n-21-51.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

1

Part III - Administrative, Procedural, and Miscellaneous

Applicability Date of Certain Regulations Under Sections 1446(a) and (f)

Notice 2021-51

I. PURPOSE

This notice announces that the Department of the Treasury (Treasury
Department) and the Internal Revenue Service (IRS) intend to amend the regulations
under sections 1446(a) and 1446(f) to defer the applicability date to January 1, 2023 for
certain provisions relating to the following: (i) withholding under section 1446(f) on
transfers of interests in publicly traded partnerships (“PTP interests”); (ii) withholding
under section 1446(a) on distributions made with respect to PTP interests; and (iii)
withholding under section 1446(f)(4) by partnerships on distributions to transferees.
Before the issuance of these amendments, taxpayers may rely on the provisions of this
notice regarding the modified applicability dates.
II. BACKGROUND
Sections 864(c)(8) and 1446(f) were added to the Code by the Tax Cuts and
Jobs Act, Pub. L. 115-97 on December 22, 2017. Section 864(c)(8) generally provides
that gain or loss derived by a foreign person on the sale or exchange of an interest in a
partnership engaged in a U.S. trade or business is treated as effectively connected gain
or loss and, therefore, is subject to U.S. tax. Section 1446(f)(1) requires a transferee of

2

an interest in a partnership to withhold 10 percent of the amount realized if any portion
of the gain on the disposition would be treated under section 864(c)(8) as effectively
connected with the conduct of a trade or business within the United States (unless an
exception applies). Section 1446(f)(4) provides that if a transferee fails to withhold on
the disposition as required under section 1446(f)(1), the partnership must withhold on
distributions to the transferee.
On November 30, 2020, the Treasury Department and the IRS published final
regulations (TD 9926) in the Federal Register (85 FR 76910, as corrected at 86 FR
13191) primarily relating to withholding and information reporting under section 1446(f).
The final regulations include withholding and reporting requirements under section
1446(f)(1) applicable to brokers effecting transfers of PTP interests on behalf of foreign
persons. The final regulations also require a broker that pays an amount realized to a
foreign broker to withhold on the amount realized, unless the foreign broker is a
qualified intermediary (QI) (or a U.S. branch treated as a U.S. person) that assumes
primary withholding responsibility under section 1446(f)(1). The final regulations modify
certain rules in §1.1446-4, which previously permitted only a publicly traded partnership
or a U.S. person to be the withholding agent, to allow a QI (or a U.S. branch treated as
a U.S. person) to assume withholding on distributions with respect to PTP interests
under section 1446(a), in part to coordinate with withholding requirements under section
1446(f)(1). Under the final regulations, a QI that assumes withholding on a distribution
under section 1446(a) must also assume withholding on the distribution under section
1446(f). The final regulations also provide rules under section 1446(f)(4) for withholding
and reporting by partnerships (other than publicly traded partnerships) making

3

distributions to transferees of partnership interests who failed to withhold as required
under section 1446(f)(1). The provisions of the final regulations described in this
paragraph apply to transfers and distributions that occur on or after January 1, 2022.
III. AMENDED APPLICABILITY DATES
Following the publication of the final regulations, the Treasury Department and
the IRS received comments noting that taxpayers will face significant challenges
complying with certain provisions of the final regulations by January 1, 2022, and
requesting a deferred applicability date. These challenges include the following:
designing, building, and testing new withholding and reporting infrastructure; analyzing
new forms and withholding statements; and implementing systems to capture required
data. Brokers that are qualified intermediaries (and U.S. branches treated as U.S.
persons) have the additional challenge of implementing systems and processes to
withhold and report under section 1446(a) as well as section 1446(f).
In consideration of the concerns raised by taxpayers, and to allow for an orderly
implementation of the requirements of section 1446(f) with respect to PTP interests, the
Treasury Department and the IRS intend to amend certain applicability dates of the final
regulations (primarily the applicability date in §1.1446(f)-4(f)) to provide that the
provisions relating to withholding and reporting on transfers of PTP interests under
section 1446(f)(1) will apply to transfers that occur on or after January 1, 2023. The
Treasury Department and the IRS also intend to amend the applicability date of the
modifications to §1.1446-4 listed in §1.1446-7 to apply to distributions with respect to
PTP interests made on or after January 1, 2023. The modified applicability date for
these provisions will then align with the modified applicability date for withholding and

4

reporting under section 1446(f)(1) with respect to PTP interests. In addition, in order to
allow for an orderly implementation of the withholding and reporting requirements for
partnerships under section 1446(f)(4), the Treasury Department and the IRS intend to
amend the applicability date in §1.1446(f)-3(f) so that the provisions of the final
regulations requiring partnerships to withhold under section 1446(f)(4) will apply to
transfers that occur on or after January 1, 2023.
IV. DRAFTING INFORMATION
The principal author of this notice is Charles Rioux of the Office of Associate
Chief Counsel (International). For further information regarding this notice, contact Mr.
Rioux at (202) 317-4992 (not a toll-free call).