26.06.2024
9'
QI and FATCA Certification Reminder 2024
QI Certification in General
Update 28.08.2024: The IRS has updated the QI certification deadlines. For the current deadlines, please consult the QI Update.
The QI Application and Account Management System (QAAMS) has been updated on June 10, 2024 to include the new requirements of Annex I of the 2023 QI Agreement (Rev. Proc 2022-43). QIs with the certification period from January 1, 2021 to December 31, 2023 are now able to perform their Certification of Internal Controls (QI Certification).
For QIs with the certification period from January 1, 2021 to December 2023, the IRS extended the original certification deadline as follows:
For QIs eligible for a waiver of periodic review requirement, as well as for QIs that selected the tax years 2021 and 2022 for the QI Periodic Review, the IRS extended the original deadline of July 1, 2024 to September 1, 2024.
For QIs that selected the tax year 2023 for the QI Periodic Review, the IRS extended the original deadline of December 31, 2024 to March 1, 2025.
Both extensions are granted automatically. Nevertheless, we encourage all QIs to log in to the QAAMS to ensure that the due date has been properly extended and, for QIs whose certification is due on March 1, 2025, to initiate the certification and enter the review year (the QAAMS should update the deadline automatically once the review year has been entered).
The IRS generally recommends all QIs to enter the QI periodic review year as soon as possible, notwithstanding the applicable deadline. We remind that the QIs applying for a waiver from the periodic review requirement are required to enter the first year of the certification period (i.e. 2021). The QIs that perform the QI Periodic Review will be required to enter the year for which they had their QI Periodic Review performed.
Changes to the QI Certification
There are three main updates the IRS made to the QI certification. There are two new certifications in Part 2 related to Sections 1446(f) and 871(m), there is a new Part 7 which requires QIs to provide information if they are acting as QI for transfers of PTP interests and a significant extension of the certification with Part 8.
The IRS has provided additional guidance regarding the requirement to provide the reconciliation described in Appendix III to the QI Agreement (Part 8 of the certification). It confirmed that QIs performing the QI certification for the certification period from January 1, 2021 to December 31, 2023 will be required to provide the reconciliation for all three years of the certification period. Contrary to the guidance provided in the QI Agreement, the QIs will not be required to attach excel spreadsheets to their QI certification. Instead, the QIs will be required to insert the reconciliation data directly into fields shown in Part 8 of the certification. We remind that the reconciliation must reflect the last amended return filed. Therefore, to avoid any adjustments post-certification, we recommend scheduling the submission of the QI certification after filing the amendments to the 1042-S and 1042 returns if possible. If this is not feasible (e.g. because the Form 1042 has not yet been filed by September 1, 2024), QIs should update the certification by selecting the "Edit Certification" button in QAAMS and enter the final/amended numbers in Part 8 of the certification.
General Info (Part 1) was extended to indicate whether the QI acts as primary or disclosing QI for PTP distributions or amounts realized.
Certification (Part 2) was extended to include new certifications regarding the withholding requirements under Sec. 871(m) and Sec. 1446(f), as well as the requirement to submit the QI Periodic Review Report along with the certification.
Waiver (Part 3) has been updated to state that, to qualify for a waiver, the reportable amounts received by the QI, including the amount of publicly traded partnership (PTP) distributions subject to withholding under chapters 3 and 4, must not exceed $5 million.
Periodic Review (Part 4) was updated to include the QI Periodic Review requirements of the new QI Agreement
PTP-Related Payments (Part 7) was introduced. According to Annex I of the QI Agreement, Part 7, must only be completed to the extent QI acts as a QI with respect to PTP-related payments. This Part will not be active, if the QI selects a periodic review year prior to 2023.
Appendix III / Additional Info (Part 8) was introduced, where the QI is required to submit a reconciliation of Forms 1042 and 1042-S issued to and filed by the QI. See above.
QI Certification Transitional Rules
The QAAMS does not distinguish between QIs certifying under the requirements of the previous QI Agreement (Rev. Proc. 2017-15) and the QI Agreement currently in force (Rev. Proc. 2022-43).
On June 7, 2024, the IRS published FAQ Q.24, which addresses transitional rules for QIs with the certification period from January 1, 2021 to December 31, 2023, specifically for those not applying for a waiver and who performed their QI Periodic Review for tax years 2021 and 2022. With respect to the new questions and parts of the certification, these QIs must proceed as follows:
The QIs must complete Part 1 and Part 2 to cover all three years of the certification period.
While completing Part 4, the QIs should include any payments applicable to income code 27 (PTP distributions).
If the QI used the safe harbor sampling method set forth in Appendix II of the 2017 QI Agreement, they must complete the table in Part 4, Step 2.
In Part 4, Step 3 and 4, the pre-cure and the post-cure totals must be entered.
In Part 4, Step 6, the following information must be provided:
The total withholding reported by QI on Forms 1042-S
Amount of variance (if question 1 plus question 2 does not equal question 3). In addition, an explanation for any variance must be attached.
The amount of credit or refund claimed by QI for account holders not supported by appropriate documentation for reduced withholding.
In Part 4, Step 7, there are three additional questions that must be answered as follows:
Enter “0” for questions:
The aggregate number of Forms 1099 QI failed to file (when required) with respect to account holders receiving reportable payments.
The aggregate number of Forms 8966 (or analogous forms under an applicable IGA) that QI failed to file under its applicable requirements as an FFI (for accounts receiving reportable payments).
The number of Forms 1099 and Forms 8966 (or analogous forms under an applicable IGA) that QI filed but that failed to include accurate information on the income and other information required.
Select “N/A” for question:
If QI acted as a QSL or otherwise assumed primary withholding responsibility for a payment of U.S. source substitute dividends as an intermediary, indicate whether QI has a policy in effect to assume primary withholding responsibility for all such payments, to the extent required for any year governed by the certification.
In Part 7, a QI should select “Yes” to the question “Did you select a periodic review year prior to 2023?”
There has been no official guidance for QIs that selected 2023 as their QI Periodic Review Year. For more information, please consult our QI Responsible Officer FAQ , which we will update, should the IRS publish transitional rules for QIs applying for a waiver or for QIs performing their QI Periodic Review for the tax year 2023.
FATCA: Certification of the Internal Controls for QIs with the certification period from January 1, 2021 to December 31, 2023.
Please be reminded that the FATCA Periodic Certification for certain registered FFIs (such as Reporting Model 2 FFIs, Participating FFIs or Sponsoring FFIs) with the certification period 2021-2023, is due by July 1, 2024. The content of the certification has remained unchanged. For more information regarding the FATCA certification, please refer to our FATCA FAQ.
In addition, the IRS recently announced that starting in July, all Foreign Financial Institutions (FFIs) must use two-factor authentication (id.me or login.gov) to access their user accounts in the FATCA Foreign Financial Institution Registration System. This requirement aligns with the security measures already in place for QAAMS. To enable two-factor authentication, FFIs should use their existing logins from ID.me or Login.gov. FATCA Responsible Officers who already utilize these logins for QAAMS can use the same credentials to access their FATCA accounts. We recommend all FFIs to log in to their accounts in the FATCA FFI Registration System to ensure they use the same e-mail address as used for their ID.me or login.gov account.