IRS Issues Final Regulations On Transfers Of Partnership Interests

On September 21, 2020, the IRS and Treasury Department released final regulations under sections 864(c)(8) and 1446(f) of the tax code. These regulations finalize proposed regulations issued on May 7, 2019 (see our previous discussion here). Section 864(c)(8) taxes foreign partners on certain gain realized from the sale or redemption of an interest in a partnership that is engaged in a U.S. trade or business. The amount of gain subject to U.S. tax is based on the proportion of the foreign partner's gain that would have been subject to U.S. tax if the partnership had first sold all of its assets. The tax is enforced through the withholding provisions of section 1446(f), which generally require the purchaser of the partnership interest to withhold from the gross sale proceeds at a rate of 10%.