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Monday, January 4, 2010

Taxation - Partnership Level

In the US Partnerships do not pay income tax directly, but they do file a Tax Return to provide the IRS with information regarding income and expenses, as well as a determination of how much net income should be attributed to each Partner. The Partners then, as individuals, file 1040-NR returns and pay any tax. The Partnership provides K-1 forms to the Partners for input into completing their 1040-NRs.

The Partnership is also responsible for withholding a portion of net income and forwarding it to the IRS on behalf of Partners.

We have now worked through the first instance of a Partnership-level filing. Here is what we are filing:

- 1065 US Return of Partnership Income (Includes Schedules B,K, B-1)
- 8825 Rental Real Estate Income and Expenses of a Partnership (attach to 1065)
- K-1 for each Partner (attach to 1065, and provide to Partners for use in filling out their personal 1040NR forms)

Statement of choice to have real property taxed as income effectively connected to a trade or business in the United States. This may not be required for a Partnership as the default may be "effectively connected" income, but there appears to be no harm in sending it. See “Nonresident Aliens – Real Property Located in the U.S.” on the IRS website. http://www.irs.gov/businesses/small/international/article/0,,id=96403,00.html

The Partnership’s Federal filing is to:
Department of the Treasury
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409
…on or before April 15th

Separate Filing for 8804/8805
- Form 8804 Annual Return for Partnership Withholding Tax (Section 1446) – one per Partnership – summarizes and acts as transmittal for 8805 forms.
- Form 8805 Foreign Partner’s Information Statement of Section 1446 Withholding Tax (one instance of an 8805 per Partner, with 4 copies: one for files of Partnership; one to submit with 1065; one for partner’s files; one to attach to partner’s 1040NR)
- Note that if there are circumstances that would change how the Partnership should calculate withholding for a given Partner, the Partner documents that on an 8804-C and provides it to the Partnership. E.g. Losses in another Partnership that would offset profit in this one.

8804/5 filing is to:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

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