SERVICE ANNOUNCES GUIDELINES FOR WITHHOLDING PARTNERSHIP INCOME ALLOCABLE TO FOREIGN PARTNERS.

Rev. Proc. 89-31

SECTION 1. PURPOSE AND SCOPE

This revenue procedure provides general guidance necessary to comply with section 1446 of the Internal Revenue Code, as amended by section 1012(s) of the Technical and Miscellaneous Revenue Act of 1988, P.L. 100-647, concerning certain withholding requirements applicable to partnerships with foreign partners. This revenue procedure is organized in the following manner:

Section 1 -- PURPOSE AND SCOPE;

Section 2 -- BACKGROUND (History of section 1446);

Section 3 -- REQUIREMENT OF WITHHOLDING (Description of withholding requirements under section 1446);

Section 4 -- WITHHOLDING AGENTS (Who is responsible for withholding under section 1446);

Section 5 -- DETERMINATION OF WHETHER A PARTNER IS A FOREIGN PERSON (How to determine whether a partner is a foreign person subject to withholding);

Section 6 -- EFFECTIVELY CONNECTED TAXABLE INCOME (Determination of amount of effectively connected taxable income allocable to foreign partners);

Section 7 -- AMOUNT OF WITHHOLDING TAX (Determining the amount of withholding tax (including the applicable percentage) and the time for payment of that tax);

Section 8 -- REPORTING AND PAYING OVER WITHHELD TAX (How to report and pay over withheld amounts);

Section 9 -- TREATMENT OF PARTNERS (Effect of section 1446 withholding on partners);

Section 10 -- PUBLICLY TRADED PARTNERSHIPS (Special rules for publicly traded partnerships); and

Section 11 -- TIERED PARTNERSHIPS (Special rules for tiered partnerships).

SEC. 2. BACKGROUND

Section 1012(s)(1)(D) of the Technical and Miscellaneous Revenue Act of 1988 (the "1988 Act"), P.L. 100-647, retroactively amends section 1446 of the Internal Revenue Code of 1986, and provides that no amount of tax shall be required to be deducted and withheld under section 1446 of the 1986 Code as in effect prior to its amendment by the 1988 Act. Prior to its amendment, section 1446 of the 1986 Code, as enacted by section 1246 of the Tax Reform Act of 1986, P.L. 99- 514, had required partnerships with a U.S. trade or business to withhold a 20 percent tax from certain distributions made after December 31, 1987 to their foreign partners. Rev. Proc. 88-21, 1988-1 C.B. 777 (declared obsolete by this revenue procedure).

As amended by the 1988 Act, section 1446 of the Code generally applies to U.S. and foreign partnerships in any taxable year beginning after December 31, 1987, in which they have effectively connected taxable income that is allocable to foreign partners. Under this revenue procedure, a partnership may have effectively connected taxable income with respect to some of its foreign partners but not others. Affected partnerships are no longer to withhold on distributions to foreign partners. These partnerships are now required to pay a withholding tax in the time and manner specified in this procedure, equal to the applicable percentage of the effectively connected taxable income allocable to its foreign partners. A publicly traded partnership is subject to the rules in Section 10 of this revenue procedure. Section 10 provides rules by which a publicly traded partnership is to determine the non-foreign status of partners, and for withholding, reporting, and paying over tax on distributions. Section 10 of this revenue procedure also provides an election under which a publicly traded partnership can pay a withholding tax based upon effectively connected taxable income allocable to its foreign partners under the general rules of this revenue procedure, instead of withholding on distributions.

SEC. 3. REQUIREMENT OF WITHHOLDING

If in any taxable year beginning after December 31, 1987, a foreign or domestic partnership (as defined in section 7701 of the Code, but excluding a partnership treated as a corporation under the general rule of section 7704(a) of the Code) has effectively connected taxable income allocable under section 704 to a foreign partner, then the partnership must pay a withholding tax equal to the applicable percentage (defined in Section 7.013 of this revenue procedure) of the effectively connected taxable income that is allocable to its foreign partners. A publicly traded partnership (excluding a partnership treated as a corporation under the general rule of section 7704(a) of the Code) is required to withhold on distributions in accordance with the rules set forth in Section 10 of this revenue procedure, unless it makes the election in Section 10 to pay a withholding tax under the general rules of this revenue procedure that apply to non-publicly traded partnerships.

SEC. 4. WITHHOLDING AGENTS

01 IN GENERAL. Section 1446, as amended by the 1988 Act, generally requires a partnership to pay a withholding tax with respect to effectively connected taxable income allocable to its foreign partners. The general partners of a partnership shall be jointly and severally liable as withholding agents for the partnership. For ease of reference, this revenue procedure refers to various requirements applicable to withholding agents as requirements applicable to partnerships themselves. This does not affect the legal incidence of liability. Additional rules applicable to publicly traded partnerships are provided in Section 10 of this revenue procedure.

02 PENALTY FOR FAILURE TO WITHHOLD AND PAY OVER TAX UNDER SECTION 1446. A partnership (including a publicly traded partnership) that is required to pay a withholding tax under section 1446 of the Code is made liable for that tax under section 1461. Therefore, a partnership that is required to pay such tax, but fails to do so, may be held liable for the payment of the tax, any applicable penalties, and interest. A person that is required, but fails, to pay the withholding tax required by section 1446 may also be subject to civil and criminal penalties. Officers or other responsible persons of either a corporation that is a general partner or any other withholding agent may be subject to a civil penalty under section 6672 equal to the amount that should have been withheld and paid over.

SEC. 5. DETERMINATION OF WHETHER A PARTNER IS A FOREIGN PERSON

01 IN GENERAL. Section 1446 of the Code requires a partnership (including a publicly traded partnership) with effectively connected taxable income allocable to any partner that is a foreign person to pay a withholding tax with respect to that partner. Accordingly, a partnership must determine under the rules of this Section whether any partner is a foreign person subject to section 1446. For purposes of section 1446, a foreign person is a nonresident alien individual, foreign corporation, foreign partnership, or foreign trust or estate. A partnership may determine a partner's status by relying upon a certification of non-foreign status, under the rules of Section 5.02 of this revenue procedure, or any other means, under the rules of Section 5.03. Additional rules applicable to publicly traded partner- ships are provided in Section 10 of this revenue procedure.

02 CERTIFICATION OF NON-FOREIGN STATUS.

1 IN GENERAL. This Section provides rules pursuant to which a partnership can determine that a partner is not a foreign person by obtaining a certification of non-foreign status from the partner. A partnership that has obtained such a certification may rely upon it to establish the non-foreign status of a partner, as provided in paragraph 2, below.

2 EFFECT OF CERTIFICATION. A partnership that has obtained a certification of non-foreign status in accordance with the rules of this Section may rely upon the certification to determine that the partner is not subject to withholding, but only if the partnership does not have actual knowledge that the certification is false. If a partnership relies in good faith upon a certification, but it is subsequently determined that the certification was false, the partnership shall not be subject to the liability described in Section 4.02 of this revenue procedure for a failure to pay the withholding tax under section 1446 of the Code. A certification that satisfies the requirements of this revenue procedure will also satisfy the requirements for a certificate of non-foreign status under section 1445. If a partnership has actual knowledge that a certification of non-foreign status is false, however, it shall not be entitled to rely on that certification at any time after obtaining that knowledge. For this purpose, the knowledge of any general partner will be imputed to the partnership to give rise to a withholding liability under section 4.01 of this revenue procedure. The knowledge of one of its limited partners will not be imputed to a partnership based solely upon that partner's status as a limited partner. A partnership shall be fully liable under section 1461 for any failure to pay the withholding tax under section 1446 for the taxable year in which it obtained knowledge that a certification of non-foreign status is false. However, a partnership will not be liable for penalties for failure to make timely payments of installments of the section 1446 withholding tax that were due prior to the time it obtained knowledge that a certification was false. The liability of a publicly traded partnership is set forth in Section 10 of this revenue procedure. 3 DURATION OF CERTIFICATION. A partnership may rely on a partner's certification of non-foreign status until the earliest of:

(a) the end of the third year after the taxable year of the partnership during which the certification was obtained;

(b) the date the partnership receives notice from the partner that it has become a foreign person; or

(c) the date the partnership has actual knowledge that the partner is, or has become, a foreign person.

4 FORM OF CERTIFICATION. No particular form is required for a certification of non-foreign status, nor is any particular language required. The certification must:

(a) State that the partner is not a foreign person,

(b) Set forth the partner's name, U.S. identifying number, and home address (in the case of an individual) or office address (in the case of an entity),

(c) Provide that the partner will notify the partnership within sixty (60) days of a change to foreign status, and

(d) Be signed under penalties of perjury.

An individual's U.S. identifying number is the individual's social security number (or such other taxpayer identification number as may have been assigned to a foreign individual by the Internal Revenue Service), and any other person's U.S. identifying number is its U.S. employer identification number. A certification of non-foreign status must be verified as true and signed under penalties of perjury by a responsible corporate officer in the case of a corporation, by a general partner in the case of a partnership, and by a trustee, executor, or equivalent fiduciary in the case of a trust or estate. A certification of non-foreign status may also be signed by a person authorized under a power of attorney in proper form executed by the partner, provided the power of attorney accompanies the certification. Examples of acceptable certifications of non-foreign status are provided in Section 5.04 of this revenue procedure.

5 CERTIFICATIONS UNDER SECTION 1445. During a partnership's taxable years beginning before July 1, 1989, but not thereafter, the partnership may, except as provided in this section, rely on a certification of non-foreign status provided by a partner under section 1445 of the Code and section 1.1445-2 or 1.1445-5 of the regulations.

For purposes of section 1446 a partnership may not rely upon a certification of non-foreign status given by a foreign corporation that has based the certification on an election under section 897(i). A foreign corporation that has made an election under section 897(i) continues to be treated as a foreign person for all U.S. tax purposes other than sections 897, 1445, and 6039C. Thus, a partnership must withhold with respect to a foreign corporate partner without regard to whether that foreign corporation has made an election under section 897(i).

6 RETENTION OF CERTIFICATIONS. A partnership must retain a certification of non-foreign status until the end of the fifth taxable year after the last taxable year in which the partnership relied upon the certification.

7 SPECIAL RULE FOR WIDELY HELD PARTNERSHIPS. In addition to a certification of non-foreign status, a widely held partnership (a partnership which has more than 200 partners, including a publicly traded partnership that has elected to pay a withholding tax based on effectively connected taxable income allocable to its foreign partners instead of withholding on distributions), that seeks to determine whether or not any of its partners are foreign persons may rely on the information provided to it by partners on a Form 1001, Form W-8, or Form W-9. In addition, a widely held partnership may rely on a certification under penalties of perjury from a nominee about the non-foreign status of partners owning partnership interests through the nominee. No particular form is required for a certification from a nominee, but the certification should identify the partner for whom the certification is made, and indicate the basis for the certification. In making such a certification a nominee may also rely on a certification of non-foreign status provided by a foreign partner under the rules of Section 5.02, or may rely on information provided to it on Form 1001, Form W-8, or Form W-9 in determining whether a partner is a foreign person. Neither a partnership nor a nominee may directly or indirectly rely on information on a Form 1001, Form W-8, or Form W-9 after the date that such form must be re-executed, nor on a certification of non-foreign status based upon an election under section 897(i) of the Code.

A partnership that is permitted to rely on a certification of non-foreign status and the alternative forms of information (Forms 1001, W-8, or W-9) in determining non-foreign status, and that relies in good faith on any of those shall not be subject to the liability imposed by Section 4.02 of this revenue procedure for a failure to withhold under section 1446 of the Code. However, a partnership that has actual knowledge of the falsity of any of these forms of information shall not be entitled to rely on that form of information any time after obtaining that knowledge, and the partnership shall be fully liable under section 1461 for any failure to pay the withholding tax under section 1446 for the taxable year in which it obtained that knowledge. The partnership will not be liable for penalties for failure to make timely payments of installments of the section 1446 withholding tax that were due prior to the time it obtained knowledge that the information upon which it was entitled to rely was false.

In the case of a widely held partnership, the documentation used to determine the non-foreign status of a partner must be retained until the end of the fifth taxable year following the last taxable year in which the partnership properly relied upon the documentation as provided in this revenue procedure.

03 USE OF MEANS OTHER THAN CERTIFICATION. A partnership is not required to obtain a certification of non-foreign status under the rules of Section 5.02 of this revenue procedure, but may instead rely upon other means to ascertain the non-foreign status of the partner. If, however, the partnership relies upon other means not specified in Section 5.02 of this revenue procedure, and erroneously determines that the partner was not a foreign person, then the partnership is subject to the liability described in Section 4.02. A partnership is in no event required to rely upon other means to determine the non- foreign status of a partner and may demand a certification of non- foreign status. If a certification is not provided, the partnership may withhold tax under section 1446 of the Code and will be considered, for purposes of sections 1461 through 1463, to have been required to withhold such tax.

04 SAMPLE CERTIFICATIONS. The following are examples of acceptable certifications under the rules of this revenue procedure.

(a) PARTNERS WHO ARE INDIVIDUALS. "Section 1446 of the Internal Revenue Code provides that a partnership must pay a withholding tax to the Internal Revenue Service with respect to a partner's allocable share of the partnership's effectively connected taxable income, if the partner is a foreign person. To inform [name of partnership] that the provisions of section 1446 do not apply, I, [name of partner], hereby certify the following:

1. I am not a nonresident alien for purposes of U.S. income taxation;

2. My U.S. taxpayer identification number (social security number) is _____; and

3. My home address is _________.

I hereby agree that if I become a nonresident alien, I will notify the partnership within sixty (60) days of doing so. I understand that this certification may be disclosed to the Internal Revenue Service by the partnership and that any false statement I have made here could be punished by fine, imprisonment, or both.

Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct, and complete.

[Signature and Date]"

(b) PARTNERS THAT ARE ENTITIES. "Section 1446 of the Internal Revenue Code provides that a partnership must pay a withholding tax to the Internal Revenue Service with respect to a partner's allocable share of the partnership's effectively connected taxable income, if the partner is a foreign person. To inform [name of partnership] that the provisions of section 1446 do not apply, the undersigned hereby certifies on behalf of [name of the entity] the following:

1. [Name of the entity] is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations);

2. [Name of the entity]'s U.S. employer identification number is _____, and

3. [Name of the entity]'s office address is ________.

[Name of the entity] hereby agrees to notify the partnership within sixty (60) days of the date [name of the entity] becomes a foreign person. [Name of entity] understands that this certification may be disclosed to the Internal Revenue Service by the partnership and that any false statement contained herein could be punished by fine, imprisonment, or both.

Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct, and complete, and I further declare that I have authority to sign this document on behalf of [name of entity].

[Signature and Date]

[Title]"

SEC. 6. EFFECTIVELY CONNECTED TAXABLE INCOME

01 IN GENERAL. The term "effectively connected taxable income" means the excess of the gross income of the partnership that is effectively connected, under the principles of section 864 of the Code, or treated as effectively connected with the conduct of a trade or business in the United States, over the allowable deductions that are connected to such income, computed with the following adjustments:

(a) paragraph (1) of section 703 (a) of the Code shall not apply;

(b) the partnership shall be allowed a deduction for depletion with respect to oil and gas wells, but the amount of such deduction shall be determined without regard to sections 613 and 613A;

(c) there shall not be taken into account any item of income, gain, loss, or deduction to the extent allocable to any partner that is not a foreign partner, and

(d) a partnership shall not take into account net operating loss carryovers and charitable contributions.

The computation of a partnership's effectively connected taxable income includes partnership income subject to a partner's election under section 871(d) or 882(d) of the Code, any partnership income treated as effectively connected with the conduct of a U.S. trade or business pursuant to section 897, and other items of partnership income treated as effectively connected under other provisions of the Code, without regard to whether those amounts are taxable to the partner. A foreign partner that files Form 4224, which is used to claim an exemption from withholding under section 1441 and section 1442 of the Code, is deemed to have effectively connected income and is subject to withholding under section 1446.

02 AMOUNT ALLOCABLE TO FOREIGN PARTNERS. The amount of withholding tax that a partnership is required to pay under section 1446 for the partnership's taxable year is based on the amount of the partnership's effectively connected taxable income allocable to the partnership's foreign partners for that taxable year. The amount of a partnership's effectively connected taxable income for the partnership's taxable year that is allocable to a foreign partner under section 704 of the Code is equal to the foreign partner's distributive share of effectively connected gross income of the partnership for the partnership's taxable year that is properly allocable to the partner under section 704, reduced by the foreign partner's distributive share of deductions of the partnership for such year that are connected with such income under section 873 or section 882(c)(1), and that are properly allocable to the partner under section 704. For purposes of the preceding sentence, a foreign partner's distributive share of effectively connected gross income and deductions connected with such income shall be computed by taking into account any adjustments to the basis of partnership property described in section 743 pursuant to the partnership's election under section 754. A partnership's effectively connected taxable income shall not be allocable to a foreign partner to the extent such amounts are exempt from U.S. tax with respect to that partner by operation of a treaty or reciprocal agreement to which the United States is a party, or a provision of the Internal Revenue Code.

SEC. 7. AMOUNT OF WITHHOLDING TAX

01 CALCULATION OF PAYMENTS OF TAX.

1 IN GENERAL. Under section 1446 of the Code, as amended, a partnership (other than a publicly traded partnership described in Section 10 of this revenue procedure) must make installment payments of withholding tax based on the amount of effectively connected taxable income of the partnership allocable to its foreign partners, as determined under Section 7.012 of this revenue procedure, without regard to whether distributions are made during the partnership's taxable year. Installment payments of this withholding tax are generally to be made at the times specified in Section 7.014 of this revenue procedure, and at the applicable percentage specified in Section 7.013 of this revenue procedure. A partner's liability for the tax imposed under section 884 of the Code and the partner's distributive share of the partnership's tax credits shall not be taken into account in determining the amount of a partnership's installment payments.

2 AMOUNT OF EFFECTIVELY CONNECTED TAXABLE INCOME USED TO COMPUTE INSTALLMENT PAYMENT OF WITHHOLDING TAX. (i) IN GENERAL. Installment payments of section 1446 withholding tax during the partnership's taxable year are to be based upon the effectively connected taxable income of the partnership year to which they relate. The amount of a partnership's installment payment is equal to the sum of the installment payments for each of the partnership's foreign partners. With respect to a foreign partner, the amount of an installment of the section 1446 withholding tax is to be computed by applying the principles of section 6655(e)(2) of the Code. Under these principles, the partnership's effectively connected income and deductions for each payment period are annualized, the foreign partner's allocable share of these amounts is determined, and the annualized section 1446 withholding tax is computed by applying the section 1446 applicable percentage to the partner's annualized effectively connected taxable income. The installment of section 1446 withholding tax with respect to that foreign partner equals the excess of the section 6655(e)(2)(B)(ii) applicable percentage of this annualized section 1446 withholding tax over the aggregate of any amounts paid under section 1446 with respect to that partner in prior installments for the partnership's taxable year.

(ii) SAFEHARBOR. No penalty will be imposed if (1) the amount of each installment payment equals 25 percent of the withholding tax that would be payable on the amount of its effectively connected taxable income allocable to foreign partners for the prior year, (2) the prior taxable year consisted of twelve months, (3) the partnership filed an information return under section 6031 of the Code for the prior year, and (4) the amount of effectively connected taxable income for the prior year was not less than 50 percent of the effectively connected taxable income as shown on the annual return of section 1446 withholding tax that must be filed for the current year.

3 APPLICABLE PERCENTAGE. In the case of partners that are taxable as corporations under the Internal Revenue Code, the section 1446 applicable percentage is the highest rate of tax specified in section 11 (b) of the Code for income derived during the taxable year of the partnership described in Section 7.013 of this revenue procedure, currently 34 percent. In the case of partners that are not taxable as corporations under the Internal Revenue Code (e.g., partnerships, individuals, estates), the applicable percentage is the highest rate of tax specified in section 1 for income derived during the taxable year of the partnership described in Section 7.013 of this revenue procedure, currently 28 percent.

A partnership's liability under section 1461 of the Code and the regulations thereunder includes any underpayment of tax caused by a failure to use the proper applicable percentage in computing and paying the withholding tax due under section 1446. For example, a partnership will be liable under section 1461 and the regulations thereunder if it incorrectly fails to pay any withholding tax for a foreign partner, or underpays a withholding tax for a foreign corporate partner by using the incorrect applicable percentage.

4 DATE PAYMENTS ARE DUE. Withholding under section 1446 of the Code is imposed on effectively connected taxable income derived through a partnership during a partnership's taxable year. Subject to the transition rules described in Section 8.08 of this revenue procedure, payments of the withholding tax under section 1446 must generally be made during the taxable year of the partnership in which such income is derived. A partnership must generally pay to the Internal Revenue Service a portion of its estimated annual section 1446 payment for each foreign partner on or before the 15th day of the fourth, sixth, ninth, and twelfth months of the partnership's taxable year for U.S. income tax purposes. Any additional amounts determined to be due are to be paid with the filing of the annual return of tax under section 1446, described in Section 8.03 of this revenue procedure.

02 COORDINATION WITH OTHER WITHHOLDING RULES.

1 INTEREST, DIVIDENDS, ETC. Fixed or determinable, annual or periodical income subject to tax only under section 871(a) or 881 of the Code is not included in the partnership's effectively connected taxable income under Section 6.01 of this revenue procedure. However, such amounts are independently subject to the withholding requirements of sections 1441 and 1442 and the regulations thereunder.

2 REAL PROPERTY GAINS. (i) DOMESTIC PARTNERSHIPS IN GENERAL. Domestic partnerships that are subject to the withholding requirements of section 1446 of the Code, shall not also be subject to the payment and reporting requirements of section 1445(e)(1) of the Code and the regulations thereunder with respect to income from the disposition of a U.S. real property interest. A domestic partnership's compliance with the requirement to pay a withholding tax under section 1446 satisfies the requirements under section 1445 with respect to dispositions of U.S. real property interests. However, a domestic partnership that would otherwise be exempt from section 1445 withholding by operation of a nonrecognition provision must continue to comply with the requirements of section 1.1445- 5(b)(2) of the regulations. Rules coordinating the withholding liability of publicly traded partnerships under section 1445 of the Code and section 1446 are provided in Section 10 of this revenue procedure.

(ii) CREDIT FOR SECTION 1445(e)(1) WITHHOLDING. Any amounts withheld and paid over by a partnership under section 1445(e)(1) of the Code, during the partnership's taxable year with respect to transactions occurring during taxable years beginning after December 31, 1987, but prior to the filing of the annual return reporting section 1446 withholding for such years, shall be allowed as a credit against the partnership's section 1446 tax liability for that taxable year.

(iii) FOREIGN PARTNERSHIPS. A foreign partnership that is subject to withholding under section 1445(a) during a taxable year, shall be allowed to credit the amount withheld under section 1445(a) against its liability to pay the section 1446 withholding tax for that year.

SEC. 8. REPORTING AND PAYING OVER WITHHELD TAX

01 IN GENERAL. Except in the case of publicly traded partnerships that are withholding on distributions to foreign partners under the general rule of Section 10 of this revenue procedure, payments of withholding tax required to be made during a partnership's taxable year must be reported and paid over to the Internal Revenue Service by the appropriate payment date described in Section 7.014 of this revenue procedure. Until further guidance is published by the Internal Revenue Service, such payments are to be reported in the manner prescribed in this Section 8. In addition, a partnership (other than a publicly traded partnership subject to the reporting requirements in Section 10 of this revenue procedure) that has effectively connected taxable income (without regard to the amount if any allocable to foreign partners) is required to make an annual return of such tax on or before the date (including extensions) specified in section 1.6031-1(e)(2) of the regulations for filing Form 1065 and attachments. The annual return required under section 1446 is separate from Form 1065 and the attachments thereto, and is not to be filed as part of the partnership's Form 1065. Until further guidance is published by the Internal Revenue Service, an annual return under section 1446 of the Code is to be filed in accordance with Section 8.03 and Section 8.04 of this revenue procedure.

Pursuant to section 7502 of the Code and the regulations thereunder, the timely mailing of the withholding tax with the information specified in this Section shall be treated as timely filing.

02 PAYMENTS OF TAX DURING PARTNERSHIP TAXABLE YEAR. Until further guidance is published by the Internal Revenue Service, the payments of withholding tax made during the partnership's taxable year shall be:

(a) made payable to the Internal Revenue Service in U.S. currency; and

(b) sent to the Internal Revenue Service, P.0. Box 21086, Philadelphia, PA 19114.

Until official Internal Revenue Service forms are available and obtained by a partnership, the payments made during the partnership's taxable year must be accompanied by a document containing the following heading and information:

PAYMENT OF SECTION 1446 TAX

1.(a). Name of partnership:

(b). Employer identification number:

(c). Address (number and street):

(d). City, State, and ZIP code (or equivalent):

2. Due date of payment

3. Amount of payment

03 ANNUAL RETURN OF SECTION 1446 TAX. Every partnership (except publicly traded partnerships subject to the reporting requirements in Section 10 of this revenue procedure) that has foreign partners and effectively connected gross income, without regard to the amount, if any, allocable to foreign partners for the taxable year, shall make an annual return under section 1446 containing the information prescribed in Section 8.03 and Section 8.04 of this revenue procedure. This return must be filed with attachments described in Section 8.04 identifying all foreign partners.

Any additional tax owed under section 1446 for the relevant taxable year of the partnership must be paid to the Internal Revenue Service with this annual return. Any additional tax remitted with the annual return shall be made payable to the Internal Revenue Service in U.S. currency; and sent with the annual return and attachments to the Internal Revenue Service, P 0 Box 21086 Philadelphia, PA 19114.

Until official Internal Revenue Service forms are available, the annual return must contain the following heading and information:

SECTION 1446 WITHHOLDING TAX ON INCOME OF FOREIGN PARTNERS --

PARTNERSHIP/WITHHOLDING AGENT

1 (a). Name of partnership:

(b). Employer identification number:

(c). Address (number and street):

(d). City, State, and ZIP code (or equivalent):

2 (a). Name of Withholding Agent (if withholding agent is also the partnership enter "SAME" and do not complete lines 2(b) - (d)):

(b). Employer identification number:

(c). Address (number and street):

(d). City, State, and ZIP code (or equivalent):

3. Partnership's taxable year end: (date)

4 (a). Number of partners with respect to which the applicable rate of withholding tax is 28%:

(b). Total amount of effectively connected taxable income allocable to these partners:

(c). Tax owed at 28% (line 4(b) multiplied by 28%):

5 (a). Number of partners with respect to which the applicable rate of withholding tax is 34%:

(b). Total amount of effectively connected taxable income allocable to these partners:

(c). Tax owed at 34% (line 5(b) multiplied by 34%).

6. Total Section 1446 tax owed (line 4(c) plus line 5(c)):

7 (a). Amount of Section 1446 tax paid by partnership on line 1 during its taxable year on line 3:

(b). Amount of section 1446 tax withheld with respect to partnership on line 1 by another partnership in which partnership on line 1 is a direct or indirect partner during the taxable year on line 3:

(c). Amount of section 1445(a) tax withheld from partnership on line 1 during the taxable year on line 3 with respect to a disposition by that partnership:

(d). Amount of tax withheld by partnership under section 1445(e)(1).

(e). Estimated tax paid by partnership on behalf of partners without using Rev. Proc. 88-21 reporting (e.g., the partnership filed a Form 1040-ES for partner):

(f). Total credits (sum of lines 7(a), 7(b), 7(c), 7(d) and 7(e)):

8. Additional tax owed and paid with this return (excess of line 6 over line 7(f)) (enter zero if line 7(f) is greater than line 6):

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true correct and complete. Declaration of preparer (other than withholding agent) is based on all information of which preparer has any knowledge.

Please Sign Here _____________ Date: _____________

04 INFORMATION REQUIRED TO BE REPORTED FOR EACH FOREIGN PARTNER. An attachment to the return described above in Section 8.03 of this revenue procedure must be supplied for each foreign partner. The full name (first, middle, last, without titles (e.g., Dr., Mrs.)) of each individual partner must be indicated. If more than one name or U.S. tax identification number is reported on this attachment, the tax reported will be credited only to the first U.S. tax identification number shown. The partnership filing the attachment must file separate attachments for any joint owners of a partnership interest that seek to divide the credit for section 1446 tax reported. The attachment must contain the following heading and information in the format and order specified:

SECTION 1446 WITHHOLDING TAX ON INCOME OF FOREIGN PARTNERS --

FOREIGN PARTNER

1 (a). Full name of partner:

(b). U.S. tax identification number of partner:

(c). Account number assigned by partnership (if any):

(d). Address (number and street):

(e). City, State, and ZIP code (or equivalent):

2 (a). Type of partner (individual, corporation, partnership, other (specify)):

(b). Country code of Partner (see listing of codes in instructions for Form 1042S):

3 (a). Partnership's name:

(b). Partnership's Employer Identification Number:

(c). Partnership taxable year to which section 1446 tax relates (date of year end):

4 (a). Withholding agent's name (if withholding agent is the partnership enter "SAME" and do not complete line 4(b)):

(b). Withholding agent's Employer Identification Number:

5 (a). Partnership effectively connected taxable income allocable to partner:

(b). Applicable tax rate (maximum rate under section 1, or section 11(b) as appropriate):

(c). Section 1446 tax liability (line 5(a) times line 5(b)):

(d). Partner's allocable share of total section 1445(a) tax withheld on partnership's disposition of U.S. real property during partnership's taxable year:

(e). Amount of tax withheld under section 1445(e)(1) with respect to foreign partner:

(f). Total section 1445 withholding with respect to partner (line 5(d) plus line 5(e)):

(g). Estimated tax payments made by partnership on behalf of partner without using Rev. Proc. 88-21 reporting (e.g., the partnership filed a Form 1040-ES for partner):

(h). Total adjustments to section 1446 liability (line 5(f) plus line 5(g)):

(i). Net section 1446 liability (line 5(c) minus line 5(h)):

6 (a). Dates of payment and partner's allocable amount of section 1446 tax paid by partnership during partner's taxable year beginning on or during the partnership's taxable year ending on date on line 4(c) (excluding estimated tax payments made by partnership on behalf of partner (line 5(g)):

(b). Total of amounts entered on line 6(a):

(c). Partner's allocable share of section 1446 tax withheld with respect to partnership on line 4 by another partnership in which partnership on line 4 is a partner during the taxable year on line 4(c):

(d). Partner's allocable portion of section 1446 payment made by partnership with partnership's annual return of section 1446 tax:

(e). Tax creditable by partner under section 1446 (sum of lines 6(b), 6(c), and 6(d)):

05 REPORTING TO PARTNERS. Upon making an installment payment of withholding tax to the Internal Revenue Service under section 1446, a partnership must notify each foreign partner of its allocable share of any section 1446 tax paid to the Internal Revenue Service by the partnership. No particular form is required for this notification, but it must contain the name of the partnership and the amount being paid on behalf of the partner. The information on this statement is to be used by the partner to adjust the amount of estimated tax that the partner is otherwise required to pay to the Internal Revenue Service.

A partnership must annually provide foreign partners with a copy of the statement filed with the Service and described in Section 8.04 of this revenue procedure. This information must be supplied to foreign partners even if no withholding tax is paid by the partnership under section 1446 of the Code. This information must be delivered to the foreign partner by the date specified in section 6031(b) on which the partnership must report the partnership's tax return information to its partners.

06 PAYMENT WITHOUT IDENTIFYING NUMBER. A partnership that has not been assigned a U.S. identifying number (an Employer Identification Number ("EIN")) must obtain one, and must in any event pay a withholding tax to the Internal Revenue Service, P.O. Box 21086, Philadelphia, PA 19114, by the time provided in this revenue procedure. Accompanying any payment must be a statement containing the relevant information described above in Section 8.02 and indicating the date the EIN was applied for. Upon receipt of its EIN, the partnership must immediately provide that number to the Internal Revenue Service, P.O. Box 21086, Philadelphia, PA 19114.

07 TAXPAYER IDENTIFICATION NUMBERS OF PARTNERS. To assure appropriate crediting of withheld amounts or quarterly payments, when reporting to the Internal Revenue Service, a partnership (including a publicly traded partnership described in Section 10 of this revenue procedure) must provide a U.S. taxpayer identification number or an EIN for each foreign partner. The partnership should therefore notify each of its foreign partners of the necessity of obtaining a U.S. identifying number.

A partnership must pay a withholding tax under section 1446 with respect to a foreign partner even if the partnership does not have a taxpayer identification number for that partner. Publicly traded partnerships that designate nominees to withhold tax under section 1446 as provided in Section 10 of this revenue procedure must supply this identification number to the nominee.

08 TRANSITION RULES FOR TAXABLE YEARS BEGINNING IN 1988. Payments of withholding tax that would be required to have been made during 1988 for a partnership's first taxable year beginning during 1988, under section 1446 as amended by the 1988 Act and the general rules of this revenue procedure, will be considered timely paid if made on or before the later of June 15, 1989, or the date provided in Section 8.01 of this revenue procedure on which the partnership would otherwise be required to file its annual return under section 1446 for its 1988 taxable year. In the case of a partnership with a taxable year beginning and ending in 1988, such amounts are to be made and reported with the annual return required under Section 8.01 for that taxable year in 1988, and that return shall be due on the later of June 15, 1989, or the date (including extensions) by which the partnership must file the information return required under section 6031 of the Code for that year.

In the case of partnerships with taxable years beginning in 1988 and ending in 1989, amounts that would have been required under the general rules of this section to have been paid during 1988, as well as any payment required under the general rules to have been made on or before June 15, 1989, will be considered timely if paid by June 15, 1989. These payments are to be reported under the general filing requirements contained in Section 8 of this revenue procedure. All payments due after June 15, 1989, under the general rules of this section are to be made at the time and in the manner provided in the general rules of this revenue procedure.

Any amounts withheld, under Revenue Procedure 88-21 and section 1446 as in effect prior to its amendment by the 1988 Act, on or after the first day of a partnership's first taxable year beginning during 1988, but prior to the date specified in Section 8.01 of this revenue procedure for filing any section 1446 annual return for 1988, shall be credited against the partnership's liability for the relevant taxable year.

The amount of a payment described below that is made as a payment of estimated tax under section 6654 or 6655 by a partnership on behalf of a foreign partner with respect to the partner's allocable effectively connected taxable income, instead of as a payment of tax under section 1446 and Rev. Proc. 88-21 as in effect prior to the 1988 Act, shall reduce the amount of the partnership's section 1446 withholding tax liability for the relevant taxable year of the partnership. The payments that qualify for this treatment are the payments made after the effective date of the amendment of section 1446 by the 1988 Act and prior to the date specified in Section 8.01 of this revenue procedure for the filing of the partnership's annual return under section 1446 for 1988.

SEC. 9. TREATMENT OF PARTNERS

01 IN GENERAL. A partnership's payment of section 1446 withholding tax on effectively connected taxable income allocable to a foreign partner relates to the partner's U.S. income tax liability for the partner's taxable year in which the partner is subject to U.S. tax on that income.

Withholding tax paid under section 1446 of the Code that is in excess of the partner's U.S. income tax liability, as established on the partner's tax return for that year, may be credited by the partner against the partner's U.S. income tax liability for other subsequent years. Amounts paid by the partnership under section 1446 of the Code with respect to effectively connected taxable income allocable to a partner shall be allowed to the partner as a credit under section 33 of the Code. The partner may not claim an early refund of these amounts under the estimated tax rules. Amounts paid by a withholding agent under section 1446 with respect to a partner are to be treated as distributions made to that partner on the last day of the partnership taxable year for which the amount was paid, or if earlier, the last day on which the partner owned an interest in the partnership during that year. The amounts paid are not refundable to the withholding agent.

02 SUBSTANTIATION OF CREDIT. A partner that seeks a credit against its U.S. income tax liability for amounts withheld and paid over under section 1446 of the Code must attach proof of payment to its U.S. income tax return for the taxable year in which it claims the credit. Proof of payment consists of a copy of the annual statement that the partnership is required to furnish under Section 8.05 of this revenue procedure, or copies of any official Internal Revenue Service form that may be prescribed.

In the case of partners of publicly traded partnerships that are subject to withholding on distributions under the general rules described in Section 10 of this revenue procedure, proof of payment consists of a copy of the Form 1042S supplied to them by the partnership.

SEC. 10. PUBLICLY TRADED PARTNERSHIPS

01 IN GENERAL. A publicly traded partnership, as described in this Section, that has effectively connected income, gain or loss must pay a tax under section 1446 of the Code by withholding from distributions to a foreign partner, unless it makes the election in Section 10.08 of this revenue procedure to instead pay a withholding tax based on effectively connected taxable income allocable to foreign partners. The amount of the withholding tax on distributions equals the applicable percentage, defined in this Section 10.01, of any distribution not excluded under this Section that is made during any partnership taxable year beginning after December 31, 1987. Publicly traded partnerships that withhold on distributions as described in this Section are to pay over and report any section 1446 withholding tax as provided in this Section 10, and are not to pay and report a withholding tax under the rules of section 7 and Section 8 of this revenue procedure.

The applicable percentage is 20 percent for all distributions made to foreign partners prior to June 16, 1989, and 28 percent for all distributions made to foreign partners on or after June 16, 1989.

02 DEFINITION OF PUBLICLY TRADED PARTNERSHIP. For purposes of this revenue procedure, the term "publicly traded partnership" means a regularly traded partnership within the meaning of the regulations under section 1445(e)(1) of the Code, but not a publicly traded partnership treated as a corporation under the general rule of section 7704(a).

03 TIME AND MANNER OF PAYMENT. The withholding tax under section 1446 of the Code required under this Section to be paid from distributions by a publicly traded partnership, is to be paid over pursuant to the rules and procedures of section 1461, the regulations thereunder, and section 1.6302-2 of the regulations. A publicly traded partnership is to use Forms 1042 and 1042S to report withholding from distributions.

With respect to distributions made before December 31, 1989, a payment of tax under section 1446 of the Code is to be reported on Form 1042S under income code 25, which also applies to withholding under section 1445. With respect to distributions made after December 31, 1989, section 1446 withholding on distributions by publicly traded partnerships is to be reported on Form 1042S under income code 27.

04 RULES FOR DESIGNATION OF NOMINEES TO WITHHOLD TAX UNDER SECTION 1446. For purposes of section 1446 of the Code, publicly traded partnerships may apply the rules of the regulations under section 1445(e)(1) that apply to regularly traded partnerships, with respect to the designation of nominees to act as withholding agents for the partnership.

05 DETERMINING FOREIGN STATUS OF PARTNERS. In addition to a certification of non-foreign status described in Section 5 of this revenue procedure, a publicly traded partnership that seeks to determine whether or not any of its partners are foreign persons may rely on the information provided to it on Form 1001, Form W-8 or Form W-9. In addition, a publicly traded partnership may rely on a certification signed under penalties of perjury from a person about the non-foreign status of partners owning partnership interests through that person as nominee. No particular form is required for a certification from such a nominee, but the certification should identify the partner for whom the certification is made, and indicate the basis for the certification. In making such a certification a nominee may also rely on a certification of non-foreign status provided by a foreign partner under the rules of Section 5.02, or may rely on information provided to it on Form 1001, Form W-8, or Form W- 9 in determining whether a partner is a foreign person. Neither a partnership nor a nominee may directly or indirectly rely on information on a Form 1001, Form W-8, or Form W-9 after the date that such form must be re-executed, nor on a certification of non-foreign status based upon an election under section 897(i) of the Code.

A publicly traded partnership that relies in good faith on a certification of non-foreign status or the alternative forms of information described in this paragraph in determining non-foreign status, shall not be subject to the liability imposed by Section 4.02 of this revenue procedure for a failure to withhold under section 1446 of the Code. However, a partnership that has actual knowledge of the falsity of any information relied upon shall not be entitled to rely on that information any time after obtaining that knowledge, and the partnership shall be fully liable under section 1461 for any failure to withhold tax as of the time it obtained that knowledge.

In the case of a publicly traded partnership, the documentation used to determine the non-foreign status of a partner must be retained until the end of the fifth taxable year following the last taxable year in which the partnership properly relied upon that documentation as provided in this revenue procedure. A publicly traded partnership is not required to obtain a certification of non- foreign status under the rules of Section 5.02 of this revenue procedure, nor, the approved alternate forms of information described in Section 10.05 of this revenue procedure, but may instead rely upon other means to ascertain the non-foreign status of the partner. If, however, the partnership relies upon other means not specified in Sections 5.02 or 10.05 of this revenue procedure, and erroneously determines that the partner was not a foreign person, then the partnership is subject to the liability described in Section 4.02. A partnership is in no event required to rely upon other means to determine the non-foreign status of a partner and may demand a certification of non-foreign status. If a certification is not provided, the partnership may withhold tax under section 1446 of the Code and will be considered, for purposes of sections 1461 through 1463, to have been required to withhold such tax.

06 DISTRIBUTIONS SUBJECT TO WITHHOLDING.

1 IN GENERAL. Except as provided herein, a foreign or domestic partnership that is regularly traded within the meaning of the regulations under section 1445(e)(1) of the Code must withhold at the applicable percentage with respect to any actual distribution to a foreign partner. The amount of a distribution subject to section 1446 withholding includes the amount of any section 1446 tax required to be withheld and, in the case of a partnership that receives a partnership distribution from another partnership (a "tiered" structure described in section 11 of this revenue procedure), any section 1446 tax that was withheld from such distribution. For example, foreign publicly traded partnership A owns an interest in domestic publicly traded partnership B. Partnership B makes a section 1446 distribution of $100 to partnership A prior to June 16, 1989, and withholds 20 percent of that distribution under section 1446. Partnership A receives a net distribution of $80 which it immediately redistributes to its partners. Upon making an actual distribution of $80, partnership A is deemed to have also made a distribution of $100 to its partners for purposes of section 1446, consisting of $80 in cash and a $20 deemed distribution in the form of tax payments on behalf of all its (U.S. and foreign) partners. Partnership A has a liability to pay 20 percent of the total actual and deemed distribution to its foreign partners as a section 1446 withholding tax. Partnership A may credit the $20 withheld by partnership B against this liability. In addition, partnership A's (U.S. and foreign) partners may claim a credit against their U.S. income tax liability for their allocable share of this $20 section 1446 tax paid on their behalf.

If a distribution is made with property other than money, the partnership shall not release the property until it has funds sufficient to enable the partnership to pay over in money the tax required to be withheld under section 1446(a) of the Code on the entire amount of the section 1446 distribution to the foreign partner.

2 EXCLUDED AMOUNTS. Distributions from partnerships are deemed to be paid first out of the following types of income in the order indicated, and are excluded from the term "section 1446 distribution" to the extent thereof:

(a) Amounts attributable to non-effectively connected income distributed by a partnership that have been or are subject to the withholding requirements of section 1441 or 1442 of the Code (without regard to whether any amount was or is required to be withheld because of a treaty or statutory exemption);

(b) Amounts attributable to recurring dispositions of crops and timber that are subject to withholding under section 1.1445- 5(c)(3)(iv) of the regulations, which continue to be subject to the rules of section 1.1445-5(c)(3); and

(c) Amounts subject to withholding by the partnership in the manner required by section 1.1445-5(c)(1) upon the partnership's disposition of a U.S. real property interest.

3 COORDINATION WITH SECTION 1445. Except as otherwise provided in this Section 10, a publicly traded partnership that complies with the requirements of withholding under section 1446 and this Section 10 will be deemed to have satisfied the requirements of section 1445(e)(1) and the regulations thereunder. Notwithstanding Section 10.062 of this revenue procedure, section 1446 distributions subject to withholding at the applicable rate described above, shall include:

(a) The fair market value of a U.S. real property interest distributed to a partner and potentially subject to withholding under section 1445(e)(4) of the Code;

(b) Amounts subject to withholding under section 1445(e)(1) upon distribution pursuant to an election under section 1.1445- 5(c)(3) of the regulations; and

(c) Amounts not subject to withholding under section 1445 because the distributee is a partnership or is a foreign corporation that has made an election under section 897(i)).

07 TRANSITION RULES. Any section 1446 withholding upon a distribution occurring in 1989 that is required under the general rules of this Section 10 to be made on or before June 15, 1989, will be considered timely if made by June 15, 1989. All payments due after June 15, 1989, under the general rules of this section are to be made at the time and in the manner provided in the general rules of this revenue procedure.

Any amounts withheld, under Revenue Procedure 88-21 and section 1446 as in effect prior to its amendment by the 1988 Act, on or after the first day of a partnership's first taxable year beginning during 1988, but prior to June 15, 1989, shall be credited against the partnership's section 1446 withholding tax liability for the relevant taxable year.

08 ELECTION TO WITHHOLD BASED UPON EFFECTIVELY CONNECTED TAXABLE INCOME ALLOCABLE TO FOREIGN PARTNERS INSTEAD OF WITHHOLDING ON DISTRIBUTIONS. A publicly traded partnership will not be required to withhold on distributions under the generally applicable rules of this Section 10 if it elects instead to comply with the requirements of Sections 3 through 9, and 11 of this revenue procedure (relating to withholding on the effectively connected taxable income allocable to foreign partners). This election is retroactive to the partnership's first taxable year beginning after December 31, 1987, and is revocable only with the consent of the Commissioner.

A publicly traded partnership shall make this election by complying with the payment and reporting requirements of Sections 7 and 8 of this revenue procedure, by the later of the date on which the annual return of section 1446 tax is due for the partnership's first taxable year beginning during 1989, or the date on which the annual return of section 1446 tax is due for the partnership's first taxable year. A partnership that makes this election must pay over all amounts that would have been withheld and paid over had this election been in effect on the later of June 15, 1989, or the 15th day of the fourth month of the first taxable year of the partnership (with extensions). A publicly traded partnership that makes this election must attach a statement to its first annual return of section 1446 tax indicating that the partnership is a publicly traded partnership that is electing not to withhold on distributions.

SEC. 11. TIERED PARTNERSHIPS

01 IN GENERAL. The term "tiered partnership" is used in this revenue procedure to describe the situation in which a partnership owns an interest in another partnership (the latter is hereafter referred to as a "subsidiary partnership"). A partnership that directly or indirectly owns a partnership interest in a subsidiary partnership shall be allowed a credit against its own section 1446 liability for any section 1446 tax paid by the subsidiary partnership with respect to that partnership interest.

02 REPORTING REQUIREMENTS.

1 IN GENERAL. A partnership that directly or indirectly owns a partnership interest in a subsidiary partnership must comply with the reporting requirements of Section 8.02 and Section 8.04 of this revenue procedure (which applies in the absence of official Internal Revenue Service forms), with respect to its foreign partners. To the extent that a partnership is a direct or indirect partner in a subsidiary partnership and has had section 1446 payments made on its behalf, it will receive a copy of the statements required under Section 8.02 and 8.04 of this revenue procedure to be sent to partners, and must in turn file the statements required under Sections 8.02, 8.03, and 8.04 to the extent it is subject to section 1446, treating the amount withheld by the subsidiary partnership as a credit against its liability to withhold tax under section 1446. The foreign partnership must attach to the annual return it must file under Sections 8 of this revenue procedure, a copy of any statement under Section 8.04 that it receives from the subsidiary partnership in which it is a partner, and must in turn provide its partners with a copy of any statement it receives from the subsidiary partnership along with the information described in Section 8.02 and 8.04. These statements will enable the partners of the foreign partnership to obtain appropriate credit for amounts withheld by the foreign partnership and the lower tier partnership.

2 PUBLICLY TRADED PARTNERSHIPS. A publicly traded partnership is required to notify its partners of the amount of section 1446 tax withheld after each distribution, and by supplying the partner with Form 1042S as required in section 1.1461-2 of the regulations.

EFFECTIVE DATE

This revenue procedure is effective for taxable years of partnerships beginning after December 31, 1987.

EFFECT ON OTHER ADMINISTRATIVE PRONOUNCEMENTS

Rev. Proc. 88-21, 1988-1 C.B. 777, is obsolete.

DRAFTING INFORMATION

The principal author of this revenue procedure is David F. Chan, Office of Associate Chief Counsel (International). For further information on the procedure, call Mr. Chan on (202) 377-9062 (not a toll-free number).