New Guidance on Withholding on Sales of Partnership Interests

4 April 2018
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Key takeaways:
  • The IRS issued a Notice providing interim guidance on the withholding on the sale of nonpublicly traded partnership interests by foreign sellers. U.S. sellers will be able to avoid withholding by providing a W-9 or a certificate of nonforeign status (similar to those used for FIRPTA).
  • The IRS will also exempt withholding on a foreign seller (with valid certification) where (i) the seller’s share of ECI for last three years is below 25%, (ii) less than 25% of the partnership’s built-in gain is ECI, (iii) the seller does not realize any gain on the sale or (iv) the transfer is a nonrecognition transaction.
  • The Notice provides guidance on how to calculate a partner’s share of partnership liabilities in order to determine the amount realized subject to withholding.
  •  The Notice suspends the partnership’s secondary liability to withhold if the buyer fails to do so.