[Federal Register Volume 70, Number 95 (Wednesday, May 18, 2005)]
[Proposed Rules]
[Pages 28743-28745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-9423]



  Federal Register / Vol. 70, No. 95 / Wednesday, May 18, 2005 / 
Proposed Rules  

[[Page 28743]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[REG-108524-00]
RIN 1545-BD80


Section 1446 Regulations; Withholding on Effectively-Connected 
Taxable Income Allocable to Foreign Partners

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking, notice of proposed rulemaking by 
cross reference to temporary regulations and notice of public hearing.

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SUMMARY: The IRS is proposing to issue regulations under section 1446 
of the Internal Revenue Code relating to the circumstances under which 
a partnership may take partner-level deductions and losses into account 
in computing its withholding tax obligation with respect to a foreign 
partner's allocable share of effectively connected taxable income. The 
text of the temporary regulations published elsewhere in this issue of 
the Federal Register also serves as the text of these proposed 
regulations. In addition, the proposed regulations amend regulations 
under sections 1464, 6071, 6091, 6151, 6302, 6402, 6414, and 6722 to 
implement the section 1446 regime. This document also provides a notice 
of public hearing on these proposed regulations.

DATES: Written or electronic comments and requests to comment at the 
public hearing scheduled for October 3, 2005, must be received by 
August 16, 2005.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-108524-00), room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
108524-00), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC 20044. Alternatively, taxpayers may submit 
comments electronically via either the IRS Internet site at 
www.irs.gov/regs or the Federal eRulemaking Portal at 
www.regulations.gov (IRS and REG-108524-00). The public hearing will be 
held in the Auditorium of the Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC on October 3, 2005.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Ronald M. Gootzeit, at (202) 622-3860 or to be placed on the attendance 
list for the hearing, Jacqueline Turner at (202) 622-7180 (not toll-
free numbers).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collections of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, 
Washington DC 20224. Comments on the collections of information should 
be received by July 18, 2005. Comments are specifically requested 
concerning:
    Whether the proposed collections of information are necessary for 
the proper performance of the functions of the Internal Revenue 
Service, including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collections of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collections of information in this proposed regulation are in 
Sec.  1.1446-6T. This information is required to determine the extent 
to which a partnership is required to pay a withholding tax under 
section 1446 with respect to its effectively connected taxable income 
allocable to a foreign partner. The reporting requirement in Sec.  
1.1446-6T is voluntary. The likely respondents include individuals, 
businesses or other for profit institutions, and small businesses or 
organizations.
    Estimated total annual reporting burden: 2,500 hours.
    Estimated average annual burden hours per respondent: .5 hours.
    Estimated number of respondents: 5,000.
    Estimated annual frequency of responses: on occasion and annually.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    Temporary regulations published elsewhere in this issue of the 
Federal Register amend the Income Tax Regulations (26 CFR part 1) 
relating to section 1446. The text of those regulations also serves as 
the text of the proposed regulations pertaining to section 1446 that 
are included in this document. The preamble to the temporary 
regulations explains the amendments to section 1446. The proposed 
regulations also amend the Income Tax and Procedure and Administration 
Regulations (26 CFR Parts 1 and 301) relating to sections 1464, 6071, 
6091, 6151, 6302, 6402, 6414, and 6722. The amendments to these 
sections are necessary to coordinate the sections with the final 
section 1446 regulations issued elsewhere in this issue of the Federal 
Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. It also has been determined that section 533(b) of the 
Administrative Procedures Act (5 U.S.C. chapter 5) does not apply to 
these regulations. It is hereby certified that the collections of 
information contained in these regulations will not have a significant 
economic impact on a substantial number of small entities. This 
certification is based upon the fact that only a limited number of 
small entities are impacted by these collections and the burden 
associated with such collections is .5 hours. Moreover, the information 
collection in Sec.  1.1446-6T is voluntary. Therefore, a Regulatory 
Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) is not required. Pursuant to section 7805(f) of the Code, 
this notice of proposed rulemaking will be submitted to the Chief 
Counsel for Advocacy of the Small Business

[[Page 28744]]

Administration for comment on its impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) that are submitted timely to the IRS. All 
comments will be available for public inspection and copying. The 
Treasury Department and IRS request comments on the clarity of the 
proposed regulations and how they may be made easier to understand. All 
comments will be available for public inspection and copying.
    A public hearing has been scheduled for October 3, 2005, beginning 
at 10 a.m. in the Auditorium of the Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC. All visitors must enter at 
the Constitution Avenue entrance and present photo identification to 
enter the building. Because of access restrictions, visitors will not 
be admitted beyond the immediate entrance area more than 30 minutes 
before the hearing starts. For information about having your name 
placed on the building access list to attend the hearing, see the FOR 
FURTHER INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit electronic or 
written comments and an outline of the topics to be discussed and the 
time to be devoted to each topic (signed original and eight (8) copies) 
by August 16, 2005. A period of 10 minutes will be allotted to each 
person for making comments. An agenda showing the schedule of speakers 
will be prepared after the deadline for receiving outlines has passed. 
Copies of the agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of these proposed regulations is David J. 
Sotos, formerly of the Office of the Associate Chief Counsel 
(International). However, other personnel from the Treasury Department 
and IRS participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as 
follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read, 
in part, as follows:

    Authority: 26 U.S.C. 7805 * * *
    Sec.  1.1446-6 also issued under 26 U.S.C. 1446(f). * * *

    Par. 2. Section 1.1446-6 is added to read as follows:


Sec.  1.1446-6  Special rules to reduce a partnership's 1446 tax with 
respect to a foreign partner's allocable share of effectively connected 
taxable income.

    [The text of this proposed section is the same as the text of Sec.  
1.1446-6T published elsewhere in this issue of the Federal Register].
    Par. 3. In Sec.  1.1464-1, paragraph (a) is amended by adding three 
sentences at the end of the paragraph to read as follows:


Sec.  1.1464-1  Refunds or credits.

    (a) * * * With respect to section 1446, this section shall only 
apply to a publicly traded partnership described in Sec.  1.1446-4. See 
Sec.  1.1446-3(d)(2)(iv) for rules permitting a withholding agent to 
obtain a refund of tax paid under section 1446. The previous two 
sentences shall apply to partnership taxable years beginning after the 
date these regulations are published as final regulations in the 
Federal Register.
* * * * *
    Par. 4. In Sec.  1.6071-1, paragraph (c)(15) is revised to read as 
follows:


Sec.  1.6071-1  Time for filing returns and other documents.

* * * * *
    (c) * * *
    (15) For provisions relating to the time for filing an annual 
information return on Form 1042-S or Form 8805 of the tax withheld 
under chapter 3 of the Internal Revenue Code (relating to withholding 
of tax on nonresident aliens and foreign corporations and tax-free 
covenant bonds), see Sec.  1.1461-1(c) and Sec.  1.1446-3(d). The 
references in the previous sentence to Form 8805 and Sec.  1.1446-3(d) 
shall apply to partnership taxable years beginning after the date these 
regulations are published as final regulations in the Federal Register.
* * * * *
    Par. 5. In Sec.  1.6091-1, paragraph (b)(17) is added to read as 
follows:


Sec.  1.6091-1  Place for filing returns or other documents.

* * * * *
    (b) * * *
    (17) For the place for filing information returns on Form 8805 with 
respect to certain amounts paid on behalf of foreign partners, see the 
instructions to the form.
* * * * *
    Par. 6. In Sec.  1.6151-1, paragraph (d)(2) is revised to read as 
follows:


Sec.  1.6151-1  Time and place for paying tax shown on returns.

* * * * *
    (d) * * *
    (2) For provisions relating to the use of such financial 
institutions for the deposit of taxes required to be withheld under 
chapter 3 of the Internal Revenue Code on nonresident aliens and 
foreign corporations and tax-free covenant bonds, see Sec.  1.6302-2. 
With respect to section 1446, the previous sentence shall apply only to 
a publicly traded partnership described in Sec.  1.1446-4. This 
paragraph shall apply to publicly traded partnerships described in the 
previous sentence only for partnership taxable years beginning after 
the date these regulations are published as final regulations in the 
Federal Register.
* * * * *
    Par. 7. In Sec.  1.6302-2, paragraphs (a)(1)(i) and (a)(2) are 
revised to read as follows:


Sec.  1.6302-2  Use of Government depositaries for payment of tax 
withheld on nonresident aliens and foreign corporations.

    (a) * * *
    (1) * * *
    (i) Monthly deposits. Except as provided in paragraphs (a)(1)(ii) 
and (iv) of this section, every withholding agent who, pursuant to 
chapter 3 of the Internal Revenue Code, has accumulated at the close of 
any calendar month beginning on or after January 1, 1973, an aggregate 
amount of undeposited taxes of $200 or more shall deposit such 
aggregate amount with an authorized financial institution (see 
paragraph (b)(1)(ii) of this section) within 15 days after the close of 
such calendar month. However, the preceding sentence shall not apply if 
the withholding agent has made a deposit of taxes pursuant to paragraph 
(a)(1)(ii) of this section with respect to a quarter monthly period 
which occurred during such month. With respect to section 1446, this 
section shall only apply to a publicly traded partnership described in 
Sec.  1.1446-4. The previous sentence shall apply to partnership 
taxable years beginning after the date these regulations are published 
as final regulations in the Federal Register.
* * * * *

[[Page 28745]]

    (2) Cross reference. For rules relating to the adjustment of 
deposits, see Sec.  1.1461-2(b) and Sec.  1.6414-1. For rules requiring 
payment of any undeposited tax, see Sec.  1.1461-1.
* * * * *
    Par. 8. Section 1.6414-1 is amended by:
    1. Adding three sentences at the end of the undesignated text 
following paragraph (a)(2).
    2. Revising the third sentence of paragraph (b).
    The addition and revision read as follows:


Sec.  1.6414-1  Credit or refund of tax withheld on nonresident aliens 
and foreign corporations.

    (a) * * * With respect to the payment of withholding tax under 
section 1446, this section shall only apply to a publicly traded 
partnership described in Sec.  1.1446-4. See Sec.  1.1446-3(d)(2)(iv) 
for rules regarding refunds to a withholding agent under section 1446. 
The previous two sentences shall apply to partnership taxable years 
beginning after the date these regulations are published as final 
regulations in the Federal Register.
    (b) * * * The amount so claimed as a credit may be applied, to the 
extent it has not been applied under paragraph (b) of Sec.  1.1461-2, 
by the withholding agent to reduce the amount of a payment or deposit 
of tax required by Sec.  1.1461-1 or paragraph (a) of Sec.  1.6302-2 
for any payment period occurring in the calendar year following the 
calendar year of overwithholding. * * *
* * * * *

PART 301--PROCEDURE AND ADMINISTRATION

    Par. 9. The authority for 26 CFR part 301 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 10. In Sec.  301.6302-1, paragraph (b)(2) is revised to read 
as follows:


Sec.  301.6302-1  Mode or time of collection of taxes.

* * * * *
    (b) * * *
    (2) For provisions relating to the use of Federal Reserve banks or 
authorized commercial banks in depositing the tax required to be 
withheld under chapter 3 of the Internal Revenue Code on nonresident 
aliens and foreign corporations and tax-free covenant bonds, see Sec.  
1.6302-2 of this chapter. The previous sentence shall include payment 
of withholding tax under section 1446 and Sec.  1.1446-4. References in 
this paragraph (b)(2) to payment of withholding tax under section 1446, 
shall apply to partnership taxable years beginning after the date these 
regulations are published in the Federal Register.
    Par. 11. In Sec.  301.6402-3, the second and third sentences of 
paragraph (e) are revised, and a sentence is added at the end of the 
paragraph to read as follows:


Sec.  301.6402-3  Special rules applicable to income tax.

* * * * *
    (e) * * * Also, if the overpayment of tax resulted from the 
withholding of tax at source under chapter 3 of the Internal Revenue 
Code, a copy of the Form 1042-S, Form 8805, or other statement (see 
Sec.  1.1446-3(d)(2)) required to be provided to the beneficial owner 
or partner pursuant to Sec.  1.1461-1(c)(1)(i) or Sec.  1.1446-3(d) of 
this chapter must be attached to the return. For purposes of claiming a 
refund, the Form 1042-S, Form 8805, or other statement must include the 
taxpayer identification number of the beneficial owner or partner even 
if not otherwise required. * * * References in this paragraph to Form 
8805 or other statements required under Sec.  1.1446-3(d)(2) shall 
apply to partnership taxable years beginning after the date these 
regulations are published as final regulations in the Federal Register.
    Par. 12. In Sec.  301.6722-1, paragraph (d)(3) is revised to read 
as follows:


Sec.  301.6722-1  Failure to furnish correct payee statements.

* * * * *
    (d) * * *
    (3) Other items. The term payee statement also includes any form, 
statement, or schedule required to be furnished to the recipient of any 
amount from which tax is required to be deducted and withheld under 
chapter 3 of the Internal Revenue Code (or from which tax would be 
required to be so deducted and withheld but for an exemption under the 
Internal Revenue Code or any treaty obligation of the United States), 
generally the recipient copy of Form 1042-S or Form 8805. The reference 
in the previous sentence to Form 8805 shall apply to partnership 
taxable years beginning after the date that these regulations are 
published as final regulations in the Federal Register.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 05-9423 Filed 5-13-05; 8:45 am]
BILLING CODE 4830-01-P