Publicly Traded Partnerships (PTP)
The sales proceeds from publicly traded partnerships (PTPs) are subject to a 10% withholding tax.
As a result of U.S. Internal Revenue Regulations that took effect on January 1st 2023, new withholding charges are to be applied to sales proceeds from Publicly Traded Partnerships (“PTPs”) that do not have Qualified notice exemptions held by non-U.S. taxpayers. The IRS withholding charges are substantial, which is why there is limited access to these products through LYNX for investors who may not be aware of the risks associated with investing in PTPs.
More information about this new legislation is available on the IRS website:
Publicly Traded Partnerships | Internal Revenue Service
Definition: What is a Publicly Traded Partnership or a PTP?
A publicly traded partnership (PTP) is a business organization owned by two or more co-owners whose shares are regularly traded on an established securities market or are easily tradable on a secondary market, regardless of the number of partners.
A publicly traded partnership is a type of limited partnership managed by two or more general partners—including individuals, corporations, or other partnerships—and is capitalized by limited partners who provide capital but have no management role in the partnership.
PTP securities that may be subject to withholding under the IRS Regulation are divided into two groups: those with a Qualified Notice and those without a Qualified Notice.
A Qualified Notice is an exemption provided by the IRS Regulation to issuers of PTP. This exemption remains valid for 92 days.
U.S. withholding tax on PTP
All investors who are considered non-U.S. residents, meaning they are not subject to U.S. taxation and reporting (and do not file a W-9 IRS form), are required to pay a 10% withholding tax on the sales or distribution proceeds of PTPs.
This means 10% of the amount of funds that would settle resulting from any transaction or distribution of a PTP, not just 10% on any calculated profit.
Here is an example on how this withholding tax is calculated on the sale of a PTP that does not have a Qualified notice exemption:
Buy 200 shares @ 50
Transaction value = $10,000
Sell 200 shares @ 51
Transaction value = $10,200
Profit = $200
Withholding = $1020 USD
Assuming no tax refund is claimed, the investor’s loss would be 820 dollars.
Options and other derivative instruments with a PTP as the underlying security are not subject to a withholding tax. However, if the option or derivative is converted into a PTP, a subsequent sale of such PTP security would be subject to withholding.
For more information about this new regulation, please refer to the IRS website below:
Partnership Withholding | Internal Revenue Service
How to activate trading on PTPs?
Login
- Open your browser and visit the Client Portal website
- Enter your username and your password
- Authenticate yourself via two-factor authentication
In the menu at the top right corner, select Welcome and then Settings.
PTP Trading Opt In-Out
To request PTP Trading Permission in Settings, go down through the Account Settings column. Select PTP Trading Opt In-Out to open the window Trading Permission Request for Publicly Traded Partnership Securities.
On this window, select if you would like to have PTP Trading Permission and sign with your name at the bottom of the page, please be aware you will have to write your name exactly like it’s written left of the box. To confirm, click on Continue and a notification will pop-up.
List PTPs with Qualified Notice
PTP Securities with Qualified Notices can be found on the following link:
PTP Securities with known Qualified Notice
List PTPs without Qualified Notice
PTP Securities without Qualified Notices can be found on the following link:
PTP Securities without Qualified Notices
FAQ
Generally these requests will be processed in the same day.
Investing in PTPs comes with potential risks, including market volatility, fluctuations in commodity prices (for energy-related PTPs), and changes in tax regulations that could affect the partnership’s distribution policy.
The IRS withholding charges are substantial, which is why there is limited access to these products through LYNX for investors who may not be aware of the risks associated with investing in PTPs.
The PTP restriction will be placed on the account again after 3 months. To re-enable trading, follow the steps above.
As mentioned before, a 10% withholding tax is imposed on stock transactions. This tax applies not only to regular trades but also when exercising options resulting in the purchase or sale of 100 units. This means that investors engaging in options trading within the PTP realm are subject to the same withholding tax as those involved in traditional trades. Consequently, investors need to consider this tax implication when strategizing their trading activities, as it directly impacts their overall investment returns.
Disclaimer:
LYNX does not provide tax or legal advice. The information on this page has been prepared for informational purposes only and is not intended to be tax or legal advice, and should not be relied upon. You are therefore solely responsible for correctly assessing whether the information on this page is applicable to you and correct. Despite the fact that LYNX takes all necessary care in drawing up and maintaining this page, using sources that are considered reliable, LYNX cannot guarantee the accuracy, completeness and actuality of the information provided. LYNX therefore refers to the instructions officially published by the IRS and strongly recommends consulting a tax or legal adviser before entering into any transaction. No rights can be derived from the information described on this page.
This page contains links and/or refers to third-party websites. These links are provided solely for your convenience. Such third-party websites are not under the control of LYNX. LYNX is therefore under no circumstances responsible for the information on such third-party websites.