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Page 4 of 7 Fileid: … /iw-8eci/202110/a/xml/cycle06/source 13:00 - 27-Sep-2021
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Disregarded entity. A business entity that has a single Nonresident alien individual. Any individual who is not
owner and is not a corporation under Regulations section a citizen or resident alien of the United States is a
301.7701-2(b) is disregarded as an entity separate from nonresident alien individual. An alien individual meeting
its owner. A disregarded entity does not submit Form either the “green card test” or the “substantial presence
W-8ECI to a partnership for purposes of section 1446. test” for the calendar year is a resident alien. Any person
Instead, the owner of such entity provides the appropriate not meeting either test is a nonresident alien individual.
documentation. See Regulations section 1.1446-1. Additionally, an alien individual who is treated as a
nonresident alien pursuant to Regulations section
Effectively connected income. Generally, when a
301.7701(b)-7 for purposes of computing the individual's
foreign person engages in a trade or business in the
U.S. tax liability, or an alien individual who is a bona fide
United States, all income from sources in the United
resident of Puerto Rico, Guam, the Commonwealth of the
States other than fixed or determinable annual or
Northern Mariana Islands, the U.S. Virgin Islands, or
periodical (FDAP) income (for example, interest,
American Samoa is a nonresident alien individual.
dividends, rents, and certain similar amounts) is
considered income effectively connected with a U.S. trade See Pub. 519 for more information on resident and
or business. FDAP income may or may not be effectively nonresident alien status including information about the
connected with a U.S. trade or business. Factors to be “green card test” and “substantial presence test.”
considered to determine whether FDAP income and Even though a nonresident alien individual
similar amounts from U.S. sources are effectively ! married to a U.S. citizen or resident alien can
connected with a U.S. trade or business include whether: CAUTION choose to be treated as a resident alien for certain
• The income is from assets used in, or held for use in, purposes (for example, filing a joint income tax return),
the conduct of that trade or business;or such individual is still treated as a nonresident alien for
• The activities of that trade or business were a material withholding tax purposes on all income except wages.
factor in the realization of the income.
There are special rules for determining whether income Publicly traded partnership. A publicly traded
from securities is effectively connected with the active partnership (PTP) is an entity that has the same meaning
conduct of a U.S. banking, financing, or similar business. as in section 7704 and Regulations sections 1.7704-1
See section 864(c)(4)(B)(ii) and Regulations section through 1.7704-4 but does not include a publicly traded
1.864-4(c)(5)(ii) for more information. partnership treated as a corporation under that section.
Effectively connected income, after allowable PTP interest. A PTP interest is an interest in a PTP if the
deductions, is taxed at graduated rates applicable to U.S. interest is publicly traded on an established securities
persons and resident aliens, rather than at the 30% rate. market or is readily tradable on a secondary market (or
You must report this income on your annual U.S. income the substantial equivalent thereof).
tax or information return.
Transfer. A transfer is a sale, exchange, or other
A partnership that has effectively connected taxable disposition of a partnership interest, and includes a
income allocable to foreign partners is generally required distribution from a partnership to a partner, as well as a
to withhold tax under section 1446(a). The withholding tax transfer treated as a sale or exchange under section
rate on a partner's share of effectively connected taxable 707(a)(2)(B).
income is 21% for corporate partners and 37% for all
other taxable partners. In certain circumstances, the Transferor. A transferor is any person, foreign or
partnership can withhold tax at the highest rate applicable domestic, that transfers a partnership interest. In the case
to a particular type of income (for example, long-term of a trust, to the extent all or portion of the income of the
capital gain allocated to a noncorporate partner and the trust is treated as owned by the grantor or another person
partner submits the required documentation, for example, under sections 671 through 679, the term transferor
Form W-8BEN) . Any amount withheld under section means the grantor or other person.
1446(a) on your behalf, and reflected on Form 8805 or U.S. person. A U.S. person is defined in section 7701(a)
Form 1042-S issued by the partnership to you, can be (30) and includes an individual who is a citizen or resident
credited on your U.S. income tax return. of the United States, as well as domestic partnerships,
Under section 864(c)(8), added by the TCJA, a foreign corporations, trusts, and estates.
partner’s gain or loss on the transfer of an interest in a Withholding agent. Any person, U.S. or foreign, that has
partnership engaged in a U.S. trade or business is treated control, receipt, custody, disposal, or payment of U.S.
as effectively connected gain or loss. However, section source FDAP income subject to chapter 3 withholding is a
864(c)(8) and final regulations issued under that section withholding agent. For purposes of chapter 4, any person,
generally limit the amount of effectively connected gain or U.S. or foreign, that has control, receipt, custody,
loss to the portion of the foreign transferor's distributive disposal, or payment of a withholdable payment is a
share of gain or loss that would have been effectively withholding agent. The withholding agent can be an
connected had the partnership sold all of its assets at fair individual, corporation, partnership, trust, association, or
market value. any other entity including (but not limited to) any foreign
Foreign person. A foreign person includes a intermediary, foreign partnership, and U.S. branches
nonresident alien individual, a foreign corporation, a treated as U.S. person. Generally, the person who pays
foreign partnership, a foreign trust, a foreign estate, and (or causes to be paid) an amount subject to withholding to
any other person that’s not a U.S. person. the foreign person (or to its agent) must withhold.
-4- Instructions for Form W-8ECI (Rev. 10-2021)
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