years ending on or after October 1, 2020 and before October 1, 2021 is equal to $2.66.

This adjusted applicable dollar amount has been determined

using the percentage increase in the projected per capita

amount of the National Health Expenditures published by

HHS in March 2020.

INCOME TAX

T.D. 9926, page 1602.

This document contains final regulations implementing certain sections of the Internal Revenue Code, including sections added to the Internal Revenue Code by the Tax Cuts and

Jobs Act, that relate to the withholding of tax and information

reporting with respect to certain dispositions of interests in

partnerships engaged in the conduct of a trade or business

within the United States. The final regulations affect certain

foreign persons that recognize gain or loss from the sale or

exchange of an interest in a partnership that is engaged in

such conduct. TD 9926. Published November 30, 2020.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

December 14, 2020 

Bulletin No. 2020–51

Part I

T.D. 9926

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

Withholding of Tax and

Information Reporting with

Respect to Interests in

Partnerships Engaged in a

U.S. Trade or Business

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final rule.

SUMMARY: This document contains

final regulations that provide guidance

related to the withholding of tax and

information reporting with respect to

certain dispositions of interests in partnerships engaged in a trade or business

within the United States. The final regulations affect certain foreign persons that

recognize gain or loss from the sale or

exchange of an interest in a partnership

that is engaged in a trade or business

within the United States, and persons

that acquire those interests. The final

regulations also affect partnerships that,

directly or indirectly, have foreign persons as partners.

DATES: Effective date: These regulations

are effective on November 30, 2020.

Applicability dates: For dates of applicability,

see

§§1.864(c)(8)-2(e),

1.1445-2(e), 1.1445-5(h), 1.1445-8(j),

1.1446-7, 1.1446(f)-1(e), 1.1446(f)-2(f),

1.1446(f)-3(f), 1.1446(f)-4(f), 1.1446(f)5(d), 1.1461-1(i), 1.1461-2(d), 1.1461-3,

1.1463-1, 1.1464-1(c), 1.6050K-1(h), and

1.6302-2(g).

FOR FURTHER INFORMATION CONTACT: In general, Chadwick Rowland or

Ronald M. Gootzeit (202) 317-6937; con-

December 14, 2020

cerning §1.1446(f)-4, Charles Rioux (202)

317-6933 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Section 1446(f), which was added to

the Internal Revenue Code (the Code)

by the Tax Cuts and Jobs Act, Public

Law 115-97 (2017) (the Act), provides

rules for withholding on the transfer of

a partnership interest described in section 864(c)(8). On December 29, 2017,

the Department of the Treasury (the

Treasury Department) and the IRS released Notice 2018-08, 2018-7 I.R.B.

352, which temporarily suspended the

requirement to withhold on amounts

realized in connection with the sale,

exchange, or disposition of certain interests in a publicly traded partnership

that are publicly traded on an established

securities market or readily tradable on

a secondary market (or the substantial

equivalent thereof) (PTP interests). On

April 2, 2018, the Treasury Department

and the IRS released Notice 2018-29,

2018-16 I.R.B. 495, which provided

temporary guidance and announced an

intent to issue proposed regulations under section 1446(f) with respect to the

sale, exchange, or disposition of certain

interests in non-publicly traded partnerships. On May 13, 2019, the Treasury

Department and the IRS published proposed regulations (REG-105476-18) primarily under section 1446(f) relating to

the withholding of tax and information

reporting in the Federal Register (84

FR 21198) (the proposed regulations).

The proposed regulations implemented

section 1446(f) by providing guidance

related to the withholding of tax and

information reporting with respect to

certain dispositions by a foreign person

of an interest in a partnership that is engaged in a trade or business within the

United States. In general, the proposed

regulations provided rules that apply

to transfers of interests in non-publicly

traded partnerships (non-PTP interests)

and transfers of PTP interests.

1602

Section 864(c)(8) was also added to the

Code by the Act. On December 27, 2018,

the Treasury Department and the IRS

published proposed regulations (REG113604-18) under section 864(c)(8) in

the Federal Register (83 FR 66647) (the

proposed section 864(c)(8) regulations).

The proposed section 864(c)(8) regulations provided rules for determining the

amount of gain or loss treated as effectively connected with the conduct of a

trade or business within the United States

(effectively connected gain or effectively

connected loss) under section 864(c)(8),

including certain rules that coordinate

section 864(c)(8) with other relevant sections of the Code. On November 6, 2020,

the Treasury Department and the IRS published final regulations (TD 9919) under

section 864(c)(8) in the Federal Register

(85 FR 70958) (the final section 864(c)(8)

regulations).

All written comments received in response to the proposed regulations are

available at www.regulations.gov or upon

request. Additionally, a public hearing

was scheduled for August 26, 2019, but

it was not held because there were no requests to speak.

Summary of Comments and

Explanation of Revisions

I. Overview

The final regulations retain the basic

approach and structure of the proposed

regulations with certain revisions based

on comments received. This Summary of

Comments and Explanation of Revisions

discusses the comments received with

respect to the proposed regulations and

any revisions made in response to those

comments, as well as other revisions

made that were not directly in response

to those comments. Sections VI.A and

VII.C of this Summary of Comments

and Explanation of Revisions also describe certain requirements specific to

entities acting as qualified intermediaries for section 1446 withholding purposes that are anticipated to be included in

a revised qualified intermediary agree-

Bulletin No. 2020–51

ment and that are not included in these

final regulations.1

II. Reporting Requirements for Foreign

Transferors and Partnerships with

Foreign Transferors

Proposed §1.864(c)(8)-2 provided

rules that facilitate the transfer of information between a foreign partner and the

partnership whose interest is transferred

for purposes of determining the transferor’s tax liability under section 864(c)(8).

These rules required a notifying transferor (generally, any foreign person and

certain domestic partnerships that have a

foreign person as a direct or indirect partner) that transfers (within the meaning of

proposed §1.864(c)(8)-1(g)(5)) an interest

in a partnership (other than certain PTP

interests) in a transaction described in

section 864(c)(8) to notify the partnership

within 30 days of the transfer. Proposed

§1.864(c)(8)-2(a). After receiving the notification from a notifying transferor, a

specified partnership (generally, a partnership that is engaged in a trade or business

within the United States or a partnership

that owns, directly or indirectly, an interest in a partnership so engaged) is required

to furnish to a notifying transferor the information necessary for the transferor to

comply with section 864(c)(8) by the due

date of the Schedule K-1 (Form 1065),

Partner’s Share of Income, Deductions,

Credits, etc., for the tax year of the partnership in which the transfer occurred.

Proposed §1.864(c)(8)-2(b).

While the final section 864(c)(8) regulations generally require a three-year lookback period for purposes of determining

the foreign source portion of deemed sale

gain or loss attributable to a partnership’s

inventory property or intangibles, the regulations also allow, in certain cases, the

relevant foreign source portion of deemed

sale gain or loss to be determined by reference to the source of the partnership’s

income occurring after the date, if any, on

which a material change in circumstances

occurs. §1.864(c)(8)-1(c)(2)(ii)(E). The

final regulations provide that a specified

partnership must include in the statement

provided to the notifying transferor information regarding whether the transferor’s

deemed sale EC gain or loss (as described

in §1.864(c)(8)-1(c)(2)) was determined

under the material change in circumstances rule provided in §1.864(c)(8)-1(c)(2)

(ii)(E). §1.864(c)(8)-2(b)(2)(ii).

The final regulations also revise the

definition of specified partnership to remove unnecessary language on publicly

traded partnerships. See §1.864(c)(8)-1(d)

(2).

III. Scope of the Withholding Obligation

under Section 1446(f)

The general approach in the proposed

regulations required withholding on the

transfer of a partnership interest unless an

exception or adjustment to withholding

applied. See proposed §§1.1446(f)-2(a)

and 1.1446(f)-4(a). Comments suggested

that proposed §1.1446(f)-2(a) was overly

broad in that it could impose a withholding obligation on any transfer of a partnership interest, regardless of whether

the partnership in question has any assets

in, or any other connection to, the United States, or whether a transfer of an interest in the partnership would result in

tax on gain under section 864(c)(8), and

so required a transferee to withhold in a

number of circumstances where section

1446(f)(1)’s statutory language does not.

To address this issue, the comments suggested various exceptions to withholding.

One comment requested that the final

regulations provide that even if a transferee does not obtain a certification allowing an exception to withholding, the

transferee should not be considered to

have failed to withhold if the transferee

demonstrates that the transfer did not result in any gain under section 864(c)(8).

The comment also suggested that in such

a case, the transferee should be excused

from any penalties that would otherwise

apply. In addition, the comment suggested an exception to withholding when

the transferee can demonstrate that no

deemed sale EC gain would be allocated

to the transferor. Another comment suggested adding an exception to withholding

when the transferee can demonstrate that

the partnership is not engaged in a trade or

business within the United States.

One comment suggested limiting the

scope of withholding by allowing a transferee to rely on a certification from the

partnership providing that it has not been

required to file a Form 1065, U.S. Return

of Partnership Income, for some number of past years, and it does not expect

to be required to file a Form 1065 for the

taxable year in which the transfer occurs.

The comment suggested, however, that

the partnership should not be required to

provide this certification at the time of the

transfer.

One comment generally requested that

the final regulations expand the scope of

the withholding obligation under section

1446(f). Specifically, the comment requested that the final regulations limit the

number of exceptions and adjustments

to withholding and, for any exception or

adjustment to withholding retained in the

final regulations, the comment requested

that the final regulations increase the requirements necessary to qualify for such

an exception or adjustment.

The final regulations retain the general rule in proposed §1.1446(f)-2(a) that

requires withholding on the transfer of a

partnership interest unless an exception or

adjustment to withholding applies. While

the statutory language of section 1446(f)

(1) imposes a withholding requirement

when a portion of the gain from a transfer

would be treated under section 864(c)(8)

as effectively connected gain, a transferee

will not know whether a transfer results in

tax on gain under section 864(c)(8) without information from either the transferor

or the partnership. These rules, therefore,

require that the transferee presume that a

transfer is subject to withholding unless it

obtains a certification from the transferor

establishing otherwise (or, if the partnership is the transferee because it makes a

distribution, by relying on information in

its books and records to make such determination). A transferee that obtains and

The final regulations also include certain conforming changes to regulations under sections 1445 and 1446 to reflect the rate changes made by section 13001(b)(3)(A)-(D) of the Act and the

due date changes made by section 2006 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Surface Transportation Act), Public Law 114-41 (2015).

Although the changes to these regulations are applicable based on the date of publication of this document in the Federal Register, the same result applies before that date as of the relevant

effective dates of the Act and the Surface Transportation Act.

1

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1603

December 14, 2020

properly relies on this certification (or,

when the partnership is the transferee, its

books and records) will generally not be

subject to any withholding tax liability,

even if the transfer results in tax on gain

under section 864(c)(8). See, however,

§1.1446(f)-3(a) and section V.A. of this

Summary of Comment and Explanation

of Revisions regarding a partnership’s obligation to withhold on distributions made

to a transferee for cases in which the partnership receives a certification from the

transferee that it knows, or has reason to

know, is incorrect or unreliable.

However, in response to comments, the

final regulations add a rule in §1.1446(f)5(b) that provides that any person required to withhold under section 1446(f)

is not liable for failure to withhold, or any

interest, penalties, or additions to tax, if it

establishes to the satisfaction of the Commissioner that the transferor had no gain

under section 864(c)(8) subject to tax on

the transfer. Accordingly, while the general scope of the withholding obligation

under §1.1446(f)-2(a) is retained in these

final regulations, the consequences for

failing to comply with the obligation are

modified when the transferor had no gain

under section 864(c)(8) subject to tax on

the transfer. As this rule applies for all

purposes of section 1446(f), it also modifies the consequences for a partnership

that fails to comply with its withholding

obligation under §1.1446(f)-3 or a broker

that fails to comply with its withholding obligation under §1.1446(f)-4 on the

transfer of a PTP interest. The final regulations also add an exception to withholding if the partnership certifies to the

transferee that it is not engaged in a trade

or business within the United States.

See section IV.A.3.ii of this Summary

of Comments and Explanation of Revisions. The same exception is added for

a publicly traded partnership that is not

engaged in a trade or business within the

United States. See section VI.B.2 of this

Summary of Comments and Explanation

of Revisions.

IV. Withholding on the Transfer of a NonPTP Interest

In general, section 1446(f)(1) provides

that a transferee of a partnership interest

must withhold a tax equal to 10 percent

December 14, 2020

of the amount realized on any disposition that results in effectively connected

gain under section 864(c)(8). Proposed

§1.1446(f)-2(a) implemented this rule by

providing that a transferee is required to

withhold under section 1446(f)(1) a tax

equal to 10 percent of the amount realized

on any transfer of a partnership interest

(other than a PTP interest) unless an exception to withholding, or an adjustment

to the amount to withhold, applies under

proposed §1.1446(f)-2(b) or (c), respectively. Proposed §1.1446(f)-2(d)(1) provided rules for reporting and paying the

amount of any tax withheld and proposed

§1.1446(f)-2(e) provided rules regarding

the effect of withholding on a transferor.

For a discussion of the rules that apply to

a transfer of a PTP interest, see section VI

of this Summary of Comments and Explanations of Revisions.

A. Exceptions to withholding

Proposed §1.1446(f)-2(b)(2) through

(7) provided six exceptions to withholding

by a transferee under section 1446(f)(1).

The applicability of these exceptions was

determined in one of three ways: self-certification by the transferor (that is, the

transferee relies on a certification received

from the transferor); certification by the

partnership (for purposes of the exception to withholding provided in proposed

§1.1446(f)-2(b)(4)(i)); or reliance on the

books and records of the partnership (for

cases in which a partnership is a transferee

because it makes a distribution). These final regulations modify certain exceptions

to withholding in response to comments

received.

1. Non-foreign Status Exception

Proposed §1.1446(f)-2(b)(2) provided for an exception to withholding if the

transferor of an interest in a partnership

provides a certification of non-foreign

status to the transferee (the Non-foreign

Status Exception). One comment requested that the final regulations expand the

Non-foreign Status Exception to match

similar rules provided in §§1.1445-2(b)

and 1.1446-1(c)(3) that allow for reliance

upon means other than a certification or

statement to ascertain the non-foreign status of the transferor.

1604

The final regulations do not adopt this

recommendation. While the provisions

cited in the comment generally allow for

reliance on means other than a certification or statement to ascertain non-foreign status, those provisions provide that

the transferee or partnership remains

liable under section 1461 if the determination of non-foreign status is incorrect.

See §§1.1445-2(b)(1) (last sentence) and

1.1446-1(c)(3). As described in section III

of this Summary of Comments and Explanation of Revisions, §1.1446(f)-5(b)

provides similar flexibility in that it would

allow a transferee that did not rely on a

certification of non-foreign status to show

that the transferor had no gain under section 864(c)(8) subject to tax on the transfer because the transferor is not a foreign

person; in such a case, no interest, penalties, or additions to tax will apply under

the rules of these final regulations.

The comment also made the same recommendation regarding the Non-Foreign

Status Exception provided in proposed

§1.1446(f)-4(b)(2) as it applied to transfers of PTP interests. The final regulations

do not adopt this recommendation for the

reasons described in the preceding paragraph.

2. No Realized Gain Exception

i. In general

Proposed §1.1446(f)-2(b)(3) provided

an exception to withholding if the transferee relies on a certification from the

transferor that states that the transfer of

the partnership interest would not result

in any realized gain, including ordinary

income arising from the application of

section 751 and §1.751-1 (the No Gain

Exception). One comment suggested that

a transferor realizing an overall loss on a

transfer should be eligible for the No Gain

Exception, even if the transferor realizes

ordinary income under section 751 and

§1.751-1. The final regulations do not

adopt this comment because the comment

is inconsistent with the basic computation

of outside gain and outside loss provided in §1.864(c)(8)-1(b)(2). As explained

in Section I.B of the Explanation of Provisions in the preamble to the proposed

section 864(c)(8) regulations, the amount

of gain or loss determined under section

Bulletin No. 2020–51

741 (before application of section 751) is

not a limitation on the amount of gain or

loss characterized as effectively connected with the conduct of a trade or business

within the United States. 83 FR 66648;

see also §§1.751-1(a) and 1.864(c)(8)-1(i)

(Example 3). Thus, because a transferor

can realize ordinary income under section

751 that is characterized as effectively

connected with the conduct of a trade or

business within the United States under

section 864(c)(8) even if the transferor realizes an overall loss with respect to the

partnership interest, it would be inappropriate for the No Gain Exception to apply

merely because the transferor does not

realize an overall gain with respect to the

transfer of the partnership interest.

ii. Ordinary income arising from the

deemed sale of section 751 property

A comment explained that many transferors would be unable to use the No Gain

Exception, even if they would otherwise

qualify, because transferors need information from the partnership regarding

the partnership’s unrealized receivables

or inventory items (section 751 property) and the relevant deemed sale computations associated with that property.

While the proposed regulations require

a partnership to provide the information

necessary to make these computations on

Form 8308, Report of a Sale or Exchange

of Certain Partnership Interests, proposed

§1.6050K-1(c) did not accelerate the date

on which the partnership must provide

Form 8308 to the transferor.2 Thus, the

comment suggested that a transferor may

not have the information necessary at the

time of transfer to use the No Gain Exception. To address this issue, the comment

requested certain regulatory safe harbors

that would allow a transferor to use the No

Gain Exception at the time of the deemed

sale, including a rule that would allow a

transferor to make reasonable assumptions regarding the presence and value of

section 751 property based on information

at hand (for example, information used by

the partnership in preparing a recent Form

8308).

These final regulations modify the No

Gain Exception to address the concerns

raised in the comment, but do not adopt the

solution suggested in the comment. Specifically, §1.1446(f)-2(b)(3)(ii) provides

that a transferor may rely on a certification

from the partnership stating that, as of the

determination date (as determined under

the rules of §1.1446(f)-1(c)(4)), the transfer of the partnership interest would not

result in any ordinary income arising from

the application of section 751 and §1.7511. This certification, in turn, is attached

to, and forms part of, the general certification provided by the transferor to the

transferee as part of the No Gain Exception. By adopting this approach, instead

of the one suggested by the comment, the

underlying issues raised in the comment

are addressed in a manner consistent with

the rest of the exceptions to withholding

provided in §1.1446(f)-2(b), which generally allow determinations regarding the

applicability of an exception to be made as

of the determination date. This approach

allows a partnership that holds section 751

property to provide the same information

to transferors that use the same determination date; therefore, this approach provides an administrable, clear solution that

taxpayers can consistently apply, while

also taking into account the unique nature

of section 751 property.

3. 10-percent EC Gain Exception

i. In general

Proposed §1.1446(f)-2(b)(4) provided

an exception to withholding if the transferee relies on a certification from the

partnership stating that if the partnership

sold all of its assets at fair market value

on the determination date, the amount of

net effectively connected gain resulting

from the deemed sale would be less than

10 percent of the total net gain from the

deemed sale (the EC Gain Exception).

The EC Gain Exception also applied to

a partnership that is a transferee because

it makes a distribution, in which case the

partnership can rely on its books and records as of the determination date to de-

termine if the EC Gain Exception applies.

One comment suggested that the EC Gain

Exception should refer to the transferor’s

distributive share of net effectively connected gain and should take into account,

when applicable, the transferor’s eligibility for benefits under an income tax treaty,

rather than the aggregate amount of net effectively connected gain that would be realized by the partnership upon the deemed

sale described in section 864(c)(8) and

proposed §1.864(c)(8)-1. With respect

to treaty benefits, however, the comment

acknowledged that the maximum tax liability certification provided in §1.1446(f)2(c)(4) could provide the same result.

The final regulations adopt this comment in part. Specifically, §1.1446(f)-2(b)

(4)(i)(A)(2) provides, in relevant part, that

a transferee may rely on a certification

from the partnership that states that if the

partnership sold all of its assets at fair market value on the determination date in the

manner described in §1.864(c)(8)-1(c), the

transferor’s distributive share of net effectively connected gain from the partnership

would be either zero or less than 10 percent of the transferor’s distributive share

of the total net gain from the partnership.

Accordingly, this modification applies to

situations in which the transferor would

not have a distributive share of net effectively connected gain (including by reason

of having a distributive share of net effectively connected loss). This modification,

therefore, generally adopts the suggestion

provided in the comment to account for

the transferor’s distributive share of net

effectively connected gain. Additionally,

these final regulations retain the rules provided in proposed §1.1446(f)-2(b)(4)(i)

(A) and (B) to allow partnerships to make

the relevant determination at the partnership level as of the determination date,

without regard to the transferor’s distributive share of net effectively connected

gain. §1.1446(f)-2(b)(4)(i)(A)(1). For this

purpose, however, the final regulations

simplify the partnership-level exception

to withholding by combining proposed

§1.1446(f)-2(b)(4)(i)(A) and (B) into a

single rule; this simplification is intended

to be non-substantive.

Under §1.6050K-1(c), the partnership must provide Form 8308 to the transferor by January 31 of the calendar year following the calendar year in which the relevant exchange occurred or,

if later, 30 days after the partnership is notified of the exchange.

2

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December 14, 2020

These final regulations do not adopt the

suggestion in the comment regarding the

transferor’s eligibility for benefits under

an income tax treaty. With respect to treaty benefits, the Treasury Department and

the IRS believe that existing exceptions

and adjustments, including modifications

provided in this rulemaking, adequately

address that aspect of the comment. See,

e.g., §1.1446(f)-2(b)(7) (exception to

withholding when a treaty claim covers all

of the gain from the transfer); §1.1446(f)2(c)(2)(iv) and section IV.B.3 of this

Summary of Comments and Explanation

of Revisions (modified amount realized

procedures for transferors that are foreign

partnerships); and §1.1446(f)-2(c)(4) (adjustments to the amount to withhold based

on the transferor’s maximum tax liability).

ii. Partnership not engaged in a trade or

business within the United States

Section 864(c)(8), by its terms, applies

only to a transfer of an interest in a partnership that is engaged in a trade or business

within the United States (a USTB partnership). See section 864(c)(8)(A); see also

§1.864(c)(8)-1(b)(1). When a partnership

holds U.S. real property interests and is

also subject to section 864(c)(8) because it

is engaged in a trade or business within the

United States, the computations provided

in §1.864(c)(8)-1(c) take into account any

U.S. real property interests held by the

partnership. §1.864(c)(8)-1(d). Alternatively, for a partnership that is not a USTB

partnership (for example, the partnership’s

only assets consist of foreign business assets and U.S. real property interests that

are not used in a trade or business within

the United States, such as shares of a United States real property holding corporation), §1.864(c)(8)-1(d) provides that the

rules of section 864(c)(8) and §1.864(c)

(8)-1 do not apply to a transfer of an interest in that partnership. One comment

requested that the final regulations coordinate section 1446(f)(1) withholding with

the rule provided in §1.864(c)(8)-1(d) by

clarifying that, for a partnership that is

not described in §1.1445-11T(d)(1), the

EC Gain Exception applies to situations

in which the partnership would not have

effectively connected gain as of the determination date without the application of

section 897(a). The comment noted that

December 14, 2020

under the proposed regulations, no exception to withholding is provided for a transfer that would not be subject to section

864(c)(8) because the partnership is not a

USTB partnership.

The Treasury Department and the IRS

agree that a transfer of an interest in a partnership that is not engaged in a trade or

business in the United States is not subject

to section 864(c)(8) and, therefore, should

be excepted from withholding under section 1446(f). Accordingly, §1.1446(f)-2(b)

(4)(i)(B) provides that the transferee may

rely on a certification from the partnership stating that the partnership was not

engaged in a trade or business within the

United States at any time during the taxable year of the partnership through the

date of transfer (that is, the partnership

was not a USTB partnership at any time

during the period beginning on the first

day of the partnership’s taxable year in

which the transfer occurs and ending on

the close of the date of transfer). While

this modification takes into account the

general scenario described in the comment (that is, the partnership only holds

foreign business assets and U.S. real property interests that are not part of a trade or

business and thus is not a USTB partnership), this modification also applies to any

situation in which a partnership whose

interest is transferred is not a USTB partnership during the relevant period, regardless of whether that partnership holds U.S.

real property interests. For USTB partnerships that hold U.S. real property interests,

deemed sale gain attributable to U.S. real

property interests continues to be treated

as effectively connected gain for purposes of the 10-percent prong of the EC Gain

Exception provided in §1.1446(f)-2(b)

(4)(i)(A). Finally, for partnerships that

are described in §1.1445-11T(d)(1), see

§1.1446(f)-1(d).

Similar changes are made to the EC

Gain Exception as it applies to transfers of

PTP interests. See section VI.B.2 of this

Summary of Comments and Explanation

of Revisions and §1.1446(f)-4(b)(3).

4. 10-percent ECI Exception

Proposed §1.1446(f)-2(b)(5) provided

an exception to withholding if the transferee relies on a certification from the transferor providing, in relevant part, that the

1606

transferor was a partner in the partnership

for the immediately prior taxable year and

the two preceding taxable years and the

transferor’s allocable share of effectively

connected taxable income (determined

under §1.1446-2) (ECTI) was less than

10 percent of the transferor’s total distributive share of net income received from

the partnership, and less than $1 million,

in each of those years. For this purpose,

proposed §1.1446(f)-2(b)(5) provided that

the transferor’s allocable share of ECTI

is determined by reference to Form 8805,

Foreign Partner’s Information Statement

of Section 1446 Withholding Tax, unless

the transferor was allocated an allocable

share of loss that is effectively connected

with the conduct of a trade or business

within the United States, or had deductions that are properly allocated and apportioned to income effectively connected

with the conduct of a trade or business

within the United States, in which case it

is treated as having an allocable share of

ECTI for that year of zero. See proposed

§1.1446(f)-2(b)(5)(iii). As a result, the exception provided in proposed §1.1446(f)2(b)(5) could be used only if a transferor

was allocated either a positive amount of

ECTI (as reported on Form 8805) or an

effectively connected loss (such that no

Form 8805 was provided) in each year.

Additionally, under proposed §1.1446(f)2(b)(5)(iv), a transferor could not provide

the certification required for the exception

if the transferor did not have a distributive share of net income from the partnership for each year described in proposed

§1.1446(f)-2(b)(5)(i)(A). Finally, the proposed regulations provided that a transferee may not rely on a certification provided

by the transferor if the transferor was not

a partner in the partnership for each year

described in proposed §1.1446(f)-2(b)(5)

(i)(A).

Comments explained that in some cases partnership investments are structured

to minimize the risk that a foreign partner

will have effectively connected income or

loss; and, for this purpose, a foreign partner

in such a structure will not have an allocable share of ECTI or effectively connected

loss under the partnership agreement. As

a result, if that foreign partner transfers

its interest in the partnership, it would not

qualify for the exception to withholding

provided in proposed §1.1446(f)-2(b)(5)

Bulletin No. 2020–51

because it would not receive a Form 8805

nor have an effectively connected loss

for each of the taxable years described

in proposed §1.1446(f)-2(b)(5)(i)(A). To

address this issue, one of the comments

suggested that the final regulations modify proposed §1.1446(f)-2(b)(5) to provide

relief to transferors with neither an allocable share of ECTI nor an effectively connected loss.

The same comment suggested that, for

situations in which a foreign partner is allocated effectively connected items, the

exception should look to allocations of

gross amounts rather than net amounts in

order to more accurately reflect the partnership’s capacity to produce effectively

connected income or gain. The comment

explained that this change would serve as

a more accurate proxy for the tax consequences that would occur under section

864(c)(8) by reason of the transfer. For

example, a partnership may generate significant amounts of losses or deductions

during the relevant period resulting in

small amounts of net ECTI, but nevertheless hold assets with significant amounts

of built-in gain that would be treated as

effectively connected gain on a deemed

sale. In that case, the transferor would be

able to use the exception to withholding

provided in proposed §1.1446(f)-2(b)(5)

even though the transferor may realize a

significant amount of gain under section

864(c)(8) by reason of the transfer. Finally, with respect to the period during which

the transferor was required to be a partner

in the partnership, the comment recommended changing the period provided in

proposed §1.1446(f)-2(b)(5)(i)(A) to allow for an exception to withholding when

the transferor was not a partner in the partnership for the transferor’s immediately

prior taxable year and the two preceding

taxable years (the look-back period), provided the transferor was a partner in the

partnership long enough to receive at least

one Schedule K-1 (Form 1065).

In response to comments, these final

regulations modify the exception to withholding under §1.1446(f)-2(b)(5). Under

the exception in these final regulations

(the ECI Exception), a transferor may

qualify if its distributive share of gross effectively connected income from the partnership for each taxable year within the

look-back period was less than $1 million

Bulletin No. 2020–51

and less than 10 percent of the transferor’s

total distributive share of gross income

from the partnership for that year, with

both amounts reflected on a Schedule K-1

(Form 1065) (or other statement furnished

to the partner) received from the partnership for each year. Because the ECI Exception looks to the transferor’s share of

effectively connected income (as reported on a Schedule K-1 or other statement

furnished to the partner), rather than its

allocable share of ECTI, a transferor that

is not allocated any effectively connected

income or loss in any relevant year can

still use the exception even if it has not received a Form 8805 for that year. The ECI

Exception also adopts the suggestion in the

comment to look to gross amounts of income, rather than net amounts of income,

for purposes of determining whether the

transferor’s distributive share of effectively connected income was less than 10 percent of the transferor’s total distributive

share of income from the partnership. As

suggested by the comment, this change is

intended to provide a more accurate proxy

for the tax consequences that would arise

under section 864(c)(8) by reason of the

transfer. Consistent with this change, the

rule provided in proposed §1.1446(f)-2(b)

(5)(iv) is modified to state that a transferor

cannot provide the certification required

for the ECI Exception if the transferor did

not have a distributive share of gross income from the partnership in each of the

relevant years. §1.1446(f)-2(b)(5)(iii).

Therefore, a transferor will generally be

able to use the ECI Exception even if it

is allocated a distributive share of net loss

from the partnership for the relevant taxable year.

These final regulations do not adopt

the recommendation in the comment

with respect to the relevant holding period because the Treasury Department and

the IRS have determined that reducing a

transferor’s required length of time to be

a partner in a partnership for purposes of

the ECI Exception would not provide an

adequate indication of the amount of the

transferor’s effectively connected gain realized in connection with the transfer.

5. Claims for Treaty Benefits

Under the proposed regulations, a

transferor may claim an exception or ad-

1607

justment to withholding when it qualifies

for treaty benefits with respect to a transfer of a partnership interest (including a

transfer of a PTP interest). See proposed

§§1.1446(f)-2(b)(7) and 1.1446(f)-4(b)

(6). These rules required that the certification to claim treaty benefits include an

applicable withholding certificate that

contains the information necessary to support the claim. Comments requested clarification of the information required to be

provided on Form W-8BEN, Certificate

of Foreign Status of Beneficial Owner for

United States Tax Withholding and Reporting (Individuals), or Form W-8BEN-E,

Certificate of Status of Beneficial Owner

for United States Tax Withholding and Reporting (Entities) in order to claim treaty

benefits for purposes of section 1446(f).

To address the comments, the IRS intends to revise the instructions to Forms

W-8BEN and W-8BEN-E to describe the

information required to be provided for

making a treaty claim for purposes of section 1446(f), including a treaty claim made

with respect to a transfer of a PTP interest.

To make the rules regarding claims for

treaty benefits more administrable, these

final regulations allow a transferor to use

the applicable withholding certificate as

the certification for making a claim for

benefits under an income tax treaty.

6. Additional Comments Regarding

Exceptions to Withholding

i. Disguised sales

Proposed §1.864(c)(8)-1(g)(5) defined

a transfer for purposes of the section

864(c)(8) proposed regulations as including a transfer treated as a sale or exchange

under section 707(a)(2)(B) (a disguised

sale). One comment requested an exception from section 1446(f) withholding for

certain transactions that occur in connection with the formation and initial funding

of an investment partnership, as well as

redemptions and admissions of new partners over time, that could be characterized

as disguised sales of partnership interests.

The comment acknowledged that addressing the substantive issue regarding what

constitutes a disguised sale of a partnership interest is beyond the scope of this

rulemaking. Nonetheless, the comment

recommended an exception from section

December 14, 2020

1446(f) withholding for certain transactions involving the formation and funding

of a partnership and redemptions and admissions of new partners over time. The

final regulations do not adopt the recommendation provided in this comment. If a

contributing partner is treated as acquiring a partnership interest from a foreign

person for Federal income tax purposes,

it is appropriate to impose a withholding

obligation on the contributing partner to

ensure the collection of tax on gain under

section 864(c)(8). Further, as the comment

noted, the issue of what constitutes a disguised sale of a partnership interest and

the tax consequences flowing from that

treatment are not unique to the application

of these final regulations. After studying

the issue, the Treasury Department and the

IRS have determined that adding an exception to withholding to take certain cases into account would require a determination, at least in part, of what constitutes

a disguised sale of a partnership interest

in this context, and the issue is, therefore,

outside the scope of this rulemaking.

ii. Withholding foreign partnerships and

withholding foreign trusts

Comments requested an exception

to withholding for transferors that are

withholding foreign partnerships (WPs)

and withholding foreign trusts (WTs) if

they assume withholding under section

1446(f). WPs and WTs are foreign partnerships and trusts that enter into agreements with the IRS to assume primary

withholding and reporting responsibilities

on payments subject to withholding under chapters 3 and 4 with respect to their

partners, owners, or beneficiaries (as applicable). One of the comments suggested

that without such a rule, partners of a WP

would be subject to duplicative withholding.

The final regulations do not adopt the

suggestions contained in these comments.

First, a rule allowing WPs and WTs to assume withholding under section 1446(f)

would create complexity and require extensive coordination with the existing

provisions for withholding and reporting

in the agreements that WPs and WTs have

entered into with the IRS. The comments

do not provide any suggestions on how to

address the many issues that would arise

December 14, 2020

if such a rule were adopted. Further, the

comments do not indicate that such a rule

would have a material impact on taxpayers that would justify the allocation of resources necessary to provide guidance to

these taxpayers. Second, any concerns regarding duplicative withholding were already addressed under the proposed regulations, which allow a foreign partnership

to credit any withholding under section

1446(f) against its own section 1446(a)

withholding liability. See §§1.1446(f)2(e)(2)(ii) and 1.1446(f)-4(e)(2)(ii).

iii. Earnout payments

A comment noted that a transfer of a

partnership interest may be subject to an

earnout provision that entitles the transferor to future payments based on the

achievement of specific goals. The comment requested guidance clarifying that

these future payments will be subject to

an exception to withholding to the extent

that the original transfer qualified for an

exception to withholding. Under the proposed regulations, an exception to withholding in §1.1446(f)-2 eliminates any

requirement to withhold on the amount

realized from the transfer of a partnership

interest. Thus, if an exception to withholding applies at the time of the transfer of a

partnership interest, it will also apply to

any future payments made to the transferor that are treated as an amount realized

from such transfer. As a result, no change

is needed in response to this comment.

B. Determining the amount to withhold

If an exception to withholding under

proposed §1.1446(f)-2(b) does not apply,

proposed §1.1446(f)-2(c)(1) provided

that a transferee is required to withhold

10 percent of the amount realized on the

transfer of the partnership interest. Proposed §1.1446(f)-2(c) provided guidance

for determining the amount to withhold

and provided certain procedures that allow for adjustments to the amount to

withhold that are intended to better reflect

the transferor’s tax liability on gain under

section 864(c)(8). A transferee may use

these adjustment procedures when it relies

on a certification from the transferor (or,

if applicable, from the partnership). The

procedures for determining the amount

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to withhold, therefore, employ the same

self-certification procedure provided in

proposed §1.1446(f)-2(b). See generally

section IV.A of this Summary of Comments and Explanation of Revisions.

1. Definition of Amount Realized

Proposed §1.1446(f)-2(c)(2)(i) provided generally that the amount realized

on a transfer of a partnership interest is

determined, in part, under section 752

(including §§1.752-1 through 1.752-7);

accordingly, the amount realized includes

any reduction in the transferor’s share of

partnership liabilities. One comment requested that the final regulations modify

the amount realized definition to exclude

any reduction to the transferor’s share

of partnership liabilities. The comment

pointed to the potential liquidity concerns

that could occur when the amount of liabilities assumed exceeds the cash or other

property exchanged in the transfer. The

Treasury Department and the IRS have

determined that it is inappropriate to exclude a reduction in a transferor’s share

of partnership liabilities from amount realized. Further, proposed §1.1446(f)-2(c)

(3), which is retained in these final regulations, addresses the liquidity concerns

raised in this comment. That provision

determines the amount to withhold without regard to any decrease in the transferor’s share of partnership liabilities, but

only if the amount otherwise required to

be withheld would exceed the amount realized (determined without regard to any

decrease in the transferor’s share of partnership liabilities).

2. Modified Amount Realized for

Transfers by Foreign Partnerships

Proposed §1.1446(f)-2(c)(2)(iv) provided a procedure to determine the

amount realized when the transferor of a

partnership interest is a foreign partnership. Specifically, when a foreign partnership transfers an interest in a partnership,

proposed §1.1446(f)-2(c)(2)(iv) provided

that the transferee of the interest may rely

on a certification provided by the transferor partnership that provides a modified

amount realized. The modified amount

realized is determined by multiplying the

amount realized on the transfer (as deter-

Bulletin No. 2020–51

mined under proposed §1.1446(f)-2(c)

(2)) by the percentage of the gain from

the transfer that would be allocated to

presumed foreign taxable persons, which

include any direct or indirect partners of

the transferor partnership that have not

provided a certification of non-foreign status. Proposed §1.1446(f)-2(c)(2)(iv)(B).

To make the certification, the transferor

partnership must provide to the transferee

a Form W-8IMY, Certificate of Foreign

Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United

States Tax Withholding and Reporting,

a withholding statement allocating the

gain to each partner, and a certification

of non-foreign status for each partner that

is treated as a U.S. person. See proposed

§1.1446(f)-2(c)(2)(iv)(C). If the transferee

may rely on the certification, the modified

amount realized is treated as the amount

realized on the transfer.

One comment recommended that the

final regulations expand this approach for

determining the modified amount realized

on a transfer to take into account situations in which a foreign partner (direct

or indirect) in the transferor partnership

is eligible for treaty benefits. These final

regulations adopt this recommendation.

Accordingly, these final regulations modify proposed §1.1446(f)-2(c)(2)(iv) to allow for a reduction of the amount realized

when a transferor that is a foreign partnership has a direct or indirect partner that is

not subject to tax on gain from a transfer

pursuant to an applicable U.S. income

tax treaty. Specifically, this modification

provides that a treaty-eligible partner is

not a presumed foreign taxable person

for purposes of determining the modified

amount realized under §1.1446(f)-2(c)(2)

(iv). A foreign partnership that provides

a certification of modified amount realized must include, in addition to the Form

W-8IMY and a withholding statement, the

certification of treaty benefits (on a Form

W-8BEN or Form W-8BEN-E) from each

direct or indirect partner that is not a presumed foreign taxable person. §1.1446(f)2(c)(2)(iv)(C).

Similar changes are made to the modified amount realized procedure for transfers of PTP interests. See section VI.C.1

of this Summary of Comments and Explanation of Revisions and §1.1446(f)-4(c)

(2)(ii).

Bulletin No. 2020–51

3. Certification of Maximum Tax

Liability

Proposed §1.1446(f)-2(c)(4) provided a procedure to determine the amount

to withhold under section 1446(f)(1) and

proposed §1.1446(f)-2(a) that is intended to estimate the amount of tax that the

transferor is required to pay on gain under section 864(c)(8). Specifically, the

procedure allows a transferee to withhold

based on a certification received from the

transferor containing certain information

relating to the transferor and the transfer,

including the transferor’s maximum tax

liability (as determined under proposed

§1.1446(f)-2(c)(4)(ii)) on the transfer. A

transferee may rely on a certification received from a transferor that is a foreign

corporation, a nonresident alien individual, or a foreign partnership regarding the

transferor’s maximum tax liability. Proposed §1.1446(f)-2(c)(4)(i). A transferor

that is a foreign partnership is treated as a

nonresident alien individual for purposes

of determining the transferor’s maximum

tax liability. Id. A comment pointed out

that this rule adopts an entity approach

with respect to determining a foreign

partnership’s maximum tax liability that

presumes the partnership is liable for tax

on its full distributive share of the effectively connected items from the transfer at individual tax rates, regardless of

whether any partners in the partnership

are United States persons. The comment

suggested that the final regulations modify

this rule for determining a foreign partnership’s maximum tax liability based on the

look-through principles used in proposed

§1.1446(f)-2(c)(2)(iv); that is, this modification would allow a foreign partnership

to be treated as a United States person to

the extent that its partners provide certifications of non-foreign status or to the extent that its partners would be eligible for

treaty benefits.

These final regulations do not adopt

the suggestion contained in this comment.

The Treasury Department and the IRS

have determined that adopting this suggestion could result in significant complexity and would increase the administrative burden on a transferee that receives a

certification of maximum tax liability. The

approach suggested in the comment also

raises potentially broader issues, includ-

1609

ing computational issues, that are outside

the scope of these final regulations. Finally, the Treasury Department and the IRS

have determined that the modifications

to §1.1446(f)-2(c)(2)(iv), which allows

claims for treaty benefits to be taken into

account for purposes of determining the

modified amount realized, provide sufficient relief in many of the cases in which

the concerns raised in this comment would

arise. See section IV.B.2 of this Summary

of Comments and Explanation of Revisions.

In response to informal comments,

these final regulations modify the proposed regulations to allow transferors that

are foreign trusts to use the maximum tax

liability procedure in §1.1446(f)-2(c)(4)

to reduce the amount to withhold. Similar

to the approach taken with respect to foreign partnerships, these rules treat the foreign trust as a nonresident alien individual

for purposes of computing its maximum

tax liability under §1.1446(f)-2(c)(4).

C. Other comments and changes to the

proposed regulations

1. Determining Basis

A comment asserted that it is often difficult for the transferor of a partnership

interest to know its basis in the transferred

interest at the time of transfer; that is, regardless of the §1.706-4 method used, a

transferor usually has to wait to receive its

Schedule K-1 (Form 1065) for the taxable

year of the transfer before determining its

basis accurately. As a result, the comment

recommended a rule that would allow

transferors and transferees to calculate the

basis of a transferred partnership interest

(solely for purposes of section 1446(f)) by

reference to reasonable assumptions that

can be made with certainty at the time of

the transfer.

The Treasury Department and the IRS

have determined that the concern raised

by the comment was already sufficiently addressed in the proposed regulations.

Specifically, the determination date rules

of §1.1446(f)-1(c)(4), which appeared in

the proposed regulations and are retained

in the final regulations, provide substantial flexibility with respect to making certain determinations under section 1446(f)

(1). For example, a transferor (other than

December 14, 2020

a controlling partner) could determine

its adjusted basis in the transferred partnership interest as of the first day of the

partnership’s taxable year in which the

transfer occurs. See §§1.1446(f)-1(c)(4)(i)

(C)(1) and 1.1446(f)-2(c)(4)(iii)(B). Additionally, the No Realized Gain exception

provided in §1.1446(f)-2(b)(3) similarly

allows the transferor to make the relevant

determinations as of the determination

date.

2. Qualified Foreign Pension Funds

Section 1446(f)(5) provides that any

term used in both section 1446(f) and section 1445 will have the meaning provided

in section 1445. Section 1445(f)(3) defines

a foreign person as any person other than

(i) a United States person and (ii) except

as otherwise provided by the Secretary,

an entity with respect to which section

897 does not apply due to section 897(l).

Section 897(l), in turn, excludes qualified

foreign pension funds (QFPFs) from the

application of section 897. Accordingly,

QFPFs are not treated as foreign persons

under section 1445.

Section 1446(f)(6) provides the Secretary of the Treasury authority to prescribe

regulations that are necessary to carry out

the purposes of section 1446(f). Pursuant

to this authority, the proposed regulations

provided a definition of foreign person

that applies for purposes of the regulations under section 1446(f). Specifically,

proposed §1.1446(f)-1(b)(4) defined a foreign person as a person that is not a United

States person. Proposed §1.1446(f)-1(b)

(13) defined a United States person as a

person described in section 7701(a)(30).

Because QFPFs are not persons described

in section 7701(a)(30), they are foreign

persons for purposes of §§1.1446(f)-1

through 1.1446(f)-5.

One comment requested that these final

regulations clarify that QFPFs are foreign

persons for purposes of section 1446(f).

The Treasury Department and the IRS

have determined that the proposed regulations provided sufficient clarity regarding

the treatment of QFPFs by specifically defining the term foreign person for purposes of §§1.1446(f)-1 through 1.1446(f)-5.

The final regulations, therefore, adopt the

relevant definitions provided in the proposed regulations with respect to QFPFs.

December 14, 2020

3. Valuation of Partnership Property

One comment described a situation in

which the transferor and transferee of a

partnership interest value partnership assets differently than the partnership does.

The comment recommended, where relevant, a clarification to the final regulations

allowing for a valuation of partnership

assets based on the transferor’s amount

realized on a per transfer basis, provided that any valuation is supported by an

arm’s length price on which the transferor

and transferee have agreed to execute the

transaction. The final regulations do not

adopt this recommendation. Valuation issues are not unique to the application of

these final regulations; therefore, providing an explicit valuation rule in these final

regulations that would take into account

the situation described in the comment

goes beyond the scope of this rulemaking.

4. Credit for Amounts Withheld on

Partnerships, Trusts, or Estates

The proposed regulations provided

rules prescribing the manner in which a

credit for an amount withheld under section 1446(f) may be claimed by a foreign

individual, corporation, or partnership.

The proposed regulations provided in

§1.1446-3(c)(4) that a foreign partnership that was withheld upon under section

1446(f) could credit the amount withheld against its tax liability under section

1446(a) to the extent the amount is allocable to foreign partners. The Treasury

Department and the IRS intend to amend

the instructions to Forms 8804, 8805,

and 8813 to provide that to obtain a credit against its section 1446(a) liability, a

foreign partnership withheld upon under

section 1446(f) on the sale of its non-PTP

interest must attach to its Form 8804, Annual Return for Partnership Withholding

Tax (Section 1446), a stamped copy of

Form 8288-A, Statement of Withholding

on Dispositions by Foreign Persons of

U.S. Real Property Interests.

These final regulations provide guidance for foreign trusts or estates that are

withheld upon under section 1446(f). Specifically, §1.1446(f)-2(e)(2)(ii) provides

that a foreign trust or estate may claim a

credit for an amount withheld under section 1446(f) in accordance with §1.1462-

1610

1. Thus, the trust or estate may claim a

credit to the extent it is ultimately liable

for tax on the gain under section 864(c)

(8). Similar guidance is provided for foreign trusts or estates claiming credit for

amounts withheld on transfers of PTP interests. See §1.1446(f)-4(e)(2)(ii).

5. Certifications Provided by Grantor

Trusts

Under proposed §1.1446(f)-1(c)(2)

(vii), a certification provided by a transferor that is a grantor or other owner of a

grantor trust was required to identify the

portion of the amount realized attributable

to the grantor or owner. These final regulations retain this rule, but also include a

mechanism for the grantor trust to provide

the certification on behalf of the transferor to a transferee. Under this allowance,

a foreign grantor trust may provide to the

transferee a Form W-8IMY, a withholding

statement that provides the percentage

of the amount realized allocable to each

grantor or owner of the trust, and any applicable certification for each grantor or

owner. A domestic grantor trust that has a

foreign grantor or other owner may provide a similar statement in lieu of Form

W-8IMY. The allowance described in this

paragraph may also be applied in the context of a grantor or other owner of a grantor trust transferring a PTP interest.

V. Partnership’s Requirement to Withhold

under Section 1446(f)(4) on Distributions

to Transferee

Section 1446(f)(4) provides that if a

transferee fails to withhold any amount

required to be withheld under section

1446(f)(1), the partnership must deduct

and withhold from distributions to the

transferee a tax in an amount equal to the

amount the transferee failed to withhold

(plus interest). Proposed §1.1446(f)-3

provided rules that implement a partnership’s requirement to withhold under section 1446(f)(4), including rules for determining when a partnership is required to

withhold and report under section 1446(f)

(4), rules for determining if an exception to withholding applies, and rules for

determining the amount required to be

withheld (including the computation of

interest). Proposed §1.1446(f)-3 also pro-

Bulletin No. 2020–51

vided rules regarding the effect of section

1446(f)(4) withholding on the transferee

and transferor, including procedures that

require the partnership to make any claim

(on behalf of the transferee) for credit or

refund for amounts overwithheld under

section 1446(f)(4).

A. Scope of withholding obligation under

§1.1446(f)-3

Proposed §1.1446(f)-3(a)(1) provided

that if a transferee fails to withhold any

amount required to be withheld under

proposed §1.1446(f)-2, the partnership

whose interest was transferred must withhold from any distributions made to the

transferee in accordance with the rules

provided in proposed §1.1446(f)-3. To

determine its withholding obligation under proposed §1.1446(f)-3, if any, a partnership may rely on information provided

in a certification received from the transferee described in proposed §1.1446(f)2(d)(2) (a certification of withholding)

unless it knows, or has reason to know,

that the certification is incorrect or unreliable. Proposed §1.1446(f)-3(a)(1).

The proposed regulations, therefore, required the partnership to review any certification of withholding received from

the transferee, including any underlying

certification from a transferor claiming

an exception or adjustment to withholding, because the partnership could have

information suggesting that the certification is incorrect or unreliable, and that

information may not be available to the

transferee (for example, if the information was contained in the partnership’s

books and records). See generally section

IV.B of the Explanation of Provisions

section of the preamble to the proposed

regulations. The transferee must provide

the certification of withholding to the

partnership within 10 days after the date

of the transfer and deposit any tax due

under section 1446(f)(1) within 20 days

after the date of the transfer. Proposed

§1.1446(f)-2(d). If a partnership does not

receive, or cannot rely on, a certification

of withholding, it must withhold on the

entire amount of each distribution made

to the transferee until it may rely on a

certification of withholding to determine

that it has satisfied its section 1446(f)(4)

liability. Proposed §1.1446(f)-3(c).

Bulletin No. 2020–51

1. Partnership’s Review of a Certification

of Withholding

A comment stated that the rule in

proposed §1.1446(f)-3(a)(1) is problematic as it may require a partnership to

withhold under section 1446(f)(4) on a

transferee that has fully complied with

its withholding obligations under section

1446(f)(1) by properly relying on a certification from the transferor to reduce

or eliminate withholding. This situation

could occur, for example, if the partnership receives an underlying certification

that a transferee has properly relied on,

and the partnership has information in its

possession indicating that the information contained in the certification is incorrect or unreliable. The comment therefore asserted that this rule is inconsistent

with the statute, which imposes section

1446(f)(4) withholding when a transferee fails to withhold any amount required

to be withheld under section 1446(f)(1).

The comment also stated that the rule in

proposed §1.1446(f)-3(a)(1) essentially

holds the transferee strictly liable for any

underwithholding, which is inconsistent

with the approaches taken in other withholding regimes, such as those provided

under sections 1441 through 1443 and

section 1445. Therefore, the comment

recommended that the final regulations

eliminate a partnership’s requirement to

withhold under section 1446(f)(4) when

a transferee properly relies on a certification to reduce or eliminate the withholding tax.

The Treasury Department and the

IRS have determined that the approach

provided in proposed §1.1446(f)-3(a)

(1) is consistent with the language and

purpose of section 1446(f), and thus the

approach is retained in the final regulations. Unlike the withholding regimes

under sections 1441 through 1443 and

1445, section 1446(f) explicitly provides

a withholding obligation on a secondary

party to the transfer, the partnership. Section 1446(f)(4) states that if a transferee

fails to withhold any amount required

to be withheld under section 1446(f)(1),

the partnership must withhold from distributions to the transferee in an amount

equal to the amount the transferee failed

to withhold (plus any interest). Under

section 1446(f)(1), a transferee is gen-

1611

erally required to withhold 10 percent of

the amount realized on a transfer subject

to section 864(c)(8). While the proposed

regulations allow the amount required to

be withheld under section 1446(f)(1) to

be reduced when a transferee relies on

a claim for an exception or adjustment

to withholding, this allowance is conditioned on proper review and acceptance

of the claim by the partnership. If the

conditions of the proposed regulations

are not met, a transferee is required to

withhold at the statutory rate under section 1446(f)(1) or will be subject to withholding under section 1446(f)(4).

To limit when withholding under section 1446(f)(4) is imposed on a transferee

that properly relied on a certification from

a transferor, the proposed regulations

provided sufficient time for a transferee

to consult with the partnership regarding

the accuracy of the certification. Specifically, the proposed regulations require

the transferee to provide a certification

of withholding to the partnership within

10 days after the transfer and to deposit

any withheld tax with the IRS within 20

days of the transfer. Therefore, a transferee may choose to withhold 10 percent of

the amount realized on the transfer, and

depending on the outcome of its consultation with the partnership, either repay

the withheld amount to the transferor or

deposit it with the IRS.

The final regulations adopt these rules

from the proposed regulations and add a

rule to limit the instances of withholding

under section 1446(f)(4) on certain transferees, and to reduce the compliance burden on such transferees. This rule allows

a partnership to determine that it does

not have a withholding obligation under

§1.1446(f)-3 if it already possesses a Form

W-9, Request for Taxpayer Identification

Number and Certification, for the transferor that meets the requirements provided

in §1.1446(f)-2(b)(2) to establish non-foreign status, even if the transferee does not

provide a certification of withholding to

the partnership under §1.1446(f)-2(d)(2).

See §1.1446(f)-3(a)(1). Consistent with

the general rules for partnerships that rely

on information in their books and records,

a partnership may not apply this rule when

it knows, or has reason to know, that the

Form W-9 that it possesses is incorrect or

unreliable.

December 14, 2020

2. Partnership’s Discretion to Withhold

A comment also questioned the application of proposed §1.1446(f)-3(a)(1)

if the partnership receives a certification

from the transferee and the partnership

does not know or have reason to believe

that the certification is incorrect or unreliable. Specifically, the comment noted

that proposed §1.1446(f)-3(a) states that

a partnership may rely on a certification

of withholding, which suggests that reliance on the certification is permissive and

not mandatory. The comment suggested

that, as a result, a partnership may choose

to disregard a certification received from

a transferee, and thus withhold on distributions to the transferee, even if the partnership does not know, and has no reason

to believe, that the information contained

in the statement is incorrect or unreliable.

The comment noted that the resulting burden on the transferee is exacerbated because only the partnership, rather than the

transferee, can directly obtain a refund of

amounts withheld on distributions to the

transferee under section 1446(f)(4). The

comment recommended, therefore, that

the final regulations clarify that a partnership must (rather than may) rely on a certification received from a transferee if the

partnership does not know or have reason

to know that the information contained in

the certification is incorrect or unreliable.

The final regulations do not adopt this

comment. The approach taken in the proposed regulations is consistent with other

withholding regimes, which allow a withholding agent discretion in determining

whether to rely on documentation that

supports a claim for a reduced amount

of withholding or an exception to withholding. See, e.g., §1.1441-1(b)(1). This

discretion is afforded to the withholding

agent because it is generally the party liable for any failure to withhold under section 1461. Further, because a withholding

agent is liable under section 1461 only

for underwithholding, it is unclear how a

withholding agent that failed to reduce (or

eliminate) the amount of withholding under such a rule could be held liable. Finally, because transferees are partners in the

partnership, partnerships generally would

have an incentive to review and accept

valid certifications of withholding provided by transferees, rather than withhold

December 14, 2020

unnecessarily on them. For these reasons,

the final regulations allow the partnership

to determine whether to rely on a certification of withholding for purposes of section 1446(f)(4).

These final regulations do, however,

modify the proposed regulations to allow

the transferee, rather than the partnership,

to obtain a refund of overwithholding for

amounts withheld under section 1446(f)

(4). As suggested by the comment, this

modification mitigates some of the effect

of any overwithholding. See section V.C

of this Summary of Comments and Explanation of Revisions.

B. Removal of withholding under

section 1446(f)(4) by publicly traded

partnerships

Under proposed §1.1446(f)-4(b)(3)

and (4), a broker was not required to withhold on a transfer of a PTP interest when

the publicly traded partnership claims

on a qualified notice that an exception

applies based on either of the following

statements: (i) a statement that less than

10 percent of the total gain on a deemed

sale of the publicly traded partnership’s

assets would be effectively connected

gain, or no gain would have been effectively connected gain (the 10-percent exception); or (ii) a statement that the entire

amount of a distribution is a qualified

current income distribution, defined as a

distribution that does not exceed the net

income of the publicly traded partnership

since the date of the last distribution (the

qualified current income exception). Under the proposed regulations, a publicly

traded partnership was required to withhold under section 1446(f)(4) only if the

partnership posted a qualified notice that

falsely stated that one of those exceptions

to withholding under section 1446(f)(1)

applied to a transfer (including a transfer

that is a distribution), and a broker underwithheld in reliance on the qualified notice. The requirement for a publicly traded partnership to withhold under section

1446(f)(4) was included to ensure that

publicly traded partnerships exercise due

diligence when representing information

on a qualified notice related to either exception given that a broker may rely on

the notice to apply an exception to withholding under section 1446(f)(1).

1612

Comments suggested that publicly

traded partnerships would be unlikely to

claim the exceptions to withholding on a

qualified notice due to the consequences

of issuing a false qualified notice, and that

this would result in overwithholding on

transfers of PTP interests. Further, comments pointed out that it would be difficult

for publicly traded partnerships to determine the amount of underwithholding by

brokers relying on a false qualified notice

because publicly traded partnerships generally do not have information on transfers effected through brokers. A comment

noted that a false qualified notice may result in a large amount of underwithholding

because a broker may rely on the qualified

notice for all transfers made between the

time the notice is issued and the date of

the next qualified notice (which is usually

provided quarterly).

A comment also noted concerns with

the rule in proposed §1.1446(f)-3(c)(1)(ii)

(C), which requires publicly traded partnerships to continue withholding on distributions under section 1446(f)(4) even

when the transferee no longer owns an

interest in the partnership. The comment

noted that this rule could negatively affect

market values of PTP interests because

every person acquiring a PTP interest

would be subject to the risk that future

distributions may be reduced or even

eliminated, even if the qualified notice has

not yet been declared false. The comment

suggested taking the approach in the proposed regulations that applied to transfers

of non-PTP interests, which would allow

the partnership to stop withholding on distributions when the transferee no longer

owns an interest in the partnership, unless

the partnership has actual knowledge that

any successor to the transferee is related to

the transferee or transferor.

In addition, a comment raised a practical concern about the timing of the

withholding required under proposed

§1.1446(f)-3(c)(1)(i), which requires

withholding to begin on the later of the

date that is 30 days after the date of transfer, or 15 days after the date on which the

partnership acquires actual knowledge

that the transfer has occurred. The comment noted that a publicly traded partnership would be unable to withhold until it

knows that it has issued a false qualified

notice, and the comment therefore re-

Bulletin No. 2020–51

quested that any withholding obligation

begin after the publicly traded partnership

acquires knowledge that the qualified notice is incorrect.

The comments regarding the application of section 1446(f)(4) to publicly

traded partnerships also included suggestions to address the concerns raised with

respect to the withholding requirement.

Several comments suggested removing

the requirement for a publicly traded partnership to withhold under section 1446(f)

(4) entirely. One comment suggested replacing the withholding requirement for a

false qualified notice with an information

reporting penalty (or other quantifiable

penalty). Another comment suggested

instead imposing a penalty on a preparer

of a qualified notice if the preparer acts in

bad faith or without a requisite standard of

care. Other comments requested clarification on whether a “false” qualified notice

is limited to a willfully false notice rather

than any erroneous qualified notice.

The Treasury Department and the IRS

have determined that a publicly traded partnership should not be required to

withhold under section 1446(f)(4). This

withholding would have necessarily impacted the distributions made to a transferee (or subsequent transferee) who bears

no responsibility for the underwithholding resulting from an erroneous qualified

notice (unlike the case of a transfer of a

non-PTP interest). Rather, as it is the partnership that determines the contents of its

qualified notice, the partnership should

bear the consequences resulting from its

representations on the notice rather than

any specific transferee. As a result, these

final regulations remove the requirement

in the proposed regulations that a publicly traded partnership withhold on a transferee under §1.1446(f)-3 and add instead

provisions imposing liability for underwithholding under section 1461 on the

partnership that issued the qualified notice. See §1.1446(f)-4(b)(3)(i) and (c)(2)

(iii) and sections VI.B.2 and VI.C.2 of this

Summary of Comments and Explanation

of Revisions. By removing the requirement for the partnership to withhold under

section 1446(f)(4) on any transferees, this

modification also addresses the comments

noting concerns that withholding on specific transferees could negatively affect

the market values of PTP interests. This

Bulletin No. 2020–51

modification also alleviates the need to

address those comments concerning when

withholding under section 1446(f)(4)

would begin to apply.

These final regulations do not apply

information reporting penalties in lieu of

imposing a section 1461 liability on a publicly traded partnership. The comment to

impose an information reporting penalty

in lieu of a withholding requirement was

not adopted in these final regulations due

to concerns that a qualified notice may

not be treated as an information return or

a payee statement under section 6724(d)

for purposes of applying penalties under

section 6721 or 6722.

With respect to the comments suggesting that a publicly traded partnership

would be unable to obtain the information

necessary to determine the underwithholding resulting from a broker’s reliance

on a qualified notice, for this determination, the Treasury Department and the IRS

note that a publicly traded partnership

should be able to obtain information on

transfers of PTP interests from nominees

holding interests in the partnership under §1.6031(c)-1T (generally requiring a

nominee to provide certain information

about persons for whom it holds interests

in the partnership, including information

on transfers of partnership interests).

C. Credits and refunds for amounts

withheld under section 1446(f)(4)

Proposed §1.1446(f)-3(e)(2) provides

that a transferee may not obtain a refund

if the amount of tax withheld under proposed §1.1446(f)-3 exceeds the transferee’s withholding tax liability under

proposed §1.1446(f)-2; instead, only the

partnership may claim a refund on behalf

of the transferee for the excess amount

withheld under proposed §1.1446(f)-3.

The preamble to the proposed regulations

provided that the purpose of this rule is to

make the refund process more administrable and requested comments on this issue.

Comments requested that the transferee be allowed to directly claim a refund

for the excess amount withheld under

§1.1446(f)-3. The comments explained

that it would be neither practical, nor reasonable, to expect the partnership to claim

the refund on behalf of the transferee in

most circumstances. Thus, if the partner-

1613

ship does not seek a refund on behalf of

the transferee for the excess amount withheld, the transferee may have no way to

obtain the overwithheld amounts from the

IRS.

One comment requested clarification

regarding the manner in which proposed

§1.1446(f)-3(e)(2) measures the excess

of the amount of tax withheld under

§1.1446(f)-3 over the transferee’s withholding tax liability under §1.1446(f)-2.

The comment suggested, for example,

computing the excess amount as the difference between the sum of any withholding under §§1.1446(f)-2 and 1.1446(f)-3,

plus any tax on gain paid by reason of

§1.864(c)(8)-1, and the total tax liability of the foreign transferor (as defined in

§1.864(c)(8)-1(g)(3)) for the year in which

the transfer occurred. Alternatively, the

comment suggested computing the excess

amount as the difference between the sum

of any withholding under §§1.1446(f)-2

and 1.1446(f)-3 and the tax liability of the

foreign transferor under §1.864(c)(8)-1 on

the transfer.

The Treasury Department and the IRS

agree with these comments and modify

these final regulations to allow a transferee to directly claim and obtain a refund

for the excess amount withheld under

§1.1446(f)-3. Specifically, these final regulations modify §1.1446(f)-3, in relevant

part, to provide that a transferee may obtain a refund of the excess amount if it has

made payments in excess of the tax which

is properly due by the transferee for the

tax period. Accordingly, under these final

regulations, the partnership is not permitted to claim a refund on behalf of the

transferee for the excess amount withheld

under §1.1446(f)-3.

The final regulations also clarify

that the excess amount withheld under

§1.1446(f)-3 is the amount of tax and interest withheld under §1.1446(f)-3 that

exceeds the transferee’s withholding tax

liability under §1.1446(f)-2 and any interest owed by the transferee with respect to

such liability. §1.1446(f)-3(e)(2). This rule

retains the general approach in the proposed regulations that computes the excess amount as the difference between the

amount withheld under §1.1446(f)-3 and

the transferee’s withholding tax liability

under §1.1446(f)-2, but clarifies that both

amounts are computed by including inter-

December 14, 2020

est, and a refund may be claimed only to

the extent that the excess amount produces an overpayment. While the final regulations do not explicitly adopt either of

the specific suggestions made in the comment, this approach is generally consistent

with the alternative suggestion described

in the comment as the final regulations

also allow a transferee to establish that it

has a reduced withholding tax liability under §1.1446(f)-2 based on the amount of

tax due by the foreign transferor on gain

subject to §1.864(c)(8)-1, or that tax has

already been paid by the foreign transferor. See §1.1446(f)-5(b) and section IV.A

of this Summary of Comments and Explanation of Revisions. In order to coordinate a partnership’s obligation to withhold

with the transferee’s withholding liability,

these final regulations modify §1.1446(f)2(d)(2) to provide that a transferee’s withholding tax liability under §1.1446(f)-2 is

not satisfied if a partnership knows or has

reason to know that a certification relied

on by the transferee to reduce or eliminate

withholding is incorrect or unreliable. See

section V.A.1 of this Summary of Comments and Explanation of Revisions.

D. Liability of a related person to the

transferee

The proposed regulations generally

did not require a partnership to continue

withholding under section 1446(f)(4) on

distributions made after the transferee disposed of its interest. However, if the interest were transferred to a person that is

related to the transferee or the transferor

from which the transferee acquired its interest (that is, a subsequent transferee that

bears a relationship described in sections

267(b) or 707(b)(1) with respect to the

relevant party), and if the partnership had

actual knowledge of the subsequent transferee’s relationship to the relevant party,

proposed §1.1446(f)-3(c)(1)(ii)(C) required the partnership to withhold on distributions made to the subsequent transferee. This rule was intended to prevent a

transferee (or any subsequent transferee)

from avoiding withholding under section

1446(f)(4) by transferring its interest to a

related person. Consistent with this intent,

the final regulations clarify that a related

person is treated as liable for tax under

section 1461 to the same extent to which

December 14, 2020

the transferee is liable under §1.1446(f)-2.

This clarification is meant to prevent the

related person that is withheld upon under

section 1446(f)(4) from making a claim for

a credit or refund of the withheld amount.

These final regulations, therefore, ensure

that a credit or refund is permitted only for

an amount that exceeds the amount that

the transferee failed to withhold.

VI. Withholding on the Transfer of a PTP

Interest by a Foreign Person

Proposed §1.1446(f)-4(a) implemented

the withholding requirement under section 1446(f) on transfers of PTP interests.

Under this rule, any broker that effects a

transfer of a PTP interest on behalf of a

foreign partner and receives the amount

realized on behalf of the transferor is generally required to withhold a tax equal

to 10 percent of the amount realized.

Proposed §1.1446(f)-4(b) provided certain exceptions to this requirement, and

proposed §1.1446(f)-4(c) provided rules

for determining the amount realized for

purposes of withholding on a transfer

of a PTP interest. Proposed revisions to

§1.1461-1 provided rules for a broker to

report the amount realized and tax withheld from a transfer of a PTP interest.

A. Scope of withholding obligation

1. Qualified Intermediary Agreement

The preamble to the proposed regulations stated that the Treasury Department

and the IRS intend to modify the qualified

intermediary agreement (QI agreement)

set forth in Revenue Procedure 2017-15,

2017-3 I.R.B. 437, to allow qualified intermediaries (QIs) to assume primary

withholding responsibilities on amounts

realized under section 1446(f) and on distributions by publicly traded partnerships

under section 1446(a). Comments requested that the revisions to the QI agreement

be set forth in proposed form before the

modified QI agreement is published. In

response to those comments, this section

VI of this Summary of Comments and Explanation of Revisions describes certain

requirements specific to QIs to preview

several intended revisions to the QI agreement that relate to §1.1446(f)-4. Additionally, section VII of this Summary of

1614

Comments and Explanation of Revisions

describes certain requirements included

in §1.1446-4 of these final regulations

that apply to QIs that receive distributions

made by publicly traded partnerships.

Since the QI agreement expires at the end

of the 2022 calendar year, provisions related to these final regulations applicable

to QIs will be incorporated into a revised

QI agreement effective for the 2023 calendar year. As the provisions of these final regulations that relate to withholding

with respect to transfers of PTP interests

and distributions by publicly traded partnerships apply to QIs starting January 1,

2022, the requirements for QIs related to

section 1446(a) and (f) for the 2022 calendar year will be set forth in a rider to

the QI agreement. See section VIII of this

Summary of Comments and Explanation

of Revisions for a discussion of the applicability dates of these final regulations. A

QI will not be required to include in a periodic review for the 2022 calendar year any

review procedures with respect to the QI’s

compliance with sections 1446(a) and (f);

therefore, the rider will not include any review procedures related to those sections,

nor will the rider include any new certifications or information for purposes of

Appendix I of the QI agreement for a QI

with a certification period ending December 31, 2022.

2. Transfers of PTP Interests that are

Cleared and Settled at a Clearing

Organization

The proposed regulations generally defined a broker as any person that, in the

ordinary course of business, stands ready

to effect sales made by others, and that, in

connection with a transfer of a PTP interest, receives all or a portion of the amount

realized on behalf of the transferor. Proposed §1.1446(f)-1(b)(1). The proposed

regulations provided that the term broker

includes a clearing organization that effects the transfer of a PTP interest on behalf of the transferor. Id. In addition, the

proposed regulations generally provided

that a broker that pays the amount realized

to a foreign broker is required to withhold

unless the foreign broker is a QI that assumes primary withholding responsibility

or is a U.S. branch treated as a U.S. person. Proposed §1.1446(f)-4(a).

Bulletin No. 2020–51

The Treasury Department and the IRS

received comments requesting various exclusions and special rules for brokers effecting trades that are cleared and settled

at a clearing organization. One comment

requested that U.S. clearing organizations

be excluded from the definition of broker

in §1.1446(f)-1(b)(1) in connection with

their roles in the clearance and settlement

of sales of PTP interests. The comment

noted that U.S. clearing organizations perform a critical role in ensuring the functioning of the U.S. capital markets, and

that imposing withholding requirements

on U.S. clearing organizations may be

disruptive to the market for trading PTP

interests.

The comment also explained that within U.S. clearing organizations, trades of

securities (including PTP interests) are

frequently processed through a netting

system, whereby each security and related money settlement obligation is netted

to one net security and payment position

per broker, with the clearing organization

as the central counterparty. The netting

system creates efficiencies that ensure the

prompt clearance and settlement of securities transactions and increases liquidity in

the market. The comment noted that this

netting process is critical to orderly and

efficient trading in the capital markets, and

that withholding under section 1446(f) on

a gross basis may cause netting to be impacted with respect to the clearance and

settlement of PTP interests. The comment

also noted that the Treasury Department

and the IRS have historically recognized

this issue by creating exceptions or special

rules for clearing organizations in similar

contexts. See §§1.1473-1(a)(3)(i)(C) and

1.6045-1(b), Example 2(vii).

The comment further explained that

a U.S. clearing organization may also

process bilateral transactions between

members of the clearing organization for

which the cash and securities exchanged

are not netted by the clearing organization

as described in the preceding paragraph.

These transactions may include, among

others, the transfer of cash and securities

between a seller’s broker and custodian

in order to settle a trade. For example, a

member broker effecting a sale of a PTP

interest for a seller may make a payment

of the gross proceeds to the custodian for

the seller when the seller engages a bro-

Bulletin No. 2020–51

ker that is not its custodian to effect the

sale of the PTP interest through a clearing organization. The comment requested

that withholding on such transactions be

the responsibility of the member making

the gross payment and not the clearing

organization. The comment stated that the

members of a U.S. clearing organization

are in the better position to withhold on

such transactions because they possess

the information about the transaction necessary to determine whether withholding

is required, whereas the role of the clearing organization in such cases is generally limited to transferring securities and

cash based on instructions provided by the

members.

Another comment requested a special

rule for so-called “delivery versus payment” transactions. The comment noted that regulations under section 6045

(which require reporting by brokers of

gross proceeds from sales of securities by

U.S. nonexempt recipients) provide that

in the case of a sale of securities through

a “cash on delivery” or “delivery versus

payment” account (or other similar account or transaction), only the broker that

receives the gross proceeds from the sale

against delivery of the securities sold is required to report the sale. See §1.6045-1(c)

(3)(iv). The comment requested that in the

case of a “delivery versus payment” transaction, for purposes of section 1446(f),

only the custodian for the seller should report and withhold on the sale, and not the

broker paying the gross proceeds to the

custodian. The comment noted that without such a rule for section 1446(f), certain

brokers that are not currently documenting and reporting payments of gross proceeds for purposes of section 6045 would

be required to create systems to document

and, if necessary, withhold on and report

payments to a custodian holding a PTP

interest on behalf of a transferor and receiving the amount realized for purposes

of section 1446(f).

The comment also noted that because

brokers are not currently required to obtain documentation on custodians to

which they make payments in connection

with “delivery versus payment” transactions, a custodian may not be willing to

provide documentation to the broker or

accept less than the entire amount of gross

proceeds from the sale, causing the trade

1615

to “fail” (in other words, the trade would

not be settled with respect to the transferor

holding the PTP interest through the custodian). However, the comment acknowledged that if the withholding responsibility is only on the custodian, there is a risk

that a custodian would be a nonqualified

intermediary (NQI) and would not document or withhold on the transferor under

section 1446(f). The comment suggested

that this risk could be mitigated by requiring a clearing organization to withhold on

these sales, and noted that U.S. clearing

organizations already collect documentation on their members that are custodians

for purposes of meeting other withholding

requirements.

These final regulations retain the rule

in the proposed regulations that a broker

includes a clearing organization. However, the final regulations provide that a

broker that is a U.S. clearing organization

is not required to withhold on an amount

realized on trades of PTP interests that are

netted and that have a U.S. clearing organization as the central counterparty. The

Treasury Department and the IRS have

determined a U.S. clearing organization

should not be required to withhold on

such transactions under section 1446(f) at

this time. The Treasury Department and

the IRS understand that withholding by a

U.S. clearing organization on a gross basis on such trades may be disruptive to the

efficiency and liquidity of the trading of

PTP interests in the capital markets. The

Treasury Department and the IRS also

understand that there are no NQI direct

clearing members that participate directly in the net settlement system at a U.S.

clearing organization at the present time.

Therefore, there is no risk of underwithholding due to this exception based on

current market practice. Further, the Treasury Department and the IRS understand

that it is highly unlikely that a NQI would

become such a member in the future because of restrictions in U.S. securities and

banking laws on foreign banks and brokers, as well as the practical barriers to

becoming a direct clearing member at a

U.S. clearing organization. After carefully

weighing the burdens and benefits of the

possible approaches, the Treasury Department and the IRS have determined that

the risk of any possible market disruption

outweighs any benefit of imposing a with-

December 14, 2020

holding requirement on a U.S. clearing organization in these final regulations at the

present time on trades settled through a

net settlement system at the U.S. clearing

organization.

However, in order to ensure that withholding on sales of PTP interests that have

undergone a netting process at a U.S.

clearing organization is satisfied by the

member brokers and that there are no NQI

direct clearing members participating in

the net settlement system with respect to

PTP interests, a U.S. clearing organization

is required in these final regulations to

report such sales (on a non-netted basis)

for each direct clearing member on Form

1042-S, Foreign Person’s U.S. Source Income Subject to Withholding (unless an

exception applies). If this reporting on

Form 1042-S indicates that an NQI is a

direct clearing member of a U.S. clearing

organization, the Treasury Department

and the IRS will issue proposed guidance

that would revise these final regulations to

require withholding by the U.S. clearing

organization on such NQIs.

With respect to transfers of cash and

securities on a gross basis by a U.S. clearing organization at the instruction of its

members in order to settle a trade of a

PTP interest, these final regulations do not

require withholding and reporting by the

U.S. clearing organization. However, the

Treasury Department and the IRS decline

to adopt an exclusion from withholding

and reporting with respect to brokers (other than U.S. clearing organizations) for

“delivery versus payment” transactions.

Therefore, under these final regulations,

a broker paying an amount realized to a

foreign custodian is required to withhold

and report on the amount realized (unless

an exception applies). This determination follows from concerns with cases in

which brokers may pay amounts realized

to custodians that are NQIs. To address the

concerns raised in the comments about the

difficulty of obtaining documentation on

custodians in order to determine whether

withholding or reporting applies, these

final regulations permit a U.S. clearing

organization to provide documentation

on a member custodian to a member broker paying an amount realized to such

custodian, subject to the notification and

opt-out requirements described in the final regulations, and a broker may rely on

December 14, 2020

such documentation. See §1.1446(f)-4(a)

(4). The Treasury Department and the IRS

understand that it is possible for brokers

to create a mechanism for imposing withholding on amounts realized paid to custodians that are NQIs (and thus avoiding

failed trades).

3. Documentation of Non-foreign Status

of Broker

The proposed regulations provided

that a broker must treat another broker

as a foreign person unless it obtains documentation (including a certification of

non-foreign status) establishing that the

other broker is a U.S. person. See proposed §1.1446(f)-4(a)(2)(iv).

One comment requested that the presumption rules under §1.1441-1(b)(3)(iii)

that apply to a payment subject to withholding under sections 1441 and 1442

also apply for purposes of section 1446(f)

when a broker does not obtain documentation on another broker. In certain cases,

this change would allow a broker to treat

another broker, including a custodian,

to which it pays an amount realized as a

non-foreign person even when it does not

obtain the documentation of non-foreign

status required under the proposed regulations. This suggestion is not adopted in

these final regulations. The presumption

rules in §1.1441-1(b)(3)(iii) are generally

aimed at withholding agents that have an

ongoing relationship with the payee and

make periodic payments to the payee and,

therefore, are likely to have some information on the payee in the withholding

agent’s account files or in documentation

associated with a payment. Furthermore,

many withholding agents that are required

to withhold under sections 1441 and 1442

are generally subject to anti-money laundering/know your customer (AML/KYC)

obligations that require the collection of

customer information on account opening. Therefore, in most instances where

the presumption rules in §1.1441-1(b)(3)

(iii) apply, the presumption would be foreign status. Those rules would not be appropriate in a transactional context where

a broker may not have an ongoing relationship with another broker to which it

pays an amount realized. The application

of such rules to brokers required to withhold on sales of PTP interests under sec-

1616

tion 1446(f) in those cases would generally result in a presumption of U.S. status,

which would disincentivize brokers from

collecting tax documentation on another

broker to which it pays an amount realized. Further, the Treasury Department

and the IRS understand that there are a

limited number of custodians for which a

broker would need to obtain documentation. Accordingly, documenting a broker

as a U.S. person would generally be a onetime event because a Form W-9 generally

has indefinite validity (absent a change in

circumstances).

However, in order to provide additional

flexibility in cases in which a broker may

have an existing relationship with another broker, these final regulations permit

a broker to rely on documentation that it

already possesses from the payee broker

(rather than requiring new documentation

for each transaction when the same payee

broker is used). Additionally, these final

regulations provide a further allowance

for a broker to rely on documentation required for transfers of PTP interests that is

collected by a clearing organization. See

section VI.A.2 of this Summary of Comments and Explanation of Revisions.

These final regulations also include a

technical correction to the definition of

foreign person to account for certain QIs

that are not foreign entities. The term foreign person is defined in these final regulations to include QI branches of U.S.

financial institutions. See §1.1446(f)-1(b)

(4). This definition is consistent with the

definition of foreign person for purposes

of sections 1441 through 1443, 1461, and

the regulations under those sections. See

§1.1441-1(c)(2)(i).

4. QIs Assuming Section 1446(f)

Withholding Responsibility

Under proposed §1.1446(f)-4, a broker

was not required to withhold on an amount

realized paid to another broker that is a QI

that represents on its withholding certificate (as described in §1.1441-1(e)(3)(ii))

its assumption of primary withholding

responsibility for chapter 3 withholding.

With respect to a distribution made by a

publicly traded partnership, the proposed

regulations provided a similar allowance

for a QI to assume primary withholding

responsibility under section 1446(a) by

Bulletin No. 2020–51

acting as a nominee for the distribution.

See proposed §1.1446-4(b)(3).

The QI agreement generally permits

a QI to assume primary withholding responsibilities on an account-by-account

basis rather than on all payments made by

a withholding agent to a QI. Comments

requested generally similar flexibility for

QIs assuming withholding responsibilities

under sections 1446(a) and 1446(f), noting that the proposed regulations do not

clearly state whether a QI would need to

assume section 1446 withholding responsibilities as part of its overall withholding

responsibilities. One comment noted the

different system-related considerations in

withholding on sale proceeds as opposed

to withholding on payments of periodic

income. To better match systems capabilities of withholding agents and QIs and

provide for a more efficient withholding

process, comments therefore requested

that the regulations be clarified to permit

a QI to assume primary withholding responsibilities under section 1446(a) and

(f) regardless of whether the QI assumes

primary withholding responsibilities for

other payments subject to withholding

under chapters 3 and 4. A comment requested that a QI be permitted to assume

withholding responsibility under section

1446(a) but not section 1446(f), and vice

versa. Another comment requested that a

QI be permitted to assume withholding responsibility under section 1446(f) resulting from a sale of a PTP interest independent of whether the QI assumes primary

withholding responsibility under section

1446(f) on distributions made by the publicly traded partnership.

The Treasury Department and the IRS

agree that QIs should be permitted appropriate flexibility to make appropriate arrangements to assume, or not assume, certain withholding responsibilities. These

final regulations allow a QI to assume

primary withholding responsibility under

section 1446(f) on a payment-by-payment

basis. For example, a QI may assume primary withholding responsibility under

section 1446(f) for a sale of a PTP interest but not a distribution, and vice versa.

Further, a QI is permitted to assume (or

not assume) primary withholding responsibility under section 1446(f) on a sale of

a PTP interest regardless of whether the

QI assumes primary withholding respon-

Bulletin No. 2020–51

sibilities under sections 1441 and 1442.

However, under these final regulations

a QI that assumes withholding responsibilities on any portion of a distribution

from a publicly traded partnership will be

required to assume withholding responsibilities for the entire distribution (in other

words, a QI must either assume withholding responsibilities on the distribution for

purposes of chapter 3 (including section

1446(a) and (f)) and chapter 4, or not assume withholding responsibilities for any

of those purposes). See §§1.1446(f)-4(a)

(8) and 1.1446-4(b)(3). This requirement

will make withholding and reporting on

distributions with respect to PTP interests

more efficient because one party will perform the withholding and reporting on a

distribution. The Treasury Department

and the IRS intend for the revised QI

agreement to incorporate the requirements

for a QI that assumes primary withholding

responsibility under section 1446(a) or (f).

Similar changes to those described

above for QIs are included in these final

regulations with respect to payments of

amounts realized made to U.S. branches

that agree to act as U.S. persons under

section 1446(a) or (f). Additionally, these

final regulations clarify in §1.1446(f)4(a)(2)(i)(B) that the requirements for a

U.S. branch withholding certificate under

§1.1441-1(e)(3)(v) apply without regard

to the requirement that the certificate include a representation that the income is

not effectively connected with the conduct

of a trade or business within the United

States.

5. QIs Not Assuming Section 1446

Withholding Responsibility

Under the current QI agreement, a QI is

not required to assume primary withholding responsibilities under chapters 3 and

4. In such cases, a QI provides withholding rate pool information on its account

holders that are foreign persons (rather

than specific information about each such

account holder) to the withholding agent

sufficient for the withholding agent to determine the amounts to withhold. The proposed regulations permitted an exception

to withholding on an amount realized paid

to a QI only when the QI assumes primary

withholding responsibility, but provided

no special rules for when a QI does not

1617

assume withholding responsibility under

section 1446(f). Comments requested that

a QI be permitted to not assume primary

withholding responsibility under section

1446(f) if it provides to the broker paying

an amount realized a withholding statement that allocates the amount realized to

account holders of the QI selling their PTP

interests in withholding rate pools, similar

to the allowance for a QI to pass up withholding rate pools for purposes of section

1441. See §1.1441-1(b)(2)(vii)(C) and (e)

(5)(v)(C). In addition, for accounts not

designated by a QI as accounts for which

it acts under the QI agreement, a comment requested that the final regulations

also permit a QI not assuming primary

withholding responsibility under section

1446(f) to represent its status as a QI and

provide to the broker a withholding statement allocating the amount realized to

each account holder of the QI selling its

PTP interest in the same transaction, along

with specific account holder documentation, sufficient for the broker to determine

the amount to withhold. This allowance

would avoid any additional withholding

that might apply were the QI instead required to represent its status as an NQI in

those cases, as described in section VI.A.6

of this Summary of Comments and Explanation of Revisions, and would relieve a

QI from filing a Form 1042-S in such a

case. Comments also requested that a QI

be permitted to report on Form 1042-S

on a pooled basis (rather than to specific

recipients) for section 1446(f) purposes to

the same extent permitted for other payments covered by the QI agreement.

In response to these comments, the

final regulations provide that a broker

may determine the amount to withhold

under section 1446(f) on an amount realized paid to a QI that does not assume

primary withholding responsibility under

section 1446(f) based on aggregate information (in other words, in withholding

rate pools) about the account holders of

the QI that are transferring PTP interests.

See §1.1446(f)-4(a)(7). Under these final

regulations, a broker may rely on a QI’s

allocation of an amount realized to a pool

of foreign transferors subject to 10-percent withholding, a pool of foreign transferors that are excepted from withholding

under §1.1446(f)-4(b), and, to the extent

permitted under chapter 4, U.S. transfer-

December 14, 2020

ors included in a chapter 4 withholding

rate pool of U.S. payees. This allowance

provides parity with sections 1441 and

1442 with respect to a QI’s requirements

for its withholding statements (and associated documentation) and will provide QIs

and brokers making payments of amounts

realized to QIs greater flexibility in meeting their section 1446(f) requirements.

Additionally, under these final regulations

a broker may also rely on specific payee

information provided by a QI with respect

to foreign transferors (rather than pooled

information), thereby permitting the broker to withhold based on this information

rather than treating the QI as an NQI in

such a case (as would generally be the

case for other amounts subject to withholding under chapter 3). See §1.1446(f)4(a)(7)(iii). A broker may also withhold

as described in the preceding sentence for

purposes of section 1446(a) under these

final regulations in order to coordinate the

rules applicable to QIs under both sections

1446(a) and (f). See §1.1446-4(e) and section VII.C of this Summary of Comments

and Explanation of Revisions. These final regulations also provide that in cases

where a QI passes up specific payee information for a partner receiving a distribution or an amount realized, the nominee or

broker shall treat the partner (that is, the

QI’s account holder) as the recipient for

purposes of reporting on Form 1042-S.

See §1.1461-1(c)(1)(ii)(A)(8).

The revised QI agreement incorporates

the allowances described in the preceding

paragraph, including an allowance relieving a QI from filing a Form 1042-S to the

extent that it has provided specific payee

information to a broker that has issued a

Form 1042-S to one or more account holders of the QI (although such a case will be

within the scope of a QI’s activities under

the QI agreement). In addition, as requested by comments, the revised QI agreement

will permit a QI to report on Form 1042-S

on a pooled basis (rather than to specific

recipients) for amounts subject to withholding under section 1446(a) or (f) to the

same extent generally permitted for other

payments to foreign account holders under

the QI agreement. To ensure that account

holders that are foreign partners will have

the information necessary to satisfy their

own U.S. income tax reporting requirements, the requirements of §1.6031(c)-1T

December 14, 2020

will be incorporated into the QI agreement. See §§1.6012-1(b)(1), 1.6012-2(g)

(1), and 1.6031(a)-1. Since foreign partners are required to file U.S. income tax

returns to report their effectively connected income and may request Forms 1042S from QIs to support amounts withheld

that are reported on their returns, these

partners are able to obtain refunds of taxes

overwithheld under section 1446(f) when

making their required filings. Therefore,

the revised QI agreement will not allow

a QI to use the collective refund procedures for amounts withheld under section

1446(a) or (f) with respect to its account

holders that are foreign partners.

6. Withholding under Section 1446(f) on

Payments to NQIs

As discussed in section VI.A.5 of this

Summary of Comments and Explanation

of Revisions, these final regulations permit a broker to determine its withholding

obligation under section 1446(f) by relying on certain account holder information

provided by a QI that does not assume

primary withholding responsibility. One

comment requested a similar allowance

that would permit a broker to rely on a

certification from an NQI for calculating

the broker’s withholding under section

1446(f) in a case in which the NQI provides specific partner information to the

broker (thus avoiding withholding on

the full amount paid to the NQI in certain cases). The comment noted that requiring withholding on amounts realized

allocable to U.S. partners that are NQI

account holders would result in excessive

withholding. Another comment noted that

the requested allowance would relieve an

NQI from reporting on Form 1042-S as

its broker would have the information to

report the amount realized that is allocated to each foreign partner in the publicly

traded partnership. See §1.1461-1(c)(1)

(ii)(A)(8) (requiring reporting of amounts

realized paid to foreign partners of publicly traded partnerships).

Even though overwithholding could

occur in certain cases absent the requested change, the Treasury Department and

the IRS have determined that a broker

should not be relieved of withholding at

the full amount under section 1446(f) on

amounts realized that are paid to NQIs

1618

(except when the NQI maintains a U.S.

branch that assumes the withholding).

This determination reflects the view that

in general NQIs are not required to account to the IRS with respect to their

compliance with the withholding and reporting requirements of section 1446(f).

As in the proposed regulations, therefore,

a broker will be required to withhold at

the full 10-percent rate on an amount realized paid to an NQI when no exception

to withholding applies under these final

regulations. However, a partner that is an

account holder of an NQI that is subject to

withholding under section 1446(f) will be

entitled to claim a credit under section 33

for the amount withheld when the partner

is provided a Form 1042-S supporting the

claim from the NQI (or as otherwise provided in IRS forms or instructions). See

§1.1446(f)-4(e)(2).

7. Broker’s Determination of Prior

Broker Withholding under Section

1446(f)

Under proposed §1.1446(f)-4(a)(2)

(iii), a broker is not required to withhold

on an amount realized from the sale of a

PTP interest when it knows that the withholding obligation has been satisfied by

another broker. A comment requested a

specific documentation rule (such as a certification from the paying broker) to provide more certainty to the receiving broker that the withholding requirement has

been satisfied with respect to the payment.

The regulations under section 1441

provide a standard different than that included in the proposed regulations for

when a withholding agent may treat a payment as already subjected to withholding

(thus avoiding duplicative withholding).

That rule provides that an NQI receiving

a payment from a withholding agent is not

required to withhold when the NQI has

provided a Form W-8IMY, withholding

statement, and attached documentation to

the withholding agent and does not know

or have reason to know that another withholding agent failed to withhold the correct amount. See §1.1441-1(b)(6). In the

case of a QI receiving the payment, however, §1.1441-1(b)(6) provides that a QI

determines its withholding requirement

in accordance with the QI agreement. To

address the concern raised in the com-

Bulletin No. 2020–51

ment regarding the difficulty for a broker

to show that withholding was applied by

another broker, these final regulations

amend that requirement by incorporating a standard generally similar to that

in §1.1441-1(b)(6). See §1.1446(f)-4(a)

(4). Therefore, a broker acting as an intermediary for an amount realized is not

required to withhold when it receives

the amount from another broker unless

it knows, or has reason to know, that the

paying broker did not withhold on the full

amount required (or, in the case of a QI

receiving the amount realized, as required

in accordance with the QI agreement).

8. Withholding Date for Sales of PTP

Interests

A comment requested that the date for

withholding with respect to a sale of a

PTP interest should be the settlement date

(as opposed to the trade date), consistent

with the rule in §31.3406(a)-4(b)(1) for

when backup withholding under section

3406 is required on certain payments of

amounts reportable under section 6045.

In response to this comment, these final

regulations include a cross-reference to

§31.3406(a)-4(b)(1) to clarify the date

of withholding under section 1446(f) for

a transfer of a PTP interest other than a

distribution.

B. Exceptions to withholding

Proposed §1.1446(f)-4(b) provided

exceptions to the withholding requirement that applies to a broker paying an

amount realized from the transfer of a

PTP interest, including exceptions that

apply to distributions by publicly traded

partnerships and exceptions dependent on

certifications obtained from transferors.

These final regulations modify certain of

these exceptions and add an exception for

certain transferors (the ECI exception).

These final regulations also remove the

exception to withholding for a qualified

current income distribution in proposed

§1.1446(f)-4(b)(4), and replace that exception with a provision for determining

the amount realized in the case of a distribution by a publicly traded partnership

such that withholding is required only to

the extent a distribution is not attributable

to net income. A QI will be permitted to

Bulletin No. 2020–51

apply these same exceptions to withholding under the revised QI agreement.

1. ECI Exception

Comments requested an exception to

withholding if a valid Form W-8ECI, Certificate of Foreign Person’s Claim that

Income is Effectively Connected with the

Conduct of Trade or Business in the United States, is provided under certain new

conditions. The comments explained that

certain foreign persons not eligible for the

section 864(b) trading safe harbor, such

as dealers in securities, buy and sell PTP

interests as part of their trade or business

in the United States, such that gain or loss

on the transfer of the PTP interests would

be effectively connected with the conduct

of a trade or business within the United

States without regard to section 864(c)

(8). The comments requested a limited exception for non-U.S. persons that provide

a Form W-8ECI and specify on the form

that the gain from the sale, exchange, or

other disposition of the PTP interest is effectively connected with the conduct of a

trade or business within the United States

without regard to the application of section 864(c)(8).

The Treasury Department and the IRS

have determined that it is appropriate to

provide relief from withholding for transferors that certify on a Form W-8ECI that

the transferor is a dealer in securities (as

defined in section 475(c)(1)) and that any

gain from the transfer of a PTP interest

is effectively connected with the conduct

of a trade or business within the United

States without regard to section 864(c)(8).

The final regulations add this exception in

§1.1446(f)-4(b)(6).

2. 10-Percent Exception

The proposed regulations provided that

a broker may rely on a qualified notice

stating that the exception to withholding

described in proposed §1.1446(f)-4(b)(3)

(the 10-percent exception) applies. The

proposed regulations required that this

exception apply as of the PTP designated

date for a transfer of a PTP interest. The

PTP designated date was defined as the

date for a deemed sale determination that

is designated by a publicly traded partnership in a qualified notice, provided that the

1619

date is not earlier than 92 days before the

date that the publicly traded partnership

posts the qualified notice. In addition, the

proposed regulations limited reliance on a

qualified notice depending on the date of

posting. Specifically, a broker may in general only rely on the most recent qualified

notice that is posted by the publicly traded

partnership within the 92-day period ending on the date of the transfer.

One comment requested that, for purposes of the exception, a broker be permitted to rely on the qualified notice for 183

days from the date of posting by the publicly traded partnership instead of the 92day period provided in the proposed regulations. This comment noted that qualified

notices issued with respect to distributions

that are made late in the year complicate

the withholding and reporting process.

As noted in the preamble to the proposed regulations, the 92-day period

was provided to limit the availability of

the 10-percent exception to situations in

which a publicly traded partnership has

designated a deemed sale date occurring

within the most recent calendar quarter

given that publicly traded partnerships

are in a position to determine the value of

their assets quarterly. The proposed regulations limit reliance on a qualified notice

to a notice posted within the 92-day period ending on the date of transfer in order

to ensure that the broker is using the most

recent information available. Therefore,

these final regulations retain the 92-day

period for purposes of the 10-percent exception.

A comment stated that the 10-percent

exception should only account for the

publicly traded partnership’s effectively

connected gain under section 864(c)(8),

without taking into account any effectively connected gain under section 897.

According to the comment, this would

ensure that the transfer of an interest in a

partnership that is not engaged in a trade

or business within the United States, but

that holds U.S. real property interests, is

not subject to withholding under section

1446(f). This comment is not adopted because it is appropriate to account for effectively connected gain under section 897

when applying the 10-percent exception.

However, to address the concern raised in

the comment, these final regulations add

an exception to withholding similar to the

December 14, 2020

one described in section IV.A.3.ii of this

Summary of Comments and Explanation

of Revisions that applies when a non-publicly traded partnership certifies that it is

not engaged in a trade or business within the United States (including when the

partnership is not engaged in a trade or

business within the United States and only

holds U.S. real property interests that are

not part of a trade or business). A publicly

traded partnership states that this exception applies by providing on a qualified

notice that it is not engaged in a trade or

business within the United States.

Finally, these final regulations add a

provision for certain cases in which a

publicly traded partnership is liable under

section 1461 for underwithholding by a

broker on a transfer when the partnership

issues a qualified notice that incorrectly

states the applicability of the 10-percent

exception. However, this liability applies

only when the publicly traded partnership

fails to make a reasonable estimate of the

amounts required for determining the applicability of the 10-percent exception.

See §1.1446(f)-4(b)(3)(i); see also section

V.B of this Summary of Comments and

Explanation of Revisions.

C. Determining the amount to withhold

If an exception to withholding under

proposed §1.1446(f)-4(b) does not apply,

proposed §1.1446(f)-4(c) provided rules

for a broker to determine the amount realized for purposes of computing the

amount to withhold on the transfer of a

PTP interest. Proposed §1.1446(f)-4(c) included a general rule for determining the

amount realized based on the amount of

gross proceeds paid on the transfer (as defined in §1.6045-1(d)(5)) and a procedure

for modifying the amount realized when

the transferor is a foreign partnership that

has domestic partners.

1. Modified Amount Realized for

Transfers by Foreign Partnerships

Proposed §1.1446(f)-4(c)(2) provided,

in the event of a transfer of a PTP interest by a foreign partnership, a procedure

that allows a broker to reduce the amount

realized on the transfer to the extent the

amount realized is allocable to partners

that are U.S. persons. A foreign partner-

December 14, 2020

ship may claim this modified amount realized by providing a Form W-8IMY, a

withholding statement allocating the percentage of gain from the transfer allocable

to each direct or indirect partner that is a

U.S. person or a presumed foreign person,

and a certification of non-foreign status for

each partner that is a U.S. person. As described in section IV.B.2 of this Summary

of Comments and Explanation of Revisions, these final regulations expand the

analogous procedure under §1.1446(f)2(c)(2)(iv) that applies to transfers of

non-PTP interests to take into account situations in which a foreign partner (direct

or indirect) in the transferor partnership is

eligible for treaty benefits. In response to

a comment, the same modification is made

in these final regulations for transfers of

PTP interests.

Another comment requested an allowance for the transferor partnership to

provide to the broker the aggregate percentage of gain allocable to its partners

that are U.S. persons as opposed to the

requirement to include on the withholding

statement the percentage of gain allocable

to each partner that is a U.S. person. The

comment reflects a concern that a broker

using the procedure under the proposed

regulations may be considered to have

actual knowledge of the extent to which

proceeds from the transfer are paid to

each partner that is a U.S. person, thereby

resulting in a requirement for the broker

to report these gross proceeds under section 6045. See §§1.6045-1(g)(1)(i) and

1.6049-5(d)(3)(i).

The Treasury Department and the IRS

have determined that any additional reporting under section 6045 that results

from this requirement is an appropriate

consequence of the rule. Additionally, this

rule provides information useful to the

IRS. See, however, §§1.6049-4(c)(4) and

1.6045-1(g)(1)(iv) (providing coordination of chapter 61 reporting with reporting

by certain foreign financial institutions

under chapter 4).

Under the revised QI agreement, a QI

will be permitted to adjust an amount realized in accordance with the procedures

described in this section VI.C.1 of this

Summary of Comments and Explanation

of Revisions with respect to any direct

account holder of the QI that is a foreign

partnership or a direct account holder of

1620

another QI that is a foreign partnership

to which the first-mentioned QI pays the

amount realized.

2. Determining Amount Realized with

Respect to Distributions

Under the proposed regulations, in the

event of a distribution by a publicly traded partnership that is treated as a transfer

for purposes of section 1446(f), the entire

amount of a distribution was treated as the

amount realized. Proposed §1.1446(f)4(c)(2). In general, under section 731(a),

a partner recognizes gain on a distribution

from a partnership to the extent that any

money distributed exceeds the partner’s

basis in its interest in the partnership. Under section 705(a)(1), a partner’s basis in

its interest is increased by its distributive

share of income for the taxable year. Proposed §1.1446(f)-4(b)(4) provided an exception to a broker’s requirement to withhold on a distribution by a publicly traded

partnership if the entire amount of the

distribution is designated on the publicly

traded partnership’s qualified notice (as

defined in §1.1446-4(b)(4)) as a qualified

current income distribution. The proposed

regulations defined a qualified current

income distribution as a distribution that

does not exceed the net income that the

publicly traded partnership earned since

the record date of the publicly traded partnership’s last distribution. This exception

was intended to eliminate withholding

under section 1446(f)(1) on a distribution

by a publicly traded partnership when the

partner would not likely recognize gain

from the distribution under section 731(a)

due to the basis increase under section

705(a)(1) for partnership income allocable

to a partner.

Comments suggested various alternatives to the qualified current income

distribution exception. Two comments

requested that withholding under section

1446(f) not apply to any distributions by a

publicly traded partnership. One of those

comments asserted that any unrealized

effectively connected gain attributable to

assets of the publicly traded partnership

would eventually be taxed through withholding under either section 1446(a) when

the publicly traded partnership disposes of

those assets or section 1446(f) when the

partner sells its PTP interest. Certain com-

Bulletin No. 2020–51

ments suggested modifying the requirements for the exception. One comment

suggested that, for purposes of applying

the exception, a broker should be permitted to treat a distribution as made out of

current net income unless the qualified notice states otherwise. This comment noted

that publicly traded partnerships may not

publish qualified notices designating the

distribution as a qualified current income

distribution due to concerns about liability under proposed §1.1446(f)-3(b)(2)(ii)

if the qualified notice is false. Another

comment suggested modifying the qualified current income distribution exception

so that withholding under section 1446(f)

(1) would not apply to the extent that cumulative distributions by a publicly traded

partnership do not exceed its cumulative

net income earned over time.

Other comments focused on alternatives for coordinating withholding under

section 1446(f) on distributions by publicly traded partnerships with withholding

under other sections of the Code, noting

that a distribution by a publicly traded

partnership would be subject to withholding under section 1446(f) as well as withholding under sections 1441, 1442, 1443,

and 1446(a) (to the extent applicable)

when the qualified current income distribution exception would not apply. For

example, a comment suggested reducing

the tax liability under section 1446(a) by

amounts withheld under section 1446(f)

dollar-for-dollar, or exempting distributions from withholding under section

1446(f) to the extent those distributions

are subject to withholding under section

1446(a) (or vice versa). Another comment

requested more broadly that withholding

under section 1446(f) not apply to a distribution made by a publicly traded partnership when withholding under section

1441, 1442, 1443, or 1446(a) applies to

the payment.

Section 1446(f)(1) requires withholding if any portion of the gain on a disposition of an interest in a partnership would

be treated under section 864(c)(8) as effectively connected gain. Section 1446(f)

ensures that tax is collected on gain under section 864(c)(8). The Treasury Department and IRS have determined that

eliminating withholding entirely on distributions by publicly traded partnerships

would undermine the purpose of section

Bulletin No. 2020–51

1446(f) in certain cases. For example,

there may not be a subsequent sale of the

PTP interest subject to withholding under

section 1446(f), particularly if the distribution is in redemption of the PTP interest. Alternatively, the value of a publicly

traded partnership’s assets (or the amount

of unrealized effectively connected gain)

may change between the date of a distribution and either the date on which the

partnership sells the assets or the date on

which the partner sells its PTP interest.

The Treasury Department and the IRS

do not agree with the comments requesting an offset against section 1446(f) withholding for amounts withheld under section 1446(a). Section 1446(a) withholding

applies to effectively connected taxable

income earned by the partnership that is

allocated and distributed to its partners.

In contrast, section 1446(f) withholding

applies to ensure the collection of tax on

the built-in gain of the partnership’s assets

under section 864(c)(8). Thus, each withholding regime applies to a separate item

of taxable income.

For these reasons, the final regulations

continue to require withholding under section 1446(f) on a distribution made with

respect to a PTP interest. However, because the exception for a qualified current

income distribution provided relief only

when a publicly traded partnership made a

distribution entirely out of current net income, these final regulations replace this

exception with a procedure in §1.1446(f)4(c)(2)(iii) for adjusting the amount realized to the amount of a distribution in

excess of cumulative net income. Thus,

if a portion of a distribution made by a

publicly traded partnership is attributable

to an amount in excess of cumulative net

income, a broker is required to withhold

only on this portion for purposes of section

1446(f), rather than on the entire amount

of the distribution. Also, in response to a

comment, this rule looks to the amount

in excess of the cumulative net income,

rather than the current net income (as was

required under the proposed regulations).

The cumulative net income is the net income earned by the partnership since the

formation of the partnership that has not

been previously distributed by the partnership. As a result of this change, these

final regulations remove the general rule

included in the proposed regulations that

1621

defined the amount realized from a PTP

distribution as the amount of cash and the

fair market value of property distributed

or to be distributed.

Under the final regulations, the publicly traded partnership identifies the portion

of a distribution attributable to an amount

in excess of cumulative net income on

a qualified notice. If a broker properly

withholds based on the qualified notice

(applying the rules of §1.1446-4(d)(1) to

the distribution), the broker is not liable

for any underwithholding on any amount

attributable to an amount in excess of cumulative net income. Instead, if a publicly

traded partnership issues a qualified notice

that causes a broker to underwithhold with

respect to an amount in excess of cumulative net income, the partnership is liable

under section 1461 for any underwithholding on such amount.

D. Form 1042-S reporting under section

1446(f)

The proposed regulations included requirements for reporting with respect to

transfers of PTP interests on Form 1042S. As part of these requirements, a broker

is generally required to report on Form

1042-S a payment of an amount realized

from the transfer of a PTP interest made to

a foreign transferor or broker.

One comment requested clarification

that reporting on Form 1042-S is performed on an aggregate basis (that is, a

broker reports on a single Form 1042-S all

transfers of PTP interests with respect to

a customer for a calendar year). The proposed regulations added to §1.1461-1(c)

(1)(i) the general requirement that a broker

report on Form 1042-S amounts realized

as determined under section 1446(f). Section 1.1461-1(c)(1)(i) generally provides

that a Form 1042-S shall be prepared for

each recipient of an amount subject to reporting and for each single type of income

payment, in such manner as the form and

accompanying instructions prescribe. The

IRS intends to amend the instructions to

Form 1042-S to clarify that aggregate reporting is used with respect to amounts realized by a transferor on transfers of PTP

interests.

As described in section VI.A.6 of this

Summary of Comments and Explanation

of Revisions, these final regulations re-

December 14, 2020

quire a broker to withhold on an amount

realized paid to an NQI effecting a transfer of a PTP interest for an account holder.

A comment requested that the regulations

clarify how a broker reports the payment

to the NQI, and suggested that the broker

report the amount as paid to an unknown

account holder, with the NQI reported

as an intermediary for the amount (rather than as the recipient). The Treasury

Department and the IRS agree with the

manner of reporting noted in this comment, which is already generally reflected

in §1.1461-1(c)(1)(ii)(B)(1) and (c)(4)(ii)

(A) (addressing payments to persons that

are not recipients, including NQIs) and

§1.1461-1(c)(1)(ii)(B)(5) (excluding as

a recipient a broker withheld upon under

§1.1446(f)-4(a)(2)(i)). In response to this

comment, the IRS also intends to amend

the instructions to Form 1042-S to indicate the reporting that applies in this case.

A comment requested clarification

that a foreign partnership subject to withholding under §1.1446(f)-4 may use the

Form 1042-S that it receives from the

broker to substantiate the foreign partnership’s credit of such withholding against

its tax liability under section 1446(a). In

response to this comment, the Treasury

Department and the IRS intend to amend

the instructions to Forms 8804, 8805 and

8813 to provide that a foreign partnership withheld upon under section 1446(f)

on the transfer of a PTP interest must attach Form 1042-S in order to credit such

amount against its liability under section

1446(a).

As discussed in section VI.A.2 of this

Summary of Comments and Explanation

of Revisions, under these final regulations a U.S. clearing organization will be

required to report on Form 1042-S the

non-netted amounts realized by a foreign

broker with respect to sales of PTP interests that are cleared and settled on a net

basis through the clearing organization.

Finally, under §1.1461-1(a)(1), a withholding agent that withholds tax pursuant

to chapter 3 is required to deposit the tax

as provided in §1.6302-2(a). Consistent

with the proposed regulations, these final regulations amend §1.1461-1(a)(1)

to incorporate the requirement to deposit

tax withheld under section 1446(f). These

final regulations include a conforming

change to §1.6302-2(a)(1)(i) to provide

December 14, 2020

that the requirement to deposit tax under

§1.6302-2 applies to a broker or publicly traded partnership for purposes of section 1446(f), and to a nominee or publicly

traded partnership for purposes of section

1446(a).

E. Synthetic interests

A comment requested clarification

that the proposed regulations apply only

to physical interests in publicly traded

partnerships and not synthetic interests.

A subsequent comment submitted by the

same commenter suggested that the final

regulations clarify this point by explicitly defining the term “interest” as “an

interest as a partner in the partnership.”

The question of when a contract or other financial instrument denominated as a

synthetic interest in a partnership interest

may be treated as ownership of a partnership interest is beyond the scope of these

regulations.

VII. Amendments to Existing

Section 1446 Regulations Relating

to Distributions by Publicly Traded

Partnerships

A. Method of providing a qualified notice

The proposed regulations contained

changes to the existing qualified notice

rules and rules for nominees that apply

to distributions of effectively connected

income, gain, or loss made by publicly

traded partnerships to foreign partners.

Proposed §1.1446-4(b)(4) revised the

method for a publicly traded partnership

to provide a qualified notice to a nominee

by requiring that the notice be posted in

a readily accessible format in an area of

the primary public website of the publicly traded partnership that is dedicated to

this purpose. Two comments requested

that a requirement be added to require the

publicly traded partnership to furnish a

copy of the qualified notice to the publicly traded partnership’s registered holders

that are nominees. PTP interests are generally immobilized at a central depository and registered in the name of the depository’s nominee. The comments state

that furnishing the qualified notice to the

publicly traded partnership’s registered

holders that are nominees would facilitate

1622

the dissemination of information provided

on the qualified notice to relevant market

participants. Another comment noted the

burden on brokers to find qualified notices posted on publicly traded partnerships’

websites and suggested requiring all qualified notices to be posted on a central public website.

The Treasury Department and the IRS

have determined that the delivery requirements for qualified notices should be

aimed at ensuring that all relevant market participants receive the information

necessary to comply with their withholding and reporting obligations. Therefore,

these final regulations include a requirement for a publicly traded partnership to

provide a qualified notice to any registered

holder that is a nominee for a distribution.

Because the requirements provided will

generally ensure that brokers receive the

information necessary to meet their withholding obligations under §1.1446(f)-4,

these final regulations do not adopt the

comment to require publicly traded partnerships to post their qualified notices to a

central website.

B. Default withholding rule

The proposed regulations also added

a default withholding rule (the default

withholding rule) for cases in which a

qualified notice fails to provide sufficient detail for a nominee to determine

the amounts subject to withholding on a

publicly traded partnership distribution

(a deficient qualified notice). Under this

rule, to the extent that a deficient qualified notice fails to specify the type of income from which a distribution is made,

the nominee must withhold at the highest

rate specified in section 11(b) or 881 for

a partner that is a foreign corporation,

or the highest rate specified in section 1

or 871 for a foreign partner that is not a

corporation. See proposed §1.1446-4(d).

One comment requested that a broker be

permitted to adjust the rate of withholding under the default withholding rule

by considering the status of a partner for

purposes of taking into account a lower

treaty rate.

The Treasury Department and the IRS

have concluded that a nominee applying

the default withholding rule should withhold based on the statutory withholding

Bulletin No. 2020–51

rates determined under the proposed

regulations, without regard to any lower

rate that might apply under an applicable income tax treaty. Determinations by

nominees of lower rates that might otherwise apply under a treaty would depend

on information from publicly traded partnerships about the characterization of the

income attributable to the distribution.

Because this information would not be

provided to the nominee on a qualified

notice, these final regulations clarify that

a lower treaty rate is not considered for

purposes of determining the amount to

withhold under the default withholding

rule.

The comment also requested that the

final regulations clarify that a nominee is

required to apply the default withholding

rule to a distribution for which no qualified notice is issued. Proposed §1.14464(d) modified the existing rule to provide

that a nominee is a withholding agent for

the entire distribution that it receives from

a publicly traded partnership (rather than

only to the extent of the amount specified

on a qualified notice). These final regulations add language to clarify that a nominee must apply the default withholding

rule when a publicly traded partnership

fails to issue a qualified notice for a distribution under §1.1446-4(b)(4) of these

final regulations.

The default withholding rule in the proposed regulations did not address a case in

which a nominee has no information about

the status of a partner, including whether

the partner is a corporation for determining the withholding rate on effectively

connected income paid to the partner. As

a result, these final regulations add that if

a nominee cannot determine the status of

a partner as a corporation, for purposes of

the default withholding rule the nominee

is required to use the higher of the following rates: (1) the rate of withholding

applicable to a foreign person that is a corporation, and (2) the rate of withholding

applicable to a foreign person that is not

a corporation.

C. Modifications related to QIs

The proposed regulations expanded the

definition of a nominee to include a QI

that assumes primary withholding responsibility for a distribution and a U.S. branch

Bulletin No. 2020–51

of a foreign person that agrees to be treated as a U.S. person for withholding on a

distribution from a publicly traded partnership. To address cases in which a distribution by a publicly traded partnership

is paid through multiple nominees that

might each be required to withhold under

proposed §1.1446-4(d), these final regulations add an exception to withholding for

a nominee paying the distribution to a QI

or U.S. branch that is also a nominee for

the distribution.

Under the QI agreement, a QI may

choose not to assume primary withholding responsibilities and in certain of those

cases may provide withholding rate pools,

rather than specific payee documentation,

to the withholding agent that makes a

payment to the QI. Because the QI agreement applies only to amounts subject to

withholding under chapter 3 (defined as

sections 1441 through 1443), chapter 4

(sections 1471 through 1474), or section 3406, the IRS intends to update the

QI agreement to extend this treatment to

amounts subject to withholding under section 1446(a) to the same extent generally

permitted for payments received by QIs on

behalf of their foreign account holders under the QI agreement. To coordinate with

the intended updates to the QI agreement,

these final regulations allow a publicly

traded partnership or nominee paying a

distribution under section 1446(a) to a QI

that does not assume primary withholding

responsibilities to rely on an allocation of

the distribution to an applicable withholding rate pool provided by the QI by specifying the withholding rate pools permitted

for withholding under section 1446(a).

In addition, these final regulations allow a broker to withhold under section

1446(a) based on specific payee documentation provided by a QI. See §1.14464(e) and section VI.A.5 of this Summary

of Comments and Explanations of Revisions. Additionally, as discussed in section

VI.A.4 of this Summary of Comments and

Explanations of Revisions, these final regulations require a QI or U.S. branch that

acts as a nominee under section 1446(a)

for a distribution made by a publicly traded partnership to assume all other required

withholding responsibilities with respect

to the distribution. These provisions (as

applicable to QIs) will be incorporated

into the revised QI agreement.

1623

VIII. Applicability Dates

The proposed regulations generally

provided that the regulations would apply

60 days after final regulations are issued.

Comments requested additional time before withholding on transfers of PTP interests is required, noting that the rules in

the proposed regulations would require

brokers to update systems, processes, and

procedures. The comments generally requested an extension of the applicability

date to 18 months following the finalization of all guidance with respect to this

requirement. Another comment requested

that the same extension apply to QIs, noting the time required for QIs to review the

regulations and anticipated revisions to

the QI agreement, and to implement the

necessary updates to their systems and

procedures.

The provisions in these final regulations

relating to transfers of PTP interests apply

to transfers that occur on or after January

1, 2022. See §§1.1446(f)-4(f), 1.1461-1(i),

1.1461-2(d), and 1.1464-1(c). Similarly,

§1.6302-2(g) applies to tax required to be

withheld on or after January 1, 2022 with

respect to section 1446(f). The provisions

included in these final regulations that are

applicable to QIs will apply beginning January 1, 2022. See section VI.A.1 of this

Summary of Comments and Explanations

of Revisions. The Treasury Department

and the IRS have determined that this applicability date should provide sufficient

time for taxpayers to prepare to implement

the regulations relating to transfers of PTP

interests. Additionally, certain allowances

in the final regulations, such as the allowances for brokers to rely on documentation

from clearing organizations in certain cases

and documentation already in the broker’s

possession, should reduce the time needed

for brokers to update their systems. See

section VI.A.3 of this Summary of Comments and Explanation of Revisions.

Other provisions in the final regulations

that require systems adjustments by publicly traded partnerships, such as the procedures for qualified notices, are similarly

applicable on January 1, 2022. Specifically,

the requirements with respect to publicly traded partnership distributions under

§1.1446-4 of these final regulations apply

to distributions made on or after January

1, 2022. See §1.1446-7. In addition, the

December 14, 2020

requirements with respect to distributions

that are attributable to dispositions of U.S.

real property interests under §1.1445-8(f)

apply to distributions made on or after January 1, 2022. See §1.1445-8(j).

Further, in order to provide partnerships with time to implement withholding

under section 1446(f)(4), §1.1446(f)-3

applies to transfers that occur on or after

January 1, 2022. See §1.1446(f)-3(f).

As contemplated in the proposed regulations, §1.864(c)(8)-2(a) applies to

transfers that occur on or after November

30, 2020, §§1.864(c)(8)-2(b) and (c) and

1.6050K-1(c)(2) and (3) apply to returns

filed on or after November 30, 2020, and

§1.864(c)(8)-2(d) applies beginning on

November 30, 2020. See §§1.864(c)(8)2(e) and 1.6050K-1(h). Sections 1.14452(b)(2)(v) and 1.1445-5(b)(3)(iv) apply

to the use of Forms W-9 for certifications

of non-foreign status provided on or after

May 7, 2019, except that a taxpayer may

choose to apply those provisions with respect to certifications provided before that

date. See §§1.1445-2(e) and 1.1445-5(h).

The conforming changes in §§1.1445-5

and 1.1445-8 resulting from the rate changes made by the Act apply to distributions on

or after November 30, 2020. The conforming changes in §§1.1446-3 and 1.1446-4 resulting from the rate changes made by the

Act and the change to the due date of Form

8804 made by the Surface Transportation

Act apply to partnership taxable years beginning on or after November 30, 2020. Although the applicability date of the changes

to the regulations described in this paragraph is based on the date of publication of

this document in the Federal Register, the

same results apply before that date as of the

relevant effective dates of the Act and the

Surface Transportation Act.

The remaining provisions in these final regulations are generally applicable

to transfers that occur on or after January 29, 2021, as contemplated in the proposed regulations. See §§1.1446(f)-1(e),

1.1446(f)-2(f), 1.1446(f)-5(d), 1.1461-3,

and 1.1463-1(a).

Effect on Other Documents

Notice 2018-08 (2018-7 I.R.B. 352)

is obsolete as of January 1, 2022. Notice

2018-29 (2018-16 I.R.B. 495), other than

section 11, is obsolete as of January 29,

2021. Section 11 of Notice 2018-29 is obsolete as of January 1, 2022. Accordingly,

the withholding requirements for transfers

of PTP interests and withholding under

section 1446(f)(4) remain suspended for

transfers occurring before January 1, 2022.

Statement of Availability of IRS

Documents

IRS Revenue Procedures, Revenue

Rulings, notices, and other guidance cited

in this document are published in the Internal Revenue Bulletin and are available

from the Superintendent of Documents,

U.S. Government Publishing Office,

Washington, DC 20402, or by visiting the

IRS website at http://www.irs.gov.

Special Analyses

I. Regulatory Planning and Review

These regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum

of Agreement (April 11, 2018) between

the Treasury Department and the Office

of Management and Budget regarding review of tax regulations.

II. Paperwork Reduction Act

The collections of information in these

final regulations are in §1.864(c)(8)-2

regarding reporting for transactions described in section 864(c)(8) and §1.864(c)

(8)-1; §§1.1446(f)-1 through 1.1446(f)-4

regarding the withholding, reporting, and

paying of tax under section 1446(f) following the transfer of an interest described in

section 864(c)(8) and §1.864(c)(8)-1; and

§1.6050K-1(c) regarding reporting of section 751(a) exchanges. Section II.A of this

Special Analyses describes the changes

made in these final regulations to the collections of information in the proposed regulations that will be conducted using IRS

forms. Section II.B of this Special Analyses

describes the changes made in these final

regulations to the collections of information in the proposed regulations that will

not be conducted using IRS forms.

A. Collections of Information Conducted

Using IRS Forms

These final regulations include an exception from withholding for amounts

realized paid to certain foreign banks and

securities dealers. §1.1446(f)-4(b)(6). The

collection of information in §1.1446(f)4(b)(6) is provided by the transferor by

submitting a certification as part of Form

W-8ECI, Certificate of Foreign Person’s

Claim that Income is Effectively Connected with the Conduct of Trade or Business

in the United States, to the broker and is

optional. The information will be used by

the broker to determine whether an exception to withholding applies if the gain

from the transfer of a PTP interest is effectively connected with the conduct of a

trade or business within the United States

without regard to section 864(c)(8).

The Treasury Department and the IRS intend that the information collection requirement described in this section II.A will be

set forth on Form W-8ECI. As a result, for

purposes of the Paperwork Reduction Act,

44 U.S.C. 3501 et seq. (PRA), the reporting

burden associated with the collection of information in this form will be reflected in the

PRA submission associated with the form.

The current status of the PRA submission

for Form W-8ECI is provided in the Current

Status of PRA Submissions table.

Current Status of PRA Submissions

Form W-8ECI

Type of Filer

OMB Number(s)

Status

Business (NEW Model)

1545-0123

Approved 01/30/2019 until 01/30/21.

https://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=1545-0123#

All other filers (Legacy system)

1545-1621

Approved 12/19/2018 until 12/31/2021.

Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201708-1545-002

December 14, 2020

1624

Bulletin No. 2020–51

B. Collections of Information Not

Included on IRS Forms

These final regulations contain collections of information that are not on existing or new IRS forms, and include minor

modifications to the collections of information in the proposed regulations relating to certain certifications that may be

provided to obtain an exception to withholding or an adjustment to the amount to

withhold. See §1.1446(f)-2(b)(4) and (5)

and (c)(2). See sections IV.A.3, VI.A.4,

and IV.B.2 of the Summary of Comments

and Explanation of Revisions for explanations of the changes to these certifications.

Section II.B of the Special Analyses

of the proposed regulations provided estimates of the cost of certain collections

of information contained in the proposed

regulations. A comment suggested that

the cost of collections of information for

a broker was too high. However, the comment misinterpreted the data provided in

section II.B of the Special Analyses of the

proposed regulations. The estimated total

annual monetized cost provided in section

II.B of the Special Analyses of the proposed regulations was the estimated cost

of all collections of information not on

existing or new IRS forms for all respondents (generally transferors of partnership

interests), not the estimated cost of compliance for a broker.

The collections of information contained in these final regulations have been

reviewed and approved by the Office of

Management and Budget in accordance

with the PRA under control number 15452292.

An agency may not conduct or sponsor,

and a person is not required to respond to,

a collection of information unless it displays a valid control number assigned by

the Office of Management and Budget.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal

revenue law. Generally, tax returns and tax

return information are confidential, as

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