Instructions For Forms 8804, 8805, And 8813

4. The partnership may not take into

partners for the prior year if the following

Reporting to Partners

account any net operating loss carryovers

three conditions are met:

When making a payment of withholding

or charitable contributions.

1. The prior tax year consisted of 12

tax to the IRS under section 1446, a

months.

partnership must notify all foreign

A partnership’s effectively connected

2. The partnership filed Form 1065 or

partners of their allocable shares of any

taxable income includes partnership

Form 1065-B for the prior year.

section 1446 tax paid to the IRS by the

income subject to a partner’s election

3. The amount of effectively

partnership. The partners use this

under section 871(d) or 882(d) (election

connected taxable income for the prior

information to adjust the amount of

to treat real property income as income

year was not less than 50% of the

estimated tax that they must otherwise

connected with a U.S. business). It also

effectively connected taxable income on

pay to the IRS.

includes any partnership income treated

the current year’s Form 8804.

as effectively connected with the conduct

A partnership must annually provide

of a U.S. trade or business under section

Applicable percentage. For all foreign

foreign partners with a copy of Form 8805

897 (disposition of investment in U.S. real

partners, the section 1446 applicable

even if no section 1446 withholding tax is

property), and other items of partnership

percentage is 35%.

paid. Send Form 8805 to the foreign

income treated as effectively connected

partner by the due date of the partnership

When to make the payment. Make

under other provisions of the Internal

return (including extensions).

installment payments of the withholding

Revenue Code, regardless of whether

tax under section 1446 with Form 8813 by

Interest and Penalties

those amounts are taxable to the partner.

the applicable due dates during the tax

year of the partnership in which the

Interest and penalties are described

Amount Allocable to Foreign

income is earned.

below. If the partnership files Form 8804

Partners

or Forms 8805 late, fails to furnish correct

Generally, pay any additional amounts

The amount of a partnership’s effectively

Forms 8805, or fails to pay the tax when

due when filing Form 8804. However, if

connected taxable income for the

due, it may be liable for penalties and

the partnership files Form 2758 to request

partnership’s tax year allocable to a

interest unless it can show that failure to

an extension of time to file Form 8804,

foreign partner under section 704 equals

file or pay was due to reasonable cause

pay the balance of section 1446

(a) the foreign partner’s distributive share

and not willful neglect.

withholding tax estimated to be due with

of effectively connected gross income of

Form 2758.

Interest

the partnership for the partnership’s tax

year that is properly allocable to the

Coordination With Other

Interest is charged on taxes not paid by

partner under section 704, minus (b) the

the due date, even if an extension of time

Withholding Rules

foreign partner’s distributive share of

to file is granted. Interest is also charged

deductions of the partnership for that year

on penalties imposed for failure to file,

Interest, Dividends, etc.

that are connected with that income under

negligence, fraud, and substantial

Fixed or determinable, annual or

section 873 or section 882(c)(1) and that

understatements of tax from the due date

periodical income subject to tax under

are properly allocable to the partner under

(including extensions) to the date of

section 871(a) or 881 is not included in

section 704. This income must be

payment. The interest charge is figured at

the partnership’s effectively connected

computed by taking into account any

a rate determined under section 6621.

taxable income under section 1446.

adjustments to the basis of the

However, these amounts are

Late Filing of Form 8804

partnership property described in section

independently subject to withholding

743 according to the partnership’s

A partnership that fails to file Form 8804

under the requirements of sections 1441

election under section 754. Also, a

when due (including extensions of time to

and 1442 and their regulations.

partnership’s effectively connected

file) generally may be subject to a penalty

taxable income is not allocable to a

of 5% of the unpaid tax for each month or

Real Property Gains

foreign partner to the extent the amounts

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

Domestic partnerships. Domestic

are exempt from U.S. tax for that partner

maximum of 25% of the unpaid tax. The

partnerships subject to the withholding

by a treaty or reciprocal agreement, or a

penalty will not apply if the partnership

requirements of section 1446 are not also

provision of the Code.

can show reasonable cause for filing late.

subject to the payment and reporting

If the failure to timely file is due to

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

Amount of Withholding

reasonable cause, attach an explanation

regulations for income from the

to Form 8804.

Tax

disposition of a U.S. real property interest.

Late Filing of Correct Form

A domestic partnership’s compliance with

8805

Figuring the Tax Payments

the requirement to pay a withholding tax

under section 1446 satisfies the

A penalty may be imposed for failure to

Under section 1446, a partnership must

requirements under section 1445 for

file each Form 8805 when due (including

make four installment payments of

dispositions of U.S. real property

extensions). The penalty may also be

withholding tax during the tax year.

interests. However, a domestic

imposed for failure to include all required

Amount of each installment payment

partnership that would otherwise be

information on Form 8805 or for

of withholding tax. In general, the

exempt from section 1445 withholding by

furnishing incorrect information. The

amount of a partnership’s installment

operation of a nonrecognition provision

penalty is based on when a correct Form

payment is equal to the sum of the

must continue to comply with the

8805 is filed. The penalty is:

installment payments for each of the

•

requirements of Regulations section

$15 per Form 8805 if the partnership

partnership’s foreign partners. A

1.1445-5(b)(2).

correctly files within 30 days; maximum

partnership will generally determine the

Foreign partnerships. A foreign

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

amount of the installment payment for

partnership subject to withholding under

a small business). A “small business” has

each of its foreign partners by applying

section 1445(a) during a tax year will be

average annual gross receipts of $5

the principles of section 6655(e)(2). To do

allowed to credit the amount withheld

million or less for the most recent 3 tax

so, use the worksheet on page 4.

under section 1445(a), to the extent such

years (or for the period of time the

Alternatively, a partnership may make

amount is allocable to foreign partners (as

business has existed, if shorter) ending

each installment payment during the tax

defined in section 1446(e)), against its

before the calendar year in which the

year in an amount equal to 25% of the

liability to pay the section 1446

Forms 8805 were due.

•

withholding tax that would be payable on

withholding tax for that year. This credit is

$50 per Form 8805 if the partnership

the amount of its effectively connected

allowed on line 6c of the Form 8804 filed

files more than 30 days after the due date

taxable income allocable to foreign

by the foreign partnership.

or does not file a correct Form 8805;

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Instructions for Forms 8804, 8805, and 8813

Instructions For Forms 8804, 8805, And 8813 - 2004 Page 3

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