IRS: Foreign Entities Must Forget Old Qualified Intermediary FAQs (Corrected)

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By Ben Stupples

Foreign financial entities need to forget prior IRS FAQs on qualified intermediaries to ensure consistent compliance with updated guidance, according to an IRS official.

Deleted in the past two years and relating to technical guidance from 2001, these online FAQs “are not available to everyone, so it would be an unfair advantage over” other entities “if some did,” IRS attorney Kamela Nelan said Sept. 20 at the Tax Congress for Financial Institutions in London.

Any entities struggling with the FAQs can contact the IRS, she added. “If necessary, we can put out new FAQs, but we cannot have people rely on old ones as they're not there anymore.

Nelan spoke via Skype from Washington amid concern that some foreign financial entities have been using past IRS FAQs as guidance in plans to review their compliance as qualified intermediaries.

Qualifying Intermediary System

Introduced in 2001 and updated in 2014, the Qualified Intermediary Agreement from the IRS simplifies U.S. tax withholding and reporting procedures for foreign financial institutions.

Under the agreement, which the IRS also updated this year, any participating financial entity must seek certification for its status every three years. In one of these years, the entities must review their compliance with the agreement.

“If you were implementing those FAQs, and now the IRS are saying that you shouldn't, that creates a problem,” Tara Ferris, a New York-based principal at Ernst & Young LLP, formerly a senior IRS counsel, told Bloomberg BNA at the conference's sidelines.

The IRS deleted the previous FAQs from its website between 2015 and 2016, added Ferris, who hosted the conference's closing question-and-answer session with the U.S. tax agency. The FAQs “give a lot of extra guidance to qualifying intermediaries—guidance that is not in the QI Agreement or the regulations.”

30 Percent Withholding Tax

Enacted in 2010, the Foreign Account Tax Compliance Act requires foreign financial entities to report U.S.-owned accounts or risk facing a 30 percent withholding tax on their U.S.-source income. Since then, the Organization for Economic Cooperation and Development has developed a reporting measure based on FATCA for non-U.S. accounts, taking effect from Sept. 30.

The IRS last week formally withdrew two sets of 2014 proposed regulations on FATCA in a move to eliminate uncertainty under two newer sets of proposed rules issued in January 2017. In general, the new rules deal with chapter 3 and 4 withholding, which applies only to foreign payees, and reporting.

The changes were made via two corrections in the Sept. 15 Federal Register.

(Story corrected to reflect that prior FAQ guidance from the IRS on its Qualified Intermediary Agreement pre-dated the introduction of FATCA, and that January 2017 FATCA rules are related to withholding and reporting.)

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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