Proposed regulations under Section 864(c)(8) provide guidance for determining a foreign partner’s effectively connected gains or losses from a transfer of its interest in a partnership engaged in a US trade or business.

Key Points:

..Proposed regulations establish a three-step process for determining the extent to which gains and losses recognized by a foreign partner upon a disposition of its partnership interest will be subject to US income tax under Section 864(c)(8).

..Capital gain or loss and ordinary income or loss is required to be computed separately, consistent with general partnership tax principles.

..Foreign partners will likely need detailed information from partnerships to calculate the amount of income subject to tax under Section 864(c)(8).

..Section 864(c)(8) generally will not override non-recognition rules in the Code.

..Income tax treaties generally will not override Section 864(c)(8).