Key Updates to the QI Agreement and Introduction of IRS QI List
IRS QI Agreement Updates and QI List Introduction
The Qualified Intermediary (QI) Program was established by the U.S. Internal Revenue Service (IRS) in 2001 to simplify tax withholding and reporting requirements for foreign financial institutions (FFIs) and other non-U.S. intermediaries. The entities that manage U.S.-source income on behalf of their clients enters into a QI Agreement which outlines their obligations for compliance with US tax law.
By entering into a QI Agreement with the IRS, an institution gains certain administrative benefits, such as the ability to simplify documentation requirements for its account holders and pool reporting obligations. In return, QIs must adhere to compliance obligations, including verifying the identities of beneficial owners, ensuring proper tax withholding, and submitting detailed reports to the IRS.
Periodic updates to the QI Agreement and related IRS regulations ensure that the QI program remains effective in addressing evolving financial and compliance challenges. The most recent updates for 2024 and 2025 introduce significant changes, including the publication of the IRS QI List and modifications to reporting and filing requirements.
Introduction of the IRS QI List
At the end of September 2024, the IRS published its inaugural list of entities and branches approved as QIs and Qualified Derivatives Dealers (QDD). This list includes the QI's name, Global Intermediary Identification Number (GIIN), designation (QI or QDD), the last two digits of the QI's Employer Identification Number (EIN), and the country of incorporation. The primary purpose of this list is to assist QIs in verifying the accuracy of their information and to confirm their inclusion. While it serves as a valuable tool for withholding agents to verify QI status, there is currently no mandatory due diligence requirement for withholding agents to cross-reference this list against Form W-8IMY submissions.
Updates to FAQ of the 2023 QI Agreement:
The IRS originally created the QI Agreement in 2017. An update to the Agreement was made in 2023 to clarify, close gaps, and address ongoing compliance needs. Because there were still some clarifications needed, the IRS also created a FAQ for Provisions of the 2023 Agreement. Some highlights:
Extended Deadlines for QI Certifications
The IRS has extended several key deadlines to provide QIs with additional time for compliance. There was an extension for review years 2021 and 2022, and there is an extension deadline approaching for review year 2023:
- Periodic Review Year 2023: The due date has been extended from December 31, 2024, to March 1, 2025.
This extension is automatic, and QIs are not required to submit a request to benefit from them.
Mandatory Electronic Filing of Form 1042
The Taxpayer First Act of 2019 authorized the Department of the Treasury and the IRS to issue regulations that reduce the 250-return e-file 1099 and 1042-S threshold. T.D. 9972, published February 23, 2023, lowered the e-file threshold to 10 returns(calculated by aggregating all information returns), effective for information returns required to be filed on or after January 1, 2024.
These final regulations also include requirements for withholding agents to e-file Form 1042, Annual Withholding Tax Returns for U.S. Source Income of Foreign Persons. This is effective for Form 1042 returns required to be filed on or after January 1, 2024. For more information, see the Instructions for Form 1042.
Updates to FAQs on QSL and PTP Transactions
Additional guidance provided on Qualified Securities Lenders (QSL) and Publicly Traded Partnerships (PTP) transactions. These updates aim to clarify the responsibilities and compliance requirements for QIs involved in such transactions. QIs are encouraged to review these FAQs to ensure adherence to the latest guidelines.
Publication 5262 as a Resource
The IRS emphasizes the importance of Publication 5262, "Qualified Intermediary, Withholding Foreign Partnership, and Withholding Foreign Trust Application & Account Management User Guide," as a comprehensive resource for QIs. This publication provides detailed instructions and guidance to assist QIs in navigating their compliance obligations effectively.
How Can TAINA Help with QI Compliance?
TAINA offers a robust solution that automates and streamlines due diligence processes, ensuring compliance, accuracy, and efficiency. By adopting TAINA’s innovative solutions, Qualified Intermediaries and Responsible officers can be more confident in their procedures and mitigate risks of QI Agreement compliance.
We would love to talk to you more about your current documentation validation process and how our award-winning Series W and FATCA validation tool may add value to your organisation.
For more information on how our fully automated Validation platform can add value to your business, get in touch or request a demo to see it in action.
