Guidance On Withholding On US Partnership Interest's Sale

The Treasury department and the IRS issued Notice 2018-29 on April 2, 2018 (following closely the publication of "US Partnership Interest Sale Triggers 10 Percent Withholding," Canadian Tax Highlights, February 2018). The notice makes three exceptions to the withholding requirement.

The recent Tax Cuts and Jobs Act (US tax reform) added Code sections 864(c)(8) and 1446(f). The former deems the gain or loss from the exchange or disposition of a private US partnership interest to be effectively connected with a US trade or business if the sale of all partnership assets at FMV would be deemed effectively connected income (ECI); the latter imposes a 10 percent withholding on the amount realized on the gain of a private partnership interest if such gain is deemed ECI under section 864(c)(8). Withholding is not required if the transferor is not a non-US person under section 1446(f)(2). If a transferee fails to withhold as section 1446(f) requires, the partnership