The IRS today updated a set of “frequently asked questions” (FAQs) as qualified intermediary / withholding foreign partnership / withholding foreign trust (QI / WP / WT) guidance.
Updated FAQ 13 appears under the section “Certifications and Periodic Reviews” and provides guidance on how a QI that is not acting as a QDD (qualified derivatives dealer) is to take into account the good faith standard described in Notices 2016-76, 2017-42, 2018-72, and 2020-2 with respect to its section 871(m) transactions as an intermediary for purposes of its periodic review.
Text of FAQ 13 is provided below:
Q13.How should a QI that is not acting as a QDD take into account the good faith standard described in Notices 2016-76, 2017-42, 2018-72, and 2020-2 with respect to its section 871(m) transactions as an intermediary for purposes of its periodic review?
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.
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