US IRS extends applicability date for withholding on certain transfers and distributions related to publicly traded partnership interests to 1 January 2023

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EY Global

27 Aug 2021
Subject Tax Alert
Categories Corporate Tax
Jurisdictions United States

The United States (US) Internal Revenue Service (IRS) announced in Notice 2021-51 (pdf) that it will amend the regulations under Internal Revenue Code1 Section 1446(a) and Section 1446(f) to defer the applicability date of certain provisions by one year to 1 January 2023. The affected provisions relate to withholding: (i) on transfers of interests in publicly traded partnerships (PTPs); (ii) on distributions made with respect to PTP interests; and (iii) by non-publicly traded partnerships on distributions to transferees who failed to withhold properly.

Taxpayers may rely on the modified applicability dates immediately.


Section 864(c)(8) treats gain or loss from the disposition of an interest in a partnership that is engaged in a US trade or business by a nonresident alien individual or foreign corporation as effectively connected with the conduct of that US trade or business to the extent the gain or loss is allocable to the partnership's US business assets.

Section 1446(f) is a collection mechanism for Section 864(c)(8). It generally requires transferees purchasing interests in such partnerships from non-US transferors to deduct and withhold a 10% tax from the amount realized. The regulations on transfers of PTP interests require the tax to be withheld by the transferor's broker. Section 1446(f)(4) requires partnerships to withhold tax from future distributions (backstop withholding) to transferees that were required to withhold tax on the amount realized by the non-US transferor but failed to withhold all the tax due. Backstop withholding continues until the amount not withheld, plus interest, is recovered.

The IRS released final regulations TD 9926 (pdf) under Section 1446(f) in October 2020 (see EY Global Tax Alert, US: Final regulations under Section 1446(f) set forth rules on withholding on transfers of partnership interests, dated 27 October 2020). The regulations were supposed to apply to withholding on certain transfers and distributions on and after 1 January 2022. The IRS said it received comments that taxpayers face significant challenges to comply by that date.

Dates extended

In response to the comments, the IRS intends to amend the regulations to extend the applicability date for the following provisions:

  • Withholding and reporting on transfers of PTP interests under Section 1446(f)(1) that occur on or after 1 January 2023 (Treas. Reg. Section 1.1446(f)-4(f))
  • Distributions with respect to PTP interests that occur on or after 1 January 2023 (Treas. Reg. Section 1.1446-4 (as listed in Treas. Reg. Section 1.1446-7))
  • Requiring partnerships to withhold under Section 1446(f)(4) on transfers that occur on or after 1 January 2023 (Treas. Reg. Section 1.1446(f)-3(f))


The securities industry has consistently told the Government that it needs about 18 months to implement a complicated new regime, but it was only given about 15 months from the release of the regulations in October 2020 to the previous effective date of 1 January 2022. There are many unique challenges in implementing Section 1446(f) on PTP interest transfers, and the industry can put the additional time to good use.

The extension buys critical time for the IRS to complete additional guidance and for the industry to incorporate that guidance into its procedures. For example, revisions to Forms W-8, particularly Forms W-8IMY and W-8ECI, and updates to Form 1042-S and its instructions, are still needed to fully implement PTP withholding. In addition, the IRS is still revising the Qualified Intermediary Agreement, which allows foreign withholding agents to opt into special documentation and reporting rules, to incorporate Section 1446 withholding for the first time.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), Financial Services Office
  • Tara Ferris, Hoboken 
  • Jonathan Jackel, Washington, DC 

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.