IRS releases updated FAQs on QI/WP/WT

On 22 February 2019, the U.S. Internal Revenue Service (“IRS”) updated its Frequently Asked Questions (“FAQs”) on Qualified Intermediaries (“QI”), Withholding Foreign Partnerships (“WP”) and Withholding Foreign Trusts (“WT”) (Link). Question 17 in the section “Registration Update” has been updated to support users in understanding the respective requirements:

  • Question 17: Why has my FATCA Registration account been placed in “Registration Rejected/Denied” status?
  • Answer 17: Accounts that have been in either 1) “Initiated” 2)“Registration Incomplete” or 3) “Under Review” status for six months or more are deemed inactive and will be placed in “Registration Rejected/Denied” status. When an account is placed in this status you still have access to your message board; however, you will not have any other available account options. If you need a GIIN and meet the criteria, complete and submit a new FATCA Registration.

Question 19 in the section “FATCA Certifications” has also been updated:

  • Question 19: How does a Sponsoring Entity complete and submit a certification for its Sponsored Entity(s) which were closed/terminated and are not reflected in the Sponsored Entity table for selection?
  • Answer 19: We are aware that the system does not currently display any closed/terminated Sponsored Entities in the Sponsored Entity table for selection. Until further notice, Sponsors should both: (1) use the business description text box to include the name(s) and GIIN(s) of closed/terminated sponsored entities that are being included in the certification; and (2) maintain as part of their records a list of the closed/terminated sponsored entities included in the certification, which the Sponsor may be required to provide to the IRS upon request. If the space provided in the business description text box is not enough to include all of the closed/terminated Sponsored Entities for which the certification applies, Sponsors should include a notation in that text box indicating that additional entities not listed are part of the certification and that a list of all Sponsored Entities (including the names and GIINs) will be provided to the IRS when requested.

In addition, on 5 March 2019, Questions 23 and 24 in the section “General Compliance” have also been updated:

  • Question 23: For the 2017 or 2018 calendar year, will a withholding agent be subjected to interest, penalties, or additions to tax for failing to withhold and report by March 15 of the subsequent year, on a payment of a dividend equivalent made with respect to a derivative referencing a partnership?
  • Answer 23: For the 2017 and 2018 calendar years, a withholding agent will not be subject to interest, penalties, or additions to tax with respect to a dividend equivalent payment made with respect to a derivative referencing a partnership provided that the withholding agent withholds and reports on Form 1042 and Form 1042-S with respect to the payment by September 17, 2018 (for the 2017 calendar year) or September 16, 2019 (for the 2018 calendar year). In a case in which a withholding agent withholds after March 15 of the subsequent year, the withholding agent should file a Form 1042 (if the dividend equivalent payments are the only payments reportable for the year) or an amended Form 1042 by September 17, 2018 or September 16, 2019 (as applicable), and write “Dividend Equivalent—Partnership” in the top center portion of the 2017 or 2018 Form 1042. The withholding agent should also file Form(s) 1042-S or amended Form(s) 1042-S by the applicable date noted above with respect to the dividend equivalent payment. Finally, when depositing the tax withheld for a dividend equivalent payment made in 2017 or 2018, the withholding agent must designate the payment as being made for the applicable calendar year in accordance with the instructions to Form 1042.
  • Question 24: May a partnership or trust that is permitted to withhold in 2019 with respect to a foreign partner’s or beneficiary’s share of undistributed income for the 2018 year, designate the deposit of the withholding as for the 2018 year and report the associated amount on the 2018 Forms 1042 and 1042-S (notwithstanding the instructions for the 2018 Form 1042)?
  • Answer 24: Proposed regulations published December 18, 2018 (83 FR 64757) will allow a partnership or trust that withholds in a subsequent year with respect to a foreign partner’s or beneficiary’s share of undistributed income for the prior year to designate the deposit of the withholding as attributable to the preceding year and report the associated amount on Forms 1042 and 1042-S for the preceding year. The proposed regulations will also extend the due date for partnerships to file Form(s) 1042-S until September 15 when it withholds the tax after March 15 of the subsequent year that it designates as deposited for the preceding year. The preamble to the proposed regulations indicates that the IRS would amend the instructions to the 2019 year Forms 1042 and 1042-S to reflect the proposed regulations.In addition, for tax year 2018 to the extent that a calendar year partnership or trust applies the above-described proposed regulations, the partnership or trust will not be assessed any penalty associated with its reliance on the regulations (or, if a penalty is assessed, the partnership or trust may have the penalty abated).To avoid a penalty associated with its deposit of the tax when applying this approach for the 2018 year, the partnership or trust should write “Withholding under the Lag Method” on the top center portion of the 2018 Form 1042 and ensure that their chapter 3 status code properly reflects their status as a partnership or trust (including as a Withholding Foreign Partnership(WP) or Withholding Foreign Trust(WT)). Any amount withheld in 2019 that is designated for the 2018 year should be reported on Line 65 as paid in subsequent year. In such as case, a partnership or trust must report the income and the amounts withheld on a Form 1042-S for 2018.

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