Course Description:

For most foreign investors in U.S. enterprises, particularly real estate, the preferred investment structure is generally a tax-transparent entity such as a U.S. or foreign limited partnership, LLC, or a similar offshore investment vehicle treated as a partnership for U.S. income tax purposes. This requires U.S. tax advisers serving these entities to have practical knowledge of the withholding rules specific to any partnership, domestic or foreign, which has foreign partners.

U.S. tax law provides several different withholding regimes for foreign partners, depending on the type of income the partnership receives and the way the partnership conducts its activities. For partnerships and partners who receive fixed or determinable annual or periodical (FDAP) income from U.S. sources, income tax is generally withheld at source. For partnerships engaged in a U.S. trade or business, their income typically will be deemed effectively-connected income (ECI), which generates unique reporting and withholding duties for the partnership. In addition, a special regime applies to ECI attributable to gains from the sale of U.S. real property interests.

Partnership tax advisers must be able to go beyond the basics of identifying whether a partnership with foreign partners has ECI to calculate required withholdings and ensure proper filings and remittances. This generally involves navigating a series of filings from identifying foreign partners to the IRS, calculating effectively connected taxable income (ECTI), calculating tax on that ECTI, identifying possible treaty exceptions to withholding duties, and recognizing and filing the appropriate forms.

Outline:

1. Identifying foreign partners and offshore partnership structures
   1. Domestic v. Foreign Partners
   2. Domestic v. Foreign Partnerships
2. Determining FDAP income and discussing the reporting requirements on Forms 1042,1042-S, and Schedule K-1 as they apply to partnerships with foreign partners
   1. FDAP Income
   2. Reporting Requirements
3. Calculating effectively-connected taxable income (ECTI)
   1. Section 1446 tax liability
   2. Reporting ECTI on Form 8804, 8805, 8813, and Schedule K-1
4. Rules and requirements specific to U.S. real estate holdings
   1. Determining what is a U.S. real property interest for purposes of Section 897
   2. Section 1445 withholding requirements on dispositions of U.S. real property interests
   3. Section 864(c)(8)(C) and 897 coordination provisions subjecting certain gains on sale of foreign partnership interests to the Foreign Investment in Real Property Tax Act (FIRPTA) withholding provisions rather treating such gains as ECTI subject to withholding under Section 1446
   4. Form 8288
   5. Affidavits and exemptions