CA Partnership Withholding Requirement on Non Resident Partner - Spidell

CA Partnership Withholding Requirement on Non Resident Partner

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Message Board CA Partnership Withholding Requirement on Non Resident Partner

This topic contains 1 reply, has 2 voices, and was last updated by Renee Rodda 3 months, 2 weeks ago.

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  • #174781
    Paul Nienow
    Participant

    I am preparing a return for a final year of a partnership that owned real property and sold it this year.  The entity has lost money every year, except this year when it has a gain on sale due to previous depreciation.  Overall, there has been a loss and the investors are only receiving a fraction of their initial investment.  It is clear to me that this is a return of capital, and per the Form 592 instructions, and the wonderful Spidell “Real Estate and Nonresident Withholding” guide, no withholding is needed for a return of capital.  However, the 592 instructions show the following in the Q&A section:

    109. Is withholding required on distributions that have incurred losses every year?

    No. The distributions would be a return of capital if the partnerships have incurred losses every year.

    110. When are distributions considered a return of capital as opposed to income distributions?
    Distributions are deemed first from distributable income and second as return of capital.

    My question is, do I have current year distributable income, and since they are deemed to be distributed first, I need to withhold, or, is this a return of capital and no need to withhold?

    Thanks!!

     

  • #175135
    Renee Rodda
    Participant

    You are correct, if you have a principal distribution no withholding. That question references instances where you have distributions of both income and principal. Then the income is deemed to be distributed first.