What are the tax implications for US and non‑US unitholders of this distribution? | CHKR (Aug 06, 2025) | Candlesense

What are the tax implications for US and non‑US unitholders of this distribution?

Tax treatment of the CHKR common‑unit distribution ( $0.0189 per unit ) for the June‑2025 quarter

   US unitholders  Non‑US unitholders
How the $0.0189 per unit is classified The distribution comes from the Trust’s royalty‑interest production. In practice, most of the cash that a royalty‑interest trust (similar to a REIT) pays is treated as ordinary dividend (i.e., “qualified dividend” or “ordinary income”) for the recipient. The Trust has not indicated that any portion is a capital‑gain distribution or a return‑of‑capital, so the default assumption is that the entire amount is taxable ordinary income to the holder. The same classification applies – the foreign holder receives the same type of cash payment. For tax purposes the foreign holder’s home‑country rules will determine whether the amount is treated as ordinary income, dividend, or capital‑gain, but from the Trust’s perspective it is a non‑qualified dividend/ordinary distribution.
US tax reporting * Form 1040 – report the amount on line 3b (qualified dividends) or line 3a (ordinary dividends) of Schedule 1 (Form 1040) depending on whether the distribution is qualified. Because the payment is derived from royalty interest (not from a corporation’s earnings), the IRS generally treats it as non‑qualified ordinary dividend (i.e., ordinary income). It is therefore taxed at the holder’s ordinary marginal tax rate (up to 37 %).
* Form 1099‑DIV – The Trust will issue a 2025 Form 1099‑DIV to each US holder by January 31 2026. The amount will be shown in Box 1 (ordinary dividends) and, if any portion is qualified, also in Box 1a.
* State tax – Most states tax the distribution the same way as federal ordinary income, unless the state has a specific exemption for REIT‑type income.
* No US withholding – The Trust does not withhold US tax on payments to foreign persons (unless the holder fails to provide a valid Form W‑8BEN). The distribution is gross‑up for the foreign holder; the holder must self‑assess any US tax liability if a treaty requires it.
* Form 1042‑S – The Trust will file Form 1042‑S (Foreign Person’s U.S. Income Tax Return) for any foreign holder who does not provide a valid exemption claim. If a valid Form W‑8BEN (or W‑8ECI) is on file, the Trust will generally not withhold any US tax.
* Foreign tax credit – The foreign holder may be able to claim a foreign‑tax credit in their home country for any US tax that is actually withheld or paid.
Non‑US tax reporting * No US filing required (unless the holder is a US person or a US citizen/green‑card holder). The foreign holder should receive a Form 1042‑S only if the Trust withholds US tax (see above). Otherwise, the holder reports the distribution in the home‑country tax return according to local law (generally as foreign‑source dividend/interest). * Foreign‑source withholding – Most jurisdictions impose a 30 % withholding tax on US‑source dividends unless a tax treaty reduces the rate. The holder must provide a valid Form W‑8BEN (or W‑8ECI if the income is effectively connected with a US trade or business) to claim the treaty rate or exemption. If the holder does not supply the form, the Trust will apply the statutory 30 % withholding.
* Tax‑treaty relief – Many countries (e.g., Canada, UK, Germany, Australia, etc.) have treaties that lower the dividend withholding to 15 % (or sometimes 0 % for portfolio‑interest‑type income). The holder should check the specific treaty article that covers “dividends” or “royalty‑interest distributions.”
* Reporting in the home country – The distribution is generally treated as foreign‑source dividend/interest and taxed at the holder’s marginal rate in the residence country. The holder can usually claim a foreign‑tax credit for any US tax actually withheld.
* Form W‑8BEN filing – The holder must keep the W‑8BEN on file with the Trust and renew it every three years to continue the reduced‑rate or exemption.
Practical steps for all unitholders 1. US holders – Wait for the 2025 Form 1099‑DIV (issued early 2026). Include the amount on the 2025 individual tax return as ordinary dividend income. If you are a high‑income taxpayer, the distribution is fully taxable at ordinary rates.
2. Non‑US holders – Provide a current, signed Form W‑8BEN (or W‑8ECI if you consider the income effectively connected with a US trade or business) to the Trust before the record‑date (August 19 2025) to avoid the 30 % default withholding. Keep the form up‑to‑date (renew every 3 years). Consult your local tax adviser to determine whether the distribution is taxed as dividend, royalty, or capital gain in your jurisdiction and whether you can claim a foreign‑tax credit for any US tax withheld.
Key take‑aways
  • US unitholders treat the $0.0189 per unit as ordinary (non‑qualified) dividend income on their 2025 federal tax return; it is subject to ordinary income tax rates and reported on Form 1099‑DIV (Box 1).
  • Non‑US unitholders are subject to 30 % US withholding unless they submit a valid Form W‑8BEN (or W‑8ECI) and a treaty reduces the rate (often to 15 % or 0 %). The distribution is then taxed in the holder’s home country according to local rules for foreign‑source dividend/royalty income, with a possible foreign‑tax credit for any US tax actually withheld.

Disclaimer: The above is a general overview of the typical tax consequences for a royalty‑interest trust distribution. The exact classification (qualified vs. non‑qualified dividend, capital‑gain, return‑of‑capital) and the applicable treaty rates can only be confirmed by the Trust’s detailed distribution breakdown and the specific tax treaty between the United States and the holder’s residence country. Unitholders should obtain personalized advice from a qualified U.S. tax professional (for US persons) or a local tax adviser (for foreign persons) before filing.