[Code of Federal Regulations]
[Title 26, Volume 12]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1445-8]

[Page 198-201]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1445-8  Special rules regarding publicly traded partnerships, 
publicly traded trusts and real estate investment trusts (REITs).

    (a) Entities to which this section applies. The rules of this 
section apply to--

[[Page 199]]

    (1) Any partnership or trust, interests in which are regularly 
traded on an established securities market (regardless of the number of 
its partners or beneficiaries), and
    (2) Any REIT (regardless of the form of its organization).

For purposes of paragraph (a)(1) of this section, the rules of section 
1445 (e)(1) and this section shall not apply to a publicly traded 
partnership (as defined in section 7704) which is treated as a 
corporation under section 7704(a), or to those entities that are 
classified as ``associations'' and taxed as corporations. See Sec. 
301.7701-2.
    (b) Obligation to withhold--(1) In general. An entity described in 
paragraph (a) of this section is not required to withhold under the 
provisions of Sec. 1.1445-5(c), which states the withholding 
requirements of domestic partnerships, trusts and estates upon the 
disposition of U.S. real property interests. Except as otherwise 
provided in this paragraph (b), an entity described in paragraph (a) of 
this section shall be liable to withhold tax upon the distribution of 
any amount attributable to the disposition of a U.S. real property 
interest, with respect to each holder of an interest in the entity that 
is a foreign person. The amount to be withhold is described in paragraph 
(c) of this section.
    (2) Publicly traded partnerships. Publicly traded partnerships which 
comply with the withholding procedures under section 1446 will be deemed 
to have satisfied their withholding obligations under this paragraph 
(b).
    (3) Special rule for certain distributions to nominees. In the case 
of a person that--
    (i) Is a nominee (as defined in paragraph (d) of this section),
    (ii) Receives a distribution attributable to the disposition of a 
U.S. real property interest directly from an entity described in 
paragraph (a) of this section or indirectly from such entity through a 
nominee,
    (iii) Receives the distribution for payment to any foreign person, 
or the account of any foreign person, and
    (iv) Receives a qualified notice pursuant to paragraph (f) of this 
section,

then the obligation to withhold in accordance with the general rules of 
section 1445(e)(1) and this paragraph (b) shall be imposed solely on 
that person to the extent of the amount specified by the qualified 
notice. A person obligated to withhold by reason of this paragraph 
(b)(3) is referred to as a withholding agent.
    (4) Person designated to act for withholding agent. The rules stated 
in Sec. 1.1441-7(b) (1) and (2) regarding a person designated to act 
for a withholding agent shall apply for purposes of this section.
    (5) Effect of withholding exemption granted under Sec. 1.1441-4(f). 
A letter issued by a district director under the provisions of Sec. 
1.1441-4(f), which exempts a person from withholding under section 1441 
or section 1442, shall also exempt that person from withholding under 
this paragraph (b), if--
    (i) The letter identifies another person as the withholding agent 
for purposes of section 1441 or 1442, and
    (ii) Such other person enters into a written agreement, with the 
district director who issued the letter, to be the withholding agent for 
purposes of this paragraph (b).

The exemption granted, and the corresponding withholding obligation 
imposed, by this paragraph (b)(5) shall apply with respect to the first 
distribution made after execution of the agreement described in the 
preceding sentence and shall continue to apply to all distributions made 
during the period in which the exemption granted under Sec. 1.1441-4(f) 
is in effect.
    (6) Payment other than in money. The rule stated in Sec. 1.1441-
7(c) regarding payment other than in money shall apply for purposes of 
this section.
    (c) Amount to be withheld--(1) Distribution from a publicly traded 
partnership or publicly traded trust. The amount to be withheld under 
this section with respect to a distribution by a publicly traded 
partnership or publicly traded trust shall be computed in the manner 
described in Sec. 1.1445-5(c)(3) (ii) and (iii), subject to the rules 
of this section.
    (2) REITs--(i) In general. The amount to be withheld with respect to 
a distribution by a REIT, under this section shall be equal to 35 
percent (or the highest rate specified in section 1445(e)(1)) of the 
amount described in paragraph (c)(2)(ii) of this section.

[[Page 200]]

    (ii) Amount subject to withholding--(A) In general. Except as 
otherwise provided in paragraph (c)(2)(ii)(C) of this section, the 
amount subject to withholding is the amount of any distribution, 
determined with respect to each share or certificate of beneficial 
interest, designated by a REIT as a capital gain dividend, multiplied by 
the number of shares or certificates of beneficial interest owned by the 
foreign person. Solely for purposes of this paragraph, the largest 
amount of any distribution occurring after March 7, 1991 that could be 
designated as a capital gain dividend under section 857(b)(3)(C) shall 
be deemed to have been designated by a REIT as a capital gain dividend 
regardless of the amount actually designated.
    (B) Distribution attributable to net short-term capital gain from 
the disposition of a U.S. real property interest. [Reserved]
    (C) Designation of prior distribution as capital gain dividend. If a 
REIT makes an actual designation of a prior distribution, in whole or in 
part, as a capital gain dividend, such prior distribution shall not be 
subject to withholding under this section. Rather, a REIT must 
characterize and treat as a capital gain dividend distribution (solely 
for purposes of section 1445(e)(1)) each distribution, determined with 
respect to each share or certificate of beneficial interest, made on the 
day of, or any time subsequent to, such designation as a capital gain 
dividend until such characterized amounts equal the amount of the prior 
distribution designated as a capital gain dividend. The provisions of 
this paragraph shall not be applicable in any taxable year in which the 
REIT adopts a formal or informal resolution or plan of complete 
liquidation.
    (iii) Example. The following example illustrates the rules of 
paragraph (c)(2)(ii)(C) of this section.

    In the first quarter of 1988, XYZ REIT makes a dividend distribution 
of $2X. In the second quarter of 1988, XYZ sells real property, 
recognizing a long term capital gain of $15X, and makes a dividend 
distribution of $5X. In the third quarter of 1988, XYZ makes a 
distribution of $3X. In the fourth quarter of 1988, XYZ sells real 
property recognizing a long term capital loss of $2X. Within 30 days 
after the close of the taxable year, XYZ designates a capital gain 
dividend for the year of $13X. It subsequently makes a fourth quarter 
distribution of $7X. Since XYZ has made an actual designation of prior 
distributions during the taxable year as capital gain dividends, 
withholding on those prior distributions will not be required. However, 
the REIT must characterize, solely for purposes of section 1445(e)(1), a 
total amount of $13X of dividend distributions as capital gain 
dividends. Therefore, the fourth quarter dividend distribution of $7X 
must be characterized as a capital gain dividend subject to withholding 
under this section. In addition, XYZ will be required to characterize an 
additional $6X of subsequent dividend distributions as capital gain 
dividends.

    (d) Definition of nominee. For purposes of this section, the term 
``nominee'' means a domestic person that holds an interest in an entity 
described in paragraph (a) of this section on behalf of another domestic 
or foreign person.
    (e) Determination of non-foreign status by withholding agent. A 
withholding agent may rely on a certificate of non-foreign status 
pursuant to Sec. 1.1445-2(b) or on the statements and address provided 
to it on Form W-9 or a form that is substantailly similar to such form, 
to determine whether an interest holder is a domestic person. Reliance 
on these documents will excuse the withholding agent from liability 
imposed under section 1445(e)(1) in the absence of actual knowledge that 
the interest holder is a foreign person. A withholding agent may also 
employ other means to determine the status of an interest holder, but, 
if the agent relies on such other means and the interest holder proves, 
in fact, to be a foreign person, then the withholding agent is subject 
to any liability imposed pursuant to section 1445 and the regulations 
thereunder for failure to withhold.
    (f) Qualified notice. A qualified notice for purposes of paragraph 
(b)(3)(iv) of this section is a notice given by a partnership, trust or 
REIT regarding a distribution that is attributable to the disposition of 
a U.S. real property interest in accordance with the notice requirements 
with respect to dividends described in 17 CFR 240.10b-17(b) (1) or (3) 
issued pursuant to the Securities Exchange Act of 1934, 15 U.S.C. 78a et 
seq. In the case of a REIT, a qualified notice is only a notice of a 
distribution, all or any portion of which the

[[Page 201]]

REIT actually designates, or characterizes in accordance with paragraph 
(c)(2)(ii)(C) of this section, as a capital gain dividend in accordance 
with 17 CFR 240.10b-17(b) (1) or (3), with respect to each share or 
certificate of beneficial interest. A deemed designation under paragraph 
(c)(2)(ii)(A) of this section may not be the subject of a qualified 
notice under this paragraph (f). A person described in paragraph (b)(3) 
of this section shall be treated as receiving a qualified notice at the 
time such notice is published in accordance wtih 17 CFR 240.10b-17(b) 
(1) or (3).
    (g) Reporting and paying over withheld amounts. With respect to an 
amount withheld under this section, a withholding agent is not required 
to conform to the requirements of Sec. 1.1445-5(b)(5) but is required 
to report and pay over to the Internal Revenue Service any amount 
required to be withheld pursuant to the rules and procedures of section 
1461, the regulations thereunder and Sec. 1.6302-2. Forms 1042 and 
1042S are to be used for this purpose.
    (h) Early refund procedure not available. The early refund procedure 
set forth in Sec. 1.1445-6(g) shall not apply to amounts withheld under 
the rules of this section. For adjustment of over-withheld amounts, see 
Sec. 1.1461.4.
    (i) Liability upon failure to withhold. For rules regarding 
liability upon failure to withhold under Sec. 1445(e) and this section, 
see Sec. 1.1445-1(e).

[T.D. 8321, 55 FR 50553, Dec. 7, 1990; 56 FR 4542, Feb. 5, 1991, as 
amended by T.D. 8647, 60 FR 66077, Dec. 21, 1995]