For a non-US citizen residing less than 183 days per year in the US, how are distributions from a partnership taxed? Assume that the partnership is something like an oil and gas master limited partnership (MLP) that reports income on Schedule K-1 and also does distributions in excess of its income. As I understand it, the partnership will be required to withhold taxes at the highest federal rate (35%), and the non resident would need to file a U.S. federal tax return to report this partnership income. Would the 35% withholding rate apply to *both* the partnerships reported income as well as its quarterly distributions in excess of income?
Is income from US trade or business reportable on page 1 of 1040-NR which is taxed at ordinary income rates?
There might be more info on rates at
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(ii) Special types of income or gain. Except as otherwise provided, a partnership is permitted to consider as the applicable percentage under this paragraph (a)(2) the highest rate of tax applicable to a particular type of income or gain allocable to a partner (e.g., long- term capital gain allocable to a non-corporate partner, unrecaptured section 1250 gain, collectibles gain under section 1(h)), to the extent of a partner's allocable share of such income or gain. Consideration of the highest rate of tax applicable to a particular type of income or gain under the previous sentence shall be made without regard to the amount of such partner's income. A partnership is not permitted to consider the highest rate of tax applicable to a particular type of income or gain under this paragraph (a)(2)(ii) if the application of the preferential rate depends upon the corporate or non-corporate status of the person reporting the income or gain and, either no documentation has been provided to the partnership under §1.1446?1 to establish the corporate or non-corporate status of the partner required to pay tax on the income or gain, or the partnership is otherwise required to compute and pay 1446 tax on such portion of the income or gain using the highest applicable percentage under section 1446(b). See e.g., §§1.1446?1(c)(3) (presumption of foreign status in the absence of documentation) and 1.1446?5(c)(2) (requirement to pay 1446 tax at higher of rates in section 1446(b) where a lower-tier partnership cannot reliably associate income with a partner of the upper-tier partnership).
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