Notice 2016 - 42

On July 1, 2016 the IRS published an advance version of Notice 2016-42 , setting forth the proposed changes to the QI-Agreement (Rev. Proc. 2014-39), which will expire on December 31, 2016.

The most significant changes to the QI Agreement are the following:

• The proposed QI Agreement introduces new provisions applicable to entities acting as Qualified Derivatives Dealers (QDD). This will allow eligible entities to perform withholding on potential section 871(m) payments. Once implemented, the QDD regime is intended to replace the qualified securities lender (QSL) regime. 

• The requirements for a periodic review have been detailed. The proposed QI-Agreement requires a QI to perform procedures outlined in section 10.05(A) through (E) of the proposed QI Agreement in order to provide certain factual information regarding its documentation, withholding, reporting, and other obligations under the QI Agreement as a part of the periodic certification.

• Under certain circumstances a QI will be entitled to apply for and obtain a waiver of the requirement to conduct a periodic review and to provide some of the factual information. If the QI applies for a waiver, it will be still required to provide certain factual information along with its periodic certification. 

• A QI that opens an account or obtains documentation for an account holder that is an entity on or after January 1, 2017 will be required to collect Limitation on Benefits (LOB) information from the client. For pre-existing entity accounts there will be a two-year transition period for the collection of appropriate LOB information. 

The final version of the new QI-Agreement is expected to be published within the upcoming months.