Instructions For Forms 8804, 8805, And 8813

A partnership’s effectively connected

2. The partnership filed Form 1065 or

Reporting to Partners

taxable income includes partnership

Form 1065-B for the prior year.

When making a payment of withholding

income subject to a partner’s election

3. The amount of effectively

tax to the IRS under section 1446, a

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

connected taxable income for the prior

partnership must notify all foreign

to treat real property income as income

year was not less than 50% of the

partners of their allocable shares of any

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

effectively connected taxable income on

section 1446 tax paid to the IRS by the

includes any partnership income treated

the current year’s Form 8804.

partnership. The partners use this

as effectively connected with the conduct

information to adjust the amount of

of a U.S. trade or business under section

estimated tax that they must otherwise

Applicable percentage. For all partners,

897 (disposition of investment in U.S. real

pay to the IRS.

the section 1446 applicable percentage is

property), and other items of partnership

35%.

A partnership must annually provide

income treated as effectively connected

foreign partners with a copy of Form 8805

under other provisions of the Internal

When to make the payment. Make

even if no section 1446 withholding tax is

Revenue Code, regardless of whether

installment payments of the withholding

paid. Send Form 8805 to the foreign

those amounts are taxable to the partner.

tax under section 1446 with Form 8813 by

partner by the due date of the partnership

the applicable due dates during the tax

Amount Allocable to Foreign

return (including extensions).

year of the partnership in which the

Partners

income is earned.

Interest and Penalties

The amount of a partnership’s effectively

connected taxable income for the

Interest and penalties are described

Generally, pay any additional amounts

partnership’s tax year allocable to a

below. If the partnership files Form 8804

due when filing Form 8804. However, if

foreign partner under section 704 equals

or Forms 8805 late, fails to furnish correct

the partnership files Form 2758 to request

(a) the foreign partner’s distributive share

Forms 8805, or fails to pay the tax when

an extension of time to file Form 8804,

of effectively connected gross income of

due, it may be liable for penalties and

pay the balance of section 1446

the partnership for the partnership’s tax

interest unless it can show that failure to

withholding tax estimated to be due with

year that is properly allocable to the

file or pay was due to reasonable cause

Form 2758.

partner under section 704, minus (b) the

and not willful neglect.

foreign partner’s distributive share of

Coordination With Other

Interest

deductions of the partnership for that year

Withholding Rules

that are connected with that income under

Interest is charged on taxes not paid by

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

the due date, even if an extension of time

Interest, Dividends, etc.

are properly allocable to the partner under

to file is granted. Interest is also charged

Fixed or determinable, annual or

section 704. This income must be

on penalties imposed for failure to file,

computed by taking into account any

periodical income subject to tax under

negligence, fraud, and substantial

adjustments to the basis of the

section 871(a) or 881 is not included in

understatements of tax from the due date

partnership property described in section

the partnership’s effectively connected

(including extensions) to the date of

743 according to the partnership’s

taxable income under section 1446.

payment. The interest charge is figured at

election under section 754. Also, a

However, these amounts are

a rate determined under section 6621.

partnership’s effectively connected

independently subject to withholding

Late Filing of Form 8804

taxable income is not allocable to a

under the requirements of sections 1441

foreign partner to the extent the amounts

A partnership that fails to file Form 8804

and 1442 and their regulations.

are exempt from U.S. tax for that partner

when due (including extensions of time to

by a treaty or reciprocal agreement, or a

file) generally may be subject to a penalty

Real Property Gains

provision of the Code.

of 5% of the unpaid tax for each month or

Domestic partnerships. Domestic

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

partnerships subject to the withholding

Amount of Withholding

maximum of 25% of the unpaid tax. The

requirements of section 1446 are not also

penalty will not apply if the partnership

Tax

subject to the payment and reporting

can show reasonable cause for filing late.

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

If the failure to timely file is due to

Figuring the Tax Payments

regulations for income from the

reasonable cause, attach an explanation

disposition of a U.S. real property interest.

Under section 1446, a partnership must

to Form 8804.

A domestic partnership’s compliance with

make four installment payments of

Late Filing of Correct Form

the requirement to pay a withholding tax

withholding tax during the tax year.

8805

under section 1446 satisfies the

Amount of each installment payment

requirements under section 1445 for

A penalty may be imposed for failure to

of withholding tax. In general, the

dispositions of U.S. real property

file each Form 8805 when due (including

amount of a partnership’s installment

interests. However, a domestic

extensions). The penalty may also be

payment is equal to the sum of the

partnership that would otherwise be

imposed for failure to include all required

installment payments for each of the

exempt from section 1445 withholding by

information on Form 8805 or for

partnership’s foreign partners. A

operation of a nonrecognition provision

furnishing incorrect information. The

partnership will generally determine the

must continue to comply with the

penalty is based on when a correct Form

amount of the installment payment for

requirements of Regulations section

8805 is filed. The penalty is:

each of its foreign partners by applying

•

1.1445-5(b)(2).

$15 per Form 8805 if the partnership

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

correctly files within 30 days; maximum

so, use the worksheet on page 4.

Foreign partnerships. A foreign

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

Alternatively, a partnership may make

partnership subject to withholding under

a small business). A “small business” has

each installment payment during the tax

section 1445(a) during a tax year will be

average annual gross receipts of $5

year in an amount equal to 25% of the

allowed to credit the amount withheld

million or less for the most recent 3 tax

withholding tax that would be payable on

under section 1445(a), to the extent such

years (or for the period of time the

the amount of its effectively connected

amount is allocable to foreign partners (as

business has existed, if shorter) ending

taxable income allocable to foreign

defined in section 1446(e)), against its

before the calendar year in which the

partners for the prior year if the following

liability to pay the section 1446

Forms 8805 were due.

•

three conditions are met:

withholding tax for that year. This credit is

$50 per Form 8805 if the partnership

allowed on line 6c of the Form 8804 filed

1. The prior tax year consisted of 12

files more than 30 days after the due date

by the foreign partnership.

months.

or does not file a correct Form 8805;

-3-

Instructions for Forms 8804, 8805, and 8813

Instructions For Forms 8804, 8805, And 8813 - 2003 Page 3

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