By Edward Tanenbaum, Daniel Reach and Seth Buchwald ( January 29, 2019, 1:58 PM EST) -- The rules addressing the taxation of income effectively connected with a U.S. trade or business, or ECI, are voluminous and complex, but the latest regulatory guidance focuses on one particular aspect — certain partnership interest sales by foreign partners. In this particular context, a foreign partner has always been deemed to be indirectly engaged in a U.S. trade or business of a partnership that is itself engaged in a U.S. trade or business. This means that, while it is a partner, the foreign partner's distributive share of partnership income that is ECI is taxed as ECI to the foreign partner. But as a result of a change in law in 2017, this also means that, when a foreign partner sells its interest in the partnership, the gain or loss would also be taxed as ECI to the partner. The latest proposed regulations focus only on the scenario in which a foreign partner that does not otherwise directly conduct a trade or business in the U.S. sells its interest in a partnership that is so engaged, and whether in that circumstance the gain or loss from the sale is ECI....