[Federal Register: April 29, 2008 (Volume 73, Number 83)] [Rules and Regulations] [Page 23069-23086] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr29ap08-5] ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1, 301 and 602 [TD 9394] RIN 1545-BD80 Special Rules To Reduce Section 1446 Withholding AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations and removal of temporary regulations. ----------------------------------------------------------------------- [[Page 23070]] SUMMARY: This document contains final regulations regarding when a partnership may consider certain deductions and losses of a foreign partner to reduce or eliminate the partnership's obligation to pay withholding tax under section 1446 on effectively connected taxable income allocable under section 704 to such partner. The regulations will affect partnerships engaged in a trade or business in the United States that have one or more foreign partners. The final regulations also include conforming amendments to Sec. Sec. 1.1446-3 and 1.1446-5 and to regulations under sections 1464, 6071, 6091, 6151, 6302, 6402, 6414, and 6722. DATES: Effective Date: These regulations are effective on April 29, 2008. Applicability Dates: The regulations are generally applicable for partnership taxable years beginning after December 31, 2007. See Sec. 1.1446-6(f). For a transition rule see Sec. 1.1446-6(g). FOR FURTHER INFORMATION CONTACT: Ronald M. Gootzeit at (202) 622-3860 (not a toll-free number). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-1934. The collection of information in these final regulations is in Sec. 1.1446-6(c) and (d). This information is required to determine the extent to which a partnership will consider certifications of losses and deductions in calculating the amount of withholding tax it must pay with respect to a foreign partner on the partner's allocable share of effectively connected taxable income earned by such partnership. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background On September 3, 2003, the IRS and the Treasury Department published in the Federal Register a notice of proposed rulemaking [REG-108524-00; 2003-42 IRB 869; 68 FR 52466], corrected at 68 FR 62553 (November 5, 2003) under sections 871, 1443, 1446, 1461, 1462, 1463, 6109, and 6721 of the Internal Revenue Code (Code). The regulations provide guidance for partnerships required to pay withholding tax under section 1446 of the Code (1446 tax). On May 18, 2005, the IRS and the Treasury Department issued final and temporary regulations under section 1446. The 2005 final regulations set forth the provisions of the 2003 proposed regulations in final form and the temporary regulations established a new procedure by which a partnership could consider certain partner-level deductions and losses when computing its 1446 tax. The temporary regulations generally apply to partnership taxable years beginning after the date of their issuance, but an election was provided that permitted a partnership to apply the regulations to partnership taxable years beginning after December 31, 2004, provided the partnership elected to apply the 2005 final regulations to partnership taxable years beginning after December 31, 2004. On May 18, 2005, the IRS and the Treasury Department also published in the Federal Register a notice of proposed rulemaking [REG-108524-00; 2005-1CB 1158; 70 FR 28701], under sections 1464, 6071, 6091, 6151, 6302, 6402, 6414, and 6722 of the Code to implement the section 1446 regime, as well as cross-referencing the temporary regulations under Sec. 1.1446-6T (see 26 CFR Part 1, revised as of April 1, 2007). Written comments were received in response to the notice of proposed rulemaking, and a public hearing was held on November 16, 2005. After consideration of all the comments, the proposed regulations are adopted, as revised by this Treasury decision and the temporary regulations are removed. Explanation of Provisions Section 1446 requires a partnership to pay section 1446 tax on a foreign partner's allocable share of effectively connected taxable income (ECTI) from the partnership. The temporary regulations allow certain foreign partners to certify certain deductions and losses to a partnership to reduce the 1446 tax required to be paid by the partnership with respect to ECTI allocable to such partners. The temporary regulations also permit a nonresident alien partner to certify to the partnership that the partnership investment is (and will be) its only activity for its taxable year that gives rise to effectively connected income, gain, deduction, or loss. In that case, the partnership is not required to pay 1446 tax (or any installment of such tax) with respect to such partner if the partnership estimates that the annualized (or, in the case of a partnership completing its Form 8804 ``Annual Return for Partnership Withholding Tax (Section 1446),'' the actual) 1446 tax due with respect to such nonresident alien partner is less than $1,000. I. Modifications to the Temporary Regulations A. Format of Certificate Submitted to a Partnership The temporary regulations state that no particular form is required for the partner's certificate of deduction and losses to the partnership. However, the temporary regulations list 13 items the certificate must contain and the caption that must appear at the top of the certificate. To ensure uniformity of the certificates and to reduce the likelihood of an inadvertently omitted item causing the certificate to be defective, the IRS developed a form (Form 8804-C, ``Certificate of Partner-Level Items to Reduce Section 1446 Withholding'') to be used by the partner providing a certificate to the partnership. The IRS and the Treasury Department believe that the Form 8804-C will facilitate a partner's ability to provide original and updated certificates. B. Partners Entitled To Certify Deductions and Losses 1. Filing period requirement: number of years To be eligible to provide a certificate to a partnership the temporary regulations require a partner to have timely filed (or to represent that it will timely file) a U.S. income tax return for each of its preceding four taxable years and for the taxable year during which the certificate is provided and will be considered by the partnership. The partner is also required to have timely paid (or to represent that it will timely pay) all tax shown on such returns. The final regulations clarify that only returns that report income or gain effectively connected with a U.S. trade or business or deductions or losses properly allocated and apportioned to such activities will satisfy the tax return filing requirement (for the current or relevant prior years). Accordingly, the partner may not fulfill this requirement with a U.S. income tax return that reports no items of income or gain effectively connected with a U.S. trade or business or deductions or losses properly allocated and apportioned to such activities. [[Page 23071]] Several commentators suggested reducing the temporary regulations' prior years U.S. tax return filing requirement. One commentator suggested reducing the requirement to the lesser of the two prior years or the number of years the partner has been a partner in the relevant partnership. Another commentator suggested reducing the requirement from four to two years. The IRS and the Treasury Department believe it appropriate to require the foreign partner to have filed a certain number of returns and paid any tax relating to those returns regardless of the number of years the partner has been a member of the relevant partnership. The IRS and the Treasury Department do not believe that a reduction to two years is appropriate. Because the return for the year immediately preceding the year a partner submits a certificate to a partnership may not have been filed by the date when the certificate is submitted, reducing the prior years filing requirement to two years could result in only one return being filed by the date on which the certificate is submitted. In response to these comments, however, the IRS and the Treasury Department have determined that it is appropriate to reduce the prior years filing requirement to three years. The IRS and the Treasury Department have also decided to modify the filing requirement of a tax return for a preceding taxable year in which the partner did not submit a certificate to any partnership, if the return has a due date (without extensions) before the beginning of the partnership taxable year for which the certificate is provided. The final regulations provide that such returns must be filed and all amounts due with such return (including interest, penalties, and additions to tax, if any) must be paid on or before the earlier of: (1) The date that is one year from the due date (without extensions) of such return; or (2) The date on which the certificate for the current taxable year is submitted to the partnership. Once a partner submits a certificate to a partnership, however, it must timely file all its subsequent years' returns (and timely pay all amounts due with the returns) to submit a certificate to a partnership in a later year. The IRS and the Treasury Department anticipate that this modified rule will permit more foreign partners to provide certificates to partnerships under the final regulations. 2. Trusts and estates One commentator requested that the IRS and the Treasury Department explain why foreign estates and domestic or foreign trusts, other than grantor trusts, are not permitted to certify deductions and losses to partnerships. Another commentator asked that the decedent's compliance record be considered in determining whether the estate can certify deductions and losses to a partnership. The final regulations do not modify the treatment of estates and trusts. The IRS and the Treasury Department continue to believe, as stated in the preamble to the temporary regulations, that because trusts and estates are not always pure conduits for tax purposes it is difficult for a partnership to determine the taxpayer (that is, the trust, estate or beneficiary) that will pay tax on the ECTI allocated to the trust or estate. Further, a decedent's filing history may have limited relevance in predicting the estate's likely compliance. 3. Tiered partnerships In a tiered partnership structure, a lower-tier partnership must withhold 1446 tax on ECTI allocable to an upper-tier foreign partnership that is a partner in the lower-tier partnership. However, if the upper-tier foreign partnership provides sufficient information regarding its partners to the lower-tier partnership, the lower-tier partnership may withhold 1446 tax based on the partners in the upper- tier partnership. These rules may also apply to upper-tier domestic partnerships that have foreign partners. See Sec. 1.1446-5. Similarly, an upper-tier partnership that receives certificates of deductions and losses from its foreign partners may provide the certificates to the lower-tier partnerships. The final regulations add several rules to ensure that deductions and losses certified to an upper-tier partnership are not taken into account by both the upper-tier partnership and a lower-tier partnership or by more than one lower-tier partnership. A new rule is also added requiring that sufficient information regarding a partner in the upper- tier partnership submitting the certificate be provided to the lower- tier partnership and then to the IRS so that the IRS can reliably associate the ECTI and the certificate with the partner in the upper- tier partnership. C. Submissions of Certificates 1. Time lags for submission of certificates The temporary regulations provide that the partnership may rely on the first certificate submitted by the foreign partner for a partnership taxable year only if the partnership receives the certificate at least 30 days before the installment due date or the annual Form 8804 filing due date (without regard to extensions) for the partnership taxable year for which the partner would like the certificate to be considered in computing the 1446 tax due with respect to the partner. Updated certificates may only be considered if received at least ten days before the installment due date or the Form 8804 filing date (without regard to extensions). Several commentators questioned the appropriateness of these timing requirements if the partnership is willing to rely on a certification submitted at the last moment and remits the 1446 tax installment or files the final return on a timely basis. The IRS and the Treasury Department agree with the commentators and have removed these requirements in the final regulations. 2. Resubmission of certificates The temporary regulations require the partnership to attach a copy of any certificate, and the computation of 1446 tax due with respect to a partner, to both the Form 8813, ``Partnership Withholding Tax Payment Voucher (Section 1446),'' and Form 8805, ``Foreign Partner's Information Statement of Section 1446 Withholding Tax,'' filed with the IRS for any period for which such certificate is considered in computing the partnership's 1446 tax (or any installment of such tax). One commentator suggested that a certificate submitted with Form 8813 should not be required to be submitted with subsequent filings of Form 8813 or with Form 8805. The IRS and the Treasury Department agree with the comment regarding Form 8813. The final regulations provide that a partner's certificate need only be submitted for the first installment period for which it is considered. For subsequent installment periods for which the certificate is considered, the partnership may instead attach a list of the name, taxpayer identification number, and the amount of certified deductions of each foreign partner whose certificate was previously considered during the taxable year and whose certificate was again considered in the subject installment period. The partnership would also indicate if it was relying on the state and local taxes withheld and remitted on behalf of the partner. If the partnership is relying on the de minimis rule for the partner, the partnership would indicate that, in lieu of indicating the amount of certified deductions. However, if a partnership receives an updated certificate from a partner, that certificate must be attached with the Form 8813 for the first installment period it is considered. In all events, a partnership must attach to the Form 8813 and Form 8805, a computation of 1446 tax due with respect to such [[Page 23072]] partner for all periods for which a certificate received from the partner is considered by the partnership. In addition, in all events the partnership must attach to the Form 8805 a copy of the partner's original or updated certificate, as appropriate. 3. Denying partnerships the ability to submit certificates Consistent with the temporary regulations, the final regulations provide that upon receipt of written notification from the IRS that a foreign partner's certificate is defective, the partnership may no longer rely on the defective certificate or any other certificate submitted by the partner until the IRS notifies the partnership in writing and revokes or modifies the original notice. The final regulations provide that the IRS may also notify the partnership in writing if either a substantial portion of the certificates submitted by the partnership are defective or a substantial amount of the deductions and losses relied on by the partnership in computing its 1446 tax due are reported on one or more defective certificates. Upon receiving that notification the partnership may not rely on any certificate submitted by any partner for the partnership taxable year in which such notification is received or any subsequent partnership taxable year, until the IRS notifies the partnership again in writing and revokes or modifies the original notice. D. Deductions and Losses Certified to the Partnership 1. Current year deductions The temporary regulations provide that a foreign partner can only certify deductions and losses that are or will be reflected on the partner's U.S. income tax return filed (or to be filed) for a taxable year ending prior to the installment due date or Form 8804 filing date (without regard to extensions) for the partnership taxable year for which the certificate is considered. Therefore, no anticipated deduction or loss with respect to current operations may be considered. One commentator suggested that partners should be permitted to certify current year deductions to the partnership. The IRS and the Treasury Department are concerned about the uncertainty associated with fluctuations in estimates of current-year activities and therefore have not adopted this suggestion. 2. Charitable deductions One commentator requested that partners be permitted to certify charitable contribution deductions. The IRS and the Treasury Department have not adopted this recommendation because of the difficulty a partnership would have in determining the amount of a charitable contribution deduction allowed to the foreign partner. Section 170 provides separate rules for corporations and individuals, the type of charity to which the contribution is made, and the type of property contributed to the charity. In addition, separate rules apply to determine the deduction amount in the case of charitable contribution carryover. 3. Suspended losses One commentator raised a concern that a foreign partner could certify a passive activity loss to a partnership that conducts a different activity in which the partner materially participates. If the partnership took that loss into account it would inappropriately reduce its 1446 tax due with respect to that partner. Because on its income tax return the partner could not offset the loss against its allocable share of partnership ECTI, the partner might inappropriately each year recertify that loss to the partnership. To address that concern the final regulations clarify that a partner must identify any certified deductions and losses that are subject to special limitations at the partner level and provide information to the partnership that will allow the partnership to take into account the special limitations. 4. Net operating losses The temporary regulations provide that a partnership may not consider a partner's net operating loss (NOL) deduction in an amount greater than 90 percent of the partner's allocable share of ECTI. Two commentators discerned that this requirement reflects a concern about the alternative minimum tax (AMT) limitation on NOL deductions and suggested the regulations should be tied to the continuing applicability of the 90 percent AMT limitation on the use of NOL carryovers. The IRS and the Treasury Department have adopted this suggestion. One commentator further suggested that if the 90 percent limitation is retained, or as long as it applies, the regulations should be clarified to explain that the limitation should be applied on a cumulative basis for each installment period. This suggestion has also been adopted. With this clarification, if the partnership's annualized income changes during the year, the NOL deduction that the partnership may take into account can increase or decrease accordingly. E. Partnership Items Allocable to Partners That Give Rise to Partner Level Deductions, Losses or Credits But Are Not Partnership Allocations of Deductions and Losses Under Section 704 1. State income taxes One commentator suggested allowing the partnership to reduce a foreign partner's ECTI by the amount of any state and local taxes paid by the partnership on behalf of the partner with respect to the partner's allocable share of partnership income. The final regulations adopt this recommendation but provide that the partnership may only consider 90 percent of the state and local taxes withheld and remitted on behalf of the partner but only with respect to the partner's allocable share of ECTI. The partnership may consider these amounts regardless of whether the partner submits a certification of deductions and losses or of its de minimis status to the partnership for the relevant partnership taxable year. 2. Section 199 deductions One commentator suggested allowing a partnership to consider a partner's available deduction under section 199 in determining its section 1446 tax with respect to that partner. The section 199 deduction is a percentage of the lesser of the qualified production activities income (QPAI) of the taxpayer for the taxable year or the taxpayer's taxable income or, in the case of an individual, adjusted gross income determined without regard to section 199 for the taxable year. In addition, the deduction is limited to 50 percent of the Form W-2, ``Wage and Tax Statement'', wages for the taxpayer for the taxable year. Depending on a taxpayer's gross receipts and assets, there are up to three permissible methods for calculating QPAI. In the case of a pass-through entity (such as a partnership), section 199(d)(1)(A) provides that the section 199 deduction is calculated at the partner level. A partner may be a member of more than one partnership and may engage in its own qualifying activities under section 199. The QPAI and Form W-2 wages, and any other QPAI and Form W-2 wages reported by a partnership to the partner, must be added to the partner's own calculation of QPAI and Form W-2 wages. Therefore, because of the difficulty in a partnership determining the section 199 deduction of a partner, the IRS and the Treasury Department determined it would be inappropriate to allow a partnership to consider the section 199 deduction of a partner in determining [[Page 23073]] the amount of section 1446 tax to be withheld with respect to that partner. 3. Section 470 deductions One commentator suggested that the regulations allow the partnership to consider partner-level deductions previously suspended under section 470 (limitation on deductions allocable to property used by governments or other tax-exempt entities) and relating to the partnership, when the deductions become available. Section 470 currently allows the partnership to consider these suspended partner- level deductions in determining the partner's ECTI. Therefore, there is no need to modify the regulations in response to this suggestion. 4. Tax credits One commentator suggested that a foreign partner should be able to certify credits to the partnership and that the partnership be able to consider current-year credits in determining the amount of its 1446 tax. Section 1446 requires that a partnership pay a withholding tax on its ECTI allocable to foreign partners. It provides no authority for partnerships to consider credits in determining the amount of 1446 tax the partnership is required to withhold and pay. Therefore, this suggestion has not been adopted. F. Effect on Reasonable Reliance on Certificate of Deductions and Losses The temporary regulations provide that a partnership is not relieved from liability for 1446 tax under section 1461 or for any applicable addition to the tax, interest, or penalties if a partner's certificate is defective or the partner submits an updated certificate that increases the 1446 tax due with respect to such partner. If a certificate is determined to be defective for a reason other than the amount or character of the deductions and losses set forth on such certificate (for example, the partner failed to timely file a U.S. income tax return), then the partnership is liable for the entire 1446 tax amount under section 1461 (or any installment of such tax). Further, under the temporary regulations, if it is determined that a certificate is defective because the actual deductions and losses available to the partner are less than the amount certified to the partnership (other than when it is determined that the partner certified the same deduction or loss to more than one partnership), the partnership is liable for 1446 tax under section 1461 (or any installment of such tax) only to the extent the amount of certified deductions and losses taken into account by the partnership is greater than the amount determined to be actually available to the partner and permitted to be used under regulations. Similarly, if it is determined that a certificate is defective because the character of the certified deductions and losses is erroneous, the partnership is liable for 1446 tax under section 1461 (or any installment of such tax) only to the extent the actual character of the deductions and losses results in an increase in the 1446 tax due with respect to such partner. However, the temporary regulations provide that the partnership is not liable for the addition to tax under section 6655 (as applied though Sec. 1.1446-3) for the period during which the partnership reasonably relied on the certificate. Further, the temporary regulations provide that although a partnership is generally liable for the 1446 tax, any addition to the tax, interest, and penalties, the partnership may be relieved of some penalties in certain circumstances. One commentator stated that reasonable reliance on a certificate should protect a partnership against liability not only under section 6655, but also for liability for the tax under section 1461, interest on the tax under section 6601, and various other penalty provisions. The IRS and the Treasury Department have not adopted this recommendation. Use of the certification procedures under Sec. 1.1446- 6 is voluntary. The foreign partner is not required to submit a certificate of deductions and losses to the partnership. Moreover, even if the partnership receives a certificate it may consider all, none or only a portion of the certified deductions and losses when calculating its payment of 1446 tax. Further, as the temporary regulations stated, the partnership may be relieved of some penalties in certain circumstances. G. Relief for a Partnership's Failure To Comply Timely With the Requirements of This Section Among other requirements, to apply the rules of Sec. 1.1446-6 the partnership must receive a valid certificate from the foreign partner and attach the certificate, along with the computation of 1446 tax due with respect to that partner, to certain Forms 8813 and Form 8805 filed with respect to that partner. The IRS and the Treasury Department believe that a reasonable cause standard should be applied to determine whether a partnership that failed to attach the certificate and 1446 tax computation to the relevant filing is eligible for an extension of time to comply with this requirement. Under the reasonable cause standard, if a partnership that may otherwise rely on a partner's certificate fails to comply timely with the requirements of Sec. 1.1446-6, the partnership is considered to have satisfied the timeliness requirement if it demonstrates, to the satisfaction of the Area Director, Field Examination, Small Business/ Self-Employed or the Director, Field Operations, Large and Mid-Size Business (Director) having jurisdiction of the partnership's return for the taxable year, that such failure was due to reasonable cause and not willful neglect. Once the partnership becomes aware of the failure, the partnership must demonstrate reasonable cause and must satisfy the filing requirement by attaching the certificate and the partnership's computation of 1446 tax due with respect to that partner to an amended Form 8813 or Forms 8804 and 8805 (that amends the tax return to which the certificate and computation should have been attached). A written statement must be included that explains the reasons for the failure to comply. In determining whether the partnership has reasonable cause, the Director shall determine whether the partnership acted reasonably and in good faith based on all the facts and circumstances. The Director shall notify the partnership in writing within 120 days of the filing if it is determined that the failure to comply was not due to reasonable cause or if additional time will be needed to make such determination. If the Director fails to notify the partnership within 120 days of the filing, the partnership shall be considered to have demonstrated to the Director that such failure was due to reasonable cause and not willful neglect. H. Effective/Applicability Dates and Transition Rule The final regulations are effective for partnership taxable years beginning after December 31, 2007. However, any certificate submitted on or before July 28, 2008 that met the requirements of the temporary regulations shall not be considered defective solely because it does not meet the requirements of the final regulations. However, any certificate (including any updated certificates and status reports) submitted, or required to be submitted, after July 28, 2008, must comply with the requirements of these final regulations. [[Page 23074]] II. Modifications to the 2005 Final Regulations The final regulations make several clarifying and conforming changes to the 2005 final regulations including with respect to the calculation of installment payments of 1446 tax when a partnership considers a certificate received under Sec. 1.1446-6 and the information that a lower-tier partnership must receive from an upper- tier partnership when the lower-tier partnerships pays 1446 tax on behalf of the partners in the upper-tier partnership. Also the prior year safe harbor provision in Sec. 1.1446-3 was conformed with section 6655 to provide that the partnership must compute its current year 1446 tax installments based on the total 1446 tax (without regard to Sec. 1.1446-6) as computed for the prior taxable year. These revisions are effective for partnership taxable years beginning after December 31, 2007. Special Analyses It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. It also has been determined that section 553(b) of the Administrative Procedures Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collections of information contained in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that only a few small entities are expected to be impacted by these collections and the burden associated with such collections is estimated to be 0.5 hours. Moreover, the information collection in Sec. 1.1446-6 and its use is voluntary. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding the final regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. Drafting Information The principal author of these regulations is Ronald M. Gootzeit of the Office of the Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. 26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements. 26 CFR Part 602 Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations 0 Accordingly, 26 CFR parts 1, 301 and 602 are amended as follows: PART 1--INCOME TAXES 0 Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * 0 Par. 2. Section 1.1446-0 is amended is as follows: 0 1. Adding entries for Sec. 1.1446-6. 0 2. Removing entries for Sec. 1.1446-6T. 0 3. Revising the entry for Sec. 1.1446-7. The addition and revision read as follows: Sec. 1.1446-0 Table of contents. * * * * * Sec. 1.1446-6 Special rules to reduce a partnership's 1446 tax with respect to a foreign partner's allocable share of effectively connected taxable income. (a) In general. (1) Purpose and scope. (2) Reasonable reliance on a certificate. (b) Foreign partners to whom this section applies. (1) In general. (2) Definitions. (i) U.S. income tax return. (ii) Timely-filed. (iii) Qualifying U.S. income tax return. (3) Special rules. (c) Reduction of 1446 tax with respect to a foreign partner. (1) General rules. (i) Certified deductions and losses. (A) Deductions and losses from the partnership. (B) Deductions and loss from other sources. (C) Limit on the consideration of a partner's net operating loss deduction. (D) Limitation on losses subject to certain partner level limitations. (E) Certification of deductions and losses to other partnerships. (F) Partner level use of deductions and losses certified to a partnership. (ii) De minimis certificate for nonresident alien individual partners. (A) In general. (B) Requirements for exception. (iii) Consideration of certain current year state and local taxes. (2) Form and time of certification. (i) Form of certification. (ii) Time of certification provided to partnership. (A) First certificate submitted for a partnership's taxable year. (B) Updated certificates and status updates. (1) Preceding year tax returns not yet filed. (2) Other circumstances requiring an updated certificate. (3) Form and content of updated certificate. (4) Partnership consideration of an updated certificate. (3) Notification to partnership when a partner's certificate cannot be relied upon. (4) Partner to receive copy of notice. (5) Notification to partnership when no foreign partner's certificate can be relied upon. (6) Partnership notification to partner regarding use of deductions and losses. (7) Partner's certificate valid only for partnership taxable year for which submitted. (d) Effect of certificate of deductions and losses on partner and partnership. (1) Effect on partner. (i) No effect on liability for income tax of foreign partner. (ii) No effect on partner's estimated tax obligations. (iii) No effect on partner's obligation to file U.S. income tax return. (2) Effect on partnership. (i) Reasonable reliance to relieve partnership from addition to tax under section 6665. (ii) Continuing liability for withholding tax under section 1461 and for applicable interest and penalties. (A) In general. (B) Certificate defective because of amount or character of deductions and losses. (3) Partnership level rules and requirements. (i) Filing requirement. (ii) Reasonable cause for failure to timely file a valid certificate and computation. (A) Determining reasonable cause. (B) Notification. (e) Examples. (f) Effective/Applicability date. (g) Transition rule. Sec. 1.1446-7 Effective/Applicability date. 0 Par. 3. For each entry in the table in the ``Section'' column remove the phrase in the ``Remove'' column and add the phrase in the ``Add'' column in its place. ------------------------------------------------------------------------ Section Remove Add ------------------------------------------------------------------------ 1.1443-1(a) (First sentence) 1.1446-6T...... 1.1446-6 1.1446-1(a)................. 1.1446-6T...... 1.1446-6 1.1446-1(b)................. Sec. 1.1446- Sec. 1.1446-6 6T. [[Page 23075]] 1.1446-1(c)(5) (Second 1.1446-6T...... 1.1446-6 sentence). 1.1446-2(a) (Third sentence) Sec. 1.1446- Sec. 1.1446-6 6T. 1.1446-2(b)(1) (Second Sec. 1.1446- Sec. 1.1446-6 sentence). 6T. 1.1446-2(b)(1) (Last 1.1446-6T...... 1.1446-6 sentence). 1.1446-2(b)(3)(iii) (First Sec. 1.1446- Sec. 1.1446-6 sentence). 6T. 1.1446-2(b)(3)(iii) (Second Sec. 1.1446- Sec. 1.1446-6 sentence). 6T. 1.1446-2(b)(3)(vii)......... Sec. 1.1446- Sec. 1.1446-6 6T. 1.1446-2(b)(5) Example 3 Sec. 1.1446- Sec. 1.1446-6 (Sixth sentence). 6T. 1.1446-3(b)(2)(v)(F) (Second Sec. 1.1446- Sec. 1.1446-6(c)(1)(ii) sentence). 6T. 1.1446-3(d)(1)(i) (Third Sec. 1.1446- Sec. 1.1446-6(d)(3) sentence). 6T. 1.1446-3(d)(1)(iii) (Third Sec. 1.1446- Sec. 1.1446-6 sentence). 6T. 1.1446-3(e)(3)(i) (Last Sec. 1.1446- Sec. 1.1446-6(d)(2)(i) sentence). 6T. 1.1446-5(f) Example 1(i) Sec. 1.1446- Sec. 1.1446-6 (Ninth sentence). 6T. ------------------------------------------------------------------------ 0 Par. 4. Section 1.1446-3 is amended by: 0 1. Removing the acronym ``ECTI'' from the first sentence in paragraph (b)(1) and adding the language ``effectively connected taxable income (ECTI)'' in its place. 0 2. Revising paragraphs (b)(2)(i) and (b)(3)(i)(A). The revisions read as follows: Sec. 1.1446-3 Time and manner of calculating and paying over the 1446 tax. * * * * * (b) * * * (2) * * * (i) Application of the principles of section 6655--(A) In general. Installment payments of 1446 tax required during the partnership's taxable year are based upon partnership ECTI for the portion of the partnership taxable year to which the payments relate, and, except as set forth in this paragraph (b)(2) or paragraph (b)(3) of this section, shall be calculated using the principles of section 6655. The principles of section 6655, except as otherwise provided in Sec. 1.6655-2, are applied to annualize the partnership's items of effectively connected income, gain, loss, and deduction to determine each foreign partner's allocable share of partnership ECTI. Each foreign partner's allocable share of partnership ECTI is then multiplied by the relevant applicable percentage for the type of income allocable to the foreign partner under paragraph (a)(2) of this section. The respective 1446 tax amounts are then added for each foreign partner to yield an annualized 1446 tax with respect to such partner. The installment of 1446 tax due with respect to a foreign partner equals the excess of the section 6655(e)(2)(B)(ii) percentage of the annualized 1446 tax for that partner (or, if applicable, the adjusted seasonal amount) for the relevant installment period, over the aggregate amount of 1446 tax installment payments previously paid with respect to that partner during the partnership's taxable year. The partnership's total 1446 tax installment payment equals the sum of the installment payments due for such period on behalf of all the partnership's foreign partners. (B) Calculation rules when certificates are submitted under Sec. 1.1446-6--(1) To the extent applicable, in computing the 1446 tax due with respect to a foreign partner, a partnership may consider a certificate received from such partner under Sec. 1.1446-6(c)(1)(i) or (ii) and the amount of state and local taxes permitted to be considered under Sec. 1.1446-6(c)(1)(iii). For this purpose, a partnership shall first annualize the partner's allocable share of the partnership's items of effectively connected income, gain, deduction, and loss before-- (i) Considering under Sec. 1.1446-6(c)(1)(i) the partner's certified deductions and losses; (ii) Determining under Sec. 1.1446-6(c)(1)(ii) whether the 1446 tax otherwise due with respect to that partner is less than $1,000 (determined with regard to any certified deductions or losses); or (iii) Considering under Sec. 1.1446-6 (c)(1)(iii) the amount of state and local taxes withheld and remitted on behalf of the partner. (2) The amount of the limitation provided in Sec. 1.1446- 6(c)(1)(i)(C) shall be based on the partner's allocable share of these annualized amounts. For any installment period in which the partnership considers a partner's certificate, the partnership must also consider the following events to the extent they occur prior to the due date for paying the 1446 tax for such installment period-- (i) The receipt of an updated certificate or status update from the partner under Sec. 1.1446-6(c)(2)(ii)(B) certifying an amount of deductions or losses that is less than the amount reflected on the superseded certificate (see Sec. 1.1446-6(e)(2) Example 4); (ii) The failure to receive an updated certificate or status update from the partner that should have been provided under Sec. 1.1446- 6(c)(2)(ii)(B); and (iii) The receipt of a notification from the IRS under Sec. 1.1446-6(c)(3) or (c)(5) (see Sec. 1.1446-6(e)(2) Example 5). * * * * * (3) * * * (i) * * * (A) The average of the amount of the current installment and prior installments during the taxable year is at least 25 percent of the total 1446 tax (without regard to Sec. 1.1446-6) for the prior taxable year; * * * * * 0 Par. 5. Section 1.1446-5(c)(2) is amended by adding two new sentences after the first sentence to read as follows: Sec. 1.1446-5 Tiered partnership structures. * * * * * (c) * * * (2) * * * The lower-tier partnership required to pay 1446 tax must be able to provide the information necessary for the IRS to determine the chain of ownership, allocation of effectively connected items at each partnership level, as well as to the ultimate beneficial owner of the effectively connected items, and whether the amount of 1446 tax paid was appropriate. This information should permit each partnership in the tiered structure and the IRS to reliably associate any effectively connected items allocable to such upper-tier partnership, as well as to the ultimate beneficial owner of the effectively connected items. * * * Sec. 1.1446-6T [Removed] 0 Par. 6. Section 1.1446-6T is removed. 0 Par. 7. Section 1.1446-6 is added to read as follows: Sec. 1.1446-6 Special rules to reduce a partnership's 1446 tax with respect to a foreign partner's allocable share of effectively connected taxable income. (a) In general--(1) Purpose and scope. This section provides rules regarding when a partnership required to pay [[Page 23076]] withholding tax under section 1446 (1446 tax), or an installment of 1446 tax, may consider certain partner-level deductions and losses in computing its 1446 tax obligation under Sec. 1.1446-3, or otherwise not pay a de minimis amount of 1446 tax due with respect to a nonresident alien individual partner. A partnership determines the applicability of the rules of this section on a partner-by-partner basis for each installment period and when completing its Form 8804, ``Annual Return for Partnership Withholding Tax (Section 1446),'' and paying 1446 tax for the partnership taxable year. Except with respect to certain state and local taxes paid by the partnership on behalf of the partner, to apply the rules of this section with respect to a foreign partner, the partnership must receive a certificate from such partner for each partnership taxable year. Paragraph (b) of this section identifies the foreign partners to which this section applies. Paragraph (c) of this section identifies the deductions and losses that a foreign partner may certify to the partnership as well as the state and local taxes paid by the partnership on behalf of the foreign partner that can be taken into account without a certification, and establishes an exception that permits a partnership to not pay a de minimis amount of 1446 tax with respect to a nonresident alien partner. Paragraph (c) of this section also sets forth the requirements for a valid certificate. Paragraphs (a)(2) and (d) of this section establish when a partnership may rely on and consider a foreign partner's certificate in computing its 1446 tax, and the effects of relying on such a certificate. Paragraph (d) of this section also describes the effects of a partnership relying on a certificate (including an updated certificate) and the reporting requirements of a partnership with respect to a certificate. Paragraph (e) of this section sets forth examples that illustrate the rules of this section. Paragraph (f) of this section provides the Effective/Applicability date. Paragraph (g) of this section provides a transition rule. (2) Reasonable reliance on a certificate. Subject to Sec. 1.1446-2 and the rules of this section, a partnership receiving a certificate (including an updated certificate or status update under paragraph (c)(2)(ii)(B) of this section) of deductions and losses from a partner provided in accordance with the provisions of this section may reasonably rely on such certificate (to the extent of the certified deductions and losses or other representations set forth in the certificate) until such time that it has actual knowledge or reason to know that the certificate is defective or that the time for receiving an updated certificate or status update from the partner under paragraph (c)(2)(ii)(B) of this section has expired. For this purpose, a partnership shall be considered to have actual knowledge or reason to know that a certificate is defective upon receipt of written notification from the IRS under paragraph (c)(3) or (c)(5) of this section. (b) Foreign partner to whom this section applies--(1) In general. Except as otherwise provided in paragraph (b)(3) of this section, a foreign partner to whom this section applies is a foreign partner that meets the requirements of this paragraph (b)(1). (i) The partner has provided valid documentation to the partnership to which a certificate is submitted under this section in accordance with Sec. 1.1446-1. (ii) If the partner's current taxable year is the first taxable year in which the partner submits a certificate to any partnership, the partner has filed (or will file) a qualifying U.S. income tax return for each of its three taxable years ending before the end of the partnership's taxable year for which the partner is submitting a certificate (regardless of whether it was a partner in that partnership during each of these years). A qualifying U.S. income tax return for a taxable year that is prior to the first taxable year the partner submits a certificate to any partnership is a U.S. income tax return filed within the time specified in paragraph (b)(2)(iii) of this section. (iii) If the current taxable year of the partner is not the first taxable year in which the partner submits a certificate to any partnership, the partner met the requirements in paragraph (b)(1)(ii) of this section for the first taxable year in which it submitted a certificate to any partnership and has filed (or will file) a qualifying U.S. income tax return for its first taxable year in which it submitted a certificate to any partnership and each subsequent taxable year ending before the beginning of the current taxable year (regardless of whether it was a partner in any partnership during each of those years). A qualifying U.S. income tax return for a taxable year that is prior to the taxable year the partner submits a certificate to any partnership is a U.S. income tax return filed within the time specified in paragraph (b)(2)(iii) of this section. (iv) The partner files a qualifying U.S. income tax return (within the meaning of paragraph (b)(2)(iii) of this section) for its taxable year in which a certificate is provided to any partnership. (2) Definitions--(i) U.S. income tax return. A U.S. income tax return means a Form 1040NR, ``U.S. Nonresident Alien Income Tax Return,'' in the case of a nonresident alien individual and a Form 1120F, ``U.S. Income Tax Return of a Foreign Corporation,'' in the case of a foreign corporation. (ii) Timely-filed. Only for purposes of this section, a U.S. income tax return shall be considered timely-filed if the return is filed on or before the due date set forth in section 6072(c), plus any extension of time to file such return granted under section 6081. (iii) Qualifying U.S. income tax return. A U.S. income tax return shall constitute a qualifying U.S. income tax return if the return reports income or gain that is effectively connected with a U.S. trade or business or deductions or losses properly allocated and apportioned to such activities and if the return is described in paragraph (b)(2)(iii)(A), (B), or (C) of this section. A protective return described in Sec. 1.874-1(b)(6) or Sec. 1.882-4(a)(3)(vi) is not a qualifying U.S. income tax return for purposes of this section. (A) A U.S. income tax return for a partner's preceding taxable year in which it did not submit a certificate to any partnership (but not including a taxable year following the first taxable year in which the partner submitted a certificate to any partnership), with a due date as set forth in section 6072(c), not including any extensions of time to file, which falls before the beginning of the current partnership taxable year for which the certificate is provided is described in this paragraph (b)(2)(iii)(A) if the return is filed and all amounts due with respect to such return (including interest, penalties, and additions to tax, if any) are paid on or before the earlier of-- (1) The date that is one year after the due date set forth in section 6072(c) for such return, not including any extensions of time to file; or (2) The date on which the certificate for the current partnership taxable year is submitted to the partnership. (B) A U.S. income tax return for a partner's preceding taxable year in which it did not submit a certificate to any partnership (but not including a taxable year following the first taxable year in which the partner submitted a certificate to any partnership), with a due date as set forth in section 6072(c), not including any extensions of time to file, which falls within the current partnership taxable year for which the certificate is provided is described in this paragraph (b)(2)(iii)(B) if the return is timely-filed and all amounts due with respect to such return are timely paid. [[Page 23077]] (C) A U.S. income tax return for a taxable year in which the partner submits a certificate to any partnership and for a taxable year following the first taxable year in which the partner submits a certificate to any partnership is described in this paragraph (b)(2)(iii)(C) if the return is timely-filed and all amounts due with such return are timely paid with respect to such return. (3) Special rules--(i) In the case of a partnership (upper-tier partnership) that is a partner in another partnership (lower-tier partnership)-- (A) The rules of this section may apply to reduce or eliminate the 1446 tax (or any installment of such tax) of the lower-tier partnership with respect to a foreign partner of the upper-tier partnership only to the extent the provisions of Sec. 1.1446-5 apply to look through the upper-tier partnership to the foreign partner of such upper-tier partnership and the certificate described in paragraph (c) of this section is provided by such foreign partner to the upper-tier partnership and, in turn, provided to the lower-tier partnership with other appropriate documentation (see Sec. 1.1446-5(c) and (e)); (B) An upper-tier partnership that submits a certificate of deductions and losses or a de minimis certificate to a lower-tier partnership may not submit that certificate to another lower-tier partnership; (C) An upper-tier partnership that relies on a certificate submitted to it by a foreign partner under this section for computing its 1446 tax due on effectively connected taxable income (ECTI) allocable to that partner (other than ECTI allocable to it from a lower-tier partnership) may not submit that certificate to any lower- tier partnership; and (D) In addition to any other information required by this section, a lower-tier partnership must submit with a Form 8813, ``Partnership Withholding Tax Payment Voucher (Section 1446),'' and Form 8805, ``Foreign Partner's Information Statement of Section 1446 Withholding Tax,'' for which it relies on a certificate from an upper-tier partnership to reduce the 1446 tax due with respect to a foreign partner of the upper-tier partnership, sufficient information so that the IRS may reliably associate the ECTI and the certificate of deductions and losses with the partner in the upper-tier partnership submitting the certificate, including the name, taxpayer identification number (TIN) and allocation of effectively connected items at each partnership tier, as well as to the ultimate upper-tier partner submitting the certificate. (ii) This section shall not apply to a partner that is a foreign estate or its beneficiaries. (iii) This section shall not apply to a partner that is a trust or to its beneficiaries, except to the extent that such trust is owned by a grantor or other person under subpart E of subchapter J of the Internal Revenue Code, the documentation requirements of Sec. 1.1446-1 have been met by the grantor or other owner of such trust, and the certificate described in paragraph (c) of this section is provided by the grantor or other owner of such trust to the partnership. (iv) This section shall not apply to a partner in a publicly-traded partnership subject to Sec. 1.1446-4. (c) Reduction of 1446 tax with respect to a foreign partner--(1) General rules. Under paragraph (c)(1)(i) of this section a foreign partner to whom this section applies may certify to a partnership for a partnership taxable year that it has certain deductions (other than charitable deductions) and losses properly allocated and apportioned to gross income that is effectively connected (or treated as effectively connected) with the conduct of the partner's trade or business in the United States, and that the partner reasonably expects those deductions and losses to be available and claimed on the partner's U.S. income tax return to be filed for that taxable year. Under paragraph (c)(1)(ii) of this section, a nonresident alien individual partner to whom this section applies may also certify to a partnership for a partnership taxable year that its only investment or activity giving rise to effectively connected items for the partnership's taxable year that ends with or within the partner's taxable year is (and will be) the partner's investment in the partnership. A certificate submitted by a foreign partner to a partnership under this section must be in accordance with the form and requirements set forth in paragraph (c)(2)(ii) of this section. Under paragraph (c)(1)(iii) of this section, a partnership may take into account certain state and local taxes withheld by the partnership on behalf of the partner. (i) Certified deductions and losses--(A) Deductions and losses from the partnership. Under this paragraph (c)(1)(i)(A), a partner may certify to a partnership for a partnership taxable year deductions (other than charitable deductions) and losses properly allocated and apportioned to gross income which is effectively connected (or treated as effectively connected) with the conduct of the partner's trade or business in the United States, that are reported on a Form 1065 (Schedule K-1), ``Partner's Share of Income, Credits, Deductions, etc.,'' issued (or to be issued) to the partner by the partnership for a prior partnership taxable year, that are (or will be) reported on a qualifying U.S. income tax return for a partner's taxable year that ends before the installment due date or the close of the partnership taxable year for which the partner is certifying such deductions and losses, and that the partner reasonably expects to be available and claimed on a qualifying U.S. income tax return for the partner's taxable year ending with or after the close of the partnership taxable year. A partner that has a loss reported on a Form 1065 (Schedule K-1) issued (or to be issued) to the partner by the partnership for a prior partnership taxable year, but that is not (and will not be) reported on a qualifying U.S. income tax return for a prior taxable year of the partner because the loss is suspended under section 704(d) may also certify such suspended loss to the partnership under this paragraph (c)(1)(i)(A). (B) Deductions and losses from other sources. Under this paragraph (c)(1)(i)(B), a foreign partner may certify to a partnership for a partnership taxable year deductions (other than charitable deductions) and losses properly allocated and apportioned to gross income that is effectively connected (or treated as effectively connected) with the conduct of the partner's trade or business in the United States and that are from sources other than the partnership to whom the certificate is submitted if the deductions and losses are (or will be) reported on a qualifying U.S. income tax return of the partner for a taxable year that ends before the installment due date or the close of the partnership taxable year for which the partner is certifying the deductions and losses and the partner reasonably expects the deductions and losses to be available and claimed on the qualifying U.S. income tax return filed for its taxable year ending with or after the close of the partnership taxable year. Any deductions and losses certified under this paragraph (c)(1)(i)(B) that are allocated to the partner from another partnership must be reported on a Form 1065 (Schedule K-1) issued (or to be issued) to the partner by such other partnership. However, the partner may not certify any deduction or loss allocated to it from another partnership that is suspended under section 704(d). (C) Limit on the consideration of a partner's net operating loss deduction. A partnership may not consider a net operating loss deduction (as determined [[Page 23078]] under section 172) certified by the partner under this paragraph (c)(1)(i) in an amount greater than the percentage limitation, if any, provided in section 56(a)(4) and (d) multiplied by the partner's allocable share of ECTI from the partnership reduced by all other certified deductions and losses whether or not taken into account by the partnership, as well as deductions considered under paragraph (c)(1)(iii) of this section. (D) Limitation on losses subject to certain partner level limitations. Pursuant to paragraph (c)(2)(i) of this section, a partner must identify any certified losses or deductions that are subject to special limitations at the partner level (for example, sections 465 and 469) and provide information to the partnership that will allow the partnership to take the special limitations into account. For example, where a partner certifies a loss to the partnership that is a passive activity loss under section 469, the partner shall identify the activities the partnership conducts that the partner expects will be passive activities. The partnership shall then ensure that these limitations are taken into account when determining the 1446 tax due with respect to the partner. (E) Certification of deductions and losses to other partnerships. Deductions and losses certified to a partnership for a taxable year of the partnership may not be certified for the taxable year of another partnership that begins or ends with or within the taxable year of the partnership to which the deductions and losses were certified. (F) Partner level use of deductions and losses certified to a partnership. Any deductions and losses certified to a partnership for a taxable year of the partner and considered by the partnership in computing its section 1446 tax due may not be considered by that partner for the same taxable year in computing the amount of its required installments under section 6654(d) or 6655(d) on income unrelated to the partnership to which the partner has submitted the certificate. (ii) De minimis certificate for nonresident alien individual partners--(A) In general. Under this paragraph (c)(1)(ii), a nonresident alien individual partner to whom this section applies and that satisfies the requirements of paragraph (c)(1)(ii)(B) of this section may certify to a partnership that its only activity giving rise to effectively connected income, gain, deduction, or loss for the partnership's taxable year that ends with or within the partner's taxable year is (and will be) the partner's investment in the partnership. A partnership that receives a certificate from a nonresident alien partner under this paragraph (c)(1)(ii) and that may reasonably rely on such certificate is not required to pay 1446 tax (or any installment of such tax) with respect to such partner if the partnership estimates that the annualized (or, in the case of a partnership completing its Form 8804, the actual) 1446 tax otherwise due with respect to such partner is less than $1,000, without taking into account any deductions or losses certified by the partner to the partnership under paragraph (c)(1)(i) of this section or any amounts under paragraph (c)(1)(iii) of this section. (B) Requirements for exception. The requirements of this paragraph (c)(1)(ii)(B) are met if the nonresident individual alien partner's only activity giving rise to effectively connected income, gain, deduction, or loss for the partnership taxable year that ends with or within the partner's taxable year is (and will be) the partner's investment in the partnership. For this purpose, if the partner has (or has reason to expect to have) income or gain described in section 864(c)(6), such income or gain shall be considered derived from a separate investment activity. A certificate submitted by a nonresident alien individual partner under this paragraph (c)(1)(ii) is valid even if such certificate does not certify deductions and losses to partnership under this section. A nonresident alien individual partner that submits a certificate to a partnership under this paragraph (c)(1)(ii) must notify the partnership in writing and revoke such certificate within 10 days of the date that the partner invests or otherwise engages in another activity that may give rise to effectively connected income, gain, deduction, or loss for the partner's taxable year. For example, while an investment in a U.S. real property interest (as defined in section 897(c)) would not give rise to an activity requiring a notification (unless an election is in effect under section 871(d)), the disposition of the U.S. real property interest would give rise to an activity requiring a notification. (iii) Consideration of certain current year state and local taxes. In addition to any deductions and losses certified by a foreign partner to a partnership under paragraph (c)(1)(i) of this section, the partnership may consider as a deduction of such partner 90-percent of any state and local income taxes withheld and remitted by the partnership on behalf of such partner with respect to the partner's allocable share of partnership ECTI. The partnership may consider the amount of state and local taxes of the foreign partner determined under this paragraph (c)(1)(iii) regardless of whether the foreign partner submits a certificate to the partnership under paragraph (c)(1)(i) or (ii) of this section. (2) Form and time of certification--(i) Form of certification. A partner's certification to a partnership under paragraph (c)(1)(i) or (iii) of this section shall be made using Form 8804-C, ``Certificate Of Partner-Level Items to Reduce Section 1446 Withholding'' in accordance the instructions of the form and the rules of this section. (ii) Time for certification provided to partnership--(A) First certificate submitted for a partnership's taxable year. Provided the other requirements of this section are met, a partnership may only rely on the first certificate received from a foreign partner for any 1446 tax installment due or Form 8804 filing due (without regard to extensions) on or after the date on which the certificate is received. See Sec. 1.1446-3 for 1446 tax installment due dates. See also paragraph (e) of this section for examples illustrating the rules of this paragraph (c)(2). (B) Updated certificates and status updates--(1) Preceding year tax returns not yet filed. If a foreign partner's U.S. income tax return for a preceding taxable year has not been filed as of the time the partner submits to the partnership its first certificate under this paragraph (c), the certificate shall specify this fact and set forth the filing due date for such return set forth in section 6072(c), plus any extension of time to file such return granted under section 6081 and the regulations under section 6081. The partner shall also submit an updated certificate to the partnership in accordance with this paragraph (c) within 10 days of the date the partner files its U.S. income tax return for any such taxable year. In addition, prior to the partnership's final 1446 tax installment due date the partner shall provide to the partnership, under penalties of perjury, a status update regarding any U.S. income tax return for the prior taxable year that has not (or will not) be filed as of the final installment due date. The status update must identify the due date, set forth in section 6072(c), plus any extension of time to file such return gran