The IRS announced it has published a new “frequently asked question” (FAQ) as guidance for qualified intermediaries / withholding foreign partnerships / withholding foreign trusts (QI/WP/WT).
The new FAQ is available on an IRS webpage for QI/WP/WT guidance, and is new Q17 under “Certifications and Periodic Reviews.” Text of the new FAQ is as follows:
Q17. What is the certification requirement under section 10.03 and Appendix I of the QI Agreement (“the Agreement”), when the QI’s responsible officer has identified an event of default described in section 11.06 of the Agreement, or a material failure described in section 10.03(B) of the Agreement, prior to the QI’s certification date?
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.
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