QI Alert 2022-01
IRS Issues Proposed Changes to QI Agreement
IRS issued a Notice setting forth proposed changes to the QI Agreement, specifically...
On May 3, the Internal Revenue Service (IRS) issued Notice 2022-23, setting forth proposed changes to the qualified intermediary withholding agreement (QI Agreement) described under §1.1441-1(e)(5) and (6), specifically for QIs effecting a transfer of an interest in a publicly traded partnership (PTP) or receiving a distribution made by a PTP on behalf of an account holder of the QI. Under the proposed changes, and irrespective of the current withholding responsibility under Chapter 3, a QI will have four options under sections 1446(a) and (f):
- assume withholding responsibility with respect to section 1446(f);
- not assume withholding responsibility and provide pooled information to an upstream custodian;
- not assume primary withholding responsibility and provide partner-specific information to an upstream custodian; or
- act as an NQI.
The notice will be officially issued under IRB 2022-20 on May 16. Furthermore, the Treasury and IRS anticipate that the proposed changes outlined in the notice will be included in a revenue procedure containing the final QI Agreement, pending further modifications based on comments received.
KPMG Reminders and Observations
As discussed in KPMG IRP e-Alert #2021-02, the IRS previously deferred the applicability date for regulations under sections 1446(a) and 1446(f) to January 1, 2023. This was welcome news at the time, as the IRS had not issued updated forms or a rider to the QI Agreement, despite the previous applicability date being a mere four months away. Since that time, the IRS has issued a number of changes to its Forms W-8 series to capture PTP transactions. The proposed changes outlined in the notice should help address unresolved QI Agreement issues.
KPMG will be reviewing the proposed changes and issuing additional commentary in a follow up alert.
Operational impacts include:
- Roles and Responsibilities between the QI and upstream custodian or U.S. broker;
- Documentation: QI may need to plan on soliciting new forms as well as establishing a comprehensive review, validation and retention of the qualified notices received;
- Withholding Responsibility: Brokers and custodians (e.g. the QI) need to understand who is managing the documentation obligations, ensuring proper documentation is on file, and ensuring that the downstream withholding obligations are satisfied, if appropriate;
- Withholding: QIs will need to ensure payment systems are able to flag PTP related accounts and apply the appropriate rate of withholding or exception; and
- Reporting and Paying withheld amounts.
For further information, see Notice 2022-23 (PDF, 290KB)