Instructions For Forms 8804, 8805, And 8813

Amount Allocable to Foreign

date during the tax year of the partnership

due, it may be liable for penalties and

in which the income is earned.

interest unless it can show that failure to

Partners

file or pay was due to reasonable cause

Generally, pay any additional amounts

The amount of a partnership’s effectively

and not willful neglect.

due when filing Form 8804. However, if

connected taxable income for the

the partnership files Form 2758 to request

partnership’s tax year allocable to a

Interest

an extension of time to file Form 8804,

foreign partner under section 704 equals

Interest is charged on taxes not paid by

pay the balance of section 1446

(a) the foreign partner’s distributive share

the due date, even if an extension of time

withholding tax estimated to be due with

of effectively connected gross income of

to file is granted. Interest is also charged

Form 2758.

the partnership for the partnership’s tax

on penalties imposed for failure to file,

year that is properly allocable to the

Coordination With Other

negligence, fraud, and substantial

partner under section 704, minus (b) the

Withholding Rules

understatements of tax from the due date

foreign partner’s distributive share of

(including extensions) to the date of

deductions of the partnership for that year

Interest, Dividends, etc.

payment. The interest charge is figured at

that are connected with that income under

Fixed or determinable, annual or

a rate determined under section 6621.

section 873 or section 882(c)(1). This

periodical income subject to tax under

income is figured to take into account any

Late Filing of Form 8804

section 871(a) or 881 is not included in

adjustments to the basis of the

the partnership’s effectively connected

A partnership that fails to file Form 8804

partnership property described in section

taxable income under section 1446.

when due (including extensions of time to

743 according to the partnership’s

However, these amounts are

file) generally may be subject to a penalty

election under section 754. Also, a

independently subject to withholding

of 5% of the unpaid tax for each month or

partnership’s effectively connected

under the requirements of sections 1441

part of a month the return is late, up to a

taxable income is not allocable to a

and 1442 and their regulations.

maximum of 25% of the unpaid tax. The

foreign partner to the extent the amounts

penalty will not apply if the partnership

are exempt from U.S. tax for that partner

Real Property Gains

can show reasonable cause for filing late.

by a treaty or reciprocal agreement, or a

Domestic partnerships. Domestic

If the failure to timely file is due to

provision of the Code.

partnerships subject to the withholding

reasonable cause, attach an explanation

requirements of section 1446 are not also

Amount of Withholding

to Form 8804.

subject to the payment and reporting

Tax

requirements of section 1445(e)(1) and its

Late Filing of Correct Form

regulations for income from the

8805

Figuring the Tax Payments

disposition of a U.S. real property interest.

A penalty may be imposed for failure to

A domestic partnership’s compliance with

Under section 1446, a partnership must

file each Form 8805 when due (including

the requirement to pay a withholding tax

make four installment payments of

extensions). The penalty may also be

under section 1446 satisfies the

withholding tax during the tax year.

imposed for failure to include all required

requirements under section 1445 for

Amount of each installment payment

information on Form 8805 or for

dispositions of U.S. real property

of withholding tax. In general, the

furnishing incorrect information. The

interests. However, a domestic

amount of a partnership’s installment

penalty is based on when a correct Form

partnership that would otherwise be

payment is equal to the sum of the

8805 is filed. The penalty is:

exempt from section 1445 withholding by

•

installment payments for each of the

$15 per Form 8805 if the partnership

operation of a nonrecognition provision

partnership’s foreign partners. For a

correctly files within 30 days; maximum

must continue to comply with the

foreign partner, the amount of an

penalty of $75,000 per year ($25,000 for

requirements of Regulations section

installment of the section 1446

a small business). A “small business” has

1.1445-5(b)(2).

withholding tax is figured by applying the

average annual gross receipts of $5

Foreign partnerships. A foreign

principles of section 6655(e)(2). To do so,

million or less for the most recent 3 tax

partnership subject to withholding under

use the worksheet on page 4.

years (or for the period of time the

section 1445(a) during a tax year will be

business has existed, if shorter) ending

Alternatively, a partnership may make

allowed to credit the amount withheld

before the calendar year in which the

each installment payment during the tax

under section 1445(a) against its liability

Forms 8805 were due.

year in an amount equal to 25% of the

to pay the section 1446 withholding tax

•

$50 per Form 8805 if the partnership

withholding tax that would be payable on

for that year.

files more than 30 days after the due date

the amount of its effectively connected

or does not file a correct Form 8805;

taxable income allocable to foreign

Reporting to Partners

maximum penalty of $250,000 per year

partners for the prior year if the following

When making a payment of withholding

($100,000 for a small business).

three conditions are met:

tax to the IRS under section 1446, a

If the partnership intentionally

1. The prior tax year consisted of 12

partnership must notify all foreign

disregards the requirement to report

months.

partners of their allocable shares of any

correct information, the penalty per Form

2. The partnership filed Form 1065 for

section 1446 tax paid to the IRS by the

8805 is increased to $100 or, if greater,

the prior year.

partnership. The partners use this

10% of the aggregate amount of items

3. The amount of effectively

information to adjust the amount of

required to be reported, with no maximum

connected taxable income for the prior

estimated tax that they must otherwise

penalty. For more information, see

year was not less than 50% of the

pay to the IRS.

sections 6721 and 6724.

effectively connected taxable income on

A partnership must annually provide

the current year’s Form 8804.

Failure To Furnish Correct

foreign partners with a copy of Form 8805

Forms 8805 to Recipient

even if no section 1446 withholding tax is

Applicable percentage. For partners

paid. Send Form 8805 to the foreign

taxed as corporations, the section 1446

A penalty of $50 may be imposed for

partner by the due date of the partnership

applicable percentage is 35%. For

each failure to furnish Form 8805 to the

return (including extensions).

partners not taxable as corporations (e.g.,

recipient when due. The penalty may also

partnerships, individuals, estates), the

be imposed for each failure to give the

Interest and Penalties

applicable percentage is 39.1% for 2001

recipient all required information on each

(38.6% for 2002).

Interest and penalties are described

Form 8805 or for furnishing incorrect

When to make the payment. Make

below. If the partnership files Form 8804

information. The maximum penalty is

payments of the withholding tax under

or Forms 8805 late, fails to furnish correct

$100,000 for all failures to furnish correct

section 1446 with Form 8813 by its due

Forms 8805, or fails to pay the tax when

Forms 8805 during a calendar year.

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Instructions for Forms 8804, 8805, and 8813

Instructions For Forms 8804, 8805, And 8813 - 2001 Page 3

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