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Foreign Investor in a U.S. L.L.C. – How to Minimize Withholding Tax on Sale of L.L.C. Interest

Volume 5 Number 5    /    Read Article

By Fanny Karaman and Stanley C. Ruchelman

U.S. tax law was revised in last year’s tax reform legislation to impose tax on non-U.S. persons recognizing a gain from the sale of a partnership that engages in a U.S. business. Worse, purchasers must collect and pay over to the I.R.S. a withholding tax equal to 10% of the amount realized by the seller. Because of the way U.S. tax law treats partners of partnerships financed with debt, the withholding tax can be greater than the cash that is set to be paid to the foreign seller. In April, the I.R.S. issued guidance on the problem, leading some to recommend a two-step plan to align the withholding tax with the ultimate income tax that will be due. Fanny Karaman and Stanley C. Ruchelman explain the I.R.S. guidance and the two-step plan.    See more →