USA Tax withholding for distributions from Publicly Traded Partnerships (NRAs)

[mantissa]

I am a non-resident alien who have received distributions from Apollo Global Management LLP. The distributions are classified as non-effectively connected income in the Qualified Notice issued by Apollo.

As a non-corporate NRA whose country does not have tax treaty with US, I thought the withholding rate will be at 30% given that this is non-effectively connected income and listed under the exclusions listed by IRS.

However, my brokerage house is withholding at 39.6%.

I have asked my brokerage house to look into this, but as they'd made a couple of mistakes in the past on other related issues, would appreciate if I can check my understanding of tax treatment on this forum as well please.

Thanks!

 

[David Bolenbaugh CPA]

It looks like they are treating is at ECI (Effectively Connected Income) or there may be additional considerations that you have not listed here.

 

[mantissa]

Thanks David! You're right.

After more than a month of pointing them to the Qualified Notice on withholding (extracted below) and IRC, they finally agreed to adjust it down to 30%.

The funny and frustration thing is that in clarifying this case, I'd to look up the Qualified Notice and IRC, and noted that not all components listed in the distribution seems to be taxable. This appears to be confirmed by another brokerage house as they explained that their treatment of this particular distribution for their clients is that only a portion is taxable.

However, the brokerage house I am with and its agent insist that the full amount will be taxable as they will indicate the full amount on 1042-S. I thought IRC's instruction on 1042-S specifically stated that a different Copy A of 1042-S needs to be filed for each type of income.

I hope they're not going to take another month or more of email exchanges before they can rectify this or explain why they've to withhold tax for what seems to be the non-taxable components.

"Withholding Information
In accordance with IRS regulation section 1.1446-4 this is a Qualified Notice with respect to the distribution of $0.84 per unit announced by Apollo Global Management, LLC, on May 8, 2014 to be paid on May 30, 2014 to record holders on May 20, 2014. The distribution consists of the following components:

0.0073 U.S. Portfolio Income – Interest
0.2346 U.S. Portfolio Income – Dividend
0.0499 Foreign Portfolio Income – Interest & Dividend
0.0000 Portfolio Income – Short Term Capital Gain
0.3888 Portfolio Income – Long Term Capital Gain
0.1594 Return of Capital
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0.8400 Total Distribution
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Please note that none of the items listed above reflects effectively connected income (ECI)."