Section 1446(f) Changes to Publicly Traded Partnership Securities
Who is impacted by Section 1446(f) regulations?
The rule impacts foreign customers (W-8 customers) that have accounts with transactions in securities that fall within the scope of Section 1446(f). A list of securities that are covered by Section 1446(f) can be found here.
United States domiciled customers (W-9 customers) are not impacted.
What can I do to avoid Section 1446(f) withholding tax obligations?
Foreign accounts (W-8 customers) that do not trade or hold any Section 1446(f) impacted securities are not subject to Section 1446(f) related withholding requirements.
United States domiciled customers (W-9) customers are not impacted. There will be no withholding tax obligations for U.S. holders of Section 1446(f) covered securities.
What happens if I am a foreign customer and I trade or hold Section 1446(f) impacted securities after January 1, 2023?
If the Section 1446(f) security declares a distribution, that distribution may be subject to the new 10% withholding tax on excess cumulative net income (ECNI). ECNI is income earned by a publicly traded partnership that has not been previously distributed by the partnership. Consequently, partnership distributions could be subject to withholding tax twice at different tax rates.
Additionally, if a foreign customer sells Section 1446(f) securities, the sale proceeds may be subject to a 10% withholding tax.
Important: Day trading publicly traded partnership securities
If you day trade a Section 1446(f) covered security, each time you place a closing transaction the 10% withholding tax will apply. The 10% withholding tax will be applied by our clearing firm 1-3 business days after your trade is executed.
How can I reclaim funds due to 1446(f) withholding?
Legitimately withheld funds will be remitted to the IRS, and foreign customers will get a 1042-S before the tax deadline. A U.S. tax return would need to be filed to reclaim any potential over withholding. Any questions regarding this process should be referred to a licensed tax professional.