On May 13, 2005, the Treasury Department issued final and temporary regulations (T.D. 9200) and proposed regulations (REG-108524-00) as guidance on the withholding tax obligation – under section 1446 – of partnerships that are engaged in a U.S. trade or business and have one or more foreign partners.
A foreign person that conducts a trade or business in the United States generally is subject to U.S. tax on the income that is effectively connected with that trade or business. Similar rules apply to income earned by a foreign person through a partnership that is engaged in a U.S. trade or business.
A partnership that is engaged in a U.S. trade or business is required to withhold and pay over tax to the extent that its net income that is effectively connected with its U.S. trade or business is allocable to a foreign partner. The amount of the tax due generally is computed by applying the foreign partner’s highest marginal income tax rate to the amount of the partnership's effectively
