CLIENT REPORT:

Final and Temporary Regulations Issued for Partnerships with Foreign Partners

Dear Client:

The IRS has issued final and temporary regulations that affect partnerships that have one or more foreign partners. If you have one or more foreign partners, I wish to inform you of these regulations.

The final regulations provide guidance for partnerships required to pay withholding tax. As you have paid withholding tax in the past, these final regulations may apply to you. You are now permitted to consider the character of income or gain allocable to a foreign partner, and then pay the tax at the highest rate applicable to the type of income or gain allocable to the foreign partner. Further, you are now prohibited from using a preferential rate in computing the tax on income or gain allocable to a foreign partner in certain circumstances.

In addition, the final regulations contain two exceptions to the requirement that you notify a foreign partner that pays the tax on behalf of that partner when a payment of tax has been made. The temporary regulation focuses on when a partnership may take partner-level deductions and losses in computing its withholding tax obligation with respect to a foreign partner's allocable share of effectively connected taxable income.

If you have any questions about these final and temporary regulations affecting foreign partners, please contact my office at your earliest convenience.

Sincerely yours,

Julie M. Straw, CPA

Reproduced with permission from CCH’s Client Letter, published and copyrighted by CCH Incorporated, 2700 Lake Cook Road, Riverwoods, IL 60015.