1042-S and 1099 reporting,
QI Periodic Certification

The IRS announced in Notice 2024-26, released on 27 February 2024, that QIs are exempt from the Form 1042 electronic-filing requirement for returns due in 2024 (tax year 2023) and 2025 (tax year 2024). This administrative exemption is automatic and no action is required on the part of QIs.

Final regulations published in 2023 required financial institutions to electronically file Form 1042 beginning with returns due in 2024. Stakeholders have raised several concerns regarding the electronic-filing requirement, as discussed in our QIS News & Alerts in January 2024.

The administrative exemption announced in Notice 2024-26 hopefully should provide sufficient time for QIs to implement changes necessary to satisfy the electronic-filing requirement. QIS will continue to monitor this situation and will communicate relevant updates.

On October 30, 2023, the IRS updated its FAQs on QIs, adding “Q23” and “Q24.”

Both questions submitted to the IRS relate to a provision in Section 5.01(A) of the QI Agreement effective January 1, 2023 (Revenue Procedure 2023-43). That section of the QI Agreement provides that QIs that make payments resulting from their customers’ investments in Publicly Traded Partnerships, such as distributions (“PTP distributions”) or gross proceeds from the sale of PTP shares (“Amount Realized”), must use their best efforts to obtain a US TIN for individuals who are not considered U.S. tax residents (“Nonresident Aliens”).

The QI Agreement considers that QIs have used their best efforts to obtain the US TIN from customers classified as Nonresident Aliens if they have made such a request, in writing, three times:

the first (so-called “initial solicitation”), during 2023 or, if later, in the year in which the Nonresident Alien purchased an interest in PTP;
the second (so-called “additional solicitation”), in the event that the first solicitation was not successful, during the year following the initial solicitation;
the third, if the additional solicitation was not successful either, during the year following such additional solicitation. With respect to this provision of Section 5.01(A) of the QI Agreement, the two IRS FAQs specify the following:

• Q23: a written solicitation is considered to have been made in time in the year in which it is requested, if sent by January 31 of such year.
• Q24: The QI is not required to make a written solicitation for a US TIN for all persons who hold an interest in PTP through the QI, if they have not received PTP distributions or Amount Realized during 2023, or subsequent years.

That said, if the QI is unable to determine which persons hold interests in PTP during 2023, and, consequently, cannot determine which persons have received PTP distributions or Amount Realized, it is recommended that you request a US TIN, by January 31, 2024, from all Nonresident Alien customers who have a relevant relationship for the purposes of the QI regulation, established at your financial institution.