Forms 8804 and 8805: Section 1446 Partner Withholding

A partnership with a single foreign partner and effectively connected income is a withholding agent whether it knows it or not. Section 1446 does not wait for a distribution, does not care whether the partnership had cash, and does not require the foreign partner to ask for anything. Worse, the section contains two completely different taxes that practitioners and partners routinely conflate: an annual withholding tax on operating income under Section 1446(a), reported on Forms 8804, 8805, and 8813, and a transactional withholding tax on the sale of a partnership interest under Section 1446(f), reported on an entirely different form by an entirely different party. Treating one as the other is how partnerships end up liable for tax they never collected.

What Does Section 1446(a) Actually Tax?

Section 1446(a) taxes the effectively connected taxable income (ECTI) that a partnership allocates to a foreign partner. It is a withholding mechanism layered on top of the partner's own US tax liability, not an additional tax, and it is triggered by allocation rather than by distribution.

That last point is the one that surprises operating partnerships. Under IRC §1446(a), a partnership with ECTI allocable to a foreign partner must pay the withholding tax whether or not it distributes anything to that partner. A partnership that reinvests every dollar of profit still owes the Section 1446 tax on the foreign partner's allocable share, and it has to find the cash somewhere. Treasury Regulation 1.1446-3(d)(2)(v) treats amounts the partnership pays as a deemed distribution of money to the partner on the earliest of the day the partnership paid the tax, the last day of the partnership's tax year for which the amount was paid, or the last day the partner held an interest during that year. That is how the payment gets reflected in the partner's capital account and basis.

Three definitions do the work. A foreign partner under Treas. Reg. 1.1446-1(c) is any partner that is not a US person within the meaning of IRC §7701(a)(30), which sweeps in nonresident alien individuals, foreign corporations, foreign partnerships, foreign estates, and foreign trusts. Whether an individual is a nonresident turns on the residency rules covered in our guide to the substantial presence test. Effectively connected taxable income means income effectively connected with a US trade or business, computed with the partner-specific adjustments in Treas. Reg. 1.1446-2. And ECTI is net, not gross: partnership-level deductions properly allocable to the effectively connected income reduce the base before the rate is applied.

That last point separates §1446 from the rest of Chapter 3. If the income allocable to a foreign partner is FDAP rather than ECI, §1446 is the wrong section entirely: the partnership withholds on the gross payment under IRC §§1441 and 1442, at 30% or a treaty rate, and reports on Forms 1042 and 1042-S. The line between the two is developed in our Form 1040-NR guide, and both regimes can run side by side in the same partnership, for the same partner, in the same year.

Which Partnerships Have to Withhold Under Section 1446?

Any partnership, domestic or foreign, that has ECTI allocable to a foreign partner must withhold. There is no size threshold, no de minimis exception in the statute, and no election out.

One carve-out is structural rather than optional. Publicly traded partnerships do not use the Form 8804 system for their Section 1446(a) obligation. Under Treas. Reg. 1.1446-4, a PTP withholds on actual distributions of effectively connected income to foreign partners and reports on Forms 1042 and 1042-S rather than Forms 8804 and 8805. The distribution trigger is the opposite of the allocation trigger governing everyone else, which is why a PTP investor sees withholding only when cash moves. A PTP also cannot use the preferential rates, an option that remains open to non-PTP partnerships. Separately, a partnership wholly owned by US persons has nothing to withhold on, but the burden of establishing that sits on the partnership, which is why the documentation matters more than the conclusion.

What Withholding Rate Applies to a Foreign Partner in 2026?

The statute sets no percentage. IRC §1446(b)(2) defines the applicable percentage by cross-reference: the highest rate of tax specified in IRC §1 for a foreign partner that is not a corporation, and the highest rate specified in IRC §11(b) for a foreign partner that is a corporation. Reading a rate out of §1446 itself is impossible, which is precisely why stale rates persist in partnership agreements and withholding memos for years after Congress changes them.

For tax year 2026 those cross-references resolve as follows:

Because the rate follows §1 and §11(b) automatically, a partnership needs no new election when Congress amends the rate tables. It does need a process that re-derives the rate each year rather than copying last year's workpaper, since a rate that was correct several years ago produces an underpayment today with no warning.

When Are Form 8813 Installments and Form 8804 Due?

Form 8813 installments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the partnership's tax year. For a calendar-year partnership, that is April 15, June 15, September 15, and December 15. Form 8804, with the Forms 8805 attached, is due by the 15th day of the 3rd month following the close of the partnership's tax year, which is March 15 for a calendar-year partnership, and Form 7004 extends that by six months.

One carve-out matters for foreign partnerships and for domestic partnerships run from abroad. Per the Instructions for Forms 8804, 8805, and 8813, "for partnerships that keep their records and books of account outside the United States and Puerto Rico, the due date is the 15th day of the 6th month following the close of the partnership's tax year," June 15 for a calendar-year partnership. The books-and-records location controls, not the place of organization, so a domestic partnership that keeps its books offshore gets the later date and a foreign partnership that keeps its books in the United States does not.

The installment mechanics borrow from the corporate estimated tax rules. Treasury Regulation 1.1446-3(b)(2) directs the partnership to compute each installment by annualizing partnership income under IRC §6655 principles, multiplying each foreign partner's allocable ECTI share by the applicable percentage. A partnership with lumpy income does not have to pay a flat quarter of a projected annual number, but it does have to run the computation rather than guess.

Two timing traps recur. First, the annual return does not cure a missed installment: Schedule A of Form 8804 computes an addition to tax for underpaid installments, so paying the full year's liability with a timely Form 8804 still leaves four underpayments. Second, an extension to file is not an extension to pay: Form 7004 moves the Form 8804 deadline but leaves the payment obligation and the interest clock where they were.

Copies of Form 8805 must also reach each foreign partner by the Form 8804 due date, including extensions, because that copy is the partner's only proof of the credit.

How Does a Foreign Partner Claim the Withheld Tax?

The foreign partner claims the Section 1446 tax as a credit on their own US return by attaching Copy C of Form 8805 to that return. IRC §1446(d)(1) allows each foreign partner "a credit under section 33 for such partner's share of the withholding tax paid by the partnership," claimed for the partner's taxable year in which the partnership's taxable year ends. It therefore functions like withholding reported on a W-2 or a 1042-S: it reduces the balance due, and if it exceeds the partner's actual liability, the excess is refundable. Do not confuse this with §1446(d)(2), which treats the partner's share of the tax as distributed to the partner. That is the basis and capital account rule described earlier, not the credit rule.

A nonresident alien individual attaches Form 8805 to Form 1040-NR. A foreign corporation attaches it to Form 1120-F. A foreign partnership or trust that is itself a partner takes the credit and passes the benefit through to its own owners under the look-through rules in Treas. Reg. 1.1446-5, which exist to keep the withholding from being stranded at a tier with no US liability. Because §1446 withholds at the top statutory rate while the partner's real liability is computed on graduated rates against real deductions, a refund is common rather than exceptional.

The requirement that trips partners most often is the taxpayer identification number. A foreign partner needs a valid US TIN, an SSN or an ITIN obtained on Form W-7 for individuals or an EIN for entities, for the credit to be allowed. Collect a properly completed Form W-8BEN or Form W-8BEN-E with the TIN before the first installment is due, not at year end when the Forms 8805 are being prepared.

Filing the return is not optional just because the withholding covered the liability. A foreign partner with effectively connected income has a US filing obligation, and skipping the return to save paperwork forfeits the refund of an overwithheld amount.

Can a Foreign Partner Reduce the Withholding With Form 8804-C?

Yes. Treasury Regulation 1.1446-6 lets a foreign partner certify to the partnership, on Form 8804-C, deductions and losses that the partner reasonably expects to be available to reduce its own US tax on the effectively connected income. The partnership may then consider those items when computing the Section 1446 tax, which brings the withholding closer to the partner's actual liability rather than to the top statutory rate applied to gross allocable income.

The certification is conditioned, and the conditions matter:

• The certificate goes to the partnership, not to the IRS, and it is the partnership that attaches it to the applicable Form 8813 or Form 8804.
• The partner must have valid documentation and a compliance history, and the filing test differs for first-time and repeat certifiers. Under Treas. Reg. 1.1446-6(b)(1)(i), the partner must first have given the partnership valid documentation of its status under 1.1446-1. Then, under Treas. Reg. 1.1446-6(b)(1)(ii), a partner whose current year is the first taxable year it submits a certificate to any partnership must have filed, or will file, a qualifying US income tax return for each of its three taxable years ending before the end of the partnership's taxable year for which the certificate is submitted, with all amounts due on those returns paid. A repeat certifier is governed instead by Treas. Reg. 1.1446-6(b)(1)(iii): it must have met that first-year test for its first certificate year and have filed a qualifying return for that first year and every subsequent year ending before the beginning of the current year. The three-year look-back is the entry test, not an annual re-qualification, so treating an established certifier as if it must re-run the three-year window each year is wrong.
• The partner must agree to file a US return for the year covered by the certificate and to report the certified items on it.
• A partnership is never obligated to accept a Form 8804-C. Treas. Reg. 1.1446-6 is written permissively, the partner may certify and the partnership may consider, and a partnership that relies on a defective certificate remains liable for the shortfall.
• Net operating losses are capped. The regulation bars a partnership from considering a certified NOL deduction in an amount greater than the percentage limitation, if any, provided in IRC §56(a)(4) and (d), multiplied by the partner's allocable share of ECTI reduced by other certified items. The regulation itself hedges with "if any," so the cap is not a fixed figure to hard-code, but a stack of certified losses still cannot drive the Section 1446 tax to zero.

For a foreign partner with real losses or substantial deductible items, the certificate is the difference between financing the IRS interest-free for a year and paying something near the true liability. For the partnership, accepting one carries liability, so accept certificates only from partners whose documentation you have actually reviewed. That review belongs in the cross-border tax planning that precedes admitting a foreign partner, not after.

What Happens if the Partnership Fails to Withhold?

The partnership becomes liable for the tax. IRC §1461 provides that every person required to deduct and withhold tax under Chapter 3 "is hereby made liable for such tax," and §1446 sits in Chapter 3. A partnership that never withheld does not merely face a penalty, it owes the tax itself.

IRC §1463 is the one meaningful escape and it is narrower than partnerships hope. If the foreign partner actually paid the tax on that income, the partnership is relieved of liability for the tax, but remains liable for interest and any applicable penalties. The relief is retrospective and turns entirely on the partner's own compliance, which the partnership does not control.

Several penalty layers can apply at once, but not all of them are additive:

• Failure to file Form 8804 on time: an addition to tax under IRC §6651(a)(1) of 5% of the unpaid tax per month or part of a month, capped at 25%.
• Failure to pay the Section 1446 tax: an addition under §6651(a)(2) of 0.5% of the unpaid tax per month or part of a month, also capped at 25%, plus interest under §6601.
• The two §6651 additions do not stack. IRC §6651(c)(1) provides that the addition under §6651(a)(1) "shall be reduced by the amount of the addition under paragraph (2) of subsection (a) for any month (or fraction thereof) to which an addition to tax applies under both." In a month where the partnership both filed late and paid late, the combined rate is 5%, not 5.5%, because the failure-to-file rate drops to 4.5% while the 0.5% failure-to-pay addition runs alongside it.
• Failure to deposit installments: the underpayment addition computed on Schedule A of Form 8804 under §6655 principles.
• Failure to file correct Forms 8805 with the IRS: IRC §6721, per form, with the dollar amounts indexed annually for inflation.
• Failure to furnish correct Forms 8805 to partners: IRC §6722, a separate per-form penalty on the same indexed schedule, so a single omitted Form 8805 can generate two penalties.

Reasonable cause relief exists for the information return penalties under §6724, but it does not touch the underlying §1461 liability for the tax. Responsible individuals should also be aware that the IRS instructions for Forms 8804, 8805, and 8813 point to IRC §6672 for a failure to withhold, which reaches persons responsible for collecting and paying over the tax rather than only the entity.

How Is Section 1446(f) Different From Section 1446(a)?

They are different taxes that share a section number. Section 1446(f), added by the Tax Cuts and Jobs Act for transfers after December 31, 2017, requires the transferee, meaning the buyer, to withhold 10% of the amount realized when a foreign person transfers an interest in a partnership that is engaged in a US trade or business. It has nothing to do with the partnership's annual operating income, and the partnership is not the primary withholding agent.

The confusion is structural, so the distinction has to be too.

The most consequential difference is the base. Section 1446(a) applies a high rate to a net number. Section 1446(f) applies a low rate to a gross number. A foreign partner selling an interest for $5,000,000 with a $4,800,000 basis has $200,000 of gain and faces $500,000 of withholding, more than twice the gain, unless an exception or reduced-withholding certification applies. IRC §1446(f)(3) lets the Secretary prescribe a reduced amount, at the request of the transferor or transferee, where doing so will not jeopardize collection of the tax on the §864(c)(8) gain. Nothing in the statute limits the base to the gain on its own.

The second difference is the backstop. Under IRC §1446(f)(4), if the transferee fails to withhold, the partnership must withhold from distributions otherwise payable to the transferee an amount equal to what the transferee failed to withhold, plus interest. A buyer who ignores the obligation does not make it disappear, it migrates to the partnership and then to the buyer's distributions. That is why a purchase agreement for a partnership interest should address §1446(f) certification explicitly rather than leaving it to closing.

What Are the Exceptions to Section 1446(f) Withholding?

Treas. Reg. 1.1446(f)-2(b) provides several certification-based exceptions, and each requires documentation obtained at or before the transfer rather than reconstructed afterward. A transferee that withholds nothing and holds no valid certification is exposed regardless of whether the substantive exception would have applied. The principal exceptions:

• Non-foreign status. The transferor certifies it is a US person, generally on Form W-9 or an equivalent certification of non-foreign status. If the seller is not foreign, §1446(f) never applies.
• No realized gain. The transferor certifies that the transfer produces no realized gain, including no ordinary income from IRC §751 hot assets.
• The effectively connected income exception, which has four conditions, not two. Treas. Reg. 1.1446(f)-2(b)(5)(i) requires the transferor to certify all four of the following: (A) it was a partner in the partnership throughout the look-back period, meaning the immediately prior taxable year and the two preceding taxable years; (B) its distributive share of gross effectively connected income from the partnership, per Schedule K-1, was less than $1 million for each of those years; (C) that same gross effectively connected income was less than 10% of its total distributive share of gross income from the partnership for each of those years; and (D) the effectively connected income, gain, deduction, and loss for each of those years was reported on a Federal income tax return filed by the due date including extensions, and all amounts due were timely paid to the IRS. The test runs on gross income, not on taxable income, which is a different measure from the one §1446(a) uses. The two conditions people forget are (A) and (D). A transferor who bought in partway through the look-back period fails (A), and a transferor who reported the income but paid late, or never filed, fails (D). A transferee who withholds nothing on a certification missing either one is personally liable for the full 10% of the amount realized, which is why the certification has to be read against all four conditions rather than skimmed for the dollar thresholds.
• The less-than-10%-effectively-connected-gain exception, computed on a net basis. Under Treas. Reg. 1.1446(f)-2(b)(4), the certification can rest on any of three alternatives, not just the first. First, a partnership deemed-sale test: if the partnership had sold all of its assets at fair market value on the determination date, it "would have no gain that would have been effectively connected with the conduct of a trade or business within the United States, or, if the partnership would have a net amount of such gain, the amount of the partnership's net gain that would have been effectively connected ... would be less than 10 percent of the total net gain." Second, a transferor-level test: the transferor's distributive share of that hypothetical net effectively connected gain is zero, or is less than 10 percent of its distributive share of the total net gain. Third, a complete exemption: the partnership was not engaged in a US trade or business at any time during its taxable year through the date of the transfer. On the two 10-percent tests, both sides of the fraction are net, not gross, so running the comparison on gross gain and ignoring the offsetting deemed losses flips the answer whenever the hypothetical sale produces losses on some assets.
• Nonrecognition transfers. The transferor certifies that the transfer qualifies for nonrecognition in whole or in part under a specific Code provision, with the certification identifying that provision.
• Treaty-based exemption. The transferor certifies entitlement to treaty benefits that exempt the gain from US tax, which requires an applicable treaty article and a valid Form W-8BEN or W-8BEN-E claiming it. This exception carries a filing step the others do not: under Treas. Reg. 1.1446(f)-2(b)(7), the transferee may rely on the treaty certification only if, within 30 days of the transfer, it mails a copy to the IRS with a cover letter identifying the transferee and the partnership. Miss that filing and the exception is lost even if the treaty claim itself was sound.

Publicly traded partnership interests are handled differently. For transfers of PTP interests, Section 1446(f) withholding is generally imposed on the broker effecting the transfer, at 10% of the amount realized, under Treas. Reg. 1.1446(f)-4, and it relies on the PTP publishing qualified notices to establish whether and how withholding applies. A retail investor who sees a 10% haircut on gross PTP sale proceeds is seeing this rule, not the annual regime.

Where a transfer plainly produces less tax than 10% of gross proceeds would collect, the regulations also allow certifications that reduce the amount withheld by reference to the transferor's maximum tax liability. That is a documentation project, not a checkbox, and it belongs on the transaction timeline.

FIRPTA, the Foreign Investment in Real Property Tax Act, interacts here too, and the regulations resolve the overlap rather than leaving the transferee to withhold twice. Treas. Reg. 1.1446(f)-1(d) provides that a transferee otherwise required to withhold under §1445(e)(5) or §1.1445-11T(d)(1) with respect to the amount realized, as well as under §1446(f)(1), "will be subject to the payment and reporting requirements of section 1445 only, and not section 1446(f)(1), with respect to that amount." Section 1445 controls. There is one exception: if the transferor has applied for a withholding certificate under the last sentence of §1.1445-11T(d)(1), the transferee must withhold the greater of the amounts required under §1445(e)(5) or §1446(f)(1). A transferee that complies with the applicable regime is deemed to have satisfied the other. Our guide to nonresident aliens and Form 1040-NR covers the underlying rules for a nonresident disposing of US real estate.

Bottom Line

Section 1446 contains two withholding taxes, and each fails a different way.

The §1446(a) failure mode is cash and calendar. The tax accrues on allocation, not distribution, so a partnership that distributes nothing still owes it, missed installments draw an addition to tax a timely Form 8804 does not cure, and when the withholding never happens §1461 makes the partnership liable for the tax itself while §1463 relief reaches the tax only, never the interest and penalties.

The §1446(f) failure mode is documentation. The buyer withholds 10% of the gross amount realized, routinely more than the seller's actual gain, and the exceptions in Treas. Reg. 1.1446(f)-2(b) protect only a transferee holding a valid certification at the transfer, read against every condition in it. If the buyer does not withhold, the obligation migrates to the partnership under §1446(f)(4), plus interest.

If your partnership has a foreign partner, is about to, or has one selling out, our international tax team builds the withholding calendar, prepares the forms, and documents the certifications before the transaction rather than after. Have questions about Section 1446 partnership withholding? Contact TS CPA for a free consultation. We respond within the same day.

Official IRS and Government Sources

• IRS About Form 8804
• IRS About Form 8805
• IRS About Form 8813
• IRS Instructions for Forms 8804, 8805, and 8813
• IRS About Form 8804-C
• IRS Partnership Withholding
• IRC Section 1446, Withholding of Tax on Foreign Partners' Share of Effectively Connected Income
• IRC Section 1461, Liability for Withheld Tax
• IRC Section 1463, Tax Paid by Recipient of Income
• Treas. Reg. 1.1446-3, Time and Manner of Calculating and Paying Over the 1446 Tax
• Treas. Reg. 1.1446-6, Special Rules to Reduce a Partnership's 1446 Tax
• Treas. Reg. 1.1446(f)-1, General Rules (including Coordination With Section 1445)
• Treas. Reg. 1.1446(f)-2, Withholding on the Transfer of a Non-Publicly Traded Partnership Interest
• IRC Section 6651, Failure to File Tax Return or to Pay Tax