IRC Section 1446: A complete guide to partnership withholding tax for foreign partners
Under IRC Section 1446, a US partnership that has foreign partners must withhold and pay tax on each foreign partner’s allocable share of effectively connected taxable income each year.
IRC 1446 has two main pillars. Section 1446(a) requires a US partnership to withhold tax on income it earns that is effectively connected with a US trade or business and allocable to its foreign partners. Section 1446(f), added by the Tax Cuts and Jobs Act in 2017, requires the buyer of a partnership interest held by a foreign person to withhold tax on the amount realized in the transfer.
The partnership reports and pays this tax using Forms 8804, 8805, and 8813. The foreign partner then claims the withheld amount as a credit on their own US tax return – Form 1040-NR for nonresident alien individuals or Form 1120-F for foreign corporations.
What is IRC Section 1446? A plain-English overview
Section 1446 withholding is a federal tax collection mechanism that shifts the responsibility for paying US tax from the foreign partner to the partnership itself. The partnership acts as the withholding agent.
A foreign partner earning US business income through a partnership has a US tax obligation on that income.
Because the IRS has limited ability to collect directly from a person outside the US, the law requires the partnership to withhold the tax at the source and remit it to the Treasury.
This withholding applies whether or not the partnership actually distributes cash to the foreign partner during the year. The obligation is triggered by the allocation of income, not by the payment of a distribution.
The two subsections work differently. Section 1446(a) applies to ongoing partnership operations – the annual allocation of effectively connected taxable income to foreign partners.
IRS data from Form 8805 filings shows that thousands of US partnerships report ECTI allocations to foreign partners each year.
Section 1446(f) applies to a one-time event – the sale or exchange of a partnership interest by a foreign person.
US partnerships with foreign partners should also understand the broader tax implications of foreign partnership structures, including Form 1065 filing and Schedule K-1 allocations.
Section 1446(a): Withholding on foreign partners’ share of ECTI
A US partnership must withhold tax on every foreign partner’s allocable share of ECTI, regardless of whether any actual distribution is made.
Section 1446 withholding under subsection (a) follows a four-step process:
- Determine each foreign partner’s distributive share of effectively connected taxable income using the partnership agreement and Schedule K-1 allocations.
- Apply the applicable withholding rate – 37% for noncorporate foreign partners or 21% for foreign corporate partners (tax year 2025).
- Calculate the quarterly installment due and remit it to the IRS using Form 8813, Partnership Withholding Tax Payment Voucher.
- File the annual return on Form 8804 and furnish Form 8805 to each foreign partner by the partnership return due date, including extensions.
The withholding rate for foreign corporate partners differs from the rate for nonresident alien individuals because each rate tracks the highest US tax rate applicable to that category of taxpayer.
The IRS requires any US partnership that allocates ECTI to at least one foreign partner to withhold – the rules apply equally to small partnerships and large ones.
Partnerships that qualify as withholding foreign partnerships follow a separate regime covered later in this guide.
These rules exist separately from the Chapter 3 withholding on FDAP income under IRC Sections 1441–1443.
A partnership with foreign partners receives no tax holiday from its Section 1446 obligations.
The withholding duty applies every year there is ECTI allocable to a foreign partner.
Who qualifies as a foreign partner under Section 1446?
A partner is treated as foreign for Section 1446 purposes if they are not a US person as defined under IRC Section 7701(a)(30).
The following categories of partners are treated as foreign:
- Nonresident alien individuals – persons who are neither US citizens nor US resident aliens under the substantial presence or green card tests.
- Foreign corporations – entities organized outside the US that are not treated as domestic corporations.
- Foreign partnerships, foreign trusts, and foreign estates – these may also be treated as foreign partners when they hold an interest in a US partnership.
The partnership must obtain documentation to establish each partner’s status. For entity partners, this is typically Form W-8BEN-E or another applicable W-8 series form.
For individual partners, Form W-8BEN applies.
If a partner does not provide documentation, the partnership must treat that partner as foreign and withhold at the applicable rate. This default rule protects the Treasury from under-withholding when foreign partner withholding status cannot be verified.
US partners provide Form W-9 to confirm their domestic status. The W-8 series forms used by foreign partners are part of a broader set of common international tax and withholding forms that partnerships must manage alongside their Section 1446 obligations.
Effectively connected taxable income (ECTI): The withholding base
ECTI is the partnership’s effectively connected taxable income allocable to foreign partners, computed with certain adjustments that differ from the partnership’s book income.
Under Sec. 1446, the withholding base is not the partnership’s total income. It is the portion of income that is effectively connected with a US trade or business and allocable to foreign partners specifically.
ECTI generally includes:
- US-source business income from the partnership’s trade or business activities
- Gain from the sale of assets used in a US trade or business
- Rental income from US real property if a net election under IRC Section 871(d) (for nonresident alien individual partners) or Section 882(d) (for foreign corporate partners) applies
ECTI generally excludes:
- FDAP income already subject to Chapter 3 withholding under IRC Sections 1441–1443, such as portfolio interest, certain dividends, and royalties
- Income that is not effectively connected with a US trade or business
The partnership may reduce ECTI by the foreign partner’s share of partnership deductions, losses, and credits as permitted under the regulations.
The computation requires careful attention to when income is recognized.
Partners with income from multiple jurisdictions should understand how reporting timing for foreign income affects the US return.
The same principles apply to ECTI calculations at the partnership level.
The IRS defines ECTI and related partnership withholding terms in ways that differ from standard financial accounting – partnerships should not assume book income equals ECTI.
Withholding rates under Section 1446(a)
The Section 1446(a) withholding rate is not a flat rate – it tracks the highest US tax rate applicable to the type of foreign partner, which means corporate and individual foreign partners face different withholding percentages.
The 1446 tax rate depends on the classification of the foreign partner:
| Partner type | Withholding rate (tax year 2025) | Basis |
|---|---|---|
| Nonresident alien individual | 37% | Highest individual income tax rate |
| Foreign corporation | 21% | Corporate income tax rate |
| Certain capital gains allocated to individuals | 20% | Maximum capital gains rate |
These rates apply to the foreign partner’s allocable share of ECTI. The partnership applies the rate that corresponds to the partner type when calculating each quarterly installment on Form 8813.
If a foreign partner has income taxed at different rates – for example, a mix of ordinary business income and long-term capital gains – the partnership applies the applicable rate to each category separately, as reported on Form 8804.
Noncorporate foreign partners may also owe 1446 tax at 25% on unrecaptured section 1250 gain or 28% on 28%-rate gain (such as collectibles), per Form 8804.
Forms required for Section 1446(a) compliance: 8804, 8805, and 8813
A US partnership with foreign partners must file Form 8804 and furnish Form 8805 to each foreign partner by the same deadline as the partnership return, including extensions.
There is no “Form 1446” in the IRS system. Taxpayers searching for Form 1446 instructions should look to the instructions for Forms 8804, 8805, and 8813 instead – these are the three forms that carry out the Section 1446 compliance process.
Similarly, searching for Form 1446 IRS will not return a result. The IRS handles Section 1446 reporting entirely through the 8804 series:
- Form 8804 – Annual return of partnership withholding tax. This is the partnership’s annual Section 1446 return. It reports the total withholding tax liability for the year, any installment payments already made via Form 8813, and the balance due. Filed with the IRS by the partnership return due date.
- Form 8805 – Foreign partner’s information statement of Section 1446 withholding tax. One Form 8805 is prepared for each foreign partner. It shows the partner’s allocable share of ECTI and the amount of Section 1446 tax withheld. A copy goes to the foreign partner, a copy is attached to Form 8804, and the foreign partner attaches their copy to their own US tax return to claim the withholding credit.
- Form 8813 – Partnership withholding tax payment voucher. Used to remit quarterly installment payments to the Treasury during the partnership’s tax year. Due dates for a calendar-year partnership are April 15, June 15, September 15, and December 15.
Section 1446(f): Withholding on transfers of partnership interests
Under Section 1446(f), added by Section 13501 of the Tax Cuts and Jobs Act, the buyer of a partnership interest held by a foreign person must withhold 10% of the amount realized on the transfer.
IRC 1446(f) created a new withholding obligation that is separate from the annual ECTI withholding under Section 1446(a).
Under Section 1446(f), when a foreign person sells or exchanges a partnership interest, the buyer is generally required to withhold on the amount realized – not just the gain.
Three parties have defined roles in a Section 1446(f) transaction:
- Transferee – the buyer or acquiring party, who serves as the withholding agent and must withhold 10% of the amount realized.
- Transferor – the foreign seller, whose disposition triggers the withholding.
- The partnership itself – which has a backup withholding obligation. If the transferee fails to withhold, the partnership must deduct and withhold from future distributions to that transferee, plus interest.
This backup obligation gives partnerships a direct interest in confirming that transferees comply.
The IRS issued initial guidance on Section 1446(f) in Notice 2018-29, followed by final regulations in Treasury Decision 9926 (T.D. 9926), published November 30, 2020.
Partnerships involved in cross-border transfers should also understand the related Section 367 foreign transfer rules that may apply when property moves between US and foreign entities.
Section 1446(f) withholding rate and the amount realized
The Section 1446(f) withholding rate applies to the full amount realized – not just the taxable gain – which can result in withholding that exceeds the seller’s actual tax liability.
The amount realized includes:
- Cash received by the foreign transferor
- The fair market value of any other property received
- Any liabilities of the transferor assumed by the transferee
For example, if a foreign partner sells a partnership interest for $500,000 in cash and the transferee assumes $200,000 of the partner’s share of partnership liabilities, the amount realized is $700,000. The withholding amount would be $70,000 – 10% of $700,000 – regardless of the actual gain.
Publicly traded partnerships (PTPs) and Section 1446 special rules
For publicly traded partnerships, the withholding obligation under Section 1446 shifts from the partnership itself to the broker or nominee that makes distributions to foreign partners.
The taxation of publicly traded partnerships under Section 1446 follows a separate withholding regime with distinct rules:
- Brokers and nominees that hold PTP interests on behalf of foreign persons are responsible for withholding on distributions attributable to ECTI.
- The withholding rates remain the same – 37% for noncorporate foreign partners and 21% for corporate foreign partners.
- PTP withholding is reported on Form 1042 and Form 1042-S – not on the 8804 series. Form 1042 is the broker’s or nominee’s annual withholding return; Form 1042-S is the information statement furnished to the foreign partner. Under Reg. § 1.1446-4, this reporting system is mandatory for publicly traded partnerships (as defined under IRC § 7704) – there is no option to use Form 8804 or Form 8805 instead.
- For transfers of PTP interests, Section 1446(f) withholding is handled by the broker, not the transferee directly. The broker withholds 10% of the amount realized.
These rules reflect the reality that PTP interests trade on public exchanges, where the partnership itself has no direct relationship with the individual investor. The broker acts as intermediary for both distributions and dispositions.
PTP distributions attributable to ECTI are withheld at the rates applicable to publicly traded partnerships under the same statutory framework.
Special rules apply for tiered partnerships and nominees.
Exceptions and exemptions from Section 1446 withholding
A foreign partner can reduce Section 1446 withholding tax below the standard rate by filing Form 8804-C with the partnership, certifying that their deductions and losses will offset their ECTI allocation.
The following exceptions may reduce or eliminate the withholding obligation:
- No ECTI allocable to foreign partners. If the partnership has no effectively connected taxable income – or none allocable to its foreign partners – no withholding is required.
- Form 8804-C certification. A foreign partner certifies that partner-level deductions and losses will reduce or eliminate the ECTI allocation. The partnership must retain the form and cannot rely on it if it has actual knowledge the certification is incorrect.
- IRS withholding certificate. The foreign partner or partnership obtains a certificate from the IRS authorizing reduced withholding. This is more common in Section 1446(f) transfer situations.
- De minimis exception. A nonresident alien individual partner can certify on Form 8804-C that the partnership investment is that partner’s only activity generating effectively connected income, gain, deduction, or loss. If the partnership estimates the Section 1446 tax otherwise due for that partner at less than $1,000, no withholding is required for that partner. This exception is not available to foreign corporate partners.
None of these exceptions are automatic. Each requires documentation, and the partnership bears the risk if it relies on a certification that turns out to be incorrect.
Partnerships that face indefinite IRS audit exposure on international returns should maintain complete records of all withholding calculations.
This includes partner certifications, Form 8804-C filings, and supporting documentation for each quarterly installment calculation.
Tax treaty considerations for foreign partners
Unlike FDAP withholding, Section 1446 withholding on ECTI cannot typically be reduced by a tax treaty rate – the treaty’s business profits article generally requires a permanent establishment nexus that a partnership interest alone does not satisfy.
US tax treaties generally reduce Chapter 3 withholding rates on FDAP income – dividends, interest, royalties – paid to residents of treaty countries. IRC Section 1446 withholding on ECTI operates differently.
ECTI is treated as business income effectively connected with a US trade or business. Under most US tax treaties, the business profits article applies only when the foreign person conducts business through a permanent establishment in the US.
A partnership interest – by itself – does not create a permanent establishment in most treaty frameworks.
The result: a foreign partner’s ECTI allocation is generally subject to the full statutory withholding rate even if the partner resides in a treaty country.
Treaty benefits may apply to specific types of income within the partnership, but the overall Section 1446 withholding rate on ECTI is rarely reduced by treaty.
There are narrow exceptions. Some treaties contain specific partnership articles.
Dual-status alien filers may have different treaty positions depending on their residency status during the year.
Foreign partners should review their specific treaty before assuming any reduction applies.
Compliance deadlines and penalties under Section 1446
The deadlines for IRC 1446 withholding follow the partnership’s tax year.
The table below shows the 2026 installment and filing calendar for a calendar-year partnership – the cycle currently underway, not the tax year 2025 figures discussed above. For tax year 2025, Form 8804 and Form 8805 were due March 16, 2026, extendable to September 15, 2026.
Key dates:
| Deadline | Action | Form |
|---|---|---|
| April 15, 2026 | First quarterly installment payment | Form 8813 |
| June 15, 2026 | Second quarterly installment payment | Form 8813 |
| September 15, 2026 | Third quarterly installment payment | Form 8813 |
| December 15, 2026 | Fourth quarterly installment payment | Form 8813 |
| March 15, 2027 | Annual return due (or September 15, 2027 with extension) | Form 8804 |
| March 15, 2027 | Furnish Form 8805 to each foreign partner | Form 8805 |
Note: As of the date this article was last updated, the April 15 and June 15, 2026 installment dates have already passed for calendar-year partnerships. Partnerships that missed these deadlines should remit the amounts as soon as possible to minimize penalties and interest.
The IRC Section 1446 withholding tax penalties include:
- Failure-to-pay penalty on each missed or late installment
- Interest accruing from the installment due date
- The IRS can assess the partnership for the full amount of under-withheld tax plus interest, even if the foreign partner ultimately pays the correct tax on their own return
The partnership’s liability is independent of the foreign partner’s filing. A foreign partner who files a timely 1040-NR and pays all tax owed does not release the partnership from penalties for failing to withhold.
Partnerships with foreign partners that also hold interests in foreign trusts should be aware that separate reporting obligations under Forms 3520-A and 3520 may apply.
Relief is available for certain tax-favored trusts.
Complete documentation of withholding calculations and partner status forms reduces exposure during review.
How foreign partners file their US tax returns
The Section 1446 tax withheld by the partnership is not a final tax – foreign partners must still file a US return and can claim the withheld amount as a credit, potentially receiving a refund if over-withheld.
Under IRS Section 1446, the withholding is a prepayment of the foreign partner’s US tax liability. The foreign partner’s own filing obligations are:
- Nonresident alien individuals file Form 1040-NR, reporting their share of ECTI from the partnership. The Section 1446 tax withheld is claimed as a credit against the tax shown on the return.
- Foreign corporations file Form 1120-F, reporting their effectively connected income. The credit works the same way – the Section 1446 withholding reduces the tax owed on the return.
- Form 8805 serves as proof of withholding. The foreign partner must attach their copy of Form 8805 to their US return to claim the credit. Without it, the IRS may not process the credit.
If the partnership withheld more than the foreign partner’s actual US tax liability – because, for example, the partner had deductions that reduced taxable income below the ECTI allocation – the foreign partner receives a refund of the excess.
Foreign partners who also hold interests in controlled foreign corporations should understand the Section 962 election.
The election may affect how GILTI and Subpart F income from a CFC interacts with partnership ECTI on the partner’s US return.
Section 1446 and tiered partnership structures
A withholding foreign partnership (WP) agreement with the IRS lets a foreign partnership assume primary responsibility for Chapter 3 NRA withholding – the 30% withholding on FDAP income such as interest, dividends, and royalties – for its own partners. It does not relieve a US partnership of its Section 1446 withholding obligation on ECTI.
Section 1446 ECTI withholding responsibility shifts within a tiered partnership structure through a separate mechanism: the upper-tier partnership look-through rules in Treasury Regulation Section 1.1446-5.
Under these rules, ECTI allocable to the upper-tier partnership can be treated as allocable directly to its underlying partners – allowing the lower-tier partnership to withhold at each partner’s applicable rate rather than a single blended rate.
The key conditions for this look-through treatment:
- The upper-tier partnership provides a Form W-8IMY – used here for Section 1446 purposes, not the WP agreement – along with documentation identifying its own partners.
- The lower-tier partnership must be able to reliably associate the ECTI with the upper-tier partnership’s underlying partners.
- Without adequate documentation, the lower-tier partnership treats the upper-tier partnership itself as the foreign partner and withholds at the highest applicable rate.
Partnerships that hold interests through foreign disregarded entities should not confuse this look-through treatment with the Form 8858 reporting requirement – they serve different purposes.
Practical tips for US partnerships with foreign partners
Based on a common TFX client scenario, partnerships that fail to collect W-8 documentation at onboarding often discover the oversight only at year-end, when correcting it requires amended installment payments and potential penalty exposure.
The following four practices help partnerships stay ahead of their IRS Code Section 1446 obligations:
Frequently asked questions
Section 1446(a) requires a US partnership to withhold tax on the ECTI it allocates to foreign partners each year. It applies to ongoing partnership operations and is reported on Forms 8804 and 8805.
Section 1446(f) applies when a foreign person sells or exchanges a partnership interest – the buyer must withhold 10% of the amount realized. Section 1446(f) uses the Form 8288 series for reporting, not the 8804 series.
No. If the partnership has no effectively connected taxable income allocable to foreign partners, no Section 1446(a) withholding is required. The obligation arises only when ECTI exists and is allocable to a foreign partner.
Section 1446(f) is a separate question – it applies to transfers of partnership interests regardless of current-year ECTI, as long as any portion of the gain would be treated as effectively connected under IRC Section 864(c)(8).
In most cases, no. Section 1446 withholding on ECTI is not reduced by tax treaty rates the way Chapter 3 withholding on FDAP income is.
ECTI is treated as business profits, and most treaty business-profits articles require a permanent establishment nexus that a partnership interest alone does not create. Narrow exceptions may exist under specific treaty provisions.
The partnership – not the foreign partner – is liable under Section 1446 of the Internal Revenue Code for the full amount of tax that should have been withheld, plus interest and penalties.
This liability exists even if the foreign partner ultimately pays the correct tax on their own US return. The IRS can assess the partnership directly for the shortfall.
The foreign partner attaches Form 8805 to their US tax return – Form 1040-NR for nonresident alien individuals or Form 1120-F for foreign corporations. The withheld amount appears as a credit against the partner’s US tax liability. If the credit exceeds the liability, the partner receives a refund.
Yes. PTP distributions attributable to ECTI are subject to Section 1446 withholding. For PTPs, the withholding obligation falls on the broker or nominee, not the partnership, and is reported on Form 1042-S.
For transfers of PTP interests, the broker handles the 10% withholding under Section 1446(f).
In rare cases, the Section 965 transition tax may also be relevant when a PTP holds interests in specified foreign corporations.
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