The new QI Agreement, which went into effect on July 1, 2014 largely unnoticed, contains changes which could have a significant impact of the cost of your compliance with the agreement.
The old QI Agreement required a QI Audit every three years. The external QI auditor filed a report with the IRS, and the steps required to be performed by the QI auditor were specified in regulations set forth by the IRS. For smaller QIs, specifically those that paid out reportable amounts (i.e. U.S. sourced income) of less than USD 1’000’000 in an audit years, an option of waiving the QI audit was available.
The new QI Agreement replaces the QI Audit with a mandatory periodic QI Compliance Review. Unlike the old QI audit, no provision for a waiver of this requirement currently exists. Furthermore, since the QI Responsible Officer is required to certify to the IRS the QI’s compliance based on the results of the periodic review (the report no longer goes to the IRS), it is unlikely that the IRS will provide for such a waiver. Additionally, the QI Compliance Review requires certain procedures to be performed with respect to FATCA Compliance.
In summary, the QI Compliance Review is more comprehensive than the QI Audit and differs from the QI Audit in the following points:
Review of policies, procedures and training material for QI purposes.
Interviews of relevant personnel.
Instead of submitting the periodic review report to the IRS, the QI has to make a certification to the IRS. The IRS may, however, request a copy of the QI’s periodic review report.
Review and certification do not refer to a specific calendar year, but refer to a certification period.
All QI’s with agreements beginning July 1, 2014 have the same cycle for making the certification i.e. all QI’s have the same certification period.
The initial certification by the QI Responsible Officer must be made on July 1, 2018 and refers to the certification period from July 1, 2014 to December 31, 2017. Subsequently, the QI’s Responsible Officer must make a certification every three calendar years.
For further information regarding the requirements of the QI Compliance Review as well as the responsibilities of the QI Responsible Officer, please refer to the new QI Agreement.