I bought out a foreign partner — do I file Form 8288-C?
Probably, if the partnership carries on a US trade or business and the partner you bought out is a foreign person. The obligation sits on the transferee first. It is decided by the facts of the transfer and the status of the seller, not by whether tax turns out to be due, so a transfer that produces no gain for the seller does not remove it. Two questions settle it: was the transferor a foreign person at the time of the transfer, and was the partnership engaged in a US trade or business. Both are evidenced from the partnership's own records and the seller's certifications, and both are better answered before the money moves than afterwards.
Does the partnership file Form 8288-C or does the buyer?
The buyer, in the first instance. The partnership is the backstop: where the transferee does not withhold, the obligation falls on the partnership itself as withholding agent. That is why a partnership with any foreign partners on its register needs a procedure for transfers rather than trust in the parties, because the failure of a buyer it never dealt with becomes the partnership's own exposure. In practice we set the responsibility in the transfer paperwork, collect the certifications the partnership needs in order to rely on them, and keep a record of what the partnership knew and when it knew it. Where the buyer has already withheld and reported, the partnership's file should show that too.
Do I file Form 8288-C if the partnership owns no real estate?
Yes, if the other conditions are met. This is the point that catches private-fund and joint-venture transactions: the rule reaches the transfer of an interest in a partnership engaged in a US trade or business, not the transfer of US real property. Buyers who have been told they are safe because there is no land in the structure are reasoning from the wrong rule. An operating business, a services partnership or a fund with an active US trade or business can each produce the obligation with no real estate anywhere in the balance sheet. Test the partnership's activity, not its asset list.
How do I know whether the seller of a partnership interest is foreign?
By documentation, not by impression. A transferee who relies on what the seller said in an email has nothing to show later. The certification the seller gives you, taken before completion and held with the transfer file, is what evidences the position. Where it is refused, or reads inconsistently with the partnership's own records, the safer course is to treat the transferor as foreign and deal with the amount withheld afterwards. Status for this purpose is a tax question, so a seller with a US address and a US bank account can still be a foreign person, and a seller who sounds foreign can be a US person. Ask for the paperwork.
Does a partner redeeming out of the partnership trigger this withholding?
It can, and redemptions are where the parties often assume nobody is buying anything. If the interest of a foreign partner is reduced or extinguished and the partnership is engaged in a US trade or business, there is a transfer to analyse and a withholding agent to identify. What differs from an ordinary sale is that the partnership stands on both sides of the transaction, so the procedure and the record-keeping fall to the same people who will answer for them later. We read the partnership agreement, the mechanics of the redemption and the partner's status, and settle the reporting before the distribution is made.
Do small secondary transfers of a fund interest need Form 8288-C?
Size does not decide it. A modest secondary sale on a fund register raises the same two questions as a headline transaction: the status of the transferor, and the activity of the partnership. What changes with size is the administration, because a register that turns over regularly produces a stream of transfers rather than a single event, and each of them has a withholding agent. Funds that handle this well give the administrator a standing procedure — collect the certification with the transfer instruction, identify who is withholding, file per transfer. Funds that handle it badly discover a year of transfers at once.
Do I pay tax twice on a foreign dividend?
Not at full rates if the relief is claimed. The paying country usually withholds at source, capped by treaty where one applies and the paperwork is in place; your residence country then taxes the dividend and credits the foreign withholding against its own charge. Where the withholding exceeded the treaty rate because no declaration was filed, the excess is recovered from the paying country, not credited at home. See the dividends article.
Why are corporations double taxed?
Corporate double taxation happens because the company and its owners are separate taxpayers. The company pays tax on its profit; when the after-tax profit is distributed, the shareholder pays tax on the dividend. Canada softens this with the dividend gross-up and credit, which is meant to leave a shareholder roughly where they would have been earning the income directly. The United States taxes the C corporation and then the dividend, with no equivalent integration. See dividends to a foreign parent.
