Partnership Withholding on Effectively Connected Taxable Income (ECTI)

Under section 1446(a), a partnership (foreign or domestic) that has income effectively connected with a U.S. trade or business (or income treated as effectively connected) must pay a withholding tax on the ECTI that is allocable to its foreign partners. A PTP or nominee for a PTP distribution must withhold tax on actual distributions of ECI. See Publicly Traded Partnership Distributions , later. Chapter 4 withholding does not apply to this income.

This withholding tax does not apply to income that is not effectively connected with the partnership’s U.S. trade or business. That income may be subject to chapter 3 withholding tax, as discussed earlier.