Partnerships with Foreign Partners and U.S. Income

• Form 8804 – Annual Return for Partnership Withholding Tax (Section 1446)

• Form 8805 – Foreign Partner’s Information Return for Withholding Tax (Section 1446)

• Form 8813 – Payment Voucher for Partnership Withholding Tax

These forms relate to U.S. partnerships with foreign partners, specifically those with effectively connected income (ECI) in the U.S.

• Form 8804: The partnership reports the total tax withheld on income allocable to foreign partners under IRC Section 1446.

• Form 8805: Each foreign partner receives this form to report their share of withheld U.S. taxes.

• Form 8813: Used by the partnership to submit quarterly tax payments for withholding on foreign partners.

Why Is This Important?

• U.S. partnerships with foreign partners must withhold taxes on income allocated to them, ensuring the IRS collects taxes before distributions.

• These forms help both the partnership and the foreign partners stay compliant with U.S. tax laws.

Penalties:

• $310 per form not filed if submitted more than 60 days late.

• $630 penalty if the noncompliance is intentional.

• Failure to withhold the correct amount – 100% of the unpaid tax plus interest from the due date.

• $310 per foreign partner if the required form is not provided on time.

• If considered intentional, the minimum penalty is $630 per partner.

These penalties apply to U.S. partnerships with foreign partners that fail to properly report or withhold taxes on U.S.-sourced income.

• Failure to file Form 8804, 8805, or 8813 on time can lead to substantial fines.

• Not withholding or under-withholding taxes on foreign partners’ income can result in the partnership being liable for the full tax amount plus interest.

• Intentional violations lead to higher penalties, reinforcing the IRS’s strict enforcement on tax compliance for foreign investors in U.S. partnerships.