Withholding Taxes of U.S. Publicly Traded Partnerships under IRC Sections 1446(a) and 1446(f) ：Minimizing the Tax－Leakage Through Proper Cross－Border Tax Compliance by Korean Taxpayers

Abstract

[Purpose]This article examines the feasible solutions by applying for a refund of the excess withholding taxes over their relevant maximum U.S. tax liabilities through a formal income tax return at the status of non－resident alien (“NRA”) for both §1446(a) and §1446(f) taxes withheld in the U.S. [Methodology]A simulated exercise to investigate the correct refund compliances under the rules and regulations of U.S. tax law. The subsequent treatment of U.S. taxes paid on both active and passive business income that should be applicable to proper foreign tax credits upon filing a revised comprehensive income tax return under the Korean tax law. [Findings]The most likely tax treatment is for U.S.－sourced partnership distribution to be primarily taxable in the investor’s country of residence. In that case, taxes on that distribution would be paid in Korea. Since mandatory tax withholdings under §§1446(a) and 1446(f) were made in the U.S. on behalf of a Korean investor, that person would need to file a non－resident tax return in the U.S. to recover the taxes over－withheld. [Implications]After all, it is an investor’s individual choice whether or not to proceed with the refund application for excessive withholding tax. It is important to ensure that all of the reporting requirements are properly executed and that all of the rules and timelines are meticulously adhered to, to avoid losing the FTCs. That is just the way the whole system works.