(a) Partnership's obligation to withhold amounts not withheld by the transferee—(1) In general. If a transferee fails to withhold any amount required to be withheld under § 1.1446(f)-2, the partnership in which the interest was transferred must withhold from any distributions with respect to the transferred interest pursuant to this section. To determine its withholding obligation under this paragraph (a)(1), a partnership may rely on a certification received from the transferee described in § 1.1446(f)-2(d)(2) unless it knows, or has reason to know, that the certification is incorrect or unreliable. A partnership that already possesses a certification of non-foreign status (including a Form W-9) for the transferor that meets the requirements provided in § 1.1446(f)-2(b)(2) may instead rely on this certification to determine that it has no withholding obligation under this paragraph (a)(1) unless it knows, or has reason to know, that the certification is incorrect or unreliable. A partnership that receives a certification described in § 1.1446(f)-2(d)(2) that is inconsistent with the information on the certification of non-foreign status in its possession is treated as having actual knowledge, or reason to know, that the certification of non-foreign status is incorrect or unreliable.

(2) Notification by IRS. A partnership that receives notification from the IRS that a transferee has provided incorrect information regarding the amount realized or amount withheld on the certification described in § 1.1446(f)-2(d)(2), or has failed to pay the IRS the amount reported as withheld on the certification, must withhold the amount prescribed in the notification on distributions with respect to the transferred interest made on or after the date that is 15 days after it receives the notification. The IRS will not issue a notification on the basis that the amount realized on the certification described in § 1.446(f)-2(d)(2) is incorrect if it determines that the transferee properly relied on a certification that included the incorrect information to compute the amount realized pursuant to § 1.1446(f)-2(c)(2).

(3) Subsequent transferees. A partnership is not required to withhold under paragraph (a)(1) or (2) of this section on distributions that are made after the date on which the transferee disposes of the transferred interest, unless the partnership has actual knowledge that any person that acquires the transferee's interest in the partnership is a related person, i.e., a person that bears a relationship described in section 267(b) or 707(b)(1) with respect to the transferee or the transferor from which the transferee acquired the interest. A related person that acquires the transferee's interest is treated as liable for tax under section 1461 to the same extent that the transferee is liable for its failure to withhold under § 1.1446(f)-2.

(b) Exceptions to withholding—(1) Withholding has been satisfied by transferee. A partnership is not required to withhold under paragraph (a)(1) of this section if it relies on a certification described in § 1.1446(f)-2(d)(2) received from the transferee (within the time prescribed in § 1.1446(f)-2(d)(2)) that states that an exception to withholding described in § 1.1446(f)-2(b) applies or that the transferee withheld the full amount required to be withheld (taking into account any adjustments under § 1.1446(f)-2(c)) under § 1.1446(f)-2.

(2) PTP interests. A partnership is not required to withhold under this section on distributions made with respect to a PTP interest.

(3) Distributing partnerships. A partnership that is a transferee because it makes a distribution is not required to withhold under this section.

(c) Withholding rules—(1) Timing of withholding—(i) In general. A partnership required to withhold under paragraph (a)(1) of this section must withhold on distributions made with respect to a transferred interest beginning on the later of—

(A) The date that is 30 days after the date of transfer; or

(B) The date that is 15 days after the date on which the partnership acquires actual knowledge that the transfer has occurred.

(ii) Satisfaction of withholding obligation. A partnership is treated as satisfying its withholding obligation under paragraph (a)(1) of this section and may stop withholding on distributions with respect to a transferred interest on the earlier of—

(A) The date on which the partnership completes withholding and paying the amount required to be withheld under paragraph (c)(2) of this section; or

(B) The date on which the partnership receives and may rely on a certification from the transferee described in § 1.1446(f)-2(d)(2) (without regard to whether the certification is received by the time prescribed in § 1.1446(f)-2(d)(2)) that claims an exception to withholding under § 1.1446(f)-2(b).

(2) Amount to withhold—(i) In general. A partnership required to withhold under paragraph (a)(1) of this section must withhold the full amount of each distribution made with respect to the transferred interest until it has withheld—

(A) A tax of 10 percent of the amount realized (determined solely under § 1.1446(f)-2(c)(2)(i)) on the transfer, reduced by any amount withheld by the transferee; plus

(B) Any interest computed under paragraph (c)(2)(ii) of this section.

(ii) Computation of interest. The amount of interest required to be withheld under paragraph (a)(1) of this section is the amount of interest that would be required to be paid under section 6601 and § 301.6601-1 of this chapter if the amount that should have been withheld by the transferee was considered an underpayment of tax. For purposes of this paragraph (c)(2)(ii), interest is payable between the date that is 20 days after the date of the transfer and the date on which the tax due under paragraph (a)(1) of this section is paid to the IRS.

(iii) Certifications required. For purposes of paragraph (c)(2)(i)(A) of this section, a partnership must determine the amount realized on the transfer and any amount withheld by the transferee based on a certification from the transferee described in § 1.1446(f)-2(d)(2), without regard to whether the certification is received by the time prescribed in § 1.1446(f)-2(d)(2). A partnership that does not receive or cannot rely on a certification from the transferee described in § 1.1446(f)-2(d)(2) must withhold tax equal to the full amount of each distribution made with respect to a transferred interest until it receives a certification that it can rely on.

(3) Coordination with other withholding provisions. Any amount required to be withheld on a distribution under any other provision of the Internal Revenue Code is not also required to be withheld under section 1446(f)(4) or this section.

(d) Reporting and paying withheld amounts. The partnership must report and pay the tax withheld using Forms 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests, and 8288-C, Statement of Withholding Under Section 1446(f)(4) for Withholding on Dispositions by Foreign Persons of Partnership Interests, as provided in forms, instructions, or other guidance.

(e) Effect of withholding on transferor and transferee—(1) Transferor. The withholding of tax by a partnership under this section does not relieve a foreign person from filing a U.S. income tax return with respect to the transfer. See §§ 1.6012-1(b)(1), 1.6012-2(g)(1), and 1.6031(a)-1. Further, the withholding of tax by a partnership does not relieve a nonresident alien individual or foreign corporation subject to tax on gain by reason of section 864(c)(8) from paying any tax due with the return that has not been fully satisfied through withholding. An individual or corporation is not allowed a credit under section 33 for amounts withheld on distributions to the transferee under this section. See, however, §§ 1.1446(f)-5(a) and 1.1463-1(a), which generally provide that tax will not be recollected if paid by another person.

(2) Transferee. A transferee is treated as satisfying its withholding tax liability under § 1.1446(f)-2 to the extent that a partnership withholds tax (which does not include interest) under this section. Interest computed under paragraph (c)(2)(ii) of this section that is withheld by the partnership from the transferee is treated as interest paid by the transferee with respect to its withholding tax liability under § 1.1446(f)-2. An excess amount under this section is the amount of tax and interest withheld under this section that exceeds the transferee's withholding tax liability under § 1.1446(f)-2 plus any interest owed by the transferee with respect to such liability. A transferee may claim a refund for the excess amount if payments have been made in excess of the tax which is properly due by the transferee for the tax period.

(f) Applicability date. This section applies to transfers that occur on or after January 1, 2022.

[T.D. 9926, 85 FR 76935, Nov. 30, 2020]