Withholding on Publicly Traded Partnerships effective 1/1/2023

H

huab1992

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have introduced new regulations under section 1446(f) regarding Publicly Traded Partnerships (PTPs) held by foreign persons.
The new regulations generally will require the broker to withhold 10% of gross proceeds from sales of PTP securities and certain distributions by PTPs. The transactions and related withholding tax will also be reported on Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding.
 
Various brokers are scrambling to notify clients and most have inconsistent lists about what is affected:

https://ibkr.info/node/4706
https://uploads.tradestation.com/uploads/MLP-PTP-Securities.pdf
https://www.schwab.com/resource/new...y-traded-partnerships-held-by-foreign-persons
https://www.itigerup.com/PTP-tax
https://www.tigerbrokers.com.sg/PTP-list
https://m.hi-ib.com:442/upload/O_S001/2022/11/[23163748]PTP%20stock%20list_20221101.pdf

There are various issues with all of these lists including:

Stocks that aren't even listed in the US:
  • AAAA AP ALTERNATIVE ASSETS LP
Stocks that have been untradeable/delisted: for a LONG time:
  • AIRL Airlease Ltd - was delisted in October 2004
Companies that have converted from PTPs to ordinary companies:
  • ARES Ares Management, converted in 2019.
Inclusion of ETFs not seeming structured as an PTP or LP (or investing in such):
  • VIXM ProShares VIX Med-Term Futures ETF
  • VIXY ProShares VIX Short-Term Futures ETF

Or simply providing CUSIPs and not trading symbos (TradeStation).

Non-US traders are really being kept in the dark here with an outrageous transaction tax.

Here's the SEC page describing the 10% withholding tax on the total proceeds of a sale:
https://www.irs.gov/individuals/international-taxpayers/partnership-withholding

If you find any further information please post it here.
 
NorgateData said:
Various brokers are scrambling to notify clients and most have inconsistent lists about what is affected:

https://ibkr.info/node/4706
https://uploads.tradestation.com/uploads/MLP-PTP-Securities.pdf
https://www.schwab.com/resource/new...y-traded-partnerships-held-by-foreign-persons
https://www.itigerup.com/PTP-tax
https://www.tigerbrokers.com.sg/PTP-list
https://m.hi-ib.com:442/upload/O_S001/2022/11/[23163748]PTP%20stock%20list_20221101.pdf

There are various issues with all of these lists including:

Stocks that aren't even listed in the US:
  • AAAA AP ALTERNATIVE ASSETS LP
Stocks that have been untradeable/delisted: for a LONG time:
  • AIRL Airlease Ltd - was delisted in October 2004
Companies that have converted from PTPs to ordinary companies:
  • ARES Ares Management, converted in 2019.
Inclusion of ETFs not seeming structured as an PTP or LP (or investing in such):
  • VIXM ProShares VIX Med-Term Futures ETF
  • VIXY ProShares VIX Short-Term Futures ETF

Or simply providing CUSIPs and not trading symbos (TradeStation).

Non-US traders are really being kept in the dark here with an outrageous transaction tax.

Here's the SEC page describing the 10% withholding tax on the total proceeds of a sale:
https://www.irs.gov/individuals/international-taxpayers/partnership-withholding

If you find any further information please post it here.
More...

They told me that "the list can change at any time. The list can't be comprehensive as companies can elect to be reported as Corporations rather than partnership in the future and also vice-versa. You will need to do your own research before investing in U.S. based partnerships which may be applicable to the 1446(f) regulations. If you are inquiring on specific Publicly Traded Partnership Securities you will want to review to the prospectus found on the investor relations website for the partnership being invested in.
 
Some better news on this front - many of the ETFs previously identified as PTPs are exempt:

https://www.proshares.com/globalass...ed-reports/pst_ii_qualified_report_120622.pdf
https://www.invesco.com/us-rest/contentdetail?contentId=7ed5d0cf-eea6-4f6f-b258-faf739af34ac
https://www.ishares.com/us/literature/tax-information/information-on-irc-section-1446.pdf
http://www.teucrium.com/programs
https://www.convexityshares.com/k-1s

However, the fact remains that any reasonable trader would not be able to determine that an ETF is a PTP from the prospectus.

Here's the ConvexityShares SPIKES prospectus for their two ETFs:
upload_2022-12-22_8-22-37.png


Nowhere here does it state "partnership".

From my view, it appears that any ETF issuer that creates a trust for ETFs (which most ETF issuers do) and manage via a separate company, are automatically a PTP unless they state this exemption.

What a horrible piece of bureaucracy.
 
I've been in this business for over 30 years and this has to be the craziest thing I have ever seen. Why isn't there more non US residents complaining about this?

The IRS effectively wants PTP's that strictly are American to be owned only by Americans. Effectively this is what the tax law does as virtually all brokers are banning the buying of these securities.

What is even more crazy is the tax is not on your profits or dividends but on the "proceeds of sale".

What is even crazier is there is NO official list of these securities. No broker or even the IRS has created an "official" list of securities that are affected. Why? Because it isn't as easy as one might think. So, effectively, they are putting that risk on the investor.

Therefore, theoretically those who are very active non US investors have the most risk. Your broker might make a mistake and allow access to one of these securities - and then come back to you days later and withhold 10% of proceeds. It isn't crazy to assume that an active trader might trade 10X the value of their account trading the same security over and over. In this case - if it turns out that the security you were trading was in fact a PTP that qualifies for withholding - then you have just lost 100% of your account to the IRS. In fact, depending on where you are from - and what your tax status is in your home country - you may never see these funds again!

It appears that in the short term - individual brokers are policing which securities have tax being withheld. Therefore, you likely won't have the scenario mentioned above in the short term but at some point it could happen. Just look at all the language these brokers are using:

1) This list is for reference only and is not an exhaustive list of all PTP securities that are in scope for Section 1446(f). It may be subjected to changes from time to time without prior notice.

2) Below is the list of affected PTPs. Please note that this is not a complete list. The list is for reference only and is not exhaustive. It can also be changed from time to time and no separate notification will be offered.

3) The lists are shown on a best efforts basis for convenience only. IBKR does not guarantee the accuracy or timeliness of the information, and investors should independently verify that products in which they are invested in, or intend to invest, have the necessary exemptions to avoid punitive withholding outcomes. Duration of the exemptions should also be monitored by position holders in the instruments.

etc etc

If you are a non US resident - you should be demanding that your broker guarantees that if you are allowed to trade the "so called non PTP" security then the broker should guarantee that no tax will be withheld or you should be demanding to get an official "on going list" of these securities. I'm still waiting for a reply.

Some brokers are allowing non-US residents to trade these PTP's (some by opting in) even though they KNOW there could be a 10% tax every time they sell the security. That seems to be a disaster waiting to happen......

Is it really 2023? (feels like 1970)

I will provide updates from my broker when I get them
 
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Just noticed that Ib is stepping down to restrict the ability (if requested) to trade ptp securities; The setting "PTP Trading Opt In-Out" is located in settings above trading permission. In my case the restriction doesn't work though as I am still free to trade boil, dba etc. I opened a ticket we will see. Looks really a trick to suck freely dollars to foreigners..

EDIT: just read the post of Norgate Data and It looks like I tried exactly the stuff exempted; Tried "fun" and I get correctly the msg informing me of PTP securities; Though the transmit button is still there ready to be clicked. Not sure how it works with api command like sendorder...
 
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I didn’t know non US citizens still traded directly under foreign entities

You would usually shell the foreign portion of your PTP and have the brokerage you trade with be domestic and pay the foreign portion of the PTP through inter-distributions
 
Business2122 said:
I didn’t know non US citizens still traded directly under foreign entities

You would usually shell the foreign portion of your PTP and have the brokerage you trade with be domestic and pay the foreign portion of the PTP through inter-distributions
More...
What do you mean? This tax affects any foreign individuals as well as entities.
 
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