What Is IRC 1446 Withholding Tax for Foreign Partners?

IRC Section 1446 is the withholding tax for foreign partners: it requires any partnership with income effectively connected to a U.S. trade or business to withhold and remit federal tax on the share of that income allocated to any foreign partner, and to withhold 10% of the amount realized when a foreign partner sells a partnership interest. For 2026, the ongoing income rate is 37% for non-corporate foreign partners and 21% for corporate foreign partners. The point of the rule is collection at the source, before money leaves the country.

Which Partnerships Have to Withhold

Two conditions trigger the obligation at the same time: the partnership has effectively connected taxable income, and some of it is allocated to a foreign partner.¹ Where the partnership is organized doesn’t matter. A single foreign partner pulls the entire partnership into the regime.²

A foreign partner is any partner who is not a United States person: nonresident alien individuals, foreign corporations, foreign partnerships, foreign estates, and foreign trusts.¹ If the partnership cannot verify through proper documentation that a partner is a U.S. person, it must treat that partner as foreign and withhold accordingly.² The default runs against the partner, not the partnership.

What Income Gets Withheld On

The tax is computed on each foreign partner’s share of effectively connected taxable income, or ECTI. This is the partnership’s net income from active U.S. business operations, computed under the normal partnership rules of Section 703 with adjustments specific to Section 1446.³ Passive investment income taxed under other code sections is excluded.

One point catches partnerships off guard: withholding applies to the foreign partner’s allocated share of ECTI, not the cash they actually receive.¹ Even if the partnership distributes nothing and reinvests everything, the tax is still owed. Partnership-level credits are also ignored for this calculation.³

Withholding Rates for 2026

The partnership applies the highest marginal rate under the code to each foreign partner’s share of ECTI, and the rate turns on the partner’s entity type:

Non-corporate foreign partners (individuals, trusts, estates): 37%, the top rate under Section 1 for 2026.⁴
Corporate foreign partners: 21%, the flat rate under Section 11(b).²

These are default maximums. The statute pushes the rate high so the government collects at least as much as the partner would owe; if actual liability is lower, the partner claims a credit on their own return. Classifying each partner correctly from day one matters, because misapplied rates create mismatches that have to be unwound later.

Reducing the Withholding With Form 8804-C

The default rate often overshoots the foreign partner’s real tax bill, especially when the partner has losses or deductions from other sources. A foreign partner can submit Form 8804-C to the partnership certifying specific items that should shrink the withholding.⁵ The partnership evaluates each certificate for each installment period.⁶

Items a partner may certify include net operating loss carryovers connected to effectively connected income (the partnership cannot use a certified NOL for more than 90% of the partner’s share of ECTI after other certified deductions), capital loss carryovers broken out by short- and long-term, losses suspended under Section 704(d) in the same partnership, and suspended passive activity or at-risk losses tied to partnership activities.

Charitable contributions, current-year deductions, and deductions the IRS has disallowed or proposed to adjust are off-limits. A deduction certified to one partnership cannot be double-counted against another overlapping partnership.⁷ A new certificate is required for each partnership tax year.

Documenting Partner Status

Before the withholding math starts, the partnership needs each partner’s status on file. Individual foreign partners submit Form W-8BEN; foreign entities submit Form W-8BEN-E; partners acting as intermediaries submit Form W-8IMY.⁸

A Form W-8BEN-E is generally valid from its signing date through the last day of the third succeeding calendar year, unless a change in circumstances makes the information incorrect.⁹ Partners must notify the partnership within 30 days of a change and provide a fresh form. Relying on stale certificates leads to wrong rates or missed withholding.

The Reporting and Payment Forms

Three forms carry the Section 1446(a) compliance:

Form 8804 is the annual return reporting the partnership’s total Section 1446 liability. It also transmits the attached Forms 8805.¹⁰
Form 8805 is a separate statement for each foreign partner, showing their allocated ECTI and total tax withheld. The partner uses it to claim a credit on their own return, and a Form 8805 is required for every foreign partner even if no tax was actually withheld.¹⁰
Form 8813 is the payment voucher accompanying each quarterly installment.¹⁰

Payment and Filing Deadlines

Installments are due on or before the 15th day of the 4th, 6th, 9th, and 12th months of the partnership’s tax year.¹⁰ For a calendar-year partnership, that is April 15, June 15, September 15, and December 15. Fiscal-year partnerships count from their own year-end.

The annual Form 8804, with any remaining balance, is due by the 15th day of the 3rd month after the tax year closes — March 15 for calendar-year partnerships.¹⁰ The partnership then furnishes each foreign partner a copy of their Form 8805 so they can claim the credit.

Penalties for Missing the Rules

A partnership that fails to withhold when required is directly liable for the unpaid tax, plus penalties and interest.² Two separate penalties can hit:

Failure to file Form 8804 by its due date (including extensions) generally costs 5% of unpaid tax per month or partial month, up to 25%.¹⁰
Failure to pay adds 0.5% per month of the unpaid tax, also capped at 25%.¹¹

When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount, so the combined monthly hit is 5% rather than 5.5%.¹¹ Interest accrues from the original due date. File on time even if you cannot pay in full; the filing penalty runs at ten times the payment penalty.

Withholding on the Sale of a Partnership Interest Under 1446(f)

A separate rule applies when a foreign partner sells, exchanges, or otherwise disposes of a partnership interest. The buyer (transferee) must withhold 10% of the total amount realized whenever any portion of the gain would be treated as effectively connected income under Section 864(c)(8).¹ The amount realized includes cash, the fair market value of other property, and any liabilities the buyer assumes.

For transfers of interests in non-publicly traded partnerships, the transferee reports and pays the tax using Form 8288 and Form 8288-A.² If the transferee fails to withhold, the partnership itself must deduct the missing amount plus interest from future distributions to the transferee under Section 1446(f)(4), and reports that backup withholding on Form 8288.¹²

The most common exception: if the seller provides a signed affidavit under penalty of perjury stating that they are not a foreign person and giving their U.S. taxpayer identification number, the buyer does not withhold. The affidavit does not protect a buyer who knows it is false or who receives notice of falsity from an agent. Treasury can also authorize reduced withholding on request when a lower amount will not jeopardize collection.¹

Publicly Traded Partnerships Work Differently

The mechanics change for publicly traded partnerships. For ongoing income, a PTP withholds on actual distributions of effectively connected income rather than on each partner’s allocated share of ECTI, because tracking quarterly allocations across constantly changing unitholders is not workable.²

For sales of publicly traded partnership interests, the 10% withholding on amount realized still applies, but the broker executing the trade withholds rather than the buyer.¹³

How Foreign Partners Recover the Tax

Section 1446 withholding is a prepayment, not a final tax. A foreign partner files a U.S. income tax return (Form 1040-NR for individuals, Form 1120-F for corporations) and claims the amount shown on Form 8805 as a credit. If withholding exceeded actual liability, the partner claims a refund; if it fell short, the partner owes the difference. For tax withheld on a sale of an interest under Section 1446(f), the credit comes through Form 8288-A instead of Form 8805. A foreign partner who skips filing because they assume the withholding is enough forfeits any refund and may draw IRS notices.

1
Office of the Law Revision Counsel. 26 USC 1446 – Withholding of Tax on Foreign Partners Share of Effectively Connected Income
2
Internal Revenue Service. Partnership Withholding
3
eCFR. 26 CFR 1.1446-2 – Determining a Partnerships Effectively Connected Taxable Income Allocable to Foreign Partners Under Section 704
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
5
Internal Revenue Service. About Form 8804-C, Certificate of Partner-Level Items to Reduce Section 1446 Withholding
6
eCFR. 26 CFR 1.1446-6 – Special Rules to Reduce a Partnerships 1446 Tax With Respect to a Foreign Partners Allocable Share of Effectively Connected Taxable Income
7
Internal Revenue Service. Instructions for Form 8804-C
8
Internal Revenue Service. About Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)
9
Internal Revenue Service. Instructions for Form W-8BEN-E
10
Internal Revenue Service. Reporting and Paying Tax on Partnership Withholding
11
Internal Revenue Service. Failure to Pay Penalty
12
Internal Revenue Service. About Form 8288, U.S. Withholding Tax Return for Certain Dispositions by Foreign Persons
13
eCFR. 26 CFR 1.1446(f)-4 – Withholding on the Transfer of a Publicly Traded Partnership Interest