IRS Issues Proposed Regulations on Withholding Dispositions of Partnership Interests (IRC 1146(f))

On May 7, 2019, the IRS released proposed regulations dealing with withholding under IRC Sec. 1446(f) “Special Rules for Withholding on Dispositions of Partnership Interests.” The proposed regulations generally follow the guidance provided in Notice 2018-29, with certain modifications. In addition, the proposed regulations address withholding on transfers of interests in publicly traded partnerships. The IRS had previously suspended the application of the withholding rules to publicly traded partnerships in Notice 2018-8.

Treasury Regulation Sec. 1.1446(f)-2 provides withholding rules for the transfer of a non-publicly traded partnership interest under IRC Sec. 1446(f)(1). Treasury Regulation Sec. 1.1446(f)-3 provides rules that apply when a partnership is required to withhold under IRC Sec. 1446(f)(4) on distributions made to the transferee in an amount equal to the amount that the transferee failed to withhold plus interest. Treasury Regulation Sec. 1.1446(f)-4 provides special rules for the sale, exchange or disposition of publicly traded partnership interests for which the withholding obligation under IRC Sec. 1446(f)(1) is generally imposed on certain brokers that act on behalf of the transferor. Treasury Regulation Sec. 1.1446(f)-5 provides rules that address the liability for failure to withhold under IRC Sec. 1446(f) and rules regarding the liability of a transferor’s or transferee’s agent.

EisnerAmper will provide a more detailed analysis of the proposed regulations in the coming weeks.