Revised Timeline and Other Guidance Regarding the Implementation of New Section 1446(f)

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Revised Timeline and Other Guidance Regarding the Implementation of

New Section 1446(f)

Notice 2018-08

SECTION 1. OVERVIEW

This notice announces that the Department of the Treasury (“Treasury

Department”) and the Internal Revenue Service (“IRS”) are suspending the

application of new section 1446(f) of the Internal Revenue Code (“Code”) in the

case of a disposition of certain publicly traded partnership interests. New section

1446(f) was added by section 13501 of “An Act to provide for reconciliation

pursuant to titles II and V of the concurrent resolution on the budget for fiscal

year 2018,” P.L. 115-97 (the “Act”), which was enacted on December 22, 2017.

Section 13501 of the Act also added new section 864(c)(8). Section 2 of this

notice provides background on new sections 864(c)(8) and 1446(f). Section 3 of

this notice describes the revised timeline for the application of new section

1446(f) to a disposition of certain interests in publicly traded partnerships.

Section 4 of this notice requests comments and provides contact information.

SECTION 2. BACKGROUND

In general, new section 864(c)(8) provides that a nonresident alien

individual’s or foreign corporation’s gain or loss from the sale, exchange, or other

disposition of a partnership interest is effectively connected with the conduct of a

trade or business in the United States to the extent that the person would have

had effectively connected gain or loss had the partnership sold all of its assets at

fair market value. New section 864(c)(8) applies to sales, exchanges, or other

dispositions occurring on or after November 27, 2017. See Revenue Ruling 91-

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32, 1991-1 C.B. 107, for the IRS’s position with respect to sales, exchanges, or

other dispositions of an interest in a partnership occurring before November 27,

2017

onnected gain or loss had the partnership sold all of its assets at

fair market value. New section 864(c)(8) applies to sales, exchanges, or other

dispositions occurring on or after November 27, 2017. See Revenue Ruling 91-

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32, 1991-1 C.B. 107, for the IRS’s position with respect to sales, exchanges, or

other dispositions of an interest in a partnership occurring before November 27,

2017.

In general, new section 1446(f)(1) provides that if any portion of the gain

on any disposition of an interest in a partnership would be treated under new

section 864(c)(8) as effectively connected with the conduct of a trade or business

within the United States (“effectively connected gain”), then the transferee must

withhold a tax equal to 10 percent of the amount realized on the disposition.

Under an exception in new section 1446(f)(2), however, withholding is generally

not required if the transferor furnishes an affidavit to the transferee stating,

among other things, that the transferor is not a foreign person.

New section 1446(f)(6) authorizes the Secretary to issue such regulations

or other guidance as may be necessary to carry out the purposes of new section

1446(f), including regulations providing for exceptions from the provisions of new

section 1446(f). Furthermore, new section 1446(g) authorizes regulations that

are necessary to carry out the purposes of new section 1446 generally, including

regulations providing for the application of new section 1446 in the case of

publicly traded partnerships. New section 1446(f) applies to sales, exchanges, or

other dispositions occurring after December 31, 2017.

SECTION 3. TIMING OF APPLICATION OF NEW SECTION 1446(f) TO

DISPOSITIONS OF CERTAIN PUBLICLY TRADED PARTNERSHIP

INTERESTS

Stakeholders have indicated that, in the case of a disposition of a publicly

traded partnership interest, applying new section 1446(f) without guidance

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presents significant practical problems

, exchanges, or

other dispositions occurring after December 31, 2017.

SECTION 3. TIMING OF APPLICATION OF NEW SECTION 1446(f) TO

DISPOSITIONS OF CERTAIN PUBLICLY TRADED PARTNERSHIP

INTERESTS

Stakeholders have indicated that, in the case of a disposition of a publicly

traded partnership interest, applying new section 1446(f) without guidance

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presents significant practical problems. For example, stakeholders stated that a

transferee of an interest in a publicly traded partnership typically will not be able

to determine whether the transferor partner is foreign or domestic or whether any

portion of a transferor partner’s gain would be treated under new section

864(c)(8) as effectively connected gain. This may be the case because publicly

traded partnership interests are generally held in street name by a broker and

transferred through a clearinghouse. Moreover, a particular sale may be

aggregated with other sales and purchases of partnership interests by other

customers of the same broker. As a result, it may be difficult for a transferee to

determine whether it must withhold under new section 1446(f). Furthermore,

although the Conference Report suggests the Treasury Department and the IRS

provide guidance providing that in the case of a publicly traded partnership

interest sold by a foreign partner through a broker, the broker may deduct and

withhold on behalf of the transferee, H.R. Rep. No. 115-466, at 511 (2017), until

guidance is provided and new withholding and reporting systems are developed,

it would not be possible for brokers to perform any such withholding

nd the IRS

provide guidance providing that in the case of a publicly traded partnership

interest sold by a foreign partner through a broker, the broker may deduct and

withhold on behalf of the transferee, H.R. Rep. No. 115-466, at 511 (2017), until

guidance is provided and new withholding and reporting systems are developed,

it would not be possible for brokers to perform any such withholding.

In consideration of these concerns and others raised by stakeholders, and

to allow for an orderly implementation of the requirements of new section 1446(f),

the Treasury Department and the IRS have determined that withholding under

new section 1446(f) should not be required with respect to any disposition of an

interest in a publicly traded partnership (within the meaning of section 7704(b))

until regulations or other guidance have been issued under new section 1446(f).

This temporary suspension is limited to dispositions of interests that are publicly

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traded and does not extend to non-publicly traded interests. The Treasury

Department and the IRS intend to issue future regulations or other guidance on

how to withhold, deposit, and report the tax withheld under new section 1446(f)

with respect to a disposition of an interest in a publicly traded partnership. Future

guidance under new section 1446(f) with respect to a disposition of an interest in

a publicly traded partnership will be prospective and will include transition rules to

allow sufficient time to prepare systems and processes for compliance.

The rules described in this notice suspending withholding under new

section 1446(f) do not extend to new section 864(c)(8), which remains applicable.

SECTION 4. REQUEST FOR COMMENTS AND CONTACT INFORMATION

The Treasury Department and the IRS request comments on the rules to

be issued under new section 1446(f)

rules to

allow sufficient time to prepare systems and processes for compliance.

The rules described in this notice suspending withholding under new

section 1446(f) do not extend to new section 864(c)(8), which remains applicable.

SECTION 4. REQUEST FOR COMMENTS AND CONTACT INFORMATION

The Treasury Department and the IRS request comments on the rules to

be issued under new section 1446(f). Comments are specifically requested

regarding: (i) the application of new section 1446(f) to interests in publicly traded

partnerships, including the role of brokers in collecting the tax; (ii) rules for

determining the amount realized taking into account section 752(d); and (iii)

procedures for requesting a reduced amount required to be withheld, including

how to determine an appropriate reduced amount and whether such procedures

should be automatic or require approval by the IRS. The Treasury Department

and the IRS also request comments on whether a temporary suspension of new

section 1446(f) for partnership interests that are not publicly traded partnership

interests is needed and what additional guidance, or forms and instructions, may

be needed to assist taxpayers in applying new sections 864(c)(8) and 1446(f).

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Written comments may be submitted to the Office of Associate Chief

Counsel (International), Attention: Ronald M. Gootzeit, Internal Revenue Service,

IR-4569B, 1111 Constitution Avenue, NW, Washington, DC 20224. Alternatively,

taxpayers may submit comments electronically to

Notice.comments@irscounsel.treas.gov. Comments will be available for public

inspection and copying.

The principal author of this notice is Mr. Gootzeit of the Office of Associate

Chief Counsel (International). For further information regarding this notice,

contact Mr. Gootzeit at (202) 317-6937 (not a toll free call).