Page:United States Statutes at Large Volume 100 Part 3.djvu/774

 100 STAT. 2582

PUBLIC LAW 99-514—OCT. 22, 1986

SEC. 1246. WITHHOLDING TAX ON AMOUNTS PAID BY PARTNERSHIPS TO FOREIGN PARTNERS.

(a) IN GENERAL,—Subchapter A of chapter 3 (relating to withholding of tax on nonresident) is amended by adding at the end thereof the following new section: "SEC. 1446. WITHHOLDING TAX ON AMOUNTS PAID BY PARTNERSHIPS TO FOREIGN PARTNERS.

"(a) GENERAL RULE.—Except as provided in this section, if a partnership has any income, gain, or loss which is effectively connected or treated as effectively connected with the conduct of a trade or business within the United States, any person described in section 1441(a) shall be required to deduct and withhold a tax equal to 20 percent of any amount distributed to a partner which is not a United States person. "(]o) LIMITATION IF LESS THAN 80 PERCENT OF GROSS INCOME IS EFFECTIVELY CONNECTED WITH UNITED STATES TRADE OR BUSINESS.—

"(1) IN GENERAL.—If the effectively connected percentage is less than 80 percent, only the effectively connected percentage of any distribution shall be taken into account under subsection

4" (a). "(2) EFFECTIVELY CONNECTED PERCENTAGE.—For purposes of paragraph (1) the term 'effectively connected percentage' means ^" the percentage of the gross income of the partnership for the 3 j^^ taxable years preceding the taxable year of the distribution " which is effectively connected (or treated as effectively con„ ^ nected) with the conduct of a trade or business within the ' United States. .,^.,,,,,_.^,.,.,. '.•,.:••...-•,--^r} -'H--^ ••• "(c) EXCEPTIONS.— ' ^-« '-• ... ,<•. ^^^ "(1) AMOUNTS ON WHICH TAX WITHHELD.—Subsection (a) shall

not apply to that portion of any distribution with respect to which a tax is required to be deducted and withheld under section 1441 or 1442 (or would be required to be deducted and withheld but for a treaty). "(2)

PARTNERSHIPS WITH CERTAIN ALLOCATIONS.—Except

as

provided in regulations, subsection (a) shall not apply to any partnership with respect to which substantially all income from sources within the United States and substantially all income .-, which is effectively connected with the conduct of a trade or business within the United States is properly allocated to jfi United States persons. "(3) COORDINATION WITH SECTION 1445.—Under regulations proper adjustments shall be made in the amount required to be -! deducted and withheld under subsection (a) for amounts deducted and withheld under section 1445. "(d) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section." (b) COORDINATION WITH SECTION 6401(b).—Paragraph (2) of section 6401(b) (relating to excessive credits treated as overpayments) is amended by adding at the end thereof the following new sentence: "The preceding sentence shall not apply to any amount deducted and withheld under section 1446." (c) CONFORMING AMENDMENT.—The table of sections for subchapter A of chapter 3 is amended by adding at the end thereof the following new item:

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