The Firm's article, "Reporting Transfers of Partnership Interests Subject to Section 1446(f)", is slated for publication in the March/April 2020 issue of the Journal of Corporate Taxation. The article provides an extensive analysis of reporting, notice and record-keeping requirements and associated penalties under the United States Internal Revenue Code of 1986, as amended (the "Code"), applcable to sales or redemptions of partnership interests owned directly or indirectly by nonresident alients or foreign corporations. Treasury and the IRS issued on May 13, 2019 proposed regulations interpreting the new withholding tax rules under Code section 1446(f), which imposes generally a withholding tax of ten percent of an amount realized from a sale of a foreign partnership interest, subject to certain limitations and exceptions.
The penalties under the Code for failure to report, notify or retain records in connection with a transfer of a foreign partnership interest apply to transferors, transferees, partnerships, partners, brokers and agents. Buyers and sellers of either publicly traded or privately held partnership interests must comply with the new withholding obligations. However, penalties for failure to comply with disclosure, notice or record retention procedures with respect to withholding were designed to apply outside Code section 1446(f). The article recommends, among other things, that Treasury and the IRS, in final regulations, reconcile or clarify numerous provisions in the Code and Treasury regulations in the context of the new withholding regime to assist partners, partnerships, brokers and agents in avoiding potential liabiity on transfers of partnership interests subject to Section 1446(f).