Two of my LLC partners are foreign — what's the §1446 withholding cycle and which forms do we file?

IRC §1446 obligates a U.S. partnership that has effectively connected taxable income (ECTI) and at least one foreign partner to withhold U.S. tax on each foreign partner's allocable share of ECTI — even if the income is not actually distributed in the year it is earned. The withholding rate is the highest applicable U.S. tax rate for the partner's category:

• 37% on ECTI allocated to a non-corporate foreign partner (the highest individual rate). • 21% on ECTI allocated to a foreign corporate partner.

These are nominal rates; a partner with a valid Form W-8 can claim treaty-reduced rates only on certain categories of income, not on ECTI itself, because ECTI is by definition effectively connected with a U.S. trade or business and treaties generally do not reduce U.S. tax on a permanent-establishment / U.S.-trade-or-business basis. Treaty relief typically operates after the fact through the partner's own U.S. return.

Each form does a different job in the §1446 cycle:

• Form 8813 (Partnership Withholding Tax Payment Voucher) — the quarterly payment voucher. The partnership pays §1446 withholding in four installments (April 15, June 15, September 15, December 15 for calendar-year partnerships) and submits Form 8813 with each payment. This is the cash-out side: how the partnership delivers the withholding to the IRS during the year.

• Form 8804 (Annual Return for Partnership Withholding Tax) — the annual reconciliation. Filed by the partnership with the IRS by the 15th day of the third month after year-end (March 15 for calendar-year partnerships, with Form 7004 extension to September 15). It summarizes total ECTI, total §1446 withholding, and reconciles to the Forms 8813 paid during the year.

• Form 8805 (Foreign Partner's Information Statement of Section 1446 Withholding Tax) — one per foreign partner. Like a W-2 for the foreign partner: it tells the partner how much ECTI was allocated and how much §1446 tax was withheld. The partner attaches Form 8805 to their own U.S. return (Form 1040-NR or Form 1120-F) to claim credit for the withheld tax.

The partnership files all of the partner-specific Forms 8805 with the IRS as part of the Form 8804 package. The partnership also furnishes a copy to each foreign partner by the Form 8805 deadline (the same March 15 / September 15 dates).

Applying §1446 to your facts (assuming all $180,000 to the Brazilian individual and $260,000 to the German GmbH are ECTI):

• Brazilian individual partner: $180,000 × 37% = $66,600 §1446 withholding for the year. Spread over four 8813 installments of approximately $16,650 each. • German corporate partner (GmbH): $260,000 × 21% = $54,600 §1446 withholding for the year. Spread over four 8813 installments of approximately $13,650 each.

Total §1446 cash to the IRS during the year: $121,200 across four payments.

At year-end, file one Form 8804 reporting total ECTI of $440,000 and total §1446 withholding of $121,200. Attach two Forms 8805 — one for the Brazilian partner ($180,000 ECTI / $66,600 withheld), one for the GmbH ($260,000 / $54,600). The partnership distributes recipient copies of the Forms 8805 to each foreign partner.

The foreign partners then file their own returns: the Brazilian individual files Form 1040-NR, attaches Form 8805, and claims the $66,600 as a payment of U.S. tax. The GmbH files Form 1120-F, attaches Form 8805, and claims the $54,600. After applying actual U.S. tax due on the ECTI (computed at graduated/regular rates with deductions), each partner either owes additional tax or claims a refund. In practice, partners often net a refund because the §1446 rate is the top statutory rate while their actual effective rate after deductions is lower.

Three places where partnerships go wrong on §1446:

1. Skipping Forms 8813 because no money has been distributed. ECTI is taxed when allocated, not when distributed. A partnership that earns U.S. business income and allocates it to a foreign partner under partnership accounting rules owes the withholding for that year, even if cash never leaves the partnership.

2. Using treaty rates on ECTI. Treaties generally don't reduce ECTI withholding under §1446; ECTI is U.S. business income and treaties protect foreign persons from U.S. business-income tax only when no permanent establishment exists. A foreign partner of a U.S. partnership doing a U.S. trade or business almost always has a U.S. permanent establishment for these purposes.

3. Missing the §1446(f) overlay on partnership-interest sales. If a foreign partner sells a partnership interest where any of the underlying income would have been ECTI, the buyer (not the seller) generally must withhold 10% of the amount realized under §1446(f). This is a separate withholding regime added by TCJA and is administered through Form 8288 / 8288-A. Don't conflate §1446(a) (annual ECTI withholding) with §1446(f) (interest-sale withholding) — they coexist.

A foreign partner can give the partnership Form 8804-C to certify deductions and credits that reduce ECTI, which can lower the withholding base. The partnership must consider 8804-C information in good faith but is not bound by inaccurate certifications. Document each step — the IRS routinely reviews §1446 mechanics during partnership audits.