Qualified Intermediary Withholding Agreement

The Internal Revenue Service (IRS) has published rev. Proc on December 30, 2016. 2017-15, which includes the final agreement of qualified intermediary (IQ) 2017 (IQ agreement 2017). The 2017 qi agreement provides for procedures for QIs (including qualified derivatives traders (QDDs) and eligible securities lenders (QSLs) to meet their reporting and retention obligations in the United States. For more information, check out our Insight: IRS publishes the qualified final agreement. Observation: The IQ portal is the system that retains foreign partnerships (WPs) and retains foreign trusts (WTs) to apply for WP and WT status. The WP and WT agreements technically expired on December 31, 2016. The IRS indicated that the WP and WT agreements, which were in effect prior to December 31, 2016, will continue until the agreements are updated in January 2017. An IQ payment, to the extent that it does not assume the primary responsibility for withholding the NRA, is considered to be the person (or pool of beneficiaries, as indicated on the deduction statement) on whose behalf the IQ acts.

If an IQ does not assume responsibility for reporting and backing up Form 1099, you must report on Form 1099 and, if so, withhold the backup as if you were making the payment directly to U.S. individuals. A qualified intermediary (IQ) is any foreign intermediary (or foreign branch of a U.S. intermediary) who has entered into a qualified withholding agreement with the IRS. You can treat an IQ as a tax-exempt beneficiary, as long as the IQ assumes the primary responsibility for the withholding and the primary responsibility for the return and guarantee reserve for a payment. In this case, the IQ is required to withhold tax. You can determine whether an IQ assumed responsibility for the deduction in the W-8 IMY form provided by the IQ. An IQ always starts at 98.

PLEASE NOTE: IRC Section 1031 Exchanges, describes an unrelated type of “qualified intermediaries.” Foreign financial institutions and foreign branches of U.S. financial institutions may enter into an agreement with the IRS to be a qualified intermediary. An IQ is entitled to some simplified rules on withholding and reporting. In general, there are three main areas in which intermediaries with IQ status benefit from such simplified treatment.