The IRS has issued proposed regulations on how certain international rules operate in the context of the centralized partnership audit regime. Specifically, the guidance discusses the withholding of tax on foreign persons. In addition, the guidance discusses tax withholding on certain foreign accounts and the treatment of creditable foreign taxes of a partnership. These proposed rules supplement the proposed rules implementing the new centralized partnership audit regime (NPRM REG-36118-15).
Scope of Partnership Procedures
The guidance provides examples demonstrating the scope of the centralized partnership audit regime. In addition, the examples examine the partnership’s obligation outside of the audit regime relating to foreign persons. The examples illustrate what occurs when a partnership fails to:
- withhold the correct rate on an item of income allocable to a foreign partner; and
- report an item of income and, therefore, fails to withhold on the additional income allocable to a foreign partner.
The proposed rules also address situations in which an item subject to the centralized partnership audit regime is also subject to rules outside of the audit regime. The proposals provide rules that coordinate the interaction between the separate regimes and ensure that tax is collected only once with respect to the same adjustment.
Requirements to Withhold and Report a Section 6226 Election
The proposed regulations provide rules that apply withholding and reporting requirements to a partnership that makes a valid election under Code Sec. 6226 to push adjustments to its reviewed year partners that would have been subject to withholding in the reviewed year. The proposals also provide rules that apply to the reviewed year partner when taking these adjustments into account. The partnership would be required to pay the amount of tax required to be withheld on any adjustment allocable to a reviewed partner and to file the appropriate returns.
Creditable foreign tax expenditures (CFTEs)
The proposed rules add a creditable expenditure grouping relating to the treatment of adjustments to CFTEs made in an administrative proceeding under the centralized partnership audit regime. Examples are provided to illustrate the application of the rules.
Written or electronic comments must be received no later than January 30, 2018. Submissions may be sent to: CC:PA:LPD:PR (REG-119337-17), Room 5207, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Or, comments may be hand delivered, Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m., to CC:PA:LPD:PR (REG-119337-17), Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave, NW., Washington, D.C. 20224. Alternatively, taxpayers may submit comments electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS REG-119337-17).
Proposed Regulations, NPRM REG-119337-17