Treasury and the IRS released on October 7 Final Regulations (the Final Regulations) under Sections 1446(f) and 864(c)(8). Section 1446(f), added to the Code by the 2017 tax reform legislation, provides rules for withholding on the transfer or disposition of a partnership interest. Proposed Regulations were issued in May 2019, which laid the framework for guidance on withholding and reporting obligations under Section 1446(f) (the Proposed Regulations). The Proposed Regulations also addressed information reporting under Section 864(c)(8); these rules were finalized in September 2020. The Final Regulations retain the basic structure and guidance of the Proposed Regulations, but with various modifications.
The Final Regulations apply to both publicly traded partnerships (PTPs) and private partnerships. This insight summarizes some of the changes applicable to PTPs but primarily focuses on private partnerships. A separate detailed Insight will be circulated with respect to PTPs.
The Final Regulation package retains the basic approach and structure of the Proposed Regulations, with some modifications. Taxpayers (particularly minority partners and taxpayers in tiered structures) who are intending to either eliminate or reduce the withholding tax should be mindful of the time restrictions in order to be compliant with a reduction or elimination of withholding and the potential difficulty in obtaining information from a partnership and should plan accordingly.