On 4 and 9 April 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 2 and 5 in the section “Certifications and Periodic Reviews” have been updated to support users in understanding the respective requirements:
Question 2: How should the independence standard for an external reviewer of a QI, WP, or WT be applied for periodic review years prior to 2019?
Answer 2: Section 10.04 of the QI agreement and section 8.04 of the WP and WT agreements provide that an internal or external reviewer must be independent. The preamble to the QI agreement provides that the reviewer must have sufficient independence to conduct the review objectively and cannot review his or her own work or the work of others in the same “firm.” The IRS has received requests for clarification of the independence standard for external reviewers and, in particular, how the IRS construes the term “firm” for purposes of this requirement. Given these requests, for review years prior to 2019, the IRS will permit an external reviewer of a QI, WP, or WT to apply the standards of independence that would otherwise apply to its engagement to conduct the periodic review (such as the standards for an agreed-upon procedures engagement by a certified public accountant). The IRS intends to update this FAQ to provide further guidance on the independence standard for reviews of calendar years 2019 and later.
Question 5: How can a group of QIs or WPs apply to form a CCG?
Answer 5: For certifications due in calendar year 2019, an application to form a CCG should be submitted by the responsible officer, or other authorized user of the proposed Compliance Entity no later than April 1, 2019. The submission must be made using the QI/WP/WT Application and Account Management system.
Upon submission of an application to form a CCG, the IRS will contact the applying Compliance Entity to request any further information necessary to determine if the CCG is acceptable to the IRS. This ongoing discussion will also address such issues as the final composition of the group members and sample design for any statistical sampling to be utilized for the periodic review.
Please note that the CCG should select 2017 or 2018 as the periodic review year. The IRS will not approve CCG applications that select 2016 as the periodic review year for the certification due in 2019.