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September 21, 2020

BREAKING TAX NEWS | Final Treasury regulations under IRC Section 864(c)(8) address US tax consequences of a foreign partner's transfer of a partnership interest

Today, the Treasury Department released final regulations (TD 9919) (the Final Regulations) under IRC Section 864(c)(8) on the treatment of a foreign partner's transfer of an interest in a partnership that is engaged in the conduct of a trade or business within the United States. The Final Regulations largely adopt proposed regulations that were issued on December 20, 2018 (REG-113604-08) (the Proposed Regulations), with some technical changes.

In particular, the Final Regulations:

  • Limit the extent to which certain property held by a partnership is deemed to give rise to US-source income or loss, which may decrease the extent to which gain or loss on the transfer of a partnership interest would be treated as effectively connected with the conduct of a US trade or business (ECI)
  • Coordinate the interaction of IRC Section 864(c)(8) and US income tax treaties, including by clarifying that (i) the transfer of an interest in a partnership without a permanent establishment in the United States (US PE) may be exempt under IRC Section 864(c)(8), and (ii) partnership assets that do not form part of a US PE are generally not taken into account in determining gain or loss under IRC Section 864(c)(8)
  • Clarify that the transfer of a partnership interest in a nonrecognition transaction may nonetheless be subject to tax under IRC Section 897(g) if the partnership holds one or more US real property interests

The Final Regulations apply to transfers occurring on or after December 26, 2018.

A more detailed Tax Alert on the Final Regulations is forthcoming.