Qualified intermediary (QI), withholding foreign partnership (WP), and withholding foreign trust (WT) frequently asked questions (FAQs)

Under section 5.10(B) of the 2017 QI agreement, a QI that is a financial institution, an insurance company, or a broker or dealer in securities has reason to know that documentation provided by a direct account holder is unreliable only as prescribed in §1.1441-7(b)(3). Section 1.1441-7(b)(3) cross-references §1.1441-7(b)(5)(i) for withholding certificates establishing foreign status, which provides that a withholding certificate provided to establish foreign status is unreliable if the withholding agent has a current residence or mailing address as part of its account information that is an address in the United States. Under §1.1441-7(b)(5)(i), a withholding agent must treat a Form W-8 as unreliable if the withholding agent has a U.S. address in the account information, even if the address is for a person other than the account holder (e.g., an advisor or a fund manager). Under the 2014 and 2000 QI agreements, a QI described above was required to treat a Form W-8 provided by a direct account holder as unreliable for purposes of a claim of foreign status if the QI had a U.S. mailing or permanent address for the account holder (i.e., not just a U.S. address in the account file). Under this FAQ, the IRS will allow a QI to continue to apply this requirement from the prior QI agreements to the 2017 QI agreement for direct account holders subject to the QI agreement, notwithstanding the cross-reference to §1.1441-7(b)(3) in the 2017 QI agreement.

Under section 5.10(B) of the 2017 QI agreement, a QI that is a financial institution, an insurance company, or a broker or dealer in securities has reason to know that documentation provided by a direct account holder is unreliable or incorrect only as prescribed in §1.1441-7(b)(3). Section 1.1441-7(b)(3) cross-references §1.1441-7(b)(9)(i) for the validity requirements for a treaty claim supported by documentary evidence, which provides that documentary evidence is unreliable or incorrect if the withholding agent has a current mailing or current permanent residence address for the direct account holder (whether or not on the documentary evidence) that is outside the applicable treaty country, or when the withholding agent has no permanent residence address for the account holder, a requirement that was also included in the 2014 QI agreement.

Under prior guidance applicable to QIs, a QI was permitted to rely on a claim for treaty benefits in those cases by obtaining certain additional documentation without referencing whether the QI had a permanent residence address for the account holder in the jurisdiction for which treaty benefits were claimed. As a result, the IRS will not require a QI to redocument a direct account holder claiming treaty benefits for purposes of section 5.10(B) of the 2017 QI agreement provided that the QI has documented the account holder before January 1, 2018 in accordance with the prior guidance applicable to a QI. For direct account holders documented on or after January 1, 2018, a QI must have a permanent residence address for the direct account holder in the jurisdiction associated with the documentary evidence upon which a QI may otherwise rely for a claim of treaty benefits.

The IRS did not intend to change the applicability of the approved KYC attachments in the 2017 QI, WP, and WT agreements. Thus, a QI, WP, or WT may treat an approved KYC attachment as incorporated into, and as an integral part of, its agreement to the extent the attachment would otherwise apply to the entity (or branch of the entity, if applicable).

A QI is permitted to treat the account holder that is the beneficiary of the trust arrangement as a direct account holder of the QI for purposes of sections 5, 6, and 8 of the QI Agreement where all of the following apply:

• The trust is registered with the applicable government as a tax-free plan. 
• In order to qualify as a tax-free plan, applicable non-U.S. law mandates that where the plan holds assets in a brokerage account, a trust be established for the account holder that is the sole beneficiary under the plan.
• The account holder maintains general control over investments in the plan and can withdraw the funds at any time.
• The QI is required to document the account holder under applicable AML/KYC regulations or procedures.
• The trust itself is not eligible for a reduced rate of withholding under an applicable income tax treaty.

First, the non-QI must apply for QI status at the time of the merger according to Section 5 of the QI Agreement via the QI/WP/WT Application and Accounts Management System, and, if the non-QI is approved for QI status effective as of the date of the merger, the original QI will merge into the newly approved QI (successor QI). The original QI must notify the IRS that it intends to terminate its QI Agreement by delivery of a notice of termination and merger on the QI/WP/WT Application and Accounts Management System according to section 11.05 of the QI Agreement, provide all required information, and ensure the other requirements of section 11.05 are met. The successor QI must provide the certification required by section 11.02(B) of the QI Agreement for the original QI’s compliance period prior to the merger. In addition, the successor QI must provide to its withholding agent a Form W-8IMY representing its status as a QI with respect to the successor QI’s QI-designated accounts.

At the conclusion of the QI’s re-domiciliation, the QI must report its new name, and the new address of its registered office on the QI/WP/WT Application and Accounts Management System but does not have to re-apply for QI status. The QI’s branch information must be updated to take into account the new branch of the QI that results from the re-domiciliation. A QI that is an FFI or a sponsoring entity must also update its information on the FATCA Registration System (please see the FATCA Registration User Guide). The QI does not have to submit the notice of termination or the certification described under section 11.05 or 11.02(B) of the QI Agreement, as the QI’s existing QI Agreement will be treated as remaining in effect notwithstanding the merger and re-domiciliation. However, the QI must provide to its withholding agent a Form W-8IMY revised to reflect changes resulting from the re-domiciliation that are relevant to the form.

An FI is not required to obtain QI/WP or WT status to register under FATCA. If at the time of FATCA registration, the FI does not have in effect a withholding agreement with the IRS to be treated as a QI, WP or WT, the FI will indicate “Not applicable” in box 6 and will continue with the registration process.

No, the FFI’s Responsible Party for purposes of a QI/WP/WT agreement does not have to be the Responsible Officer chosen by the FFI for purposes of certification under the regulations or for FATCA Registration purposes.

Each Member FI with a qualified intermediary/withholding trust/withholding partnership (“QI/WP/WT”) agreement will renew its own agreement on the registration system. When a member is completing its registration it will be asked about whether it maintains and seeks to renew a QI/WP/WT agreement with the Service. If the member indicates it has one of these agreements and would like to renew the agreement, the member will do so in Part 3 of the registration system in addition to claiming status as a participating FFI or registered-deemed compliant FFI (and obtaining its required GIINs).

1. The home office (or prospective QI) must complete and submit its QI application or renewal on the QI System (please refer to QI System User Guide for step-by-step instructions). The application or renewal must include all relevant branch information for each branch that intends to act as a QI (including as a QDD). 
2. Notwithstanding that the home office (or prospective QI) included all relevant branch information with its application or renewal, a separate QI application must be submitted for each branch (including branches that are disregarded entities) that is a prospective QDD. Each home office or branch that is a prospective QDD must submit a separate application, even if located in the same country. Therefore, if multiple branches located in the same country are prospective QDDs, a separate application must be submitted for each branch. 
3. The process for the branch’s separate QI application will follow the QI System User Guide instruction for applying to become a QI (that is, the same process that the home office or prospective QI used), and the QI System will populate the application using the same answers as provided by the home office (or prospective QI), except for the following lines, which the branch will be required to complete:

Part I:

a. Name of Applicant: Enter the Home Office QI NAME with the following appended to the Home Office Name:
:-QDD-BRANCH-<Branch QDD COUNTRY (and branch identifier, if necessary)>
(EXAMPLE: ABC Bank-QDD-BRANCH-SINGAPORE (Disregarded Entity Name)).
b. Existing EIN, if any: Enter the home office QI EIN. 
Note: A QDD branch will receive a message on their message board upon acceptance of its application, but the QDD branch will not be issued its own QI EIN. 
c. Country / Jurisdiction of Organization: Enter the country / jurisdiction of the branch.
d. Indicate that the branch is applying for QDD status.
e. Identify the applicable Know Your Customer Rules (KYC): Select the jurisdiction, if any, whose KYC rules apply to the branch.
f. Does the Applicant Maintain a branch in any Jurisdiction other than the home office: Select “No.”
g. Address of applicant: Enter the address of the branch.
h. Description of Business: Preface the description by stating the application is for a branch applying for QDD status only.
i. Responsible Officer: The applicant may identify the home office’s RO as its Responsible Officer
j. Contact person: The applicant may identify the home office’s Contact Person as its Contact Person or any other person that meets the requirements of a Contact Person for the branch.

Part II:

a. QI/WP/WT Information (Part 2): Enter zeros for all account holder totals and amounts. 
b. Will the applicant have any PAI agreements in effect: Select “No.”

Part III:

Complete all fields.

Part IV:

Upload files for the QI/WP/WT application: Select “SS-4.” 

Upload a document, containing the corporate letter head of the home office, which states the branch is applying strictly for QDD status as a branch of a QI. The statement should provide the name and QI-EIN of the home office.

Part V:

Complete, sign, and submit as directed.

Entities that have already submitted an application or renewal that included a request for QDD status must update their submission to separately request QDD status for any branch that will act as a QDD by following these procedures and sending an email to *LB&I FI QIWPIssues. The e-mail should indicate either that the entity has branches which intend to apply for QDD status and list those branches by country or that the entity has no such branches and the submission is ready to be processed by the IRS.

Part I, General Information. Description of business of the Applicant

(If the Applicant is applying for QDD status, indicate which portions of the business description are applicable to the QDD status)

Provide a detailed description of your business including, but not limited to, the type of business, the approximate value of your total assets, and, in general, the source of income you expect to receive. For businesses that may be involved in sale and leaseback type transactions, clearly state the structure of the transaction, including all the parties. If the business is not yet in operation, explain how the business intends to obtain financing and the projected startup date. If the Applicant is an investment fund, also describe the type of anticipated investments and state the term of the fund.

In addition, for each QDD applicant, indicate the business operated by the QDD applicant, list the types of potential section 871(m) transactions for which the QDD applicant makes payments, list the types of potential section 871(m) transactions and underlying securities for which the QDD applicant receives payments, and indicate which portion of the business relates to the QDD covered transactions and which portion of the business relates to the equity derivatives dealer business.

For each QDD applicant, indicate the QDD applicant’s entity classification for U.S. federal income tax purposes (such as a corporation, partnership, or disregarded entity). If the QDD applicant is a branch, also indicate the entity classification of its home office.

Part I, General Information. Description of new account opening procedures

(If the applicant is a WP or WT, provide a description of the procedures for admitting a new partner, beneficiary, or owner)

(If the applicant is applying for QDD or QSL status, describe the applicant’s procedures for collecting documentation from counterparties)

QI applicants (including QDD and QSL applicants): Provide a detailed description of the account opening procedures. List each type of document that is required for a new account opening and explain how each document is reviewed and validated. For entities that facilitate opening new accounts online, describe the entire account opening process, including any uploading of documentation.

WP/WT applicants: Describe the procedures for admitting a new partner, beneficiary, or owner. If the Applicant is an investment fund, attach the pages of the fund’s subscription agreement or offering documents relating to investor documentation.

An incomplete status due to compliance issues on your application for renewal of QI/WP/WT status is caused by prior noncompliance as a QI/WP/WT, such as a failure to file a return or a failure to pay tax.

The applicant should list the approximate value in U.S. dollars (using notional values for derivatives) of the stock in U.S. corporations and potential section 871(m) transactions of the home office or branch (as applicable). In addition, it should separately list the value of the home office or branch’s potential section 871(m) transactions that are securities lending transactions/sale-repurchase transactions, notional principal contracts, futures/forwards, or other equity linked instruments in the appropriate place. The securities lending transactions/sale-repurchase transactions, notional principal contracts, futures/forwards, and other equity linked instruments categories should not include values related to transactions that are not potential section 871(m) transactions.

For applications submitted in 2017, the applicant may indicate that the value of the transactions in the previous calendar year is zero when the applicant does not have the relevant information. For those applications submitted in 2017 for which the applicant does not have the relevant information, the applicant must attach a statement indicating that the information is not available, briefly describing the types of transactions it has entered into and providing an estimate (if possible) of the anticipated values for these types of transactions.

The applicant should list the approximate value in U.S. dollars (using notional values for derivatives) of potential section 871(m) transactions entered into with each counterparty type for the previous calendar year. For applications submitted in 2017, the applicant may indicate that the value of transactions by counterparty type for the previous year is zero when the applicant does not have the relevant information. For those applications in 2017 for which the applicant does not have the relevant information, the applicant must attach a statement indicating that the information is not available, briefly describing the types of counterparties with whom the applicant transacts and providing an estimate (if possible) of the value of the transactions for each counterparty type.

The applicant must identify whether the application is for the home office or branch, and why each home office or branch is an eligible entity. See Treas. Reg. § 1.1441-1(e)(6)(ii) for an updated definition of an eligible entity. For each home office or branch applying under the rule for a dealer, bank, bank holding company, or wholly owned entity of a bank or bank holding company, the applicant must include the name and jurisdiction of the regulator, and whether each home office or branch is regulated by it as a dealer, bank, or bank holding company, as applicable.

The applicant should briefly describe the potential section 871(m) transactions that the home office or branch, as applicable, issues or anticipates issuing to customers and how it hedges or anticipates hedging those transactions, in each case, as a principal. Each applicant must confirm that the application only describes transactions the QDD enters into as a principal that are recognized and attributable to the QDD for U.S. federal income tax purposes and not effectively connected with the QDD’s conduct of a trade or business in the United States. For each applicant that is eligible to apply for QDD status because it is a bank, bank holding company, or wholly-owned entity of a bank or bank holding company, the applicant must confirm that it (1) issues potential section 871(m) transactions to customers and (2) receives dividends with respect to stock or dividend equivalent payments with respect to potential section 871(m) transactions that hedge potential section 871(m) transactions that it issued. 

The applicant should describe how it will determine which transactions are part of the QDD business of the home office or branch (as applicable) and how it will distinguish the home office and each branch’s QDD business from the QDD businesses of the home office and/or any other branches, as applicable, and from non-QDD businesses. The applicant should briefly describe what systems or procedures it has in place to test, track, and report the transactions associated with the home office or branch’s QDD activities (including whether transactions are held in an equity derivatives dealer capacity or another capacity, and how net delta will be determined). If the applicant submits the application in 2017 or 2018 and has not yet completed all of its systems or procedures, the applicant must include a brief description of the systems or procedures that have been completed as of the date of the application, and the systems or procedures that the applicant is developing. For systems or procedures in the development stage at the time the application is submitted, please provide an estimated timeframe for the completion of those items.

Yes. Even though section 871(m) only applies to transactions with a delta of one in 2017, an applicant must complete section 3 by including a description of potential section 871(m) transactions for which section 871(m) will apply beginning in 2018. For example, an applicant applying in 2017 should include responses relating to both delta one transactions and non-delta one transactions.

Yes, a partnership can apply to be a QDD if the partnership qualifies as an eligible entity; however, the IRS may include additional terms that would apply in the case of an agreement entered into with a partnership.

This limited category is intended to allow the IRS the discretion to treat an entity that is very similar to the specified categories of eligible entities but that does not satisfy the precise technical requirements in the definition as an eligible entity. It is not intended to function as a significant expansion of the definition of eligible entity. If an applicant does not satisfy one of the specific categories, the applicant is encouraged to contact the Foreign Intermediaries Program at lbi.fi.qiwpissues@irs.gov in advance of applying under this category.

The renewing QI/WP/WT (applicant) should answer this question based on currently available information with respect to each form that Applicant was required to file for the calendar years covered by the most recent QI, WP, or WT agreement that applicant is renewing:

1. Answer “Yes” if the applicant filed the form and the form was correct, and the applicant has complied with its withholding requirements with respect to such form (if applicable). 
2. Answer “No” if the applicant did not file the form or the applicant filed the form but has failed to pay the amount of tax due with respect to the form (if applicable).
3. Answer “NA” if the applicant is not required to file the form for all tax years covered by the QI, WP, or WT agreement. 

The deadline of 3/31/17 for submitting a QI, WP or WT request for renewal as well as for submitting a new application is fast approaching.

In order to allow time for these entities to become better acquainted with the new Qualified Intermediary, Withholding Foreign Partnership, and Withholding Foreign Trust Application and Account Management System (QI/WP/WT System), as well as to gather all information necessary to prepare and submit a renewal application, the Internal Revenue Service will grant an Effective Date of 1/1/17 for all properly submitted and approved renewal applications, including renewals containing a request for QDD status, submitted by 5/31/17. 

Additionally, because a QDD is a new entity type, all new QI Applications that also contain a request for QDD status submitted by 5/31/17 that are approved will be granted an Effective Date of 1/1/17.

For new withholding foreign partnerships, new withholding foreign trusts, and new QIs that are not applying for QDD status, the 3/31/17 new application deadline for a 1/1/17 Effective Date is still in effect.

No. A QI that is not currently a QDD does not have to wait for its QI agreement to expire to apply for QDD status. A QI that wants to apply for QDD status should contact the Foreign Intermediary Team by e-mail at lbi.fi.qiwpissues@irs.gov. Please note that once a QI is granted QDD status, it can no longer act as a QSL. QSL status will expire for all QIs on 12/31/17.

The abovementioned FAQ does not apply to branches of QIs that want to apply for QDD status. As stated in the FAQ that addresses QDD Branch Registration, branches of QIs must apply for QDD status by completing a separate QDD application.

If a prospective QDD applies for QDD status prior to March 31 of a given calendar year and its application is approved, its QDD status will become effective as of January 1 of that year. If a prospective QDD applies for QDD status after March 31 of a calendar year and it has not received any reportable payments prior to submitting its application and its application is approved, its QDD status will become effective January 1 of that year. However, if a prospective QDD applies for QDD status after March 31 of a calendar year and it has received a reportable payment prior to submitting its application and its application is approved, its QDD status will become effective the first day of the month in which its QDD application is approved. QDD applications should not be submitted prior to the year the QI wants its QDD status to become effective. A prospective QDD that applies for QDD status after 3/31/17 cannot represent status as a QDD on Form W-8IMY before the date the application to be a QDD is approved.

A19. Section 1.01 of the WP agreement provides that a WP that is a foreign reverse hybrid entity must comply with the requirements of section 6.03(C) of the WP agreement, which include a requirement that the foreign reverse hybrid be an FFI. Notwithstanding this requirement, a foreign reverse hybrid entity that is a NFFE may apply to be a WP with respect to payments of personal services income that is income effectively connected with a trade or business within the United States if it otherwise meets the requirements of a NFFE under the WP agreement (including reporting the information on withholdable payments distributed to, or included in the distributive share of, a partner that is a NFFE, as described in section 6.05(B) of the WP agreement). If a WP that is a foreign reverse hybrid entity submitted an application and did not check the box in Part 1 to indicate its status as a foreign reverse hybrid entity, it must contact the FI team by email at lbi.fi.qiwpissues@irs.gov to correct its status.

The deadline for submitting a renewal request for a QI (including a QI acting as a qualified derivatives dealer (QDD)) is March 31, 2023.

A home office QI (including a QI acting as a QDD) and each of its QDD branches must submit separate renewal requests. QDD branch renewals cannot be approved until the home office QI renewal is approved. The home office QI and its QDD branches are advised to submit renewal requests at the same time to avoid delays in approving the renewals.

To apply for QDD status, a new QDD applicant should select QDD status on the appropriate dropdown box in Part 1 of the renewal request. Also, the QI must provide all required information in Part 3 - QDD Information. If additional space is needed, the applicant should upload an attachment containing the additional information to Part 4 – Additional Information. Refer to FAQ 4 under New applications/2017 renewals for specific requirements for new QDD applications.

All QIs must have submitted all required periodic certifications due to date before the renewal can be approved. The renewal will not be approved if there are any overdue certifications. Contact the Financial Intermediaries (FI) Team at lbi.qiwpissues@irs.gov for instructions on submitting overdue certifications.

Check the box for legal entity name change in Part 1 and enter the new legal entity name on the renewal request. Refer to FAQ 22 under Certifications and periodic reviews for additional procedures on updating the name change with the IRS service center.

Some entity information on the renewal request will be pre-populated based on information previously provided in Qualified intermediary (QI), withholding foreign partnership (WP), and withholding foreign trust (WT) Application and Account Management System (QAAMS). Responsible officers should review and verify the pre-populated information and edit all items for which the information has changed.

If there are material changes to the entity’s business description or account opening procedures, report the changes on a new document and upload the document as an attachment to Part 4 of the renewal request.

Type of account holders and investment in U.S. assets information are not required to be updated in Part 2 of the renewal request.

Additionally, a QI that seeks to renew its QI agreement will be required to, as part of its renewal, consent to have its name, status as a QI, and QI-EIN disclosed on a public list of QIs to be published by the IRS on IRS.gov.

A1. Yes. Section 10.07 of the QI agreement provides that a QI may apply for a waiver of the periodic review requirement if it is a QI that is not acting as a QDD and it meets the other requirements of section 10.07. Under Notice 2020-2, 2020-3 I.R.B. 327, a QI that is a QDD is not required to perform a periodic review with respect to its QDD activities for a certification period ending in any calendar year prior to 2023. Also see FAQ 19 in this section for information regarding the periodic certification required of a QDD for calendar years before 2023. A QI that is a QDD (whether or not it acted as a QDD) may, however, still be required to conduct a periodic review of its QI activities that are not QDD activities for those years. Thus, the IRS will permit a QI that is a QDD and that has a certification period ending in any calendar year before 2023 to apply for a waiver of the periodic review when it otherwise meets the requirements of section 10.07 of the QI agreement with respect to its QI activities that are not QDD activities (including when the QI has no non-QDD activities during the certification period). To request a waiver, the QI should complete Parts 1 and 2 of the certification taking into account both its QDD and non-QDD activities. The QI should refer FAQ 9 in this section regarding the year to indicate as the periodic review year in the case of a QI applying for a waiver. After completing parts 1 and 2, in some instances, the system will then take the user to Part 3 (Waiver). The QI should complete Part 3 taking into account only non-QDD QI activity. In Part A (step 1 of 3 - Eligibility for Waiver) the QI should check the box titled "QI is an FFI that is not also acting as a QDD." The QI should complete the remainder of Part 3 as it applies to the QI. The system will then take the QI to Part 7 (Additional Information). There, the QI should attach a document that states the QI is a QDD applying for a waiver with respect to its non-QDD activities and then submit the waiver application. 

In most instances where a QI that is a QDD applies for a waiver, the system will, however, bypass Part 3 and take the user to Part 4 (Periodic Review: QI Factual Information). If this occurs, the user should then complete part 4 as follows: 

1. The QI must answer “no” to the following two questions:
   
   Did QI use an external reviewer to conduct any portion of its periodic review?
   Did QI use an internal reviewer to conduct any portion of its periodic review?
    
2. The QI must answer the following two questions as it applies to their operation for the calendar years covered by the certification cycle:
   
   Did QI assume primary chapters 3 and 4 withholding responsibility for any accounts for the calendar year reviewed provided on the previous page? 
   
   Did QI assume primary Form 1099 reporting and backup withholding responsibility for any accounts for the calendar year provided on the previous page? 
    
3. The QI should answer “not applicable” to the following question:
   
   Did QI use a statistical sampling method in conducting the review of its accounts?
    
4. The QI should answer all questions requiring a numeric response (e.g., number of accounts, amounts) with zeroes.
    
5. The QI should skip text boxes that allow the QI to provide further explanations.
    
6. The system will then guide the QI to Part 6 (Substitute Interest). The QI should answer all questions with zeroes. 

The system will then take the QI to Part 7 (Additional Information). There, the QI should attach a document that states the QI is a QDD applying for a waiver with respect to its non-QDD activities. The document should also list all the questions from Part III (Waiver of the Periodic Review) of Appendix I to the QI Agreement, along with the QI’s answers to those questions, considering only non-QDD activities. The QI will then be guided through the normal sequence of answer, review, and submission.

If the waiver is accepted, the QI will receive a confirmation message on its home page. If the waiver application is not accepted upon initial review, the QI will be contacted by the QI team.

A2. Section 10.04 of the QI agreement and section 8.04 of the WP and WT agreements provide that an internal or external reviewer must be independent. The preamble to the QI agreement provides that the reviewer must have sufficient independence to conduct the review objectively and cannot review his or her own work or the work of others in the same "firm." The IRS has received requests for clarification of the independence standard for external reviewers and, in particular, how the IRS construes the term "firm" for purposes of this requirement. The IRS will permit an external reviewer of a QI, WP, or WT to apply the standards of independence that would otherwise apply to its engagement to conduct the periodic review (such as the standards for an agreed-upon procedures engagement by a certified public accountant).

A3. No, a QI/WP/WT that did not enter into the 2017 QI/WP/WT agreement (Rev. Proc. 2017-15 or Rev. Proc. 2017-21) does not have a final certification requirement after its QI/WP/WT status lapses.

A4. Yes. According to section 10.02(B) of the 2017 QI Agreement (QI Agreement), or section 8.02(C) of the 2017 WP Agreement (WP Agreement), the IRS, in its discretion, may permit a consolidated compliance program that includes two or more QIs that are members of a group of entities under common ownership, or two or more WPs that have the same sponsoring entity. The members of the group should (i) operate under a uniform compliance program for purposes of this Agreement; (ii) share practices, procedures, and systems subject to uniform monitoring and control; and (iii) be subject to a consolidated periodic review that includes a review of internal controls and testing of transactions relevant to this Agreement with respect to each QI or WP in the consolidated compliance program. The formation of a Consolidated Compliance Group (CCG) may result in a more efficient use of resources, including a smaller periodic review sample size, than if each entity had a separate periodic review and filed a separate certification. Please see section 10.02(B) of the QI agreement and section 8.02(C) of the WP Agreement for further requirements for a group of QIs or WPs, respectively, to form a CCG.

A5. An application to form a CCG should be submitted by the responsible officer, or other authorized user of the proposed Compliance Entity account, no earlier than January 1st of the year following the proposed year of periodic review, and no later than April 1st of the year the certification is due. The submission should not be made before a complete application, including statistics required to propose a statistical sampling plan, can be submitted. If the submission is made on or after January 1st of the year the certification is due, the submission must be made using the QI/WP/WT Application and Account Management system. If the submission is made earlier, it must be sent via e-mail to the Financial Intermediaries Team (FI Team) at lbi.fi.qiwpissues@irs.gov. If the submission is made by e-mail before 1/1 of the year the certification is due, the submission must still be made using the QI/WP/WT system, to allow for automated internal tracking, no later than April 1st of the year the certification is due, even if the CCG request was already approved by the IRS.

Upon submission of an application to form a CCG, the IRS will contact the applying Compliance Entity to request any further information necessary to determine if the CCG is acceptable to the IRS. This ongoing discussion will also address such issues as the final composition of group members and sample design for any statistical sampling to be utilized for the periodic review.

A6. An application to form a CCG should include the following:

1. CCG Application Letter (mandatory for submitting an application).

2. Organizational Chart (mandatory for submitting an application).

3. Proposed Sample Plan (may be submitted after submitting an application).

4. The CCG application letter must address all the requirements listed under section 10.02(B) of the QI Agreement and section 8.02(C) of the WP Agreement in a manner that demonstrates that all entities proposed to be included in the CCG meet those requirements. The application letter must also list the Legal Names, FATCA IDs, Entity IDs, and QI-EINs of all QIs under the same common ownership or WP-EINs of all WPs that have the same sponsoring entity, including those QIs under common ownership or WPs that have the same sponsoring entity, that do not intend to be part of the CCG. This list must specifically identify which entities want to be included in the CCG and which do not. For entities not intending to be part of the CCG, it should be noted which intend to perform the periodic review and certify separately, and which intend to request a waiver of the periodic review.

If the Compliance Entity would like to exclude certain entities that are intended to be part of the CCG from the consolidated periodic review, the application letter must include the total reportable amounts for accounts held by foreign account holders, and reportable payments for accounts held by U.S. account holders during the year of the review, by entity, for every entity in the CCG.

The application letter must also include a statement acknowledging that the proposed Compliance Entity will be jointly and severally liable for the obligations and liabilities of any entity in the consolidated compliance group relating to the entity's obligations under the QI or WP Agreement. The statement should be signed by the proposed Compliance Entity's Responsible Officer. 

If the entity is a WP and the proposed Compliance Entity is not the Sponsoring Entity, the application letter should include a description of the relationship of the proposed Compliance Entity to the WPs in the proposed CCG and why the proposed Compliance Entity should be considered for Compliance Entity status.

5. Provide an organizational chart for all QIs under the same common ownership or a list of all WPs that have the same sponsoring entity for chapter 4 purposes.

6. A proposed sample plan includes sample size, strata, and allocation of sample units over the proposed strata. Sample design should generally be based on the safe harbor method outlined in Appendix II, section II. A. 3 of the current QI agreement (Rev. Proc. 2017-15, 2017-3 I.R.B. 437). When using the safe harbor method as the basis of the proposal, multiple substrata within the three prescribed strata ((1) all accounts held by direct account holders that are not U.S. non-exempt recipients; (2) accounts held by direct account holders that are U.S. non-exempt recipients; (3) accounts held by indirect account holders) may be proposed, as well as alternate sample allocation methods. The sample plan should also include population statistics such as number of sample units (QI accounts or WP partners), total reportable amounts for accounts held by foreign account holders or partners, total reportable payments for accounts held by U.S. account holders or partners, total chapter 3 withholding, total chapter 4 withholding, total back-up withholding (if applicable), and the standard deviation of a calculated exposure amount (30% of the applicable amount less actual withholding) on a strata by strata basis. 

Once agreed to, it is anticipated the final sample plan will specify a sample size for the group larger than if the sample size was calculated treating the group as one entity using the formula in Rev. Proc. 2017-15, but smaller than if sample sizes were calculated separately for each individual entity and then summed. It is suggested the QI or WP contact the Financial Intermediaries team by e-mail at lbi.fi.qiwpissues@irs.gov before final submission of a sample plan to discuss its form and content.

A7. The IRS will consider allowing entities with different certification due dates to be included in the same CCG, as long as the formation of the CCG does not defer the certification for any entity in the group to a year later than would have been required under section 10.03 of the QI Agreement, or section 8.03(C) of the WP Agreement. Any entity included in a CCG will have its next certification period set to the 3-year period subsequent to the years covered by the certification period of the CCG. The application letter should include the certification due date for all entities in the group that would apply under section 10.03, or section 8.03(C) of the WP agreement, of the QI agreement. Regardless of the above, all entities in a CCG must have the same periodic review year.

A8. A QI or WP that is not part of a CCG completes all parts of the certification as applicable. The Compliance Entity of a CCG completes some parts of the certification for the CCG as a whole, while completing other parts of the certification on an entity-by-entity basis (one for each entity in the CCG) as follows:

1. QI - A Compliance Entity is required to complete Parts I and II for all QIs in its CCG by providing aggregate information (where applicable); however, a separate Part IV and Part VI must be completed for each and every QI in the group. A Compliance Entity may not complete Part III because an entity included in a CCG is not eligible for a waiver. Part V, Qualified Derivatives Dealer, will not be available for completion for certifications due in 2018 or 2019 because a QDD will not be required to perform a periodic review of its QDD operations until tax year 2019, as stated in Notice 2017-42, 2017-34 I.R.B. 212.
2. WP - A Compliance Entity may complete Parts I and II for all WPs in its CCG by providing aggregate information (where applicable). However, a separate Part IV must be completed for each and every WP in the group. A Compliance Entity may not complete Part III because an entity included in a CCG is not eligible for a waiver.

A9. All QI/WP/WT entities with a periodic certification due date of July 1, 2023, which includes entities with an agreement effective date later than 1/1/2019 and earlier than 1/2/2020, must select the periodic review year of their certification period by July 1, 2023. This includes those entities selecting 2022 as their periodic review year. This FAQ does not apply to termination certifications.

If a QI/WP/WT entity is applying for a waiver of the periodic review when making its periodic certification, it must select 2020 for its periodic review year, complete Parts I, II, and III of the certification and submit its waiver application by July 1, 2023. The entity will not be required to perform a periodic review if its waiver application is approved.

The IRS will notify the entity when a request for a waiver of the periodic review is approved or denied. If such request is denied with less than six months remaining before the certification due date, including any extensions, the entity will be granted a six-month extension from the date of denial of the waiver to complete the periodic review and resubmit the certification. At that time the entity may select a year other than 2020 as its periodic review year. If the entity encounters any issues modifying the year the entity should contact the FI Team at lbi.fi.qiwpissues@irs.gov. The resubmitted certification should include a completed Part IV and Part VI (if applicable).

QI/WP/WT entities should login to the QI system to verify their logon credentials are up to date before starting their certification. They should consult Publication 5262, Qualified Intermediary, Withholding Foreign Partnership, and Withholding Foreign Trust Application & Account Management User GuidePDF for login assistance, if needed. QI/WP/WT entities should also reference additional FAQs in this section for answers to further questions.

A10. The certification due date depends on which year the QI/WP/WT selected for its periodic review, and whether the QI/WP/WT is applying for a waiver of the periodic review requirement with its periodic certification (waiver application). According to section 10.03 of the QI Agreement and section 8.03 of the WP Agreement and WT Agreement, the certification due date for a QI/WP/WT that selected 2020 or 2021 for its periodic review and that has a certification period ending December 31, 2022, is July 1, 2023.

According to those same sections noted above, the certification due date for a QI/WP/WT that selected 2022 for its periodic review is December 31, 2023.

QI/WP/WTs should also be aware that an entity applying for a waiver of the periodic review when making its periodic certification, must select 2020 for its periodic review year and complete Parts I, II, and III of the certifications. The entity will not be required to perform a periodic review if its waiver application is approved.

The IRS will notify the entity when a request for a waiver of the periodic review is approved or denied. If such request is denied with less than six months remaining before the certification due date, including any extensions, the entity will be granted a six-month extension from the date of denial of the waiver to complete the periodic review and resubmit the certification. At that time, the entity may select a year other than 2020 as its periodic review year. If the entity encounters difficulty selecting a year other than 2020, the entity should contact the FI Team at lbi.fi.qiwpissues@irs.gov. Following completion of the periodic review, the QI/WP/WT’s resubmitted certification should include a completed Part IV and Part VI (if applicable).

A11. Under section 4.05(A)(1) of the 2017 QI Agreement, a QI is required to obtain a certification from each partnership or trust subject to joint account treatment indicating that the partnership or trust has maintained a permissible chapter 4 status (among the chapter 4 statuses specified in section 4.05(A)(1) of the 2017 QI Agreement) at all times during the certification period. In question D.3.a of Part I of the certification described in Appendix I to the 2017 QI agreement, a QI must certify that each partnership or trust to which the QI applies the joint account option has provided the QI with the certification described in the preceding sentence. For purposes of answering question D.3.a of Part I of the certification described in Appendix I to the 2017 QI Agreement, and to satisfy the requirement in section 4.05(A)(1) of the 2017 QI Agreement to obtain a permissible chapter 4 status for the partnership or trust, a QI may rely upon a valid Form W-8IMY it has on file (and upon which QI may rely under section 5.10 of the 2017 QI Agreement) in lieu of obtaining a representation from each partnership or trust for each certification period. If a QI chooses to rely upon a valid Form W-8IMY for the purposes described in the preceding sentence, and if the chapter 4 status of a partnership or trust was a nonparticipating FFI at any time during the certification period, the QI must report the name of each such partnership or trust in its certification by uploading this information as an attachment in accordance with the instructions to the QI, WP, and WT Application and Account Management System. A WP or WT may rely on this FAQ for purposes of the similar requirement in section 9.01(A)(1) of the 2017 WP and WT agreements and the certification described in the Appendix to the 2017 WP and WT agreements.

A12. Section 10.07 of the 2017 QI agreement provides the requirements for a QI requesting a waiver of the periodic review requirement. Section 10.07(C) of the QI agreement requires the QI to include the information described in Appendix I when applying for a waiver. The general instructions to Appendix I provide that QIs that assume primary withholding responsibility for payments of substitute interest must complete Part VI. However, in order to provide the information required in Part VI, a QI would need to perform a periodic review. This FAQ clarifies that a QI that assumes primary withholding responsibility for payments of substitute interest and that is eligible for a waiver of the periodic review requirement does not need to complete Part VI of the certification described in Appendix I. Such QI should instead complete Parts I, II, and III of Appendix I, and in Part III.B, the QI should include information relating to payments of substitute interest for which the QI assumed primary withholding responsibility (in addition to its other QI activities, other than its activities as a QDD).

Notice 2016-76, 2016-51 I.R.B. 834, provides that the IRS will take into account the extent to which a withholding agent made a good faith effort to comply with the section 871(m) regulations when enforcing those provisions for delta one transactions for the 2017 calendar year, and for non-delta one transactions, the 2018 calendar year. The notice includes some examples of what the IRS will take into account to determine whether a withholding agent satisfies the good faith standard. Notice 2017-42, 2017-34 I.R.B. 212, extended the period during which the IRS will take into account the extent of a withholding agent’s good faith efforts to include 2018 for delta one transactions and 2019 for non-delta one transactions. Notice 2018-72, 2018-40 I.R.B. 522, and Notice 2020-2, 2020-03 I.R.B. 327, further extended the period through 2022 for delta one transactions and 2023 for non-delta one transactions.

The good faith standard applies to withholding agents, including QIs acting as withholding agents that are acting as intermediaries for payments made on section 871(m) transactions. A QI that is acting as a withholding agent in its intermediary capacity should not exclude section 871(m) transactions from its review. Instead, the QI should disclose any section 871(m) transactions included in the review that the QI believes should be subject to the good faith standard for purposes of reporting the factual information with its periodic certification that includes the 2017, 2018, 2019, 2020, 2021, 2022, or 2023 years. The QI should make the disclosure by uploading an attachment to the Qualified Intermediary/Withholding Foreign Partnership/Withholding Foreign Trust Application Management System. The disclosure should include a brief description of the issue, how the QI will address any such issue, and why the good faith standard should apply.

A14. A sample size calculated using the safe harbor sample design contained in Appendix II of Rev. Proc. 2017-15 generally should not exceed 321 sample units (i.e., accounts). The possible exceptions are: (1) when the QI uses “optional further stratification by dollar amounts” (Rev. Proc. 2017-15, Appendix II, section II.A.6.) or when the sample population includes any accounts of, (2) Private Arrangement Intermediaries (PAI), (3) Partnerships or Trusts for which the QI is using the Agency Option, or (4) Joint Account Option. Additionally, the QI or its reviewer can always decide to have a sample population larger than that resulting from the Safe Harbor Method.

A15. No, it is not necessary to reallocate the difference between 60 and the actual number of accounts in a stratum population over the other strata; and, therefore, such an instance should not increase the total sample size.

A16. The number of accounts to be sampled from that stratum is the lesser of 60 accounts or the number of accounts in that stratum population. The difference between the number of accounts to be sampled and the number of accounts allocated to that stratum should reduce the number of accounts allocated to all other strata with a stratum population greater than 60 accounts, on a pro rata basis. Strata created for PAI and agency option accounts should not be affected by such stratum.

A17. Under section 10.03 of the Agreement, a QI’s responsible officer must make the certification described in either Part II.A (Certification of Effective Internal Controls) or Part II.B (Qualified Certification) of Appendix I to the Agreement. Section 10.03 also states that a responsible officer must make a qualified certification if the responsible officer has identified an event of default or material failure that has not been corrected as of the date of the certification. Whether the responsible officer has identified any such event of default or material failure is also a question in the QI Application and Account Management System for purposes of a QI’s certification.

Given these requirements, if the responsible officer has identified an event of default, irrespective of whether the event of default has been cured at the time of certification, the responsible officer must make a qualified certification, and must disclose the event of default when making the certification. If the responsible officer has identified only one or more material failures that are not events of default, however, the responsible officer is not required to make a qualified certification for that reason when the responsible officer (1) certifies that each material failure has been corrected at the time of the certification, and (2) identifies each material failure as part of the certification.

If a responsible officer has identified either an event of default, or a material failure that has not been corrected as of the date of the certification, the responsible officer should skip the eight statements contained in the QI Application and Accounts Management System that correspond to the statements set forth in Part II.A of Appendix I of the Agreement (for the Certification of Effective Internal Controls), and proceed directly to the qualified certification (the next step in the certification) described in Part II.B.

A18. Yes, the IRS will accept an application proposing to use the first year of the certification period when the responsible officer (RO), or other authorized user of the proposed Compliance Entity submits a CCG application that includes:

1. Forms 872 (Consent to Extend the Time to Assess Tax) validly executed for each entity to be included in the CCG, extending the time to assess tax on Forms 1042 and 945 until no earlier than 12/31 of the second full calendar year following the certification due date. CCG applications proposing to use the first year for periodic review will not be evaluated until all Forms 872 are submitted and approved. For example:
   
   If a proposed compliance entity, with a certification period covering 2017, 2018 and 2019, and a certification due date of 7/1/20, wants to have a periodic review performed for 2017 (the first year of their certification cycle), the QI must submit Forms 872 consenting to extend the time to access tax on Forms 1042 and 945 for calendar years 2017 and 2018 until 12/31/22 (at the earliest) on all entities included in the CCG.
    
2. A timeline that proposes the start and completion dates of the periodic review, along with a due date for delivery of the periodic review report by the reviewer(s) to the RO of the compliance entity. The periodic review report must be submitted to the IRS by the earlier of:

• 30 days after delivery of the periodic review report by the reviewer(s) to the RO of the compliance entity; or
• the Certification Due Date.

The entity must also agree to:

1. Include in the periodic review report, the review plan that directed the reviewer(s), along with any deviations from that plan. Any such deviations from the review plan should be explained in detail. Any such description must explain the reason the reviewer deviated from the review plan, and what alternate steps the reviewer(s) took.
    
2. Notify the IRS of any material failures or events of defaults within 30 days of identification.

A19. Each QI, whether or not the QI acted as a QI or QDD, must make a periodic certification (including a periodic review) every three years. A QI that is a QDD must make any required periodic certifications, including the Certification of Internal Controls, taking into account both its QDD and non-QDD activities. However, for its QDD activities in calendar years ending before 2023, the QI may certify by taking into account whether the QDD made a good faith effort to comply with the section 871(m) regulations and the relevant provisions of the QI agreement. The QI must retain information to support the good faith effort certification. For calendar years ending before 2023, Part V of the certification does not apply, as a QI need not conduct a periodic review of its QDD activities. Notice 2020-2, 2020-03 I.R.B. 327. 

As noted above, for calendar years ending before 2023, the QI is required only to conduct a periodic review of its QI activities that are not QDD activities. See FAQ Q1 under the heading Certifications and Periodic Reviews regarding whether a QI that is a QDD may apply for a waiver for the periodic review for calendar years ending before 2023.