INCOME TAX Notice 2017–07, page 423.Notice 2017–07, page 423. The notice modifies the effective...
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HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. INCOME TAX Rev. Rul. 2017– 01, page 377. Section 995(f) of the Internal Revenue Code requires the IRS to annually publish a “base period T-bill rate” with which a share- holder of an interest charge domestic international sales cor- poration (IC-DISC) calculates the interest due on their IC-DISC- related deferred tax liability for the year. Revenue Ruling 2017– 01 sets forth the base period T-bill rate as determined by the Office of Debt Management within the Treasury Depart- ment for the period ending September 30, 2016, and provides a table of factors compounded daily for taxpayers with short or alternative taxable years. Notice 2017– 06, page 422. Notice 2017– 6 waives the eligibility rule for one more year (to any taxable year beginning before January 1, 2017) for tax- payers making certain automatic changes to utilize the final tangible property regulations under §§ 162(a) and 263(a) of the Internal Revenue Code (and for making certain automatic changes to comply with the final depreciation and disposition regulations under § 168). The eligibility rule, set out in section 5.01(1)(f) of Rev. Proc. 2015–13, 2015–5 I.R.B. 419, prohib- its taxpayers from making certain automatic changes in ac- counting methods if they applied or made a change in account- ing method for the same item during any of the five taxable years ending with the year of change. This notice provides an additional year’s waiver of that requirement for making certain automatic method changes under these final regulations. Notice 2017– 07, page 423. The notice modifies the effective dates in the § 1.987–12T deferral rule (published in December 2016 in TD 9795) to apply to deferral events or outbound loss events that occur as a result of an entity classification election made under § 301.7701–3. Notice 2017– 08, page 423. The notice modifies Notice 2016 – 66, 2016 – 47 I.R.B. 745, to provide an extension of time for the filing of participant and material advisor disclosure statements until May 1, 2017. Rev. Proc. 2017–12, page 424. The revenue procedure generally provides that the Internal Revenue Service will treat certain internal total loss-absorbing capacity (TLAC) instruments as indebtedness for federal tax purposes. Rev. Proc. 2017–15, page 437. This revenue procedure sets forth the final qualified intermedi- ary (QI) withholding agreement (QI agreement) that foreign persons may enter with the Internal Revenue Service (IRS) under § 1.1441–1(e)(5) to simplify their obligations as with- holding agents under chapters 3 and 4 and as payors under chapter 61 and section 3406 for amounts paid to their account holders. The QI agreement also allows certain foreign persons to enter into an agreement with the IRS to act as qualified derivatives dealers (QDDs). This revenue procedure also an- nounces that because updated withholding foreign partnership (WP) and withholding foreign trust (WT) agreements will not be published before December 31, 2016, WPs and WTs with agreements currently in effect may continue to treat those agreements as in effect until updated agreements are issued in January 2017. (Continued on the next page) Finding Lists begin on page ii. Bulletin No. 2017–3 January 17, 2017
Transcript of INCOME TAX Notice 2017–07, page 423.Notice 2017–07, page 423. The notice modifies the effective...
HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2017–01, page 377.Section 995(f) of the Internal Revenue Code requires the IRS toannually publish a “base period T-bill rate” with which a share-holder of an interest charge domestic international sales cor-poration (IC-DISC) calculates the interest due on their IC-DISC-related deferred tax liability for the year. Revenue Ruling2017–01 sets forth the base period T-bill rate as determinedby the Office of Debt Management within the Treasury Depart-ment for the period ending September 30, 2016, and providesa table of factors compounded daily for taxpayers with short oralternative taxable years.
Notice 2017–06, page 422.Notice 2017–6 waives the eligibility rule for one more year (toany taxable year beginning before January 1, 2017) for tax-payers making certain automatic changes to utilize the finaltangible property regulations under §§ 162(a) and 263(a) ofthe Internal Revenue Code (and for making certain automaticchanges to comply with the final depreciation and dispositionregulations under § 168). The eligibility rule, set out in section5.01(1)(f) of Rev. Proc. 2015–13, 2015–5 I.R.B. 419, prohib-its taxpayers from making certain automatic changes in ac-counting methods if they applied or made a change in account-ing method for the same item during any of the five taxableyears ending with the year of change. This notice provides anadditional year’s waiver of that requirement for making certainautomatic method changes under these final regulations.
Notice 2017–07, page 423.The notice modifies the effective dates in the § 1.987–12Tdeferral rule (published in December 2016 in TD 9795) toapply to deferral events or outbound loss events that occur asa result of an entity classification election made under§ 301.7701–3.
Notice 2017–08, page 423.The notice modifies Notice 2016–66, 2016–47 I.R.B. 745, toprovide an extension of time for the filing of participant andmaterial advisor disclosure statements until May 1, 2017.
Rev. Proc. 2017–12, page 424.The revenue procedure generally provides that the InternalRevenue Service will treat certain internal total loss-absorbingcapacity (TLAC) instruments as indebtedness for federal taxpurposes.
Rev. Proc. 2017–15, page 437.This revenue procedure sets forth the final qualified intermedi-ary (QI) withholding agreement (QI agreement) that foreignpersons may enter with the Internal Revenue Service (IRS)under § 1.1441–1(e)(5) to simplify their obligations as with-holding agents under chapters 3 and 4 and as payors underchapter 61 and section 3406 for amounts paid to their accountholders. The QI agreement also allows certain foreign personsto enter into an agreement with the IRS to act as qualifiedderivatives dealers (QDDs). This revenue procedure also an-nounces that because updated withholding foreign partnership(WP) and withholding foreign trust (WT) agreements will not bepublished before December 31, 2016, WPs and WTs withagreements currently in effect may continue to treat thoseagreements as in effect until updated agreements are issued inJanuary 2017.
(Continued on the next page)
Finding Lists begin on page ii.
Bulletin No. 2017–3January 17, 2017
Rev. Proc. 2017–16, page 501.This revenue procedure sets forth the agreement entered intoby a foreign financial institution (FFI) with the Internal RevenueService (IRS) to be treated as a participating FFI under section1471(b) of the Internal Revenue Code (Code) and § 1.1471–4of the Income Tax Regulations (the FFI agreement). This reve-nue procedure also provides guidance to FFIs and branches ofFFIs treated as reporting financial institutions under an appli-cable Model 2 intergovernmental agreement (IGA) (reportingModel 2 FFIs) on complying with the terms of the FFI agree-ment, as modified by the Model 2 IGA. The FFI agreementprovided in Revenue Procedure 2014–38 (2014–29 I.R.B.131) (2014 FFI agreement) expires on December 31, 2016.The FFI agreement in this revenue procedure will apply to FFIswith an FFI agreement effective on or after January 1, 2017.
T.D. 9796, page 380.Final regulations treating a domestic disregarded entity whollyowned by a foreign person as a domestic corporation separatefrom its owner for the limited purposes of the reporting, recordmaintenance and associated compliance requirements thatapply to 25 percent foreign-owned domestic corporations un-der section 6038A of the Code.
T.D. 9803, page 384.This final regulations address certain transfers of property byUnited States persons to foreign corporations. The final regu-lations affect United States persons that transfer certain prop-erty, including foreign goodwill and going concern value, toforeign corporations in nonrecognition transactions describedin section 367 of the Internal Revenue Code. The regulationsalso combine certain sections of the existing regulations undersection 367(a) into a single section. This document also with-draws certain temporary regulations.
T.D. 9804, page 406.These final regulations address issues under section 36B ofthe Internal Revenue Code relating to the health insurancepremium tax credit. The final regulations amend the computa-tion of the premium tax credit for families with children whoenroll in health coverage through Exchanges offering qualifiedhealth plans that do not provide pediatric dental benefits, andaddress information reporting by Exchanges and other issues.The final regulations are reserved on the effect of employeropt-out arrangements on the affordability of employer-providedhealth coverage for purposes of the premium tax credit and thesection 5000A individual shared responsibility provision.
EMPLOYMENT TAX
Rev. Proc. 2017–14, page 426.The Stephen Beck, Jr., Achieving a Better Life Experience Actof 2014 requires the IRS to establish a voluntary certificationprogram for professional employer organizations. A profes-sional employer organization, sometimes referred to as anemployee leasing company, is an organization that enters intoan agreement with a client to perform some or all of the federalemployment tax withholding, reporting, and payment functionsrelated to workers performing services for the client. Beingcertified by the IRS as a certified professional employer orga-nization (CPEO) has certain federal employment tax conse-quences for both the CPEO and its clients. This revenue pro-cedure describes the procedures a CPEO must follow and therequirements a CPEO must satisfy to maintain its certification.
ADMINISTRATIVE
Rev. Proc. 2017–12, page 424.The revenue procedure generally provides that the InternalRevenue Service will treat certain internal total loss-absorbingcapacity (TLAC) instruments as indebtedness for federal taxpurposes.
T.D. 9796, page 380.Final regulations treating a domestic disregarded entity whollyowned by a foreign person as a domestic corporation separatefrom its owner for the limited purposes of the reporting, recordmaintenance and associated compliance requirements thatapply to 25 percent foreign-owned domestic corporations un-der section 6038A of the Code.
The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-force the law with integrity and fairness to all.
IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly.
It is the policy of the Service to publish in the Bulletin allsubstantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of internalmanagement are not published; however, statements of inter-nal practices and procedures that affect the rights and dutiesof taxpayers are published.
Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulings totaxpayers or technical advice to Service field offices, identify-ing details and information of a confidential nature are deletedto prevent unwarranted invasions of privacy and to comply withstatutory requirements.
Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A, TaxConventions and Other Related Items, and Subpart B, Legisla-tion and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Sec-retary (Enforcement).
Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index forthe matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
January 17, 2017 Bulletin No. 2017–3
Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 995.—Taxation ofDISC Income toShareholders2016 Base Period T-Bill Rate. The “base periodT-bill rate” for the period ending September 30,2016, is published as required by section 995(f) ofthe Internal Revenue Code.
Rev. Rul. 2017–01
Section 995(f)(1) of the Internal Reve-nue Code provides that a shareholder of adomestic international sales corporation(“DISC”) shall pay interest each taxableyear in an amount equal to the product ofthe “shareholder’s DISC-related deferredtax liability” for the year (as defined insection 995(f)(2)) and the “base periodT-bill rate.” Under section 995(f)(4), thebase period T-bill rate is the annual rate ofinterest determined by the Secretary to beequivalent to the average of the 1-yearconstant maturity Treasury yields, as pub-lished by the Board of Governors of theFederal Reserve System, for the 1-yearperiod ending on September 30 of thecalendar year ending with (or the mostrecent calendar year ending before) theclose of the taxable year of the share-holder.
The base period T-bill rate for the pe-riod ending September 30, 2016, is 0.54percent.
Pursuant to section 6622 of the InternalRevenue Code, interest must be com-pounded daily. The table below providesfactors for compounding the 2016 baseperiod T-bill rate daily for any number ofdays in the shareholder’s taxable year (in-cluding for a 52–53 week accounting pe-riod). To compute the amount of the in-terest charge for the shareholder’s taxableyear, multiply the amount of the share-holder’s DISC-related deferred tax liabil-ity for that year by the base period T-billrate factor corresponding to the number ofdays in the shareholder’s taxable year forwhich the interest charge is being com-puted. Generally, one would use the factorfor 365 days. One would use a differentfactor only if the shareholder’s taxableyear for which the interest charge is beingdetermined is a short taxable year, if the
shareholder uses a 52–53 week taxable year,or if the shareholder’s taxable year is a leapyear.
For the base period T-bill rates for pe-riods ending in prior years, see Rev. Rul.2015–26, 2015–49 IRB 696; Rev. Rul.2014–33, 2014–52 IRB 957; Rev. Rul.2013–24, 2013–49 IRB 594; Rev. Rul.2012–22, 2012–48 IRB 565; and Rev.Rul. 2011–30, 2011–49 IRB 826.
DRAFTING INFORMATION
The principal author of this revenueruling is Matthew A. Nieters of the Officeof Associate Chief Counsel (Interna-tional). For further information regardingthe revenue ruling, contact Mr. Nieters at(202) 317-6939 (not a toll-free number).
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
1 .000014754
2 .000029508
3 .000044263
4 .000059018
5 .000073773
6 .000088528
7 .000103283
8 .000118039
9 .000132795
10 .000147551
11 .000162307
12 .000177064
13 .000191820
14 .000206577
15 .000221334
16 .000236092
17 .000250849
18 .000265607
19 .000280365
20 .000295123
21 .000309882
22 .000324640
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
23 .000339399
24 .000354158
25 .000368918
26 .000383677
27 .000398437
28 .000413197
29 .000427957
30 .000442718
31 .000457478
32 .000472239
33 .000487000
34 .000501761
35 .000516523
36 .000531285
37 .000546047
38 .000560809
39 .000575571
40 .000590334
41 .000605097
42 .000619860
43 .000634623
44 .000649386
45 .000664150
46 .000678914
47 .000693678
48 .000708442
49 .000723207
50 .000737972
51 .000752737
52 .000767502
53 .000782267
54 .000797033
55 .000811799
56 .000826565
57 .000841331
Bulletin No. 2017–3 January 17, 2017377
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
58 .000856098
59 .000870864
60 .000885631
61 .000900398
62 .000915166
63 .000929933
64 .000944701
65 .000959469
66 .000974238
67 .000989006
68 .001003775
69 .001018544
70 .001033313
71 .001048082
72 .001062852
73 .001077621
74 .001092391
75 .001107162
76 .001121932
77 .001136703
78 .001151474
79 .001166245
80 .001181016
81 .001195788
82 .001210559
83 .001225331
84 .001240103
85 .001254876
86 .001269648
87 .001284421
88 .001299194
89 .001313968
90 .001328741
91 .001343515
92 .001358289
93 .001373063
94 .001387837
95 .001402612
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
96 .001417387
97 .001432162
98 .001446937
99 .001461712
100 .001476488
101 .001491264
102 .001506040
103 .001520816
104 .001535593
105 .001550369
106 .001565146
107 .001579924
108 .001594701
109 .001609479
110 .001624257
111 .001639035
112 .001653813
113 .001668591
114 .001683370
115 .001698149
116 .001712928
117 .001727708
118 .001742487
119 .001757267
120 .001772047
121 .001786827
122 .001801608
123 .001816388
124 .001831169
125 .001845950
126 .001860732
127 .001875513
128 .001890295
129 .001905077
130 .001919859
131 .001934642
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
132 .001949424
133 .001964207
134 .001978990
135 .001993774
136 .002008557
137 .002023341
138 .002038125
139 .002052909
140 .002067693
141 .002082478
142 .002097263
143 .002112048
144 .002126833
145 .002141618
146 .002156404
147 .002171190
148 .002185976
149 .002200763
150 .002215549
151 .002230336
152 .002245123
153 .002259910
154 .002274698
155 .002289485
156 .002304273
157 .002319061
158 .002333850
159 .002348638
160 .002363427
161 .002378216
162 .002393005
163 .002407794
164 .002422584
165 .002437374
166 .002452164
167 .002466954
168 .002481745
169 .002496535
January 17, 2017 Bulletin No. 2017–3378
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
170 .002511326
171 .002526117
172 .002540909
173 .002555700
174 .002570492
175 .002585284
176 .002600077
177 .002614869
178 .002629662
179 .002644455
180 .002659248
181 .002674041
182 .002688835
183 .002703628
184 .002718422
185 .002733217
186 .002748011
187 .002762806
188 .002777600
189 .002792396
190 .002807191
191 .002821986
192 .002836782
193 .002851578
194 .002866374
195 .002881171
196 .002895967
197 .002910764
198 .002925561
199 .002940358
200 .002955156
201 .002969953
202 .002984751
203 .002999550
204 .003014348
205 .003029146
206 .003043945
207 .003058744
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
208 .003073543
209 .003088343
210 .003103143
211 .003117942
212 .003132743
213 .003147543
214 .003162343
215 .003177144
216 .003191945
217 .003206746
218 .003221548
219 .003236349
220 .003251151
221 .003265953
222 .003280756
223 .003295558
224 .003310361
225 .003325164
226 .003339967
227 .003354770
228 .003369574
229 .003384378
230 .003399182
231 .003413986
232 .003428790
233 .003443595
234 .003458400
235 .003473205
236 .003488011
237 .003502816
238 .003517622
239 .003532428
240 .003547234
241 .003562041
242 .003576847
243 .003591654
244 .003606461
245 .003621268
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
246 .003636076
247 .003650884
248 .003665692
249 .003680500
250 .003695308
251 .003710117
252 .003724926
253 .003739735
254 .003754544
255 .003769354
256 .003784163
257 .003798973
258 .003813783
259 .003828594
260 .003843404
261 .003858215
262 .003873026
263 .003887837
264 .003902649
265 .003917460
266 .003932272
267 .003947085
268 .003961897
269 .003976709
270 .003991522
271 .004006335
272 .004021148
273 .004035962
274 .004050775
275 .004065589
276 .004080403
277 .004095218
278 .004110032
279 .004124847
280 .004139662
281 .004154477
282 .004169292
Bulletin No. 2017–3 January 17, 2017379
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
283 .004184108
284 .004198924
285 .004213740
286 .004228556
287 .004243373
288 .004258189
289 .004273006
290 .004287823
291 .004302641
292 .004317458
293 .004332276
294 .004347094
295 .004361912
296 .004376731
297 .004391550
298 .004406368
299 .004421188
300 .004436007
301 .004450826
302 .004465646
303 .004480466
304 .004495286
305 .004510107
306 .004524927
307 .004539748
308 .004554569
309 .004569391
310 .004584212
311 .004599034
312 .004613856
313 .004628678
314 .004643500
315 .004658323
316 .004673146
317 .004687969
318 .004702792
319 .004717616
320 .004732439
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
321 .004747263
322 .004762087
323 .004776912
324 .004791736
325 .004806561
326 .004821386
327 .004836211
328 .004851037
329 .004865863
330 .004880688
331 .004895515
332 .004910341
333 .004925167
334 .004939994
335 .004954821
336 .004969648
337 .004984476
338 .004999303
339 .005014131
340 .005028959
341 .005043788
342 .005058616
343 .005073445
344 .005088274
345 .005103103
346 .005117932
347 .005132762
348 .005147592
349 .005162422
350 .005177252
351 .005192083
352 .005206913
353 .005221744
354 .005236575
355 .005251407
356 .005266238
ANNUAL RATE, COM-POUNDED DAILY
0.54 PERCENT
DAYS FACTOR
357 .005281070
358 .005295902
359 .005310734
360 .005325567
361 .005340400
362 .005355232
363 .005370066
364 .005384899
365 .005399732
366 .005414566
367 .005429400
368 .005444234
369 .005459069
370 .005473903
371 .005488738
26 CFR 1.6038A–1: General Requirements and Defi-nitions; 26 CFR 1.6038A–2: Requirement of Return;26 CFR 301.7701–2: Business entities; definitions
DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Parts 1 and 301
T.D. 9796
Treatment of Certain DomesticEntities Disregarded asSeparate from Their Ownersas Corporations for Purposesof Section 6038A
AGENCY: Internal Revenue Service(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-nal regulations that treat a domestic disre-garded entity wholly owned by a foreignperson as a domestic corporation separatefrom its owner for the limited purposes ofthe reporting, record maintenance and as-sociated compliance requirements that ap-ply to 25 percent foreign-owned domesticcorporations under section 6038A of theInternal Revenue Code.
January 17, 2017 Bulletin No. 2017–3380
DATES: Effective date: These regulationsare effective December 13, 2016.Applicability date: For dates of applicabil-ity, see §§ 1.6038A–1(n)(1) and (2) and301.7701–2(e)(9).
FOR FURTHER INFORMATION CON-TACT: Ronald M. Gootzeit, (202) 317-6937(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-tained in these final regulations has beenpreviously reviewed and approved by theOffice of Management and Budget in ac-cordance with the Paperwork ReductionAct of 1995 (44 U.S.C. 3507(d)) undercontrol number 1545-1191. The estimatedaverage annual recordkeeping burden perrecordkeeper is 10 hours. The estimatedreporting burden is being reported underForm 5472 (OMB # 1545-0123).
The collection of information in thesefinal regulations is in §§ 1.6038A–2 and1.6038A–3. This information will enhancethe United States’ compliance with interna-tional standards of transparency and ex-change of information for tax purposes andwill strengthen the enforcement of U.S. taxlaws. The likely respondents are foreign-owned domestic entities that are disregardedas separate from their owners.
An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information un-less it displays a valid control numberassigned by the Office of Managementand Budget.
Books or records relating to a collec-tion of information must be retained aslong as their contents may become mate-rial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by 26 U.S.C. 6103.
Background and Explanation ofProvisions
On May 10, 2016, the Department ofthe Treasury (Treasury Department) andthe Internal Revenue Service (IRS) pub-lished in the Federal Register a notice ofproposed rulemaking (REG–127199–15;81 FR 28784) under sections 6038A and7701 (the proposed regulations). The pro-
posed regulations would treat a domesticdisregarded entity wholly owned by a for-eign person as a domestic corporation sep-arate from its owner for the limited pur-poses of the reporting, record maintenanceand associated compliance requirementsthat apply to 25 percent foreign-owneddomestic corporations under section6038A of the Internal Revenue Code. Theproposed regulations would have appliedto taxable years of the entities described in§ 301.7701–2(c)(2)(vi) ending on or afterthe date that is 12 months after the date ofpublication of the Treasury decisionadopting the proposed rules as final regu-lations in the Federal Register.
In addition to generally soliciting com-ments on all aspects of the proposed rules,the preamble to the proposed regulationsspecifically requested comments on possi-ble alternative methods for reporting adomestic disregarded entity’s transactionsin cases in which the foreign owner of thedomestic disregarded entity already has anobligation to report the income resultingfrom those transactions—for example,transactions resulting in income effec-tively connected with the conduct of aU.S. trade or business.
No written comments on the proposedregulations were received, and no publichearing was requested or held. However,these final regulations reflect a limitednumber of changes by the Treasury De-partment and the IRS to the proposed reg-ulations.
First, it was and remains the intent ofthe Treasury Department and the IRS thatthe generally applicable exceptions to therequirements of section 6038A should notapply to a domestic disregarded entity thatis wholly owned by a foreign person. Ac-cordingly, the proposed regulations pro-vided that the exceptions to the recordmaintenance requirements in § 1.6038A–1(h) and (i) for small corporations and deminimis transactions would not apply tothese entities. The proposed regulationsdid not address the additional exceptionprovided in § 1.6038A–2(e)(3), underwhich a reporting corporation is not re-quired to file Form 5472, Information Re-turn of a 25% Foreign-Owned U.S. Corpo-ration or a Foreign Corporation Engaged ina U.S. Trade or Business (Under Sections6038A and 6038C of the Internal RevenueCode), with respect to a related foreign cor-
poration when a U.S. person that controlsthe related foreign corporation files a Form5471, Information Return of U.S. PersonsWith Respect to Certain Foreign Corpora-tions, containing required information withrespect to reportable transactions betweenthe reporting corporation and the related for-eign corporation for the taxable year. Simi-larly, the proposed regulations did not ad-dress the additional exception provided in§ 1.6038A–2(e)(4), under which a reportingcorporation is not required to file Form 5472with respect to a related foreign corporationthat qualifies as a foreign sales corporationfor a taxable year for which the foreign salescorporation files Form 1120–FSC, U.S. In-come Tax Return of a Foreign Sales Corpo-ration. Upon final consideration of the pro-posed regulations, the Treasury Departmentand the IRS have concluded that, consistentwith the scope and intent of the proposedregulations, the reporting requirements ofthe proposed regulations should apply with-out regard to the exceptions generally appli-cable under § 1.6038A–2(e)(3) and (4). Theexceptions in § 1.6038A–2(e)(3) and (4) arerevised accordingly in the final regulations.
Second, to facilitate entities’ compli-ance with the requirements of section6038A, including the obligation of report-ing corporations to file Form 5472, thefinal regulations provide that these entitieshave the same taxable year as their foreignowner if the foreign owner has a U.S.return filing obligation. If the foreignowner has no U.S. return filing obligation,then for ease of tax administration, thefinal regulations provide that the taxableyear of these entities is the calendar yearunless otherwise provided in forms, in-structions, or published guidance.
Third, the Treasury Department andthe IRS have concluded that for ease ofadministration, these regulations shouldapply to taxable years of entities begin-ning on or after January 1, 2017, andending on or after December 13, 2017.The proposed regulations would have ap-plied to taxable years ending on or afterthe date that is 12 months after the date ofpublication of the final regulations in theFederal Register, without regard to thedate on which the taxable year began. ThisTreasury decision adopts the proposedregulations as so amended and with otherminor clarifications for readability.
Bulletin No. 2017–3 January 17, 2017381
Special Analyses
Certain IRS regulations, includingthese, are exempt from the requirementsof Executive Order 12866, as supple-mented and reaffirmed by Executive Or-der 13563. Therefore, a regulatory assess-ment is not required. Pursuant to theRegulatory Flexibility Act (5 U.S.C.chapter 6), it is hereby certified that theseregulations will not have a significant eco-nomic impact on a substantial number ofsmall entities. Accordingly, a regulatoryflexibility analysis is not required. Thiscertification is based on the fact that theseregulations will primarily affect a smallnumber of foreign-owned domestic enti-ties that do not themselves otherwise havea U.S. return filing requirement, and thatthe requirement to file a return for theseentities will not impose a significant bur-den on them. Pursuant to section 7805(f),the proposed regulations were submittedto the Chief Counsel for Advocacy of theSmall Business Administration for com-ment on their impact on small entities.
Drafting Information
The principal author of these regula-tions is Ronald M. Gootzeit, Office ofAssociate Chief Counsel (International).However, other personnel from the Trea-sury Department and the IRS participatedin their development.
* * * * *
Adoption of Amendments to theRegulations
Accordingly, 26 CFR parts 1 and 301are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation forpart 1 is amended by revising the entriesfor §§ 1.6038A–1 and 1.6038A–2 to readin part as follows:
Authority: 26 U.S.C. 7805 * * *Section 1.6038A–1 also issued under
26 U.S.C. 6001.Section 1.6038A–2 also issued under
26 U.S.C. 6001.* * * * *Par. 2. Section 1.6038A–0 is amended
by adding an entry for § 1.6038A–2(b)(9)to read as follows:
§ 1.6038A–0 Table of contents.
* * * * *
§ 1.6038A–2 Requirement of return.
* * * * *(b) * * *(9) Examples.* * * * *
Par. 3. Section 1.6038A–1 is amendedas follows:
1. Add a sentence at the end of para-graph (c)(1).
2. Revise the first sentence of para-graph (h).
3. Revsie the first sentence of para-graph (i)(1).
4. Add a sentence at the end of para-graph (n)(1).
5. Add a sentence at the end of para-graph (n)(2).
The additions and revisions read as fol-lows:
§ 1.6038A–1 General requirements anddefinitions.
* * * * *(c) * * *(1) * * * A domestic business entity
that is wholly owned by one foreign per-son and that is otherwise classified under§ 301.7701–3(b)(1)(ii) of this chapter asdisregarded as an entity separate from itsowner is treated as an entity separate fromits owner and classified as a domestic cor-poration for purposes of section 6038A.See § 301.7701–2(c)(2)(vi) of this chap-ter.* * * * *
(h) * * * A reporting corporation (otherthan an entity that is a reporting corpora-tion as a result of being treated as a cor-poration under § 301.7701–2(c)(2)(vi) ofthis chapter) that has less than$10,000,000 in U.S. gross receipts for ataxable year is not subject to§§ 1.6038A–3 and 1.6038A–5 for thattaxable year.* * *
(i) * * *(1) * * * A reporting corporation (other
than an entity that is a reporting corpora-tion as a result of being treated as a cor-poration under § 301.7701–2(c)(2)(vi) ofthis chapter) is not subject to §§ 1.6038A–3 and 1.6038A–5 for any taxable year in
which the aggregate value of all grosspayments it makes to and receives fromforeign related parties with respect to re-lated party transactions (including mone-tary consideration, nonmonetary consider-ation, and the value of transactionsinvolving less than full consideration) isnot more than $5,000,000 and is less than10 percent of its U.S. gross income. * * ** * * * *
(n) * * *(1) * * * However, § 1.6038A–1 as it
applies to entities that are reporting cor-porations as a result of being treated as acorporation under § 301.7701–2(c)(2)(vi)of this chapter applies to taxable years ofsuch reporting corporations beginning af-ter December 31, 2016, and ending on orafter December 13, 2017.
(2) * * * Section 1.6038A–2 as it ap-plies to entities that are reporting corpo-rations as a result of being treated as acorporation under § 301.7701–2(c)(2)(vi)of this chapter applies to taxable years ofsuch reporting corporations beginning af-ter December 31, 2016, and ending on orafter December 13, 2017.* * * * *
Par. 4. Section 1.6038A–2 is amendedas follows:
1. Revise the second sentence of para-graph (a)(2).
2. Revise paragraph (b)(3)(vii).3. Remove the word “and” at the end of
paragraph (b)(3)(ix).4. Remove the undesignated paragraph
following paragraph (b)(3)(x).5. Remove the period at the end of
paragraph (b)(3)(x) and add “; and” in itsplace.
6. Add paragraphs (b)(3)(xi) and (b)(9).
7. Add a sentence at the end of para-graph (d).
8. Revise the first sentence of para-graph (e)(3).
9. Revise paragraph (e)(4).The additions and revisions read as fol-
lows:
§ 1.6038A–2 Requirements of return.
(a) * * *(2) * * * However, if neither party to
the transaction is a United States person asdefined in section 7701(a)(30) (which, forpurposes of section 6038A, includes an
January 17, 2017 Bulletin No. 2017–3382
entity that is a reporting corporation as aresult of being treated as a corporationunder § 301.7701–2(c)(2)(vi) of this chap-ter) and the transaction—* * * * *
(b) * * *(3) * * *(vii) Amounts loaned and borrowed
(except open accounts resulting from salesand purchases reported under other itemslisted in this paragraph (b)(3) that ariseand are collected in full in the ordinarycourse of business), to be reported asmonthly averages or outstanding balancesat the beginning and end of the taxableyear, as the form shall prescribe;* * * * *
(xi) With respect to an entity that is areporting corporation as a result of beingtreated as a corporation under § 301.7701–2(c)(2)(vi) of this chapter, any other trans-action as defined by § 1.482–1(i)(7), suchas amounts paid or received in connectionwith the formation, dissolution, acquisi-tion and disposition of the entity, includ-ing contributions to and distributions fromthe entity.* * * * *
(9) Examples. The following examplesillustrate the application of paragraph(b)(3) of this section:
Example 1. (i) In year 1, W, a foreign corpora-tion, forms and contributes assets to X, a domesticlimited liability company that does not elect to betreated as a corporation under § 301.7701–3(c) ofthis chapter. In year 2, W contributes funds to X. Inyear 3, X makes a payment to W. In year 4, X, inliquidation, distributes its assets to W.
(ii) In accordance with § 301.7701–3(b)(1)(ii) ofthis chapter, X is disregarded as an entity separatefrom W. In accordance with § 301.7701–2(c)(2)(vi)of this chapter, X is treated as an entity separate fromW and classified as a domestic corporation for pur-poses of section 6038A. In accordance with para-graphs (a)(2) and (b)(3) of this section, each of thetransactions in years 1 through 4 is a reportabletransaction with respect to X. Therefore, X has asection 6038A reporting and record maintenance re-quirement for each of those years.
Example 2. (i) The facts are the same as inExample 1 of this paragraph (b)(9) except that, inyear 1, W also forms and contributes assets to Y,another domestic limited liability company that doesnot elect to be treated as a corporation under§ 301.7701–3(c) of this chapter. In year 1, X and Yform and contribute assets to Z, another domesticlimited liability company that does not elect to betreated as a corporation under § 301.7701–3(c) ofthis chapter. In year 2, X transfers funds to Z. In year3, Z makes a payment to Y. In year 4, Z distributesits assets to X and Y in liquidation.
(ii) In accordance with § 301.7701–3(b)(1)(ii) ofthis chapter, Y and Z are disregarded as entitiesseparate from each other, W, and X. In accordancewith § 301.7701–2(c)(2)(vi) of this chapter, Y, Z andX are treated as entities separate from each other andW, and are classified as domestic corporations forpurposes of section 6038A. In accordance with para-graph (b)(3) of this section, each of the transactionsin years 1 through 4 involving Z is a reportabletransaction with respect to Z. Similarly, W’s contri-bution to Y and Y’s contribution to Z in year 1, thepayment to Y in year 3, and the distribution to Y inyear 4 are reportable transactions with respect to Y.Moreover, X’s contribution to Z in Year 1, X’s fundstransfer to Z in year 2, and the distribution to X inyear 4 are reportable transactions with respect to X.Therefore, Z has a section 6038A reporting andrecord maintenance requirement for years 1 through4; Y has a section 6038A reporting and record main-tenance requirement for years 1, 3, and 4; and X hasa section 6038A reporting and record maintenancerequirement in years 1, 2, and 4 in addition to itssection 6038A reporting and record maintenance de-scribed in Example 1 of this paragraph (b)(9).
* * * * *(d) * * * In the case of an entity that is
a reporting corporation as a result ofbeing treated as a corporation under§ 301.7701–2(c)(2)(vi) of this chapter,Form 5472 must be filed at such time andin such manner as the Commissioner mayprescribe in forms or instructions.
(e) * * *(3) * * * A reporting corporation (other
than an entity that is a reporting corpora-tion as a result of being treated as a cor-poration under § 301.7701–2(c)(2)(vi) ofthis chapter) is not required to make areturn of information on Form 5472 withrespect to a related foreign corporation fora taxable year for which a U.S. person thatcontrols the foreign related corporationmakes a return of information on Form5471 that is required under section 6038and this section, if that return containsinformation required under § 1.6038–2(f)(11) with respect to the reportabletransactions between the reporting corpo-ration and the related corporation for thattaxable year.* * *
(4) Transactions with a foreign salescorporation. A reporting corporation (otherthan an entity that is a reporting corporationas a result of being treated as a corpora-tion under § 301.7701–2(c)(2)(vi) of thischapter) is not required to make a returnof information on Form 5472 with respectto a related corporation that qualifies as aforeign sales corporation for a taxableyear for which the foreign sales corpora-tion files Form 1120–FSC.
* * * * *
PART 301—PROCEDURE ANDADMINISTRATION
Par. 5. The authority citation for part301 continues to read in part as follows:Authority: 26 U.S.C. 7805 * * *
Par. 6. Section 301.7701–2 is amendedby revising the last sentence of paragraph(a) and adding paragraphs (c)(2)(vi) and(e)(9) to read as follows:
§ 301.7701–2 Business entities;definitions.
(a) * * * But see paragraphs (c)(2)(iii)through (vi) of this section for specialrules that apply to an eligible entity that isotherwise disregarded as an entity sepa-rate from its owner.* * * * *
(c) * * *(2) * * *(vi) Special rule for reporting under
section 6038A—(A) In general. An entitythat is disregarded as an entity separatefrom its owner for any purpose under thissection is treated as an entity separatefrom its owner and classified as a corpo-ration for purposes of section 6038A if—
(1) The entity is a domestic entity; and(2) One foreign person has direct or
indirect sole ownership of the entity.(B) Definitions—(1) Indirect sole own-
ership. For purposes of paragraph (c)(2)(vi)(A)(2) of this section, indirect soleownership means ownership by one per-son entirely through one or more otherentities disregarded as entities separatefrom their owners or through one or moregrantor trusts, regardless of whether anysuch disregarded entity or grantor trust isdomestic or foreign.
(2) Entity disregarded as separate fromits owner. For purposes of paragraph (c)(2)(vi)(B)(1) of this section, an entity disre-garded as an entity separate from itsowner is an entity described in paragraph(c)(2)(i) of this section.
(3) Grantor trust. For purposes of para-graph (c)(2)(vi)(B)(1) of this section, agrantor trust is any portion of a trust that istreated as owned by the grantor or anotherperson under subpart E of subchapter J ofchapter 1 of the Code.
(C) Taxable year. The taxable year ofan entity classified as a corporation for
Bulletin No. 2017–3 January 17, 2017383
section 6038A purposes pursuant to para-graph (c)(2)(vi)(A) of this section is—
(1) The same as the taxable year of theforeign person described in paragraph(c)(2)(vi)(A)(2) of this section, if that for-eign person has a U.S. income tax orinformation return filing obligation for itstaxable year; or
(2) The calendar year, if paragraph(c)(2)(vi)(C)(1) of this section does notapply, unless otherwise provided in forms,instructions, or published guidance.* * * * *
(e) * * *(9) Reporting required under section
6038A. Paragraph (c)(2)(vi) of this sectionapplies to taxable years of entities begin-ning after December 31, 2016, and endingon or after December 13, 2017.
John Dalrymple,Deputy Commissioner for
Services and Enforcement.
Approved: November 15, 2016.
Mark J. Mazur,Assistant Secretary of the
Treasury (Tax Policy).
(Filed by the Office of the Federal Register on December 12,2016, at 8:45 a.m.., and published in the issue of the FederalRegister for December 13, 2016, 81 F.R. 89849)
26 CFR 1.367(a)–1, –2; 26 CFR 1.367(d)–1
DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1
T.D. 9803
Treatment of CertainTransfers of Property toForeign Corporations
AGENCY: Internal Revenue Service(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-nal regulations relating to certain transfersof property by United States persons toforeign corporations. The final regulationsaffect United States persons that transfer
certain property, including foreign good-will and going concern value, to foreigncorporations in nonrecognition transac-tions described in section 367 of the In-ternal Revenue Code (Code). The regula-tions also combine certain sections of theexisting regulations under section 367(a)into a single section. This document alsowithdraws certain temporary regulations.
DATES: Effective date: These regulationsare effective on December 16, 2016.
Applicability date: For dates of applica-bility, see §§ 1.367(a)–1(g)(5), 1.367(a)–2(k), 1.367(a)–4(b), and 1.367(a)–6(j);1.367(d)–1(j); and 1.6038B–1(g)(7).
FOR FURTHER INFORMATION CON-TACT: Ryan A. Bowen, (202) 317-6937(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-tained in the regulations have been sub-mitted for review and approved by theOffice of Management and Budget in ac-cordance with the Paperwork ReductionAct of 1995 (44 U.S.C. 3507(d)) undercontrol number 1545-0026.
The collections of information are in§ 1.6038B–1(c)(4) and (d)(1). The collec-tions of information are mandatory. Thelikely respondents are domestic corpora-tions. Burdens associated with these re-quirements will be reflected in the burdenfor Form 926, Return by a U.S. Transferorof Property to a Foreign Corporation. Es-timates for completing the Form 926 canbe located in the form instructions.
An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information un-less it displays a valid control number.
Books and records relating to a collec-tion of information must be retained aslong as their contents might become ma-terial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by 26 U.S.C. 6103.
Background
This document contains final regula-tions issued under sections 367 and 6038Bof the Code. Temporary regulations were
published on May 16, 1986 (TD 8087, 51FR 17936) (the 1986 temporary regula-tions). Proposed regulations under thesesections were published on September 16,2015 (80 FR 55568) (the proposed regula-tions). Written comments to the proposedregulations were received, and a publichearing was held on February 8, 2016. Allcomments are available at www.regula-tions.gov or upon request.
The proposed regulations generallyprovided five substantive changes fromthe 1986 temporary regulations: (1) elim-inating the favorable treatment for foreigngoodwill and going concern value by nar-rowing the scope of the active trade orbusiness exception under section 367(a)(3) (ATB exception) and eliminating theexception under § 1.367(d)–1T(b) thatprovides that foreign goodwill and goingconcern value is not subject to section367(d); (2) allowing taxpayers to applysection 367(d) to certain property that oth-erwise would be subject to section 367(a);(3) removing the twenty-year limitationon useful life for purposes of section367(d) under § 1.367(d)–1T(c)(3); (4) re-moving the exception under § 1.367(a)–5T(d)(2) that permits certain property de-nominated in foreign currency to qualifyfor the ATB exception; and (5) changingthe valuation rules under § 1.367(a)–1T tobetter coordinate the regulations under sec-tions 367 and 482 (including temporary reg-ulations under section 482 issued with theproposed regulations (see § 1.482–1T(f)(2)(i), TD 9738, 80 FR 55538).
Specifically with regard to the ATBexception, the proposed regulations re-vised the categories of property that areeligible for the ATB exception so thatforeign goodwill and going concernvalue cannot qualify for the exception.Under the 1986 temporary regulations,all property was eligible for the ATBexception, subject only to five narrowlytailored exceptions. In addition to limit-ing the scope of the ATB exception, theproposed regulations also implementedchanges to the ATB exception that wereintended to consolidate various provi-sions and update the 1986 temporaryregulations in response to subsequentchanges to the Code.
The proposed regulations did not re-solve the extent to which property, includ-ing foreign goodwill and going concern
January 17, 2017 Bulletin No. 2017–3384
value, that is not explicitly enumerated insection 936(h)(3)(B)(i) through (v) (enu-merated section 936 intangibles) is de-scribed in section 936(h)(3)(B) and there-fore subject to section 367(d) or instead issubject to section 367(a) and not eligiblefor the ATB exception. All property that isdescribed in section 936(h)(3)(B) is re-ferred to at times in this preamble as “sec-tion 936 intangibles.” Nonetheless, theproposed regulations permitted taxpayersto apply section 367(d) to such property.Under this rule, a taxpayer that has histor-ically taken the position that goodwill andgoing concern value is not described insection 936(h)(3)(B) could apply section367(d) to such property.
These regulations generally finalize theproposed regulations, as well as portionsof the 1986 temporary regulations, asamended by this Treasury decision. Al-though minor wording changes have beenmade to certain aspects of those portionsof the 1986 temporary regulations, thefinal regulations are not intended to beinterpreted as making substantive changesto those regulations. Further explanationof the proposed regulations can be foundin the Explanation of Provisions section ofthe preamble to the proposed regulations.That Explanation of Provisions section ishereby incorporated as appropriate intothis preamble.
Summary of Comments andExplanation of Revisions
Nineteen sets of comments were re-ceived in response to the proposed regu-lations, and three speakers presented at thepublic hearing. In drafting the final regu-lations, the Treasury Department and theIRS carefully considered all of the com-ments received.
This section of the preamble is com-prised of five parts that discuss, in turn,the comments received with respect to (i)the elimination of the favorable treatmentof transfers of foreign goodwill and goingconcern value, (ii) the useful life of prop-erty for purposes of applying section367(d), (iii) the applicability date of thefinal regulations, (iv) the qualification ofproperty denominated in foreign currencyfor the ATB exception, and (v) other is-sues.
I. Foreign Goodwill and Going ConcernValue
A. Overview
The Treasury Department and the IRSreceived a variety of comments in re-sponse to the proposed elimination of thefavorable treatment of transfers of foreigngoodwill and going concern value pro-vided by the 1986 temporary regulations.Two comments supported the treatment offoreign goodwill and going concern valueunder the proposed regulations. One com-ment asserted that allowing intangibleproperty to be transferred outbound in atax-free manner is inconsistent with thepolicies of section 367. Other commentsacknowledged the concerns about taxavoidance described in the preamble tothe proposed regulations, but requestedspecific exceptions for transfers of foreigngoodwill and going concern value in sit-uations that the comments asserted werenot abusive. Other comments disagreedmore fundamentally with the approachtaken and stated that the Treasury Depart-ment and the IRS should withdraw theproposed regulations entirely. Many ofthese comments asserted that eliminatingthe favorable treatment of transfers of for-eign goodwill and going concern valuewould be an invalid exercise of regulatoryauthority under section 367.
Overall, the comments indicated widelydivergent understandings of the nature offoreign goodwill and going concern value.Accordingly, the comments also widelydiffered in their proffered justifications foran exception for foreign goodwill and go-ing concern value and in the recom-mended contours of an appropriate excep-tion. The variance in the commentsregarding these fundamental issues high-lights the difficulty of permitting someform of favorable treatment for foreigngoodwill and going concern value whilepreventing tax avoidance.
As described in greater detail in PartI.B of this Summary of Comments andExplanation of Revisions, and consistentwith the proposed regulations, the finalregulations eliminate the favorable treat-ment of foreign goodwill and going con-cern value contained in the 1986 temporaryregulations. The Treasury Department andthe IRS have determined that this change is
necessary to carry out the tax policy em-bodied in section 367 in a fair, impartial,and reasonable manner, taking into ac-count the intent of Congress, the realitiesof relevant transactions, the need for theIRS to administer the rules and monitorcompliance, and the overall integrity ofthe federal tax system. In particular, thefinal regulations are consistent with thepolicy and intent of the statute, whichdoes not reference foreign goodwill orgoing concern value, and with Congress’expectation that the Secretary would ex-ercise the regulatory authority under sec-tion 367 to require gain recognition whenproperty is transferred offshore under cir-cumstances that present a potential for taxavoidance.
B. Interpretation of section 367
1. Summary of Comments ChallengingAuthority
The Treasury Department and the IRSreceived numerous comments addressingthe proposed regulations’ treatment of for-eign goodwill and going concern value.One comment asserted that the ATB ex-ception must apply to transfers of foreigngoodwill and going concern value, be-cause (i) foreign goodwill and going con-cern value is not a section 936(h)(3)(B)intangible, and so is subject to section367(a) rather than section 367(d), and (ii)the legislative history indicates that Con-gress expected that the transfer of suchvalue should be tax-free. The commentfurther asserted that, because goodwilland going concern value is inextricablylinked to the conduct of an active trade orbusiness, the ATB exception necessarilyencompasses such transfers. Other com-ments asserted that finalizing the proposedregulations would represent an unreason-able exercise of regulatory authority be-cause the proposed regulations eliminatedthe favorable treatment of all transfers ofpurported foreign goodwill and goingconcern value, rather than just those trans-fers that the Treasury Department and theIRS determine are abusive.
Several comments asserted that theproposed regulations are inconsistent withCongressional intent and cited statementsfrom the legislative history to section 367,such as the following:
Bulletin No. 2017–3 January 17, 2017385
The committee does not anticipatethat the transfer of goodwill or go-ing concern value developed by aforeign branch to a newly organizedforeign corporation will result inabuse of the U.S. tax system. . . .The committee contemplates thatthe transfer of goodwill or goingconcern value developed by a for-eign branch will be treated under[the exception for transfers of prop-erty for use in the active conduct ofa foreign trade or business] ratherthan a separate rule applicable tointangibles.
H.R. Rep. No. 98–432, pt. 2, at 1317–19(1984).
Comments also asserted that it is inap-propriate to use regulatory authority undersection 367 to address transfer pricingconcerns under section 482.
2. Response
The Treasury Department and the IRSdo not agree with the foregoing com-ments. Section 367 generally provides forincome recognition on transfers of prop-erty to a foreign corporation in certaintransactions that otherwise would qualifyfor nonrecognition. While section 367(a)(3)(A) includes a broad exception to thisgeneral rule for property used in the activeconduct of a trade or business outside ofthe United States, grants of rulemakingauthority in section 367(a)(3)(A) and (B)authorize the Secretary to exercise admin-istrative discretion in determining theproperty to which nonrecognition treat-ment applies under the ATB exception.Moreover, section 367(d) reflects a clearpolicy that income generally should berecognized with respect to transfers ofsection 936 intangibles. The 1984 legisla-tive history to section 367 explains thatCongress intended for the Secretary to usehis “regulatory authority to provide forrecognition in cases of transfers involvingthe potential of tax avoidance.” S. Rep.No. 98–169, at 364 (1984) (emphasisadded). The Treasury Department and theIRS have determined that the proposedregulations and these final regulations areconsistent with that intention and the au-thority granted to the Secretary under sec-tion 367, based on the fact that the statutedoes not refer to foreign goodwill andgoing concern value and the determina-tion that, as described in the preamble to
the proposed regulations, the favorabletreatment of foreign goodwill and goingconcern value contravenes the policy thatincome generally should be recognizedwith respect to transfers of section 936intangibles. The remainder of this sectiondiscusses subsequent changes to the reg-ulatory, statutory, and market context inwhich the 1984 legislative history wasdrafted, in order to reconcile the state-ments in the 1984 legislative history ex-pressing the expectation that an exceptionfor foreign goodwill and going concernvalue would not result in abuse with theIRS’s contrary experience administeringthe statute during the intervening years.
a. The 1980s and early 1990s
The Treasury Department and the IRSconsidered the 1984 legislative history tosection 367 in issuing the 1986 temporaryregulations. The 1986 temporary regula-tions gave effect to the statements in thelegislative history indicating that Con-gress anticipated that the transfer of good-will and going concern value developedby a foreign branch to a newly organizedforeign corporation generally would notresult in abuse of the U.S. tax system, and,on that basis, that such transfers wouldbenefit from nonrecognition treatment. Asa result, the 1986 temporary regulationsprovide nonrecognition treatment for for-eign goodwill and concern value. The1986 temporary regulations did not pro-vide a conceptual definition of foreigngoodwill and going concern value but, ineffect, provided a rule for valuing it bydescribing foreign goodwill and goingconcern value as the residual value of abusiness operation conducted outside ofthe United States after all other tangibleand intangible assets have been identifiedand valued. § 1.367(a)–1T(d)(5)(iii).
The Treasury Department and the IRSalso took into account the 1984 legislativehistory in issuing the proposed regulationsand these final regulations. In doing so,the Treasury Department and the IRS alsoconsidered that, in amending section 367in 1984, Congress did not choose to stat-utorily mandate any particular treatmentof foreign goodwill and going concernvalue and instead delegated broad author-ity to the Secretary to promulgate regula-tions under section 367 to carry out its
purposes in this complex area. The Trea-sury Department and the IRS further con-sidered that the legal and factual contextin which the 1984 legislative history wasdrafted has changed significantly over thelast 32 years.
Before 1993, goodwill and going con-cern value was not amortizable. As a re-sult, in 1984, much of the case law andpolicy debate regarding goodwill and go-ing concern value involved sales of busi-ness operations at arm’s length betweenunrelated parties, where the taxpayer at-tempted to minimize the value of goodwillin order to maximize the value of amor-tizable intangibles. See, for example,Newark Morning Ledger Co. v. UnitedStates, 507 U.S. 546 (1993). In 1989, theGeneral Accounting Office analyzed datawith respect to unresolved tax cases in-volving purchased intangibles and foundthat, presumably in order to minimize theamount of unamortizable goodwill, tax-payers had identified 175 different typesof customer-based intangibles that weredistinct from goodwill. See General Ac-counting Office, Report to the Joint Com-mittee on Taxation: Issues and Policy Pro-posals Regarding Tax Treatment ofIntangible Assets, at 3 (Aug. 1991).
b. Statutory and regulatory changes
In 1993, Congress addressed these val-uation disputes between taxpayers and theIRS by enacting section 197, which, sim-ilar to the approach taken by the proposedregulations, did not directly address theunderlying disagreement about the rela-tive size of goodwill but substantially re-duced the stakes of the disagreement. Thatis, by generally providing for the amor-tization of goodwill over 15 years, theenactment of section 197 generallyeliminated the incentive that existed in1984, when Congress enacted section367(d) in its present form, for taxpayersto argue that goodwill has relatively mi-nor value.
Other law changes since 1984 haveincreased the relevance of section 367(d)and the incentive for taxpayers to over-state the value attributable to goodwill andgoing concern value. Before 1997,amounts received under section 367(d)were treated as ordinary income from U.S.sources. In 1997, Congress amended sec-
January 17, 2017 Bulletin No. 2017–3386
tion 367(d)(2)(C) to provide that amountsreceived under section 367(d) are treatedas ordinary income that is sourced in thesame manner as a royalty, and thus poten-tially as from sources outside the UnitedStates. Taxpayer Relief Act of 1997,Public Law 105–34, 111 Stat. 788. The1997 amendments increased the rele-vance of section 367(d) and the excep-tion for foreign goodwill and going con-cern value because, before 1997, theconsequences under the foreign taxcredit limitation of the treatment of sec-tion 367(d) deemed royalties as U.S.source income represented a substantialdisincentive for taxpayers to structuretransactions in a way that would be sub-ject to section 367(d).
Additionally, the so-called “check-the-box” regulations of § 301.7701–3,published December 18, 1996 (TD8697, 61 FR 66584), and Congress’senactment in 2006 of the subpart F“look-thru” rule in section 954(c)(6)(Tax Increase Prevention and Reconcil-iation Act of 2005, Public Law 109 –222, 120 Stat. 345), increased the potentialbenefit to taxpayers from transferringhigh-value intangibles offshore by re-ducing obstacles to redeploying cashearned in overseas operations amongforeign affiliates without incurring U.S.tax. Both of these changes also facilitate,in certain circumstances, the ability of for-eign subsidiaries to license transferred in-tangibles to affiliates without incurringsubpart F income.
Finally, on January 5, 2009, the Trea-sury Department and the IRS issued tem-porary regulations under section 482 (TD9441, 74 FR 340) related to cost sharingarrangements (subsequently finalized atTD 9568, 76 FR 80082 (Dec. 22, 2011)).The 2009 cost sharing regulations, in par-ticular the supplemental guidance in§ 1.482–7T(g) on transfer pricing methodsapplicable in determining the arm’s lengthprice for a platform contribution transac-tion or PCT (so-called “buy-in pay-ments”), were intended, in part, to addressinappropriate income shifting from intan-gible transfers under the prior cost sharingregulations. Although the prior cost shar-ing regulations did not provide any favor-able treatment for foreign goodwill andgoing concern value, in the experience ofthe IRS, taxpayers took positions under
those regulations that allowed a domesticcost sharing participant to transfer intan-gibles to a foreign cost sharing participantfor development under a cost sharing ar-rangement without fully compensating thedomestic cost sharing participant for thevalue of the transferred intangibles. It isalso the experience of the IRS that the2009 cost sharing regulations limited tax-payers’ ability to use PCTs in cost sharingarrangements to shift high value intangi-bles offshore without appropriate com-pensation, thereby increasing the relativeappeal of transferring intangibles in atransaction subject to section 367. Thus,taxpayers began using transactions subjectto section 367 to transfer intangibles in-tended for development under a cost shar-ing arrangement rather than as part of aPCT.
c. Changing markets for intangibles
Moreover, since Congress enacted sec-tion 367(d) in its current form in 1984, therelative importance of intangibles in theeconomy and in the profitability of busi-ness has increased greatly. According to ajoint report issued by the Economic andStatistics Administration and the U.S. Pat-ent and Trademark Office, “IP use perme-ates all aspects of the economy with in-creasing intensity and extends to all partsof the U.S.” Justin Antonipillai, Econom-ics and Statistics Administration, & Mi-chelle K. Lee, U.S. Patent and TrademarkOffice, Intellectual Property and the U.S.Economy, at p.30 (2016). This growingimportance is reflected in the significantincrease in the portion of business valuesattributable to intangible assets in theyears since 1984, with one study indicat-ing that intangibles accounted for only 32percent of the market value of the S&P500 in 1985, but accounted for 84 percentby 2015. Annual Study of Intangible As-set Market Value from Ocean Tomo, LLC(Mar. 4, 2015, 12:00AM), http://www.oceantomo.com/2015/03/04/2015-intangible-asset-market-value-study/. Growth in theshare of business values attributable tosection 936 intangibles during this period,together with the statutory and regulatorychanges discussed in the preceding para-graphs, have increased the incentives fortaxpayers to transfer such valuable intan-gibles to related offshore affiliates in
transactions subject to section 367(d) andto misattribute intangible value from enu-merated section 936 intangibles to foreigngoodwill and going concern value in thecontext of such transactions.
d. The potential for abuse
Since 1984, taxpayers have reversedtheir positions regarding the significanceof goodwill and going concern value inresponse to the enactment of sections 197and 367(d), and now commonly assert thatsuch value constitutes a large percentage –even the vast majority – of an enterprise’svalue. The IRS’s experience administer-ing section 367(d) has, once again, high-lighted the abuse potential that arises fromthe need to distinguish value attributableto nominally distinct intangibles that areused together in a single trade or business.Specifically, the uncertainty inherent indistinguishing between value attributableto goodwill and going concern value andvalue attributable to other intangible prop-erty makes any exception to income rec-ognition for the outbound transfer ofgoodwill and going concern value undulydifficult to administer and prone to taxavoidance. Of course, any rule that pro-vides for the tax-free transfer of one typeof property, while the transfer of othertypes of property remains taxable, pro-vides an incentive to improperly allocatevalue away from the taxable property andonto the tax-free property. This problem isacute, however, in cases involving the off-shore reorganization of entire business di-visions that include high-value, interre-lated intangibles, because goodwill andgoing concern value are particularly diffi-cult to distinguish (perhaps are even in-distinguishable) from the enumerated sec-tion 936 intangibles. See, for example,International Multifoods Corp. v. Com-missioner, 108 T.C. 25, 42 (1997) (notingthat it “is well established that trademarksembody goodwill”). See also Joint Com-mittee on Taxation, Present Law andBackground Related to Possible IncomeShifting and Transfer Pricing, (JCX-37-10) July 20, 2010, at 110 (noting thatunique intangible property is difficult tovalue because it is rarely, if ever, trans-ferred to third parties).
Bulletin No. 2017–3 January 17, 2017387
e. Legislative intent and the broad grantof authority to limit potential abuses
These statutory, regulatory, and marketdevelopments since Congress amendedsection 367(d) in 1984, as well as theexperience of the IRS in administeringsection 367 over that period, inform themanner in which the Treasury Departmentand the IRS seek to give effect to theintent of Congress in this complex area oflaw. As a starting point, the Treasury De-partment and the IRS observe that thestatutory grants of authority in section367(a) and (d), coupled with the absenceof any specific statutory protection fortransfers of goodwill and going concernvalue, form the basis for the broad author-ity of the Treasury Department and theIRS to design the appropriate parametersfor the taxation of outbound transfers. The1984 legislative history expressed an ex-pectation that outbound transfers of for-eign goodwill and going concern valuewould not lead to abuse of the U.S. taxsystem and, on the basis of that expecta-tion, anticipated that the Secretary wouldexercise the regulatory authority undersection 367 in a manner that would allowtaxpayers to transfer foreign goodwill andgoing concern value outbound withoutcurrent U.S. tax. The legislative historyalso explains that Congress expected theSecretary to use the “regulatory authorityto provide for recognition in cases oftransfers involving the potential of taxavoidance.” Accordingly, the administra-tive discretion to determine the contoursof nonrecognition treatment must be exer-cised in light of the income recognitionobjectives of the statute and informed bythe IRS’s experience in administering theexception.
The Treasury Department and the IRShave determined that the premise of theexpectation noted in the legislative historythat an exception to recognition treatmentwould apply to foreign goodwill and go-ing concern value—namely, that out-bound transfers of foreign goodwill andgoing concern value would not lead toabuse—is inconsistent with the experi-ence of the IRS in administering section367(d), and consequently no longer sup-ports such an exception. Rather, based onthe IRS’s experience over the past threedecades, the Treasury Department and the
IRS have determined that the favorabletreatment of foreign goodwill and goingconcern value has interfered with the ap-plication of the general rule in section367(d) that requires income recognitionupon the outbound transfer of section 936intangibles due to the inherent difficultyof distinguishing value attributable togoodwill and going concern value fromvalue attributable to enumerated section936 intangibles, coupled with taxpayer ef-forts to maximize the value allocated togoodwill and going concern value.
The Treasury Department and the IRSalso observe that the 1984 legislative his-tory explains that the 1984 amendments tosection 367(d) were made in response tochallenges the IRS faced in administeringthe prior regime. That regime required ataxpayer to clear its purpose for transfer-ring property offshore with the IRS. SeeH.R. Rep. 98-432, pt. 2, at 1315. The 1984reworking of section 367 was intended topromote administrability by making theanalysis of outbound transfers more ob-jective. Other passages from the legisla-tive history show that the general purposeof the amendments to section 367 was toclose “serious loopholes,” and that the 1984revisions were intended to strengthen theapplication of that section. Id.
Accordingly, the Treasury Departmentand the IRS do not view the legislativehistory as mandating an exception fortransfers of goodwill and going concernvalue developed by a foreign branch, or asindicating that Congress anticipated, orwould have condoned, the extent of theclaims regarding foreign goodwill and go-ing concern value that the IRS has in factencountered. To the contrary, the Trea-sury Department and the IRS have con-cluded that the statutory purpose of theincome recognition provisions in section367(d) is incompatible with the favorabletreatment of foreign goodwill and goingconcern value reflected in the 1986 tem-porary regulations. In particular, takinginto account the statutory, regulatory, andmarket developments since 1984 and theexperience of the IRS in administeringsection 367(d) under the 1986 temporaryregulations, the Treasury Department andthe IRS have determined that, at this junc-ture, the approach most consistent withthe intent of Congress in 1984, includingthe directive to use regulatory authority
“to provide for recognition in cases oftransfers involving the potential of taxavoidance,” is to remove the favorabletreatment for foreign goodwill and goingconcern value in the 1986 temporary reg-ulations.
The Treasury Department and the IRSalso disagree with the notion expressed incomments that the proposed regulationsinappropriately attempt to solve section482 transfer pricing problems under theauthority of section 367. Congress madeclear in adding the commensurate withincome language to both sections 367(d)and 482 in 1986 that the provisions areclosely related, and it is within the author-ity of the Treasury Department and theIRS to consider valuation concerns in ad-ministering section 367. Section 1231(e)(1) and (2) of the Tax Reform Act of1986, Public Law 99–514, 100 Stat. 2085,2562–3.
For these reasons, the Treasury Depart-ment and the IRS disagree with commentsasserting that the Treasury Departmentand the IRS lack the authority to eliminatethe favorable treatment that applied to for-eign goodwill and going concern valueunder the 1986 temporary regulations.
C. Other comments suggesting that somefavorable treatment for transfers offoreign goodwill and going concernvalue be maintained
Several comments generally favoredretaining both the nonrecognition treat-ment for foreign goodwill and going con-cern value and its current measurement asthe residual value of a foreign businessoperation. Other comments, however, ac-knowledged the problems associated withthe residual valuation approach but sup-ported an exception determined on someother basis. Some of these comments in-cluded suggestions for other ways to de-fine goodwill and going concern value andfor determining the amount that shouldqualify for nonrecognition. The TreasuryDepartment and the IRS have determinedthat none of the comments provided asufficiently administrable approach thatwould reliably ensure that section 367 ap-plies with respect to the full value of allsection 936 intangibles.
January 17, 2017 Bulletin No. 2017–3388
1. Local Pressure to Incorporate;Industry-Based Exception
The proposed regulations specificallyrequested comments on a potential excep-tion that would apply to situations wherethere is limited potential for abuse. As anexample, the comment solicitation positedthe incorporation, in response to regula-tory pressure or compulsion, of a financialservices business that previously had op-erated as a branch in another country. TheTreasury Department and the IRS re-ceived several comments in response tothis solicitation.
Several comments suggested that thefinal regulations provide an exception thatwould continue to permit favorable treat-ment of transfers of foreign goodwill andgoing concern value that occur as a resultof the incorporation of a branch in a coun-try that exerts regulatory pressure (eitherimplicit or explicit) upon the U.S. trans-feror to conduct its operations in thatcountry in corporate form. According tothese comments, the incorporation of abranch in these circumstances is not mo-tivated by tax considerations but ratheroccurs in order to comply with local lawor regulations.
The regulations under section 367 pro-vide that certain property is deemed to betransferred for use in the active conduct ofa trade or business outside of the UnitedStates when the transfer is either legallyrequired by the local foreign governmentas a necessary condition of doing businessor is compelled by a genuine threat ofimmediate expropriation by the local for-eign government. Section 367 and the reg-ulations thereunder do not, however, pro-vide exceptions to the requirement torecognize income or gain when assets thatare not eligible for the ATB exception,such as section 936 intangibles and assetsdescribed in section 367(a)(3)(B), aretransferred in this circumstance. Accord-ingly, the policy of section 367 and theregulations thereunder is not to expand onthe types of assets that are eligible for theATB exception in this circumstance.Moreover, the mere fact that a taxpayer iscompelled or pressured to incorporate itsbranch does not mean that the taxpayerhas any less incentive to reduce the taxconsequences of such incorporation byadopting the aggressive valuation posi-
tions that the proposed regulations wereintended to prevent. Therefore, the finalregulations do not provide a special ex-ception to continue the favorable treat-ment of foreign goodwill and going con-cern value in this circumstance. Notably,some taxpayers that are pressured to in-corporate branch operations in these cir-cumstances can avoid being subject tosection 367 by incorporating the branchusing an eligible entity described in§ 301.7701–2 that could elect to be treatedas a disregarded entity for U.S. federalincome tax purposes.
Several comments recommended anexception for transfers of foreign goodwilland going concern value by taxpayers incertain industries, such as banking andfinance, life insurance, and industries thatprimarily provide services to third parties,asserting that such businesses do notpossess the types of highly valuable intan-gibles about which they believe the Trea-sury Department and the IRS are con-cerned. The comments did not provideany basis, however, for the Treasury De-partment and the IRS to conclude thattaxpayers in particular industries consis-tently lack valuable intangibles of the kindlisted in section 936(h)(3)(B), eventhough the prevalence of specific types ofintangibles may differ across industries.Additionally, the ability and incentive toallocate value away from other intangi-bles, such as trademarks, and towardgoodwill or going concern value is notlimited to particular industries. As a gen-eral matter, the Treasury Department andthe IRS attempt, to the extent possible, toavoid issuing guidance based on industryclassifications that are not clearly andclosely tied to specific tax policy con-cerns. Accordingly, the final regulationsdo not provide any industry-specific ex-ceptions.
Based on these comments, the Trea-sury Department and the IRS consideredwhether it would be possible to provide anexception for tax-free transfers of foreigngoodwill and going concern value devel-oped by a foreign branch that did notpossess or otherwise benefit from the useof any highly valuable enumerated section936 intangibles. If the absence of suchhighly valuable intangibles could be reli-ably determined, the concerns regardingthe potential to attribute value away from
such intangibles and toward goodwill andgoing concern value would be mitigated.However, such an exception would re-quire the development and administrationof standards to determine whether anyenumerated section 936 intangible washighly valuable, an exercise that would beas difficult (and in many circumstancewould be no different) than the exercise ofdistinguishing value attributable to for-eign goodwill and going concern valuefrom value attributable to other intangi-bles transferred together with it. Such anexception also would require a careful ex-amination of the particular facts of a trans-feror’s assets and business as a thresholdmatter to confirm that valuable enumer-ated section 936 intangibles are not madeavailable for the benefit of the transfereeforeign corporation, either through a sep-arate but related transfer to the foreigncorporation or through a service providedto the foreign corporation using such in-tangibles. Accordingly, the Treasury De-partment and the IRS did not adopt thispotential exception in these final regula-tions.
2. Foreign Branch Exception
Several comments suggested maintain-ing the favorable treatment of foreigngoodwill and going concern value in sit-uations in which section 367 applies to theincorporation of a long-standing foreignbranch or a branch that conducts an activeforeign business operation. The TreasuryDepartment and the IRS acknowledge thatconditioning favorable treatment for for-eign goodwill and going concern value onthe presence of a robust foreign branchwould increase the likelihood that thebusiness at issue has substantive foreignoperations. However, in situations wherethe exception would continue to apply, therequirement of a robust foreign branchwould not address the potential for taxavoidance that motivated the proposedregulations when value must be allocatedbetween foreign goodwill and going con-cern value, on the one hand, and enumer-ated section 936 intangibles, on the otherhand. Thus, the final regulations do notadopt the comments suggesting an excep-tion for goodwill and going concern valuedeveloped by a foreign branch that is sub-sequently incorporated because, when ap-
Bulletin No. 2017–3 January 17, 2017389
plicable, such an exception would not ad-dress the administrative difficulties inidentifying and separately valuing theproperty that is and is not eligible for theexception, and therefore would be insuf-ficient to prevent the potential for taxavoidance.
3. New Rules for Valuing ForeignGoodwill and Going Concern Value
Other comments suggested that theregulations provide new rules for deter-mining foreign goodwill and going con-cern value, such that an exception for suchtransfers could be provided that would beless susceptible to the abuses described inthe preamble to the proposed regulations.That is, the comments suggested deter-mining goodwill and going concern valueusing an approach that differs from that inexisting § 1.367(a)–1T(d)(5)(iii), whichtreats it as the residual after other intangi-bles are valued.
Several of these comments suggesteddetermining foreign goodwill and goingconcern value by classifying intangiblesas routine and non-routine and permittingvalue attributable to routine intangibles tobe transferred tax-free under an exception.One comment asserted that goodwill isrelatively easy to value as compared tocertain enumerated section 936 intangi-bles but did not explain why or how good-will is more easily valued or how to reli-ably allocate value between goodwill andenumerated section 936 intangibles. An-other comment asserted that goodwill canbe valued based on the premise that it isthe kind of asset that enables an existingbusiness to produce “routine” or “normal”operating profits or cash flow during theperiod that a new business would be as-sembling its assets and workforce and at-tracting a customer base, but the commentdid not explain how to determine “rou-tine” or “normal” operating profits.
Another comment recommended deter-mining foreign goodwill and going con-cern value using a formulaic approachbased on sales and general and adminis-trative expenses, asserting that routine ex-penses for operational costs and compen-sation are closely associated with thebusiness activities that give rise to good-will and going concern value. The com-ment did not provide any support for this
premise. As a general matter, cost-basedmethods (in comparison with market-based and income-based methods) are nota reliable means of valuing intangibleproperty because the value of intangibleproperty does not necessarily bear anypredictable relationship to the costs of de-veloping the property. The comment sug-gesting a cost-based approach did notdemonstrate that determining goodwilland going concern value in the section367(d) context is a situation where costsare a reliable measure of value (regardlessof whether goodwill and going concernvalue are section 936(h)(3)(B) intangi-bles). Accordingly, the Treasury Depart-ment and the IRS have determined that arule that determined foreign goodwill andgoing concern value based on certain ex-penses would be inappropriate.
Another comment proposed, forbranches incorporated in a jurisdictionwith which the United States has an in-come tax treaty in effect, using the earn-ings before interest, taxes, depreciation,and amortization of the branch as reportedto foreign tax authorities as reliable dataon which to base a valuation. An excep-tion based on information reported to aforeign country’s tax authority, whichmay be based on that jurisdiction’s gener-ally accepted accounting standards, doesnot address the concerns expressed by theTreasury Department and the IRS in thepreamble to the proposed regulations.Most significantly, the comment does notexplain how this information would beuseful in determining the value of foreigngoodwill and going concern value or dis-tinguishing value attributable to enumer-ated section 936 intangibles from that ofother property, nor have the Treasury De-partment and the IRS been able to identifyhow it would be useful. Accordingly, thisrecommendation has not been adopted.
In summary, none of the proposed ap-proaches for more directly valuing foreigngoodwill and going concern value offer aprincipled and administrable basis for al-locating value between foreign goodwilland going concern value that would besubject to an exception and other intangi-bles that would not. The Treasury Depart-ment and the IRS therefore concluded thatthe proposed approaches would not pro-vide a meaningful improvement over theresidual value approach in the 1986 tem-
porary regulations as a conceptual or ad-ministrative matter.
4. Formulaic Caps on Foreign Goodwilland Going Concern Value
Several comments suggested that thefavorable treatment for transfers of for-eign goodwill and going concern valuecould be maintained while addressing theconcerns that prompted the issuance ofthe proposed regulations by capping theamount that can qualify for the exception,either on a non-rebuttable basis or in theabsence of a ruling. For example, onecomment suggested that the exceptedamount should not exceed 25 percent ofthe branch’s net enterprise value, unless aruling is obtained from the IRS. The com-ment asserted that 25 percent represents amodest portion of a branch’s value that islikely to be attributable to branch good-will and going concern value. Anothercomment suggested that the exceptedamount should not exceed 50 percent ofthe total value of the assets transferred tothe foreign corporation. Although suchformulaic caps would limit the potentialtax avoidance from improperly attributingvalue from enumerated section 936 intan-gibles to foreign goodwill and going con-cern value that is eligible for an exception,the amount excepted under such an ap-proach would still potentially reflect valueproperly attributable to enumerated sec-tion 936 intangibles. That is, with respectto amounts claimed below the cap, a for-mulaic cap would not relieve the IRS ofthe need to distinguish foreign goodwilland going concern value from enumeratedsection 936 intangibles, a key challengethat motivated the approach of the pro-posed regulations. Moreover, the TreasuryDepartment and the IRS have determinedthat the discretionary ruling practice pro-posed by one comment would require anonerous commitment of IRS resources(which the comment acknowledged areconstrained), and, without detailed proce-dures for both identifying and valuing for-eign goodwill and going concern value,would simply accelerate the disputes thatoccur under the 1986 temporary regula-tions. As a result, the final regulations donot adopt the recommendations to use aformulaic cap to limit the amount of for-eign goodwill and going concern value.
January 17, 2017 Bulletin No. 2017–3390
5. Professional Services Exception
One comment stated that U.S. citizensmay conduct professional services outsidethe United States as sole practitioners, orin partnership with other practitioners, andobserved that the incorporation of such abusiness would entail a section 351 con-tribution subject to section 367 (assumingthe transferee entity was classified as acorporation for U.S. federal income taxpurposes). According to the comment, be-cause any goodwill in such a scenariowould relate to foreign customers and aforeign business or professional license,there could be no abuse warranting taxa-tion under section 367.
The Treasury Department and the IRSdo not agree that the outbound transfer ofvalue developed in such cases will neces-sarily not result in abuse of the U.S. taxsystem. The potential for abuse in a trans-fer subject to section 367 arises not justfrom the possibility that value associatedwith U.S. customers would be denomi-nated as foreign goodwill, but also fromthe fundamental difficulty in reliably dis-tinguishing value attributable to enumer-ated section 936 intangibles from valueattributable to other intangibles, an issuethat is no different in the professional ser-vices context. Therefore, the final regula-tions do not adopt this comment.
6. Joint Venture Exception
One comment proposed maintainingthe favorable treatment of foreign good-will and going concern value for transfersto joint venture companies, particularlycases in which the U.S. transferor is goinginto business with one or more unrelatedforeign parties (third parties) and in whichthe U.S. transferor’s interest in the jointventure is equal to or less than 50 percent.According to the comment, the U.S. trans-feror in this situation has a financial in-centive to segregate its intangibles con-tributed to the joint venture from its otherproperty. The presence of a third party,however, would not necessarily reduce theU.S. transferor’s incentive to attributevalue to foreign goodwill and going con-cern value, rather than to enumerated sec-tion 936 intangibles, in order to minimizethe tax consequences of the transfer, sincesuch a distinction may be irrelevant to the
third party. Accordingly, the final regula-tions do not adopt this proposal.
D. Classifying foreign goodwill andgoing concern value as subject tosection 367(a) or (d)
Several comments requested that theTreasury Department and the IRS addresswhether goodwill and going concernvalue should be characterized as a section936(h)(3)(B) intangible, and thus subjectto section 367(d), or instead as propertysubject to section 367(a). Comments alsorequested that the regulations provide cer-tainty to taxpayers that have taken theposition that goodwill and going concernvalue is not described in section936(h)(3)(B) by providing that such tax-payers will be permitted to treat goodwilland going concern value as property sub-ject to section 367(a) rather than section367(d).
As discussed in the preamble to theproposed regulations, the Treasury De-partment and the IRS acknowledge thattaxpayers have taken different positionsregarding the scope of section 936(h)(3)(B) and that the issue is more signifi-cant following the elimination of the fa-vorable treatment for foreign goodwilland going concern value. Any enumeratedsection 936 intangible, and any item sim-ilar to such specifically enumerated intan-gibles, is subject to the regime providedby section 367(d). The Treasury Depart-ment and the IRS have determined that itwould be inconsistent with the policy un-derlying section 367(d) to permit intangi-ble property that is described in section936(h)(3)(B) to be subject to section367(a). Accordingly, the Treasury Depart-ment and the IRS have determined that itis appropriate to retain the approach pro-vided in the proposed regulations, whichallows taxpayers to apply section 367(d)to certain property that otherwise wouldbe taxed under section 367(a) but whichcontinues to require taxpayers to applysection 367(d) to all property described insection 936(h)(3)(B). Because the identi-fication of items that are neither explicitlylisted in section 936(h)(3)(B)(i) through(v) nor explicitly listed as potentiallyqualifying for the ATB exception gener-ally will require a case-by-case functionaland factual analysis, the final regulations
do not address the characterization of suchitems as similar items (within the meaningof section 936(h)(3)(B)(vi)) or as some-thing else. In general, potential rules un-der section 367 for identifying and valu-ing transferred property are beyond thescope of these final regulations.
II. Useful Life
The proposed regulations eliminatedthe 20-year limitation on useful life forintangible property subject to section367(d) that was included in § 1.367(d)–1T(c)(3), because of concerns that the lim-itation results in less than all of the in-come attributable to transferred intangibleproperty being taken into account by theU.S. transferor. In the preamble to theproposed regulations, the Treasury De-partment and the IRS solicited commentson how to simplify the administration ofsection 367(d) inclusions for propertywith a very long useful life in the absenceof the 20-year limitation. In response tothis comment solicitation, several com-ments requested that the final regulationsrestore the 20-year limitation on usefullife because it promotes administrabilityfor both taxpayers and the IRS.
After considering the comments re-ceived, the Treasury Department and theIRS agree that a 20-year limitation oninclusions may promote administrabilityfor both taxpayers and the IRS in caseswhere the useful life of the transferredproperty is indefinite or is reasonably an-ticipated to exceed twenty years. Accord-ingly, in such cases, the final regulationsprovide that taxpayers may, in the year oftransfer, choose to take into account sec-tion 367(d) inclusions only during the 20-year period beginning with the first year inwhich the U.S transferor takes into ac-count income pursuant to section 367(d).However, the Treasury Department andthe IRS have determined that this optionallimitation should not affect the presentvalue of all amounts included by the tax-payer under section 367(d). Accordingly,the final regulations specifically require ataxpayer that chooses to limit section367(d) inclusions to a 20-year period toinclude, during that period, amounts thatreasonably reflect amounts that, in the ab-sence of the limitation, would be requiredto be included over the useful life of the
Bulletin No. 2017–3 January 17, 2017391
transferred property following the end ofthe 20-year period. This requirement isconsistent with the requirement in section367(d) to include amounts that are com-mensurate with the income attributable tothe transferred intangible during its fulluseful life, without limitation. The re-quirement of the final regulations that in-clusions during the limited 20-year periodbegin in the first year in which in whichthe U.S transferor takes into account in-come pursuant to section 367(d) reflectsthe possibility of delays between the yearthe intangible property is transferred andthe first year in which exploitation of thetransferred property results in taxable in-come being earned by the transferee andincluded under section 367(d) by thetransferor.
One comment also suggested thatthe IRS be precluded from makingcommensurate-with-income adjustmentsfor taxable years beginning more than 20years after the outbound transfer. In re-sponse to this comment, the final regula-tions provide that, if a taxpayer chooses tolimit inclusions under section 367(d) to a20-year period, no adjustments will bemade for taxable years beginning after theconclusion of the 20-year period. Thus,after the statute of limitations expires fortaxable years during the 20-year period, ataxpayer will have no further section367(d) inclusions as a result of the Com-missioner’s examination of taxable yearsthat begin after the end of the 20-yearperiod. However, consistent with thecommensurate-with-income principle, forpurposes of determining whether incomeinclusions during the 20-year period arecommensurate with the income attribut-able to the transferred property, andwhether adjustments should be made fortaxable years during that period while thestatute of limitations for such taxableyears is open, the Commissioner may takeinto account information with respect totaxable years after that period, such as theincome attributable to the transferredproperty during those later years.
The final regulations revise the defini-tion of useful life to provide that usefullife includes the entire period duringwhich exploitation of the transferred in-tangible property is reasonably anticipatedto affect the determination of taxable in-come, in order to appropriately account
for the fact that exploitation of intangibleproperty can result in both revenue in-creases and cost decreases. A commentasserted that including use in subse-quently developed intangibles within theuseful life of the transferred intangibleproperty would be too difficult to admin-ister and was not consistent with the arm’slength standard. The Treasury Departmentand the IRS disagree with this comment.The value of many types of intangibleproperty is derived not only from use ofthe intangible property in its present form,but also from its use in further develop-ment of the next generation of that intan-gible and other property. For example, if asoftware developer were to sell all of itscopyright rights in its software to an un-related party, and the copyright rights areexpected to derive value both from theexclusive right to use the current genera-tion computer code to make and sell cur-rent generation software products andfrom the exclusive right to use the currentgeneration code in the development ofother versions of the software, which willthen be used to make and sell future gen-eration software products, the softwaredeveloper would expect to be compen-sated for the latter right. That is, if thesoftware has value in developing a futuregeneration of products, the software de-veloper would not ignore the value of theuse of the software in future research anddevelopment and hand over those rightsfree of charge, and an uncontrolled pur-chaser would be willing to compensate thedeveloper to obtain such rights.
III. Applicability Date
Several comments requested that thefinal regulations apply to transfers occur-ring after their date of publication, and notrelate back to the date the proposed regu-lations were issued. These comments as-serted that the proposed regulationschange long-standing law in a way thatwould prejudice taxpayers that had ar-ranged their business operations based onthe 1986 temporary regulations. Othersspeculated that the final regulations mightdeviate from the proposed regulations tosuch an extent that substantial confusionwould result for taxpayers attempting todetermine their tax results in the interimperiod before the final regulations were
published. Finally, one comment assertedthat an applicability date relating back tothe proposed regulations would violate theAdministrative Procedure Act (APA),specifically 5 U.S.C. § 553, which pro-vides that the effective date of certain finalregulations must be at least 30 days aftertheir date of publication.
After considering these comments, theTreasury Department and the IRS havedetermined that the proposed applicabilitydate, under which the final regulationswould apply to transfers occurring on orafter September 14, 2015, should be re-tained. The proposed regulations were is-sued to curtail the potential for abuse thatexists under the 1986 temporary regula-tions from treating value that should beattributed to enumerated section 936 in-tangibles instead as exempt foreign good-will or going concern value. The proposedeffective date was intended to prevent tax-payers from using the time while the pro-posed regulations were pending to accel-erate transfers subject to section 367 inorder to take abusive positions under the1986 temporary regulations before the fi-nalization of the proposed regulations.
The Treasury Department and the IRShave statutory authority to issue regula-tions applicable at least as of the date theproposed regulations were filed with theFederal Register. The pre-1996 version ofsection 7805(b)—which governs regula-tions related to statutory provisions en-acted before July 30, 1996, such as section367—provides express retroactive rule-making authority by stating that the Sec-retary may prescribe the extent, if any, towhich any ruling or regulation shall beapplied without retroactive effect. Section7805(b) (1995). Because section 7805(b)is the more specific statute, it controlsover the general notice requirements of 5U.S.C. § 553. See, for example, Redhousev. Commissioner, 728 F.2d 1249, 1253(9th Cir. 1984); Wing v. Commissioner, 81T.C. 17, 28–30 & n.17 (1983).
Finally, the Treasury Department andthe IRS disagree with the comment thatdifferences between the proposed and fi-nal regulations may create confusion. Thefinal regulations are a logical outgrowth ofthe proposed regulations in light of thecomments received and their consider-ation by the Treasury Department and theIRS. In particular, the final regulations do
January 17, 2017 Bulletin No. 2017–3392
not differ from the proposed regulationswith respect to the elimination of the fa-vorable treatment for transfers of foreigngoodwill and going concern value. Fur-thermore, a transfer of property that issubject to recognition treatment undersection 367 under the final regulationswould also have been subject to suchtreatment under section 367 under the pro-posed regulations.
For these reasons, the final regulationsgenerally apply to transfers occurring onor after September 14, 2015, the date theproposed regulations were filed with theFederal Register, and to transfers occur-ring before September 14, 2015, resultingfrom entity classification elections madeunder § 301.7701–2 that are filed on orafter September 14, 2015.
IV. Qualification of Property Denominatedin Foreign Currency for the ATB Exception
Although section 367(a)(3)(B)(iii) pro-vides that the ATB exception does notapply, and therefore that section 367(a)(1)applies, to foreign currency or other prop-erty denominated in foreign currency, cur-rent § 1.367(a)–5T(d)(2) generally pro-vides that section 367(a)(1) nonethelessdoes not apply to certain transfers of prop-erty denominated in the currency of thecountry in which the transferee foreigncorporation is organized. The proposedregulations eliminated this regulatory ex-ception from the general rule in section367(a)(3)(B)(iii) that turns off the ATBexception for such property. One com-ment recommended clarifying the regula-tions under section 367(a) by adopting thelanguage and concepts reflected in thechanges to the foreign currency rules insubpart J that were made after the publi-cation of the 1986 temporary regulations.In response to this comment, § 1.367(a)–2(c)(3) of the final regulations, which cor-responds to existing § 1.367(a)–5T(d)(2),reflects amendments that increase consis-tency with the rules in sections 987 and988. In particular, the terms “foreign cur-rency” and “property denominated in for-eign currency” are no longer used. Rather,proposed § 1.367(a)–2(c)(3) is revised torefer to nonfunctional currency and otherproperty that gives rise to a section 988transaction of the taxpayer described insection 988(c)(1)(B), or that would give
rise to such a section 988 transaction if itwere acquired, accrued, or entered intodirectly by the taxpayer. The TreasuryDepartment and the IRS consider thatthese modifications do not substantiallychange the scope of property subject tothe rule at § 1.367(a)–5T(d)(2).
V. Other Issues
Other comments suggested that regula-tions address many outstanding issues inthe context of section 367 that were notaddressed in the proposed regulations.These suggestions include guidance to ad-dress the following topics: (i) the valua-tion of intangibles subject to section367(d) and the forms that deemed pay-ments should take, including guidanceproviding parity with the section 482form-of-payment rules; (ii) whether a re-ceivable is created upon an audit-relatedadjustment; (iii) the tax basis conse-quences under section 367(d), includinghow section 367(d) applies to intangiblessubject to the section 197 anti-churningrules; (iv) coordination of the general rulesand disposition rules in section 367(d); (v)issues raised in connection with Notice2012–39 (2012–31 IRB 95); (vi) the defini-tion of “property” for purposes of section367; and (vii) the subsequent transfer rulesunder the ATB exception.
The Treasury Department and the IRSgenerally agree that additional guidanceunder section 367(a) and (d) is desirableand would benefit both taxpayers andthe government. However, these issuesare beyond the scope of this project. Forexample, while the Treasury Departmentand the IRS are aware that there is uncer-tainty regarding the application of the sub-sequent transfer rules to transactions in-volving hybrid partnerships, the TreasuryDepartment and the IRS have determinedthat transactions involving partnershipsmerit a more holistic consideration andthat this regulation package is not the ap-propriate vehicle to address the issue.Consequently, the regulations finalize thesubsequent transfer rules in § 1.367(a)–2T(c) (located in § 1.367(a)–2(g) of thesefinal regulations), but the Treasury De-partment and the IRS expect those ruleswill be amended after a more detailedconsideration of transactions involvingpartnerships.
Special Analyses
Certain IRS regulations, includingthese, are exempt from the requirementsof Executive Order 12866, as supple-mented and reaffirmed by Executive Or-der 13563. Therefore, a regulatory impactassessment is not required. It is herebycertified that the collection of informationcontained in these regulations will nothave a significant economic impact on asubstantial number of small entities. Ac-cordingly, a regulatory flexibility analysisis not required. This certification is basedon the fact that the regulations under sec-tion 367(a) and (d) simplify existing reg-ulations, and the regulations under section6038B make relatively minor changes toexisting information reporting require-ments. Moreover, these regulations pri-marily will affect large domestic corpora-tions filing consolidated returns. Pursuantto section 7805(f) of the Code, the noticeof proposed rulemaking that preceded thisregulation was submitted to the ChiefCounsel for Advocacy of the Small Busi-ness Administration for comment on theirimpact on small business. No commentswere received.
Drafting information
The principal author of these regula-tions is Ryan Bowen, Office of AssociateChief Counsel (International). However,other personnel from the Treasury Depart-ment and the IRS participated in theirdevelopment.
* * * * *
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amendedas follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation forpart 1 is amended by adding an entry innumerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *Section 1.367(d)–1 also issued under
26 U.S.C. 367(d).* * * * *
Par. 2. Section 1.367(a)–0 is added toread as follows:
Bulletin No. 2017–3 January 17, 2017393
§ 1.367(a)–0 Table of contents.
This section lists the paragraphs con-tained in §§ 1.367(a)–1 through 1.367(a)–8.
§ 1.367(a)–1 Transfers to foreigncorporations subject to section 367(a):In general.
(a) Scope.(b) General rules.(1) Foreign corporation not considered acorporation for purposes of certain trans-fers.(2) Cases in which foreign corporate sta-tus is not disregarded.(3) Determination of value.(4) In general.(5) Treatment of certain property as sub-ject to section 367(d).(c) [Reserved].(d) Definitions.(1) United States person.(2) Foreign corporation.(3) Transfer.(4) Property.(5) Intangible property.(6) Operating intangibles.(e) Close of taxable year in certain section368(a)(1)(F) reorganizations.(f) Exchanges under sections 354(a) and361(a) in certain section 368(a)(1)(F) re-organizations.(1) Rule(2) Rule applies regardless of whether acontinuance under applicable law.(g) Effective/applicability dates.
§ 1.367(a)–2 Exceptions for transfers ofproperty for use in the active conduct ofa trade or business.
(a) Scope and general rule.(1) Scope.(2) General rule.(b) Eligible property.(c) Exception for certain property.(1) Inventory.(2) Installment obligations, etc.(3) Nonfunctional currency, etc.(4) Certain leased tangible property.(d) Active conduct of a trade or businessoutside the United States.(1) In general.(2) Trade or business.(3) Active conduct.(4) Outside of the United States.
(5) Use in the trade or business.(6) Active leasing and licensing.(e) Special rules for certain property to beleased.(1) Leasing business of the foreign corpo-ration.(2) De minimis leasing by the foreigncorporation.(3) Aircraft and vessels leased in foreigncommerce.(f) Special rules for oil and gas workinginterests.(1) In general.(2) Active use of working interest.(3) Start-up operations.(4) Other applicable rules.(g) Property retransferred by the foreigncorporation.(1) General rule.(2) Exception.(h) Compulsory transfers of property.(i) [Reserved].(j) Failure to comply with reporting re-quirements of section 6038B.(1) Failure to comply.(2) Relief for certain failures to complythat are not willful.(k) Effective/applicability dates.(1) In general.(2) Foreign currency exception.
§ 1.367(a)–3 Treatment of transfers ofstock or securities to foreigncorporations.
(a) In general.(1) Overview.(2) Exceptions for certain exchanges ofstock or securities.(3) Cross-references.(b) Transfers of stock or securities of for-eign corporations.(1) General rule.(2) Certain transfers subject to sections367(a) and (b).(c) Transfers of stock or securities of do-mestic corporations.(1) General rule.(2) Ownership presumption.(3) Active trade or business test.(4) Special rules.(5) Definitions.(6) Reporting requirements of U.S. targetcompany.(7) Ownership statements.(8) Certain transfers in connection withperformance of services.
(9) Private letter ruling option.(10) Examples.(11) Effective date.(d) Indirect stock transfers in certain non-recognition transfers.(1) In general.(2) Special rules for indirect transfers.(3) Examples.(e) [Reserved].(f) Failure to file statements.(1) Failure to file.(2) Relief for certain failures to file thatare not willful.(g) Effective/applicability dates.(1) Rules of applicability.(2) Election.(h) Former 10-year gain recognitionagreements.(i) [Reserved].(j) Transition rules regarding certaintransfers of domestic or foreign stock orsecurities after December 16, 1987, andprior to July 20, 1998.(1) Scope.(2) Transfers of domestic or foreign stockor securities: additional substantive rules.(k) [Reserved].
§ 1.367(a)–4 Special rule applicable toU.S. depreciated property.
(a) Depreciated property used in theUnited States.(1) In general.(2) U.S. depreciated property.(3) Property used within and without theUnited States.(b) Effective/applicability dates.
§ 1.367(a)–5 [Reserved].
§ 1.367(a)–6 Transfer of foreign branchwith previously deducted losses.
(a) through (b)(1) [Reserved].(2) No active conduct exception.(c)(1) [Reserved].(2) Gain limitation.(3) [Reserved].(4) Transfers of certain intangible prop-erty.(d) through (i) [Reserved].(j) Effective/applicability dates.
January 17, 2017 Bulletin No. 2017–3394
§ 1.367(a)–7 Outbound transfers ofproperty described in section 361(a) or(b).
(a) Scope and purpose.(b) General rule.(1) Nonrecognition exchanges enumer-ated in section 367(a)(1).(2) Nonrecognition exchanges not enu-merated in section 367(a)(1).(c) Elective exception.(1) Control.(2) Gain recognition.(3) Basis adjustments required for controlgroup members.(4) Agreement to amend or file a U.S.income tax return.(5) Election and reporting requirements.(d) Section 361 exchange followed bysuccessive distributions to which section355 applies.(e) Other rules.(1) Section 367(a) property with respect towhich gain is recognized.(2) Relief for certain failures to complythat are not willful.(3) Anti-abuse rule.(4) Certain income inclusions under§ 1.367(b)–4.(5) Certain gain under § 1.367(a)–6.(f) Definitions.(g) Examples.(h) Applicable cross-references.(i) [Reserved].(j) Effective/applicability dates.(1) In general.(2) Section 367(d) property.
§ 1.367(a)–8 Gain recognitionagreement requirements.
(a) Scope.(b) Definitions and special rules.(1) Definitions.(2) Special rules.(c) Gain recognition agreement.(1) Terms of agreement.(2) Content of gain recognition agree-ment.(3) Description of transferred stock or se-curities and other information.(4) Basis adjustments for gain recognized.(5) Terms and conditions of a new gainrecognition agreement.(6) Cross-reference.(d) Filing requirements.(1) General rule.
(2) Special requirements.(3) Common parent as agent for U.S.transferor.(e) Signatory.(1) General rule.(2) Signature requirement.(f) Extension of period of limitations onassessments of tax.(1) General rule.(2) New gain recognition agreement.(g) Annual certification.(h) Use of security.(i) [Reserved].(j) Triggering events.(1) Disposition of transferred stock or se-curities.(2) Disposition of substantially all of theassets of the transferred corporation.(3) Disposition of certain partnership in-terests.(4) Disposition of stock of the transfereeforeign corporation.(5) Deconsolidation.(6) Consolidation.(7) Death of an individual; trust or estateceases to exist.(8) Failure to comply.(9) Gain recognition agreement filed inconnection with indirect stock transfersand certain triangular asset reorganiza-tions.(10) Gain recognition agreement filed pur-suant to paragraph (k)(14) of this section.(k) Triggering event exceptions.(1) Transfers of stock of the transfereeforeign corporation to a corporation orpartnership.(2) Complete liquidation of U.S. trans-feror under sections 332 and 337.(3) Transfers of transferred stock or secu-rities to a corporation or partnership.(4) Transfers of substantially all of theassets of the transferred corporation.(5) Recapitalizations and section 1036 ex-changes.(6) Certain asset reorganizations.(7) Certain triangular reorganizations.(8) Complete liquidation of transferredcorporation.(9) Death of U.S. transferor.(10) Deconsolidation.(11) Consolidation.(12) Intercompany transactions.(13) Deemed asset sales pursuant to sec-tion 338(g) elections.(14) Other dispositions or events.(l) [Reserved].
(m) Receipt of boot in nonrecognitiontransactions.(1) Dispositions of transferred stock orsecurities.(2) Dispositions of assets of transferredcorporation.(n) Special rules for distributions with re-spect to stock.(1) Certain dividend equivalent redemp-tions treated as dispositions.(2) Gain recognized under section301(c)(3).(o) Dispositions or other events that ter-minate or reduce the amount of gain sub-ject to the gain recognition agreement.(1) Taxable disposition of stock of thetransferee foreign corporation.(2) Gain recognized in connection withcertain nonrecognition transactions.(3) Gain recognized under section301(c)(3).(4) Dispositions of substantially all of theassets of a domestic transferred corpora-tion.(5) Certain distributions or transfers oftransferred stock or securities to U.S. per-sons.(6) Dispositions or other event followingcertain intercompany transactions.(7) Expropriations under foreign law.(p) Relief for certain failures to file orfailures to comply that are not willful.(1) In general.(2) Procedures for establishing that a fail-ure to file or failure to comply was notwillful.(3) Examples.(q) Examples.(1) Presumed facts and references.(2) Examples.(r) Effective/applicability date.(1) General rule.(2) Applicability to transfers occurring be-fore March 13, 2009.(3) Applicability to requests for relief sub-mitted before November 19, 2014.
Par. 3. Section 1.367(a)–1 is revised toread as follows:
§ 1.367(a)–1 Transfers to foreigncorporations subject to section 367(a):In general.
(a) Scope. Section 367(a)(1) providesthe general rule concerning certain trans-fers of property by a United States person
Bulletin No. 2017–3 January 17, 2017395
(referred to at times in this section as the“U.S. person” or “U.S. transferor”) to aforeign corporation. Paragraph (b) of thissection provides general rules explainingthe effect of section 367(a)(1). Paragraph(c) of this section describes transfers ofproperty that are described in section367(a)(1). Paragraph (d) of this sectionprovides definitions that apply for pur-poses of sections 367(a) and (d) and theregulations thereunder. Paragraphs (e) and(f) of this section provide rules that applyto certain reorganizations described insection 368(a)(1)(F). Paragraph (g) of thissection provides dates of applicability. Forrules concerning the reporting require-ments under section 6038B for certaintransfers of property to a foreign corpora-tion, see § 1.6038B–1.
(b) General rules—(1) Foreign corpo-ration not considered a corporation forpurposes of certain transfers. If a U.S.person transfers property to a foreign cor-poration in connection with an exchangedescribed in section 351, 354, 356, or 361,then, pursuant to section 367(a)(1), theforeign corporation will not be consideredto be a corporation for purposes of deter-mining the extent to which gain is recog-nized on the transfer. Section 367(a)(1)denies nonrecognition treatment only totransfers of items of property on whichgain is realized. Thus, the amount of gainrecognized because of section 367(a)(1) isunaffected by the transfer of items ofproperty on which loss is realized (but notrecognized).
(2) Cases in which foreign corporatestatus is not disregarded. For circum-stances in which section 367(a)(1) doesnot apply to a U.S. transferor’s transfer ofproperty to a foreign corporation, and thusthe foreign corporation is considered to bea corporation, see §§ 1.367(a)–2,1.367(a)–3, and 1.367(a)–7.
(3) Determination of value. In cases inwhich a U.S. transferor’s transfer of prop-erty to a foreign corporation constitutes acontrolled transaction as defined in§ 1.482–1(i)(8), the value of the propertytransferred is determined in accordancewith section 482 and the regulations there-under.
(4) Character, source, and adjust-ments—(i) In general. If a U.S. person isrequired to recognize gain under section
367 upon a transfer of property to a for-eign corporation, then —
(A) The character and source of suchgain are determined as if the property hadbeen disposed of in a taxable exchangewith the transferee foreign corporation(unless otherwise provided by regulation);and
(B) Appropriate adjustments to earn-ings and profits, basis, and other affecteditems will be made according to otherwiseapplicable rules, taking into account thegain recognized under section 367(a)(1).For purposes of applying section 362, theforeign corporation’s basis in the propertyreceived is increased by the amount ofgain recognized by the U.S. transferor un-der section 367(a) and the regulations is-sued pursuant to that section. To the ex-tent the regulations provide that the U.S.transferor recognizes gain with respect toa particular item of property, the foreigncorporation increases its basis in that itemof property by the amount of such gainrecognized. For example, §§ 1.367(a)–2,1.367(a)–3, and 1.367(a)–4 provide thatgain is recognized with respect to partic-ular items of property. To the extent theregulations do not provide that gain rec-ognized by the U.S. transferor is with re-spect to a particular item of property, suchgain is treated as recognized with respectto items of property subject to section367(a) in proportion to the U.S. transfer-or’s gain realized in such property, aftertaking into account gain recognized withrespect to particular items of propertytransferred under any other provision ofsection 367(a). For example, § 1.367(a)–6provides that branch losses must be recap-tured by the recognition of gain realizedon the transfer but does not associate thegain with particular items of property. Seealso § 1.367(a)–1(c)(3) for rules concern-ing transfers by partnerships or of partner-ship interests.
(C) The transfer will not be recharac-terized for U.S. Federal tax purposessolely because the U.S. person recognizesgain in connection with the transfer undersection 367(a)(1). For example, if a U.S.person transfers appreciated stock or se-curities to a foreign corporation in an ex-change described in section 351, the trans-fer is not recharacterized as other than anexchange described in section 351 solely
because the U.S. person recognizes gainin the transfer under section 367(a)(1).
(ii) Example. The rules of this para-graph (b)(4) are illustrated by the follow-ing example.
Example. Domestic corporation DCtransfers inventory with a fair marketvalue of $ 1 million and adjusted basis of$ 800,000 to foreign corporation FC inexchange for stock of FC that is describedin section 351(a). Title passes within theUnited States. Pursuant to section 367(a),DC is required to recognize gain of$200,000 upon the transfer. Under the ruleof this paragraph (b)(4), the gain is treatedas ordinary income (sections 1201 and1221) from sources within the UnitedStates (section 861) arising from a taxableexchange with FC. Appropriate adjust-ments to earnings and profits, basis, etc.,will be made as if the transfer were sub-ject to section 351. Thus, for example,DC’s basis in the FC stock received, andFC’s basis in the transferred inventory,will each be increased by the $200,000gain recognized by DC, pursuant to sec-tions 358(a)(1) and 362(a), respectively.
(5) Treatment of certain property assubject to section 367(d). A U.S. trans-feror may apply section 367(d) and§ 1.367(d)–1, rather than section 367(a)and the regulations thereunder, to a trans-fer of property to a foreign corporationthat otherwise would be subject to section367(a), provided that the property is noteligible property, as defined in § 1.367(a)–2(b) but determined without regard to§ 1.367(a)–2(c). A U.S. transferor and anyother U.S. transferor that is related (withinthe meaning of section 267(b) or 707(b)(1)) to the U.S. transferor must consis-tently apply this paragraph (b)(5) to allproperty described in this paragraph (b)(5)that is transferred to one or more foreigncorporations pursuant to a plan. A U.S.transferor applies the provisions of thisparagraph (b)(5) in the form and mannerset forth in § 1.6038B–1(d)(1)(iv) and (v).
(c)(1) through (c)(3)(i) reserved. Forfurther guidance, see § 1.367(a)–1T(c)(1)through (c)(3)(i).
(ii) Transfer of partnership interesttreated as transfer of proportionate shareof assets—(A) In general. If a U.S. persontransfers an interest as a partner in a part-nership (whether foreign or domestic) inan exchange described in section 367(a)
January 17, 2017 Bulletin No. 2017–3396
(1), then that person is treated as havingtransferred a proportionate share of theproperty of the partnership in an exchangedescribed in section 367(a)(1). Accord-ingly, the applicability of the exception tosection 367(a)(1) provided in § 1.367(a)–2is determined with reference to the prop-erty of the partnership rather than the part-nership interest itself. A U.S. person’sproportionate share of partnership prop-erty is determined under the rules andprinciples of sections 701 through 761 andthe regulations thereunder.
(c)(3)(i)(A) Example through (7) re-served. For further guidance, see § 1.367(a)–1T(c)(3)(i)(A) Example through (7).
(d) Definitions. The following defini-tions apply for purposes of sections 367(a)and (d) and the regulations thereunder.
(1) United States person. The term“United States person” includes those per-sons described in section 7701(a)(30). Theterm includes a citizen or resident of theUnited States, a domestic partnership, adomestic corporation, and any estate ortrust other than a foreign estate or trust.(For definitions of these terms, see section7701 and the regulations thereunder.) Forpurposes of this section, an individualwith respect to whom an election has beenmade under section 6013(g) or (h) is con-sidered to be a resident of the UnitedStates while such election is in effect. Anonresident alien or a foreign corporationwill not be considered a United Statesperson because of its actual or deemedconduct of a trade or business within theUnited States during a taxable year.
(2) Foreign corporation. The term“foreign corporation” has the meaning setforth in section 7701(a)(3) and (5) and§ 301.7701–5.
(3) Transfer. For purposes of section367 and regulations thereunder, the term“transfer” means any transaction that con-stitutes a transfer for purposes of section332, 351, 354, 355, 356, or 361, as appli-cable. A person’s entering into a cost shar-ing arrangement under § 1.482–7 or ac-quiring rights to intangible property undersuch an arrangement shall not be consid-ered a transfer of property described insection 367(a)(1). See § 1.6038B–1T(b)(4) for the date on which the transferis considered to be made.
(4) Property. For purposes of section367 and the regulations thereunder, the
term “property” means any item that con-stitutes property for purposes of section351, 354, 355, 356, or 361, as applicable.
(5) Intangible property. The term “in-tangible property” means either propertydescribed in section 936(h)(3)(B) or prop-erty to which a U.S. person applies section367(d) pursuant to paragraph (b)(5) of thissection, but does not include property de-scribed in section 1221(a)(3) or a workinginterest in oil and gas property.
(6) Operating intangibles. An operat-ing intangible is any property described insection 936(h)(3)(B) of a type not ordinar-ily licensed or otherwise transferred intransactions between unrelated parties forconsideration contingent upon the licens-ee’s or transferee’s use of the property.Examples of operating intangibles mayinclude long-term purchase or supply con-tracts, surveys, studies, and customer lists.
(f) Exchanges under sections 354(a)and 361(a) in certain section 368(a)(1)(F)reorganizations—(1) Rule. In every reor-ganization under section 368(a)(1)(F),where the transferor corporation is a do-mestic corporation, and the acquiring cor-poration is a foreign corporation, there isconsidered to exist—
(i) A transfer of assets by the transferorcorporation to the acquiring corporationunder section 361(a) in exchange for stock(or stock and securities) of the acquiringcorporation and the assumption by the ac-quiring corporation of the transferor cor-poration’s liabilities;
(ii) A distribution of the stock (orstock and securities) of the acquiringcorporation by the transferor corpora-tion to the shareholders (or shareholdersand security holders) of the transferorcorporation; and
(iii) An exchange by the transferor cor-poration’s shareholders (or shareholdersand security holders) of their stock (orstock and securities) of the transferor cor-poration for stock (or stock and securities)of the acquiring corporation under section354(a).
(2) Rule applies regardless of whethera continuance under applicable law. Forpurposes of paragraph (f)(1) of this sec-tion, it shall be immaterial that the appli-cable foreign or domestic law treats theacquiring corporation as a continuance ofthe transferor corporation.
(g) Effective/applicability dates. (1)through (3) [Reserved]. For further guid-ance, see § 1.367(a)–1T(g)(1) through (3).
(4) The rules in paragraphs (b)(4)(i)(B)and (b)(4)(i)(C) of this section apply totransfers occurring on or after April 18,2013. For guidance with respect to para-graph (b)(4)(i)(B) of this section beforeApril 18, 2013, see 26 CFR part 1 revisedas of April 1, 2012. The rules in paragraph(e) of this section apply to transactionsoccurring on or after March 31, 1987. Therules in paragraph (f) of this section applyto transactions occurring on or after Jan-uary 1, 1985.
(5) Paragraphs (a), (b)(1) through (b)(4)(i)(B), (b)(4)(ii) through (b)(5), (c)(3)(ii)(A), (d) introductory text through(d)(2), (d)(4) through (d)(6) of this sectionapply to transfers occurring on or afterSeptember 14, 2015, and to transfers oc-curring before September 14, 2015, result-ing from entity classification electionsmade under § 301.7701–3 that are filed onor after September 14, 2015. For transfersoccurring before this section is applicable,see §§ 1.367(a)–1 and 1.367(a)–1T ascontained in 26 CFR part 1 revised as ofApril 1, 2016.
§ 1.367(a)–1T [Amended]
Par. 4. Section 1.367(a)–1T is amendedby removing and reserving paragraphs (a),(b)(1), (b)(2), (b)(3), (b)(4)(i)(A), (b)(4)(ii), (c)(3)(ii)(A), (d) introductory text,(d)(1), (d)(2), (d)(4), and (d)(5), and add-ing and reserving new paragraphs (b)(5)and (d)(6).
Par. 5. Section 1.367(a)–2 is revised toread as follows:
§ 1.367(a)–2 Exceptions for transfers ofproperty for use in the active conduct ofa trade or business.
(a) Scope and general rule—(1) Scope.Paragraph (a)(2) of this section providesthe general exception to section 367(a)(1)for certain property transferred for use inthe active conduct of a trade or business.Paragraph (b) of this section describesproperty that is eligible for the exceptionprovided in paragraph (a)(2) of this sec-tion. Paragraph (c) of this section de-scribes property that is not eligible for theexception provided in paragraph (a)(2) of
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this section. Paragraph (d) of this sectionprovides general rules, and paragraphs (e)through (h) of this section provide specialrules, for determining whether property isused in the active conduct of a trade orbusiness outside of the United States.Paragraph (i) of this section is reserved.Paragraph (j) of this section provides re-lief for certain failures to comply with thereporting requirements under paragraph(a)(2)(iii) of this section that are not will-ful. Paragraph (k) of this section providesdates of applicability. The rules of thissection do not apply to a transfer of stockor securities in an exchange subject to§ 1.367(a)–3.
(2) General rule. Except as otherwiseprovided in §§ 1.367(a)–4, 1.367(a)–6,and 1.367(a)–7, section 367(a)(1) does notapply to property transferred by a UnitedStates person (U.S. transferor) to a foreigncorporation if—
(i) The property constitutes eligibleproperty;
(ii) The property is transferred for useby the foreign corporation in the activeconduct of a trade or business outside ofthe United States, as determined underparagraph (d), (e), (f), (g), or (h) of thissection, as applicable; and
(iii) The U.S. transferor complies withthe reporting requirements of section6038B and the regulations thereunder.
(b) Eligible property. Except as pro-vided in paragraph (c) of this section, el-igible property means—
(1) Tangible property;(2) A working interest in oil and gas
property; and(3) A financial asset. For purposes of
this section, a financial asset is—(i) A cash equivalent;(ii) A security within the meaning of
section 475(c)(2), without regard to thelast sentence of section 475(c)(2) (refer-encing section 1256) and without regardto section 475(c)(4), but excluding an in-terest in a partnership;
(iii) A commodities position describedin section 475(e)(2)(B), 475(e)(2)(C), or475(e)(2)(D); and
(iv) A notional principal contract de-scribed in § 1.446–3(c)(1).
(c) Exception for certain property.Notwithstanding paragraph (b) of this sec-tion, property described in paragraph
(c)(1), (2), (3), or (4) of this section doesnot constitute eligible property.
(1) Inventory. Stock in trade of thetaxpayer or other property of a kind whichwould properly be included in the inven-tory of the taxpayer if on hand at the closeof the taxable year, or property held by thetaxpayer primarily for sale to customers inthe ordinary course of its trade or business(including raw materials and supplies,partially completed goods, and finishedproducts).
(2) Installment obligations, etc. Install-ment obligations, accounts receivable, orsimilar property, but only to the extentthat the principal amount of any such ob-ligation has not previously been includedby the taxpayer in its taxable income.
(3) Nonfunctional currency, etc.—(i)In general. Property that gives rise to asection 988 transaction of the taxpayerdescribed in section 988(c)(1)(A) through(C), without regard to section 988(c)(1)(D) and (E), or that would give rise tosuch a section 988 transaction if it wereacquired, accrued, entered into, or dis-posed of directly by the taxpayer.
(ii) Limitation of gain required to berecognized. If section 367(a)(1) applies toa transfer of property described in para-graph (c)(3)(i) of this section, then thegain required to be recognized is limitedto the gain realized as part of the sametransaction upon the transfer of propertydescribed in paragraph (c)(3)(i) of thissection, less any loss realized as part ofthe same transaction upon the transfer ofproperty described in paragraph (c)(3)(i)of this section. This limitation applies inlieu of the rule in § 1.367(a)–1(b)(1). Noloss is recognized with respect to propertydescribed in this paragraph (c)(3).
(4) Certain leased tangible property.Tangible property with respect to whichthe transferor is a lessor at the time of thetransfer, unless either the foreign corporationis the lessee at the time of the transfer or theforeign corporation will lease the propertyto third persons.
(d) Active conduct of a trade or busi-ness outside the United States—(1) Ingeneral. Except as provided in paragraphs(e), (f), (g), and (h) of this section, todetermine whether property is transferredfor use by the foreign corporation in theactive conduct of a trade or business out-
side of the United States, four factual de-terminations must be made:
(i) What is the trade or business of theforeign corporation (see paragraph (d)(2)of this section);
(ii) Do the activities of the foreign cor-poration constitute the active conduct ofthat trade or business (see paragraph(d)(3) of this section);
(iii) Is the trade or business conductedoutside of the United States (see para-graph (d)(4) of this section); and
(iv) Is the transferred property used orheld for use in the trade or business (seeparagraph (d)(5) of this section)?
(2) Trade or business. Whether the ac-tivities of the foreign corporation consti-tute a trade or business is determinedbased on all the facts and circumstances.In general, a trade or business is a specificunified group of activities that constitute(or could constitute) an independent eco-nomic enterprise carried on for profit. Forexample, the activities of a foreign sellingsubsidiary could constitute a trade or busi-ness if they could be independently car-ried on for profit, even though the subsid-iary acts exclusively on behalf of, and hasoperations fully integrated with, its parentcorporation. To constitute a trade or busi-ness, a group of activities must ordinarilyinclude every operation which forms apart of, or a step in, a process by which anenterprise may earn income or profit. Inthis regard, one or more of such activitiesmay be carried on by independent con-tractors under the direct control of theforeign corporation. (However, see para-graph (d)(3) of this section.) The group ofactivities must ordinarily include the col-lection of income and the payment of ex-penses. If the activities of the foreign cor-poration do not constitute a trade orbusiness, then the exception provided bythis section does not apply, regardless ofthe level of activities carried on by thecorporation. The following activities arenot considered to constitute by themselvesa trade or business for purposes of thissection:
(i) Any activity giving rise to expensesthat would be deductible only under sec-tion 212 if the activities were carried onby an individual; or
(ii) The holding for one’s own accountof investments in stock, securities, land, or
January 17, 2017 Bulletin No. 2017–3398
other property, including casual salesthereof.
(3) Active conduct. Whether a trade orbusiness is actively conducted by the for-eign corporation is determined based onall the facts and circumstances. In general,a corporation actively conducts a trade orbusiness only if the officers and employ-ees of the corporation carry out substantialmanagerial and operational activities. Acorporation may be engaged in the activeconduct of a trade or business even thoughincidental activities of the trade or busi-ness are carried out on behalf of the cor-poration by independent contractors. Indetermining whether the officers and em-ployees of the corporation carry out sub-stantial managerial and operational activ-ities, however, the activities of independentcontractors are disregarded. On the otherhand, the officers and employees of thecorporation are considered to include theofficers and employees of related entitieswho are made available to and supervisedon a day-to-day basis by, and whose sal-aries are paid by (or reimbursed to thelending related entity by), the foreign cor-poration. See paragraph (d)(6) of this sec-tion for the standard that applies to deter-mine whether a trade or business thatproduces rents or royalties is actively con-ducted. The rule of this paragraph (d)(3) isillustrated by the following example.
Example. X, a domestic corporation,and Y, a foreign corporation not related toX, transfer property to Z, a newly formedforeign corporation organized for the pur-pose of combining the research activitiesof X and Y. Z contracts all of its opera-tional and research activities to Y for anarm’s-length fee. Z’s activities do not con-stitute the active conduct of a trade orbusiness.
(4) Outside of the United States. Whetherthe foreign corporation conducts a trade orbusiness outside of the United States isdetermined based on all the facts and cir-cumstances. Generally, the primary man-agerial and operational activities of thetrade or business must be conducted out-side the United States and immediatelyafter the transfer the transferred assetsmust be located outside the United States.Thus, the exception provided by this sec-tion would not apply to the transfer of theassets of a domestic business to a foreigncorporation if the domestic business con-
tinued to operate in the United States afterthe transfer. In such a case, the primaryoperational activities of the businesswould continue to be conducted in theUnited States. Moreover, the transferredassets would be located in the UnitedStates. However, it is not necessary thatevery item of property transferred be usedoutside of the United States. As long asthe primary managerial and operationalactivities of the trade or business are con-ducted outside of the United States andsubstantially all of the transferred assetsare located outside the United States, in-cidental items of transferred property lo-cated in the United States may be consid-ered to have been transferred for use in theactive conduct of a trade or business out-side of the United States.
(5) Use in the trade or business.Whether property is used or held for useby the foreign corporation in a trade orbusiness is determined based on all thefacts and circumstances. In general, prop-erty is used or held for use in the foreigncorporation’s trade or business if it is—
(i) Held for the principal purpose ofpromoting the present conduct of the tradeor business;
(ii) Acquired and held in the ordinarycourse of the trade or business; or
(iii) Otherwise held in a direct relation-ship to the trade or business. Property isconsidered held in a direct relationship toa trade or business if it is held to meet thepresent needs of that trade or business andnot its anticipated future needs. Thus,property will not be considered to be heldin a direct relationship to a trade or busi-ness if it is held for the purpose of pro-viding for future diversification into a newtrade or business, future expansion oftrade or business activities, future plantreplacement, or future business contin-gencies.
(6) Active leasing and licensing. Forpurposes of paragraph (d)(3) of this sec-tion, whether a trade or business that pro-duces rents or royalties is actively con-ducted is determined under the principlesof section 954(c)(2)(A) and the regula-tions thereunder, but without regard towhether the rents or royalties are receivedfrom an unrelated party. See §§ 1.954–2(c) and (d).
(e) Special rules for certain property tobe leased—(1) Leasing business of the
foreign corporation. Except as otherwiseprovided in this paragraph (e), tangibleproperty that will be leased to anotherperson by the foreign corporation will beconsidered to be transferred for use by theforeign corporation in an active trade orbusiness outside the United States onlyif—
(i) The foreign corporation’s leasing ofthe property constitutes the active conductof a leasing business, as determined underparagraph (d)(6) of this section;
(ii) The lessee of the property is notexpected to, and does not, use the propertyin the United States; and
(iii) The foreign corporation has a needfor substantial investment in assets of thetype transferred.
(2) De minimis leasing by the foreigncorporation. Tangible property that willbe leased to another person by the foreigncorporation but that does not satisfy theconditions of paragraph (e)(1) of this sec-tion will, nevertheless, be considered to betransferred for use in the active conduct ofa trade or business if either—
(i) The property transferred will beused by the foreign corporation in theactive conduct of a trade or business butwill be leased during occasional brief pe-riods when the property would otherwisebe idle, such as an airplane leased duringperiods of excess capacity; or
(ii) The property transferred is realproperty located outside the United Statesand—
(A) The property will be used primar-ily in the active conduct of a trade orbusiness of the foreign corporation; and
(B) Not more than ten percent of thesquare footage of the property will beleased to others.
(3) Aircraft and vessels leased in for-eign commerce. For purposes of satisfyingparagraph (e)(1) of this section, an aircraftor vessel, including component parts suchas an engine leased separately from theaircraft or vessel, that will be leased toanother person by the foreign corporationwill be considered to be transferred foruse in the active conduct of a trade orbusiness if—
(i) The employees of the foreign cor-poration perform substantial managerialand operational activities of leasing air-craft or vessels outside the United States;and
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(ii) The leased property is predomi-nantly used outside the United States, asdetermined under § 1.954–2(c)(2)(v).
(f) Special rules for oil and gas work-ing interests—(1) In general. A workinginterest in oil and gas property will beconsidered to be transferred for use in theactive conduct of a trade or business if—
(i) The transfer satisfies the conditionsof paragraph (f)(2) or (f)(3) of this sec-tion;
(ii) At the time of the transfer, theforeign corporation has no intention tofarm out or otherwise transfer any part ofthe transferred working interest; and
(iii) During the first three years afterthe transfer there are no farmouts or othertransfers of any part of the transferredworking interest as a result of which theforeign corporation retains less than a 50-percent share of the transferred workinginterest.
(2) Active use of working interest. Aworking interest in oil and gas propertythat satisfies the conditions in paragraphs(f)(1)(ii) and (iii) of this section will beconsidered to be transferred for use in theactive conduct of a trade or business if—
(i) The U.S. transferor is regularly andsubstantially engaged in exploration forand extraction of minerals, either directlyor through working interests in joint ven-tures, other than by reason of the propertythat is transferred;
(ii) The terms of the working interesttransferred were actively negotiatedamong the joint venturers;
(iii) The working interest transferredconstitutes at least a five percent workinginterest;
(iv) Before and at the time of the trans-fer, through its own employees or officers,the U.S. transferor was regularly and ac-tively engaged in—
(A) Operating the working interest, or(B) Analyzing technical data relating
to the activities of the venture;(v) Before and at the time of the trans-
fer, through its own employees or officers,the U.S. transferor was regularly and ac-tively involved in decision making withrespect to the operations of the venture,including decisions relating to explora-tion, development, production, and mar-keting; and
(vi) After the transfer, the foreign cor-poration will for the foreseeable future
satisfy the requirements of subparagraphs(iv) and (v) of this paragraph (f)(2).
(3) Start-up operations. A working in-terest in oil and gas property that satisfiesthe conditions in paragraphs (f)(1)(ii) and(iii) of this section but that does not satisfyall the requirements of paragraph (f)(2) ofthis section will, nevertheless, be consid-ered to be transferred for use in the activeconduct of a trade or business if—
(i) The working interest was acquiredby the U.S. transferor immediately beforethe transfer and for the specific purpose oftransferring it to the foreign corporation;
(ii) The requirements of paragraphs(f)(2)(ii) and (iii) of this section are satis-fied; and
(iii) The foreign corporation will forthe foreseeable future satisfy the require-ments of paragraph (f)(2)(iv) and (v) ofthis section.
(4) Other applicable rules. A workinginterest in oil and gas property that is notdescribed in paragraph (f)(1) of this sec-tion may nonetheless qualify for the ex-ception to section 367(a)(1) contained inthis section depending upon the facts andcircumstances.
(g) Property retransferred by theforeign corporation—(1) General rule.Property will not be considered to betransferred for use in the active conduct ofa trade or business outside of the UnitedStates if—
(i) At the time of the transfer, it isreasonable to believe that, in the reason-ably foreseeable future, the foreign corpo-ration will sell or otherwise dispose of anymaterial portion of the property other thanin the ordinary course of business; or
(ii) Except as provided in paragraph(g)(2) of this section, the foreign corpora-tion receives the property in an exchangedescribed in section 367(a)(1), and, as partof the same transaction, transfers the prop-erty to another person. For purposes of thepreceding sentence, a subsequent transferwithin six months of the initial transferwill be considered to be part of the sametransaction, and a subsequent transfermore than six months after the initialtransfer may be considered to be part ofthe same transaction under step-transactionprinciples.
(2) Exception. Notwithstanding para-graph (g)(1) of this section, the active
conduct exception provided by this sec-tion shall apply to the initial transfer if—
(i) The initial transfer is followed byone or more subsequent transfers de-scribed in section 351 or 721; and
(ii) Each subsequent transferee is eithera partnership in which the precedingtransferor is a general partner or a corpo-ration in which the preceding transferorowns common stock; and
(iii) The ultimate transferee uses theproperty in the active conduct of a trade orbusiness outside the United States.
(h) Compulsory transfers of property.Property is presumed to be transferred foruse in the active conduct of a trade orbusiness outside of the United States, if—
(1) The property was previously in usein the country in which the foreign corpo-ration is organized; and
(2) The transfer is either:(i) Legally required by the foreign gov-
ernment as a necessary condition of doingbusiness; or
(ii) Compelled by a genuine threat ofimmediate expropriation by the foreigngovernment.
(i) [Reserved].(j) Failure to comply with reporting
requirements of section 6038B—(1) Fail-ure to comply. For purposes of the excep-tion to the application of section 367(a)(1)provided in paragraph (a)(2) of this sec-tion, a failure to comply with the reportingrequirements of section 6038B and theregulations thereunder (failure to comply)has the meaning set forth in § 1.6038B–1(f)(2).
(2) Relief for certain failures to complythat are not willful—(i) In general. Afailure to comply described in paragraph(j)(1) of this section will be deemed not tohave occurred for purposes of satisfyingthe requirements of this section if the tax-payer demonstrates that the failure wasnot willful using the procedure set forth inthis paragraph (j)(2). For this purpose,willful is to be interpreted consistent withthe meaning of that term in the context ofother civil penalties, which would includea failure due to gross negligence, recklessdisregard, or willful neglect. Whether afailure to comply was a willful failure willbe determined by the Director of FieldOperations, Cross Border Activities Prac-tice Area, Large Business & International(or any successor to the roles and respon-
January 17, 2017 Bulletin No. 2017–3400
sibilities of such position, as appropriate)(Director) based on all the facts and cir-cumstances. The taxpayer must submit arequest for relief and an explanation asprovided in paragraph (j)(2)(ii)(A) of thissection. Although a taxpayer whose fail-ure to comply is determined not to bewillful will not be subject to gain recog-nition under this section, the taxpayer willbe subject to a penalty under section6038B if the taxpayer fails to demonstratethat the failure was due to reasonablecause and not willful neglect. See§ 1.6038B–1(b)(1) and (f). The determi-nation of whether the failure to complywas willful under this section has no ef-fect on any request for relief made under§ 1.6038B–1(f).
(ii) Procedures for establishing that afailure to comply was not willful—(A)Time and manner of submission. A tax-payer’s statement that the failure to com-ply was not willful will be consideredonly if, promptly after the taxpayer be-comes aware of the failure, an amendedreturn is filed for the taxable year to whichthe failure relates that includes the infor-mation that should have been includedwith the original return for such taxableyear or that otherwise complies with therules of this section, and that includes awritten statement explaining the reasonsfor the failure to comply. The amended
return must be filed with the Internal Rev-enue Service at the location where thetaxpayer filed its original return. The tax-payer may submit a request for relief fromthe penalty under section 6038B as part ofthe same submission. See § 1.6038B–1(f).
(B) Notice requirement. In addition tothe requirements of paragraph (j)(2)(ii)(A)of this section, the taxpayer must complywith the notice requirements of this para-graph (j)(2)(ii)(B). If any taxable year ofthe taxpayer is under examination whenthe amended return is filed, a copy of theamended return and any information re-quired to be included with such returnmust be delivered to the Internal RevenueService personnel conducting the exami-nation. If no taxable year of the taxpayeris under examination when the amendedreturn is filed, a copy of the amendedreturn and any information required to beincluded with such return must be deliv-ered to the Director.
(3) For illustrations of the applicationof the willfulness standard of this para-graph (j), see the examples in § 1.367(a)–8(p)(3).
(4) Paragraph (j) applies to requests forrelief submitted on or after November 19,2014.
(k) Effective/applicability dates—(1)In general. Except as provided in para-graphs (j)(4) and (k)(2) of this section, the
rules of this section apply to transfers oc-curring on or after September 14, 2015,and to transfers occurring before Septem-ber 14, 2015, resulting from entity classifi-cation elections made under § 301.7701–3that are filed on or after September 14, 2015.For transfers occurring before this section isapplicable, see §§ 1.367(a)–2, –2T, –4,–4T, –5, and –5T as contained in 26 CFRpart 1 revised as of April 1, 2016.
(2) Foreign currency exception. Not-withstanding paragraph (c)(3)(i) of thissection, § 1.367(a)–5T(d)(2) as containedin 26 CFR part 1 revised as of April 1,2016, applies to transfers of property de-nominated in a foreign currency occurringbefore December 16, 2016, other thantransfers occurring before that date result-ing from entity classification electionsmade under § 301.7701–3 that are filed onor after that date.
§ 1.367(a)–2T [Removed]
Par. 6. Section 1.367(a)–2T is re-moved.
§ 1.367(a)–3 [Amended]
Par. 7. For each section listed in thefollowing the table, remove the languagein the “Remove” column and add in itsplace the language in the “Add” column.
Section Remove Add
§ 1.367(a)–3(a)(3), first sentence § 1.367(a)–1T(c) § 1.367(a)–1(c)
§ 1.367(a)–3(c)(3)(i)(A) § 1.367(a)–2T(b)(2) and (3) § 1.367(a)–2(d)(2), (3), and (4)
§ 1.367(a)–3(c)(3)(ii)(B), last sentence § 1.367(a)–2T(b)(2) and (3) § 1.367(a)–2(d)(2) and (3)
§ 1.367(a)–3(c)(4)(i), last sentence § 1.367(a)–1T(c)(3) § 1.367(a)–1(c)(3)
§ 1.367(a)–3(c)(5)(iv), first sentence § 1.367(a)–1T(d)(1) § 1.367(a)–1(d)(1)
§ 1.367(a)–3(d)(3) Example 7A(ii), penultimate sentence § 1.367(a)–2T(a)(2) § 1.367(a)–2(a)(2)(iii)
§ 1.367(a)–3(d)(3) Example 13(i), penultimate sentence § 1.367(a)–2T(c)(2) § 1.367(a)–2(g)(2)
Par. 8. Section 1.367(a)–4 is revised toread as follows:
§ 1.367(a)–4 Special rule applicable toU.S. depreciated property.
(a) Depreciated property used in theUnited States—(1) In general. A U.S. per-son that transfers U.S. depreciated prop-erty (as defined in paragraph (a)(2) of thissection) to a foreign corporation in anexchange described in section 367(a)(1),
must include in its gross income for thetaxable year in which the transfer occursordinary income equal to the gain realizedthat would have been includible in thetransferor’s gross income as ordinary in-come under section 617(d)(1), 1245(a),1250(a), 1252(a), 1254(a), or 1255(a),whichever is applicable, if at the time ofthe transfer the U.S. person had sold theproperty at its fair market value. Recap-ture of depreciation under this paragraph(a) is required regardless of whether the
exception to section 367(a)(1) providedby § 1.367(a)–2(a)(2) applies to the trans-fer of the U.S. depreciated property. How-ever, the transfer of the U.S. depreciatedproperty may qualify for the exceptionwith respect to realized gain that is notincluded in ordinary income pursuant tothis paragraph (a).
(2) U.S. depreciated property. U.S.depreciated property subject to the rulesof this paragraph (a) is any propertythat—
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(i) Is either mining property (as definedin section 617(f)(2)), section 1245 prop-erty (as defined in section 1245(a)(3)),section 1250 property (as defined in sec-tion 1250(c)), farm land (as defined insection 1252(a)(2)), section 1254 property(as defined in section 1254(a)(3)), or sec-tion 126 property (as defined in section1255(a)(2)); and
(ii) Has been used in the United Statesor has been described in section 168(g)(4)before its transfer.
(3) Property used within and withoutthe United States. (i) If U.S. depreciatedproperty has been used partly within andpartly without the United States, then theamount required to be included in ordi-nary income pursuant to this paragraph (a)is reduced to an amount determined inaccordance with the following formula:
(ii) For purposes of the fraction in para-graph (a)(3)(i) of this section, the “fullrecapture amount” is the amount thatwould otherwise be included in the trans-feror’s income under paragraph (a)(1) ofthis section. “U.S. use” is the number ofmonths that the property either was usedwithin the United States or has been de-scribed in section 168(g)(4), and was sub-ject to depreciation by the transferor or arelated person. “Total use” is the totalnumber of months that the property wasused (or available for use), and subject todepreciation, by the transferor or a relatedperson. For purposes of this paragraph(a)(3), property is not considered to havebeen in use outside of the United Statesduring any period in which such propertywas, for purposes of section 168, treatedas property not used predominantly out-side the United States pursuant to section168(g)(4). For purposes of this paragraph(a)(3), the term “related person” has themeaning set forth in § 1.367(d)–1(h).
(b) Effective/applicability dates. Therules of this section apply to transfers oc-curring on or after September 14, 2015,and to transfers occurring before Septem-ber 14, 2015, resulting from entity classi-fication elections made under § 301.7701–3that are filed on or after September 14,2015. For transfers occurring before thissection is applicable, see §§ 1.367(a)–4and 1.367(a)–4T as contained in 26 CFRpart 1 revised as of April 1, 2016.
§ 1.367(a)–4T [Removed]
Par. 9. § 1.367(a)–4T is removed.
§ 1.367(a)–5 [Removed and Reserved]
Par. 10. Section 1.367(a)–5 is removedand reserved.
§ 1.367(a)–5T [Removed]
Par. 11. § 1.367(a)–5T is removed.Par. 12. Section 1.367(a)–6 is revised
to read as follows:
§ 1.367(a)–6 Transfer of foreign branchwith previously deducted losses.
(a) through (b)(1) [Reserved]. For fur-ther guidance, see § 1.367(a)–6T(a) through(b)(1).
(b)(2) No active conduct exception.The rules of this paragraph (b) apply re-gardless of whether any of the assets ofthe foreign branch satisfy the active tradeor business exception of § 1.367(a)–2(a)(2).
(c)(1) [Reserved]. For further guid-ance, see § 1.367(a)–6T(c)(1).
(2) Gain limitation. The gain requiredto be recognized under paragraph (b)(1) ofthis section will not exceed the aggregateamount of gain realized on the transfer ofall branch assets (without regard to thetransfer of any assets on which loss isrealized but not recognized).
(3) [Reserved].(4) Transfers of certain intangible prop-
erty. Gain realized on the transfer of intan-gible property (computed with referenceto the fair market value of the intangibleproperty as of the date of the transfer) thatis an asset of a foreign branch is taken intoaccount in computing the limitation onloss recapture under paragraph (c)(2) ofthis section. For rules relating to the cred-iting of gain recognized under this sectionagainst income deemed to arise by opera-tion of section 367(d), see § 1.367(d)–1(g)(3).
(d) through (i) [Reserved]. For furtherguidance, see § 1.367(a)–6T(d) through(i).
(j) Effective/applicability dates. Therules of this section apply to transfers oc-curring on or after September 14, 2015,and to transfers occurring before Septem-ber 14, 2015, resulting from entity classifi-
cation elections made under § 301.7701–3that are filed on or after September 14, 2015.For transfers occurring before this section isapplicable, see § 1.367(a)–6T as containedin 26 CFR part 1 revised as of April 1, 2016.
§ 1.367(a)–6T [Amended]
Par. 13. Section 1.367(a)–6T is amendedby
1. Removing and reserving paragraphs(b)(2), (c)(2), and (c)(4).
2. Adding and reserving paragraph (j).Par. 14. Section 1.367(a)–7 is amended
by:1. Revising paragraph (f)(11).2. Redesignating paragraph (j) as (j)(1)
and revising the first sentence, and addingparagraph (j)(2).
The revision and addition read as fol-lows:
§ 1.367(a)–7 Outbound transfers ofproperty described in section 361(a) or(b).
* * * * *(f) * * *(11) Section 367(d) property is intan-
gible property as defined in § 1.367(a)–1(d)(5).* * * * *
(j) Effective/applicability dates—(1) Ingeneral. Except for paragraph (e)(2) ofthis section, and as provided in paragraph(j)(2) of this section, this section applies totransfers occurring on or after April 18,2013. * * *
(2) Section 367(d) property. The defi-nition provided in paragraph (f)(11) ofthis section applies to transfers occurringon or after September 14, 2015, and totransfers occurring before September 14,2015, resulting from entity classificationelections made under § 301.7701–3 thatare filed on or after September 14, 2015.For transfers occurring before this sectionis applicable, see § 1.367(a)–7 as con-tained in 26 CFR part 1 revised as of April1, 2016.
§ 1.367(a)–7 [Amended]
Par. 15. For each section listed in thefollowing table, remove the language inthe “Remove” column and add in its placethe language in the “Add” column.
January 17, 2017 Bulletin No. 2017–3402
Section Remove Add
§ 1.367(a)–7(a), sixth sentence § 1.367(a)–6T § 1.367(a)–6
§ 1.367(a)–7(c), second sentence § 1.367(a)–2T § 1.367(a)–2
§ 1.367(a)–7(c), second sentence § 1.367(a)–4T, 1.367(a)–5T § 1.367(a)–4
§ 1.367(a)–7(c), second sentence § 1.367(a)–6T § 1.367(a)–6
§ 1.367(a)–7(c)(2)(i)(B) § 1.367(a)–6T § 1.367(a)–6
§ 1.367(a)–7(c)(2)(ii)(A)(2) § 1.367(a)–6T § 1.367(a)–6
§ 1.367(a)–7(e)(1), third sentence § 1.367(a)–2T § 1.367(a)–2
§ 1.367(a)–7(e)(1), third sentence § 1.367(a)–4T, 1.367(a)–5T § 1.367(a)–4
§ 1.367(a)–7(e)(1), third sentence § 1.367(a)–6T § 1.367(a)–6
§ 1.367(a)–7(e)(1), last sentence § 1.367(a)–1T(b)(4) and § 1.367(a)–1(b)(4)(i)(B) § 1.367(a)–1(b)(4)
§ 1.367(a)–7(e)(2)(i), third sentence Director of Field Operations International,Large Business & International
Director of Field Operations, CrossBorder Activities Practice Area ofLarge Business & International
§ 1.367(a)–7(e)(4)(ii), first andsecond sentences
§ 1.367(a)–6T § 1.367(a)–6
§ 1.367(a)–7(e)(5), heading § 1.367(a)–6T § 1.367(a)–6
§ 1.367(a)–7(e)(5)(i), first sentence § 1.367(a)–6T § 1.367(a)–6
§ 1.367(a)–7(e)(5)(ii), first sentence § 1.367(a)–6T § 1.367(a)–6
§ 1.367(a)–7(f)(4)(ii) § 1.367(a)–6T § 1.367(a)–6
§ 1.367(a)–7(g), last sentence § 1.367(a)–2T § 1.367(a)–2
§ 1.367(a)–7(g), Example 1 (ii)(A),last sentence
§ 1.367(a)–2T § 1.367(a)–2
§ 1.367(a)–7(g), Example 2 (ii)(A),last sentence
§ 1.367(a)–2T § 1.367(a)–2
§ 1.367(a)–7(h), first sentence § 1.367(a)–1(b)(4)(i)(B) and § 1.367(a)–1T(b)(4) § 1.367(a)–1(b)(4)
§ 1.367(a)–8 [Amended]
Par. 16. For each section listed inthe following table, remove the lan-
guage in the “Remove” column and addin its place the language in the “Add”column.
Section Remove Add
§ 1.367(a)–8(b)(1)(xvii), first sentence § 1.367(a)–1T(d)(1) § 1.367(a)–1(d)(1)
§ 1.367(a)–8(b)(1)(xvii), second sentence § 1.367(a)–1T(c)(3)(i) § 1.367(a)–1(c)(3)(i)
§ 1.367(a)–8(c)(3)(viii) § 1.367(a)–1T(c)(3)(i) § 1.367(a)–1(c)(3)(i
§ 1.367(a)–8(c)(3)(viii) § 1.367(a)–1T(c)(3)(ii) § 1.367(a)–1(c)(3)(ii)
§ 1.367(a)–8(c)(4)(iv), second sentence § 1.367(a)–1T(b)(4) § 1.367(a)–1(b)(4)
§ 1.367(a)–8(j)(3) § 1.367(a)–1T(c)(3)(ii) § 1.367(a)–1(c)(3)(ii)
§ 1.367(a)–8(j)(8), second sentence Director of Field Operations International,Large Business & International
Director of Field Operations, CrossBorder Activities Practice Area ofLarge Business & International
Par. 17. Section 1.367(d)–1 is added toread as follows:
§ 1.367(d)–1 Transfers of intangibleproperty to foreign corporations.
(a) [Reserved]. For further guidance,see § 1.367(d)–1T(a).
(b) Property subject to section 367(d).Section 367(d) and the rules of this sec-tion apply to the transfer of intangibleproperty, as defined in § 1.367(a)–1(d)(5),by a U.S. person to a foreign corporationin an exchange described in section 351 or361. See section 367(a) and the regula-tions thereunder for the rules that apply to
the transfer of any property other thanintangible property.
(c)(1) through (2) [Reserved]. For fur-ther guidance, see § 1.367(d)–1T(c)(1)and (2).
(3) Useful life—(i) In general. For pur-poses of determining the period of inclu-sions for deemed payments under § 1.367
Bulletin No. 2017–3 January 17, 2017403
(d)–1T(c)(1), the useful life of intangibleproperty is the entire period during whichexploitation of the intangible property isreasonably anticipated to affect the deter-mination of taxable income, as of the timeof transfer. Exploitation of intangibleproperty includes any direct or indirectuse or transfer of the intangible property,including use without further develop-ment, use in the further development ofthe intangible property itself (and any ex-ploitation of the further developed intan-gible property), and use in the develop-ment of other intangible property (and anyexploitation of the other developed intan-gible property).
(ii) Procedure to limit inclusions to 20years. In cases where the useful life of thetransferred property is indefinite or is rea-sonably anticipated to exceed twentyyears, taxpayers may, in lieu of includingamounts during the entire useful life of theintangible property, choose in the year oftransfer to increase annual inclusions dur-ing the 20-year period beginning with thefirst year in which the U.S transferor takesinto account income pursuant to section367(d), to reflect amounts that, but for thisparagraph (c)(3)(ii), would have been re-quired to be included following the end ofthe 20-year period. See § 1.6038B–1(d)(1)(iv) for guidance on reporting thischoice of method. If the taxpayer appliesthis method during the 20-year period, noadjustments will be made for taxableyears beginning after the conclusion of the20-year period. However, for purposes ofdetermining whether amounts includedduring the 20-year period are commensu-rate with the income attributable to thetransferred intangible property, the Com-missioner may take into account informa-tion with respect to taxable years after thatperiod, such as the income attributable tothe transferred property during those lateryears. The application of this paragraph(c)(3)(ii) must be reflected in a statement(titled “Application of 20-Year InclusionPeriod to Section 367(d) Transfers”) at-tached to a timely filed original federalincome tax return (including extensions)for the year of the transfer. An increase tothe deemed payment rate made pursuantto this paragraph (c)(3)(ii) will be irrevo-cable, and a failure to timely file the state-ment under this paragraph (c)(3)(ii) maynot be remedied.
(iii) Example. Property subject to sec-tion 367(d) is transferred from USP, adomestic corporation, to FA, a foreigncorporation wholly owned by USP. Theuseful life of the transferred property, in-clusive of derivative works, at the time oftransfer is indefinite but is reasonably an-ticipated to exceed 20 years. In the firstfive years following the transfer, sales re-lated to the property are expected to be$100x, $130x, $160x, $180x and $187.2x,respectively. Thereafter, for the remainderof the property’s useful life, sales are ex-pected to grow by four percent annually.In the first five years following the trans-fer, operating profits attributable to theproperty are expected to be $5x, $8x,$11x, $12.5x, and $13x, respectively.Thereafter, for the remainder of the prop-erty’s useful life, operating profits are ex-pected to grow by four percent annually. Itis determined that the appropriate dis-count rate for sales and operating profits is10 percent. The present value of operatingprofits through the property’s indefiniteuseful life is $185x. The present value ofsales through the property’s indefiniteuseful life is $2698x. Accordingly, thesales based royalty rate during the prop-erty’s useful life is 6.8 percent ($185x/$2698x). The taxpayer may choose to takeincome inclusions into account over a 20-year period. The present value of salesthrough the 20-year period is $1787x. Ac-cordingly, the sales based royalty rate un-der the 20-year option is increased to 10.3percent ($185x/$1787x).
(c)(4) through (g)(2) (introductorytext) [Reserved]. For further guidance, see§ 1.367(d)–1T(c)(4) through (g)(2) (intro-ductory text).
(g)(2)(i) The intangible property trans-ferred constitutes an operating intangible,as defined in § 1.367(a)–1(d)(6).
(g)(2)(ii) through (iii)(D) [Reserved].For further guidance, see § 1.367(d)–1T(g)(2)(ii) through (iii)(D).
(E) The transferred intangible propertywill be used in the active conduct of atrade or business outside of the UnitedStates within the meaning of § 1.367(a)–2and will not be used in connection withthe manufacture or sale of products in orfor use or consumption in the UnitedStates.
(g)(2)(iii) undesignated concludingparagraph [Reserved]. For further guid-
ance, see § 1.367(d)–1T(g)(2)(iii) undes-ignated concluding paragraph.
(3) Intangible property transferredfrom branch with previously deductedlosses. (i) If income is required to be rec-ognized under section 904(f)(3) and theregulations thereunder or under § 1.367(a)–6 upon the transfer of intangible prop-erty of a foreign branch that had previ-ously deducted losses, then the incomerecognized under those sections with re-spect to that property is credited againstamounts that would otherwise be requiredto be recognized with respect to that sameproperty under paragraphs (c) through (f)of this section in either the current orfuture taxable years. The amount recog-nized under section 904(f)(3) or§ 1.367(a)–6 with respect to the trans-ferred intangible property is determined inaccordance with the following formula:
(ii) For purposes of the formula inparagraph (g)(3)(i) of this section, the“loss recapture income” is the totalamount required to be recognized by theU.S. transferor pursuant to section 904(f)(3) or § 1.367(a)–6. The “gain from in-tangible property” is the total amount ofgain realized by the U.S. transferor pursu-ant to section 904(f)(3) and § 1.367(a)–6upon the transfer of items of property thatare subject to section 367(d). “Gain fromintangible property” does not include gainrealized with respect to intangible prop-erty by reason of an election under para-graph (g)(2) of this section. The “gainfrom all branch assets” is the total amountof gain realized by the transferor upon thetransfer of items of property of the branchfor which gain is realized.
(g)(4) through (i) [Reserved]. For fur-ther guidance, see § 1.367(d)–1T(g)(4)through (i).
(j) Effective/applicability dates. Thissection applies to transfers occurring on orafter September 14, 2015, and to transfersoccurring before September 14, 2015, re-sulting from entity classification electionsmade under § 301.7701–3 that are filedon or after September 14, 2015. Fortransfers occurring before this section isapplicable, see § 1.367(d)–1T as con-tained in 26 CFR part 1 revised as ofApril 1, 2016.
January 17, 2017 Bulletin No. 2017–3404
§ 1.367(d)–1T [Amended]
Par. 18. Section 1.367(d)–1T isamended by removing and reserving para-graphs (b), (c)(3), and (g)(2)(i), (g)(2)(iii)(E), and (g)(3).
Par. 19. Section 1.367(e)–2 is amendedby
1. Revising paragraph (b)(3)(iii).2. Revising paragraph (e)(4)(ii)(B).The revisions read as follows.
§ 1.367(e)–2 Distributions described insection 367(e)(2).
* * * * *(b) * * *(3) * * *(iii) Other rules. For other rules that
may apply, see sections 381, 897, 1248,and § 1.482–1(f)(2)(i)(C).* * * * *
(e) * * *(4) * * *(ii) * * *(B) The period of limitations on assess-
ment of tax for the taxable year in whichgain is required to be reported will beextended until the close of the third fulltaxable year ending after the date onwhich the domestic liquidating corpora-tion, foreign distributee corporation, orforeign liquidating corporation, as appli-cable, furnishes to the Director of FieldOperations, Cross Border Activities Prac-tice Area of Large Business & Interna-tional (or any successor to the roles andresponsibilities of such position, as appro-priate) (Director) the information thatshould have been provided under this sec-tion.* * * * *
§ 1.884–5 [Amended]
Par. 20. Section 1.884–5 is amended inparagraph (e)(3)(ii)(A) by removing thecitation “§ 1.367(a)–2T(b)(5),” and add-ing the citation “§ 1.367(a)–2(d)(5)” in itsplace.
§ 1.1248–8 [Amended]
Par. 21. Section 1.1248–8 is amendedin paragraph (b)(2)(iv)(B)(1)(ii) by re-moving the citation “§§ 1.367(a)–6T,”and adding the citation “§ 1.367(a)–6” inits place.
§ 1.1248(f)–2 [Amended]
Par. 22. Section 1.1248(f)–2 isamended in the last sentence of paragraph(e) by removing the citation “§ 1.367(a)–2T,” and adding the citation “§ 1.367(a)–2” in its place.
Par. 23. Section 1.6038B–1 is amendedby:
1. Removing the citation “§ 1.367(a)–1T(c),” in the fourth sentence of para-graph (b)(1)(i) and adding the citation“§ 1.367(a)–1(c)” in its place.
2. Revising paragraphs (c)(1) through(5) and (d).
3. Revising the first sentence of para-graph (g)(1).
4. Adding paragraph (g)(7).The additions and revision read as fol-
lows:
§ 1.6038B–1 Reporting of certaintransfers to foreign corporations.
* * * * *(c) * * *(1) through (4) introductory text [Re-
served]. For further guidance, see § 1.6038B–1T(c)(1) through (4) introductory text.
(i) Active business property. Describeany transferred property that qualifies un-der § 1.367(a)–2(a)(2). Provide here ageneral description of the business con-ducted (or to be conducted) by the trans-feree, including the location of the busi-ness, the number of its employees, thenature of the business, and copies of themost recently prepared balance sheet andprofit and loss statement. Property listedwithin this category may be identified bygeneral type. For example, upon the trans-fer of the assets of a manufacturing oper-ation, a reasonable description of theproperty to be used in the business mightinclude the categories of office equipmentand supplies, computers and relatedequipment, motor vehicles, and severalmajor categories of manufacturing equip-ment. However, any property that is in-cludible in both paragraphs (c)(4)(i) and(iii) of this section (property subject todepreciation recapture under § 1.367(a)–4(a)) must be identified in the mannerrequired in paragraph (c)(4)(iii) of thissection. If property is considered to betransferred for use in the active conduct ofa trade or business under a special rule in
paragraph (e), (f), or (g) of § 1.367(a)–2,specify the applicable rule and provideinformation supporting the application ofthe rule.
(ii) Stock or securities. Describe anytransferred stock or securities, includingthe class or type, amount, and character-istics of the transferred stock or securities,as well as the name, address, place ofincorporation, and general description ofthe corporation issuing the stock or secu-rities.
(iii) Depreciated property. Describeany property that is subject to depreciationrecapture under § 1.367(a)–4(a). Propertywithin this category must be separatelyidentified to the same extent as was re-quired for purposes of the previouslyclaimed depreciation deduction. Specifywith respect to each such asset the rele-vant recapture provision, the number ofmonths that such property was in usewithin the United States, the total numberof months the property was in use, the fairmarket value of the property, a scheduleof the depreciation deduction taken withrespect to the property, and a calculationof the amount of depreciation required tobe recaptured.
(iv) Property not transferred for use inthe active conduct of a trade or business.Describe any property that is eligibleproperty, as defined in § 1.367(a)–2(b)taking into account the application of§ 1.367(a)–2(c), that was transferred tothe foreign corporation but not for use inthe active conduct of a trade or businessoutside the United States (and was there-fore not listed under paragraph (c)(4)(i) ofthis section).
(v) Property transferred under com-pulsion. If property qualifies for the ex-ception of § 1.367(a)–2(a)(2) under therules of paragraph (h) of that section, pro-vide information supporting the claimedapplication of such exception.
(vi) Certain ineligible property. De-scribe any property that is described in§ 1.367(a)–2(c) and that therefore cannotqualify under § 1.367(a)–2(a)(2) regard-less of its use in the active conduct of atrade or business outside of the UnitedStates. The description must be dividedinto the relevant categories, as follows:
(A) Inventory, etc. Property describedin § 1.367(a)–2(c)(1);
Bulletin No. 2017–3 January 17, 2017405
(B) Installment obligations, etc. Prop-erty described in § 1.367(a)–2(c)(2);
(C) Foreign currency, etc. Propertydescribed in § 1.367(a)–2(c)(3); and
(D) Leased property. Property de-scribed in § 1.367(a)–2(c)(4).
(vii) Other property that is ineligibleproperty. Describe any property, otherthan property described in § 1.367(a)–2(c), that cannot qualify under § 1.367(a)–2(a)(2) regardless of its use in the activeconduct of a trade or business outside ofthe United States and that is not subject tothe rules of section 367(d) under§ 1.367(a)–1(b)(5) (treatment of certainproperty as subject to section 367(d)).Each item of property must be separatelyidentified.
(viii) [Reserved]. For further guidance,see § 1.6038B–1T(c)(4)(viii).
(5) Transfer of foreign branch withpreviously deducted losses. If the propertytransferred is property of a foreign branchwith previously deducted losses subject to§§ 1.367(a)–6 and –6T, provide the fol-lowing information:
(i) through (iv) [Reserved]. For furtherinformation, see § 1.6038B–1T(c)(5)(i)through (iv).* * * * *
(d)(1) through (1)(iii) [Reserved]. Forfurther guidance, see § 1.6038B–1T(d)(1)through (1)(iii).
(iv) Intangible property transferred.Provide a description of the intangibleproperty transferred, including its ad-justed basis. Generally, each item of in-tangible property must be separately iden-tified, including intangible propertydescribed in § 1.367(d)–1(g)(2)(i). Iden-tify all property that is subject to the rulesof section 367(d) under § 1.367(a)–1(b)(5)(treatment of certain property as subject tosection 367(d)). Describe any property forwhich the income required to be takeninto account under section 367(d) and theregulations thereunder will be recognizedover a 20-year period pursuant to§ 1.367(d)–1(c)(3)(ii). Estimate the antic-ipated income or cost reductions attribut-able to the intangible property’s use be-yond the 20-year period.
(v)–(vi) [Reserved]. For further guid-ance, see § 1.6038B–1T(d)(1)(v) through(1)(vi).
(vii) Coordination with loss rules. Listany intangible property subject to section
367(d) the transfer of which also givesrise to the recognition of gain under sec-tion 904(f)(3) or §§ 1.367(a)–6 or –6T.Provide a calculation of the gain requiredto be recognized with respect to suchproperty, in accordance with the provi-sions of § 1.367(d)–1(g)(3).
(d)(1)(viii) through (d)(2) [Reserved].For further guidance, see § 1.6038B–1T(d)(1)(viii) through (d)(2).* * * * *
(g) Effective/applicability dates. (1)This section applies to transfers occurringon or after July 20, 1998, except as pro-vided in paragraphs (g)(2) through (g)(7)of this section, and except for transfers ofcash made in tax years beginning on orbefore February 5, 1999 (which are notrequired to be reported under section6038B), and transfers described in para-graph (e) of this section (which applies totransfers that are subject to §§ 1.367(e)–1(f) and 1.367(e)–2(e)). * * ** * * * *
(7) Paragraphs (c)(4)(i) through (vii),(c)(5), and (d)(1)(iv) and (vii) of this sec-tion apply to transfers occurring on orafter September 14, 2015, and to transfersoccurring before September 14, 2015, re-sulting from entity classification electionsmade under § 301.7701–3 that are filed onor after September 14, 2015. For guidancewith respect to paragraphs (c)(4), (c)(5),and (d)(1) of this section before this sec-tion is applicable, see §§ 1.6038B–1 and1.6038B–1T as contained in 26 CFR part1 revised as of April 1, 2016.
Par. 24. Section 1.6038B–1T isamended by removing and reserving para-graphs (c)(4)(i) through (c)(5) introduc-tory text, and (d)(1)(iv) and (vii).
John DalrympleDeputy Commissioner for
Services and Enforcement.
Approved: November 23, 2016
Mark J. MazurAssistant Secretary of the
Treasury (Tax Policy).
(Filed by the Office of the Federal Register on December 15,2016, at 8:45 a.m., and published in the issue of the FederalRegister for December 16, 2016, 81 F.R. 91092)
26 CFR 1.36B–1
DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Parts 1 and 301
T.D. 9804
Premium Tax CreditRegulation VI
AGENCY: Internal Revenue Service (IRS),Treasury.
ACTION: Final Regulations.
SUMMARY: This document contains fi-nal regulations relating to the health insur-ance premium tax credit (premium taxcredit). These final regulations affect in-dividuals who enroll in qualified healthplans through Health Insurance Ex-changes (Exchanges, also called Market-places) and claim the premium tax credit,and Exchanges that make qualified healthplans available to individuals and employ-ers. These final regulations also affect in-dividuals who are eligible for employer-sponsored health coverage.
DATES: Effective Date: These regula-tions are effective December 19, 2016.
Applicability Date: For dates of appli-cability, see §§ 1.36B–1(o), 1.36B–2(e),1.36B–3(n), 1.36B–5(h), and 1.6011–8(b).
FOR FURTHER INFORMATION CON-TACT: Steve Toomey at (202) 317-4735,Shareen Pflanz at (202) 317-4727, or LisaMojiri-Azad at (202) 317-4649 (not toll-free calls).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-tained in these final regulations has beenreviewed and approved by the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act of1995 (44 U.S.C. 3507(d)) under controlnumber 1545-2232.
The collection of information in theseregulations is in § 1.36B–5. The collectionof information is necessary to reconcileadvance payments of the premium taxcredit and determine the allowable pre-
January 17, 2017 Bulletin No. 2017–3406
mium tax credit. The collection of infor-mation is required to comply with theprovisions of section 36B of the InternalRevenue Code (Code). The likely respon-dents are Marketplaces that enroll individ-uals in qualified health plans.
The burden for the collection of infor-mation contained in these regulations willbe reflected in the burden estimate forForm 1095–A, Health Insurance Market-place Statement, which is the form that theMarketplace will use to submit the infor-mation described in the final regulations.
An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information un-less it displays a valid control numberassigned by the Office of Managementand Budget.
Background
This document contains final regula-tions amending the Income Tax Regula-tions (26 CFR part 1) under section 36Brelating to the health insurance premiumtax credit. Section 36B was enacted by thePatient Protection and Affordable CareAct, Public Law 111–148 (124 Stat. 119(2010)), and the Health Care and Educa-tion Reconciliation Act of 2010, PublicLaw 111–152 (124 Stat. 1029 (2010))(collectively, the Affordable Care Act).Final regulations under section 36B (TD9590) were published on May 23, 2012(77 FR 30,385). These regulations wereamended in 2014 by TD 9663, publishedon May 7, 2014 (79 FR 26,117), and in2015 by TD 9745, published December18, 2015 (80 FR 78,974). On July 8, 2016,a notice of proposed rulemaking (REG–109086–15) was published in the FederalRegister (81 FR 44,557). Written com-ments responding to the proposed regula-tions were received. The comments havebeen considered in connection with thesefinal regulations and are available for pub-lic inspection at www.regulations.gov oron request. No public hearing was re-quested or held. After consideration of allthe comments, the proposed regulationsare adopted, in part, as amended by thisTreasury decision. The rules proposed un-
der REG–109086–15 on the effect of opt-out arrangements on an employee’s re-quired contribution for employer-sponsored coverage have been reservedand the Treasury Department and the IRSexpect to finalize those regulations sepa-rately (see, section 1.d of this preamble).
Summary of Comments andExplanation of Provisions
1. Eligibility
a. Applicable taxpayers
A taxpayer is eligible for a premiumtax credit only if the taxpayer is an appli-cable taxpayer. To be an applicable tax-payer, a taxpayer’s household incomegenerally must be between 100 percentand 400 percent of the Federal povertyline (FPL) for the taxpayer’s family size.The existing regulations in § 1.36B–2(b)(6) allow a taxpayer whose householdincome is below 100 percent of the appli-cable FPL to be treated as an applicabletaxpayer if (1) the taxpayer or a familymember enrolls in a qualified health plan,(2) an Exchange estimates at the time ofenrollment that the taxpayer’s householdincome for the taxable year will be be-tween 100 and 400 percent of the appli-cable FPL, (3) advance credit paymentsare authorized and paid for one or moremonths during the taxable year, and (4)the taxpayer would be an applicable tax-payer but for the fact that the taxpayer’shousehold income for the taxable year isbelow 100 percent of the applicable FPL.
An applicable taxpayer is allowed apremium tax credit for a month only if oneor more members of the applicable tax-payer’s family is enrolled in one or morequalified health plans through an Ex-change and is not eligible for minimumessential coverage in that month. Section36B(c)(2), § 1.36B–2(a). In general,government-sponsored programs are min-imum essential coverage. Section 1.36B–2(c)(1). Under § 1.36B–2(c)(2)(v), an in-dividual is treated as not eligible forMedicaid, the Children’s Health InsuranceProgram (CHIP), or a similar program fora period of coverage under a qualified
health plan if, when the individual enrollsin the qualified health plan, an Exchangedetermines or considers (within the mean-ing of 45 CFR 155.302(b)) the individualto be ineligible for such program.
In addition, coverage under an eligibleemployer-sponsored plan is generallyminimum essential coverage.1 However,an individual who may (but does not) en-roll in an employer-sponsored plan is gen-erally considered eligible for that planonly if the plan is considered affordableand provides minimum value. Section36B(c)(2)(C), § 1.36B–2(c)(3). In addi-tion, under the employee safe harbor in§ 1.36B–2(c)(3)(v)(A)(3), an employer-sponsored plan is not considered afford-able for a plan year if, when the employeeor a related individual enrolls in a quali-fied health plan for a period coincidingwith the plan year, an Exchange deter-mines that the employer-sponsored plan isnot affordable for that plan year.
The existing regulations describing theemployee safe harbor contain an excep-tion for reckless disregard for the facts.Under the exception, the safe harbor doesnot apply in situations in which an Ex-change determines that an individual isnot eligible for affordable employer-sponsored coverage because an individ-ual, with reckless disregard of the facts,provides incorrect information to the Ex-change regarding affordability of the plan.
The proposed regulations add two ad-ditional intentional or reckless disregardexceptions to provisions regarding eligi-bility determinations by the Exchanges.First, to reduce the likelihood that individ-uals who recklessly or intentionally pro-vide inaccurate information to an Ex-change will benefit from the rule in§ 1.36B–2(b)(6) (regarding an Exchangedetermination that the taxpayer’s house-hold income for the taxable year will bebetween 100 and 400 percent of the ap-plicable FPL), the proposed regulationsprovide that a taxpayer whose householdincome is below 100 percent of the appli-cable FPL for the taxpayer’s family sizedoes not receive the benefit of that rule if,with intentional or reckless disregard forthe facts, the taxpayer provided incorrect
1In general, an eligible employer-sponsored plan is coverage provided by an employer to its employees (and their dependents) under a group health plan maintained by the employer. Seesection 5000A(f)(2) and § 1.5000A–2(c). Under section 5000A(f)(3) and § 1.5000A–2(g), minimum essential coverage does not include any coverage that consists solely of excepted benefitsdescribed in section 2791(c)(1), (c)(2), (c)(3), or (c)(4) of the Public Health Service Act (PHS Act) (42 U.S.C. 300gg–91(c)), or regulations issued under those provisions (45 CFR 148.220).In general, excepted benefits are benefits that are limited in scope or are conditional.
Bulletin No. 2017–3 January 17, 2017407
information to an Exchange for the year ofcoverage.
Second, the proposed regulations pro-vide that an individual who was deter-mined or considered by an Exchange to beineligible for Medicaid, CHIP, or a similarprogram (such as a Basic Health Program)does not receive the benefit of the rule in§ 1.36B–2(c)(2)(v) (regarding an Ex-change determination that an individualwas not eligible for coverage under Med-icaid, CHIP, or a similar program) if, withintentional or reckless disregard for thefacts, the individual (or a person claiminga personal exemption for the individual)provided incorrect information to an Ex-change for the year of coverage.
In each of the three instances in theexisting and proposed section 36B regu-lations where an intentional or recklessdisregard for the facts exception is pro-vided, the proposed regulations clarifythat a reckless disregard of the facts oc-curs if the taxpayer makes little or noeffort to determine whether the informa-tion provided to the Exchange is accurateunder circumstances that demonstrate asubstantial deviation from the standard ofconduct a reasonable person would ob-serve. The proposed regulations also pro-vide that a disregard of the facts is inten-tional if the taxpayer knows theinformation provided to the Exchange isinaccurate.
Commenters asked that the final regu-lations clarify how the IRS will determinewhether an individual has acted with reck-less or intentional disregard of the facts,and how these standards will be appliedand enforced. Some commenters re-quested that the final regulations clarifythe definition of “reckless disregard” andprovide examples. Other commenters ex-pressed concern that the proposed rulewould make taxpayers responsible for in-formation provided by third parties whoprovide assistance with enrollment. Thus,the commenters recommended that the fi-nal regulations clarify that an individual isonly responsible for information he or sheprovides to the Exchange and is not re-sponsible for information provided bythird parties. The commenters also sug-gested that the final regulations providethat individuals who use an expert to as-sist with enrolling in coverage should notbe considered to have acted recklessly
when relying on the expert’s professionaladvice. Other commenters requested thatthe final regulations require that individu-als be notified of the consequences of po-tential income-based eligibility fraud.
A commenter also stated that, underthe final regulations, the IRS should havethe burden of showing that a taxpayer’sincorrect information was provided to theExchange with intentional or reckless dis-regard for the facts. One commenter sug-gested that the final regulations clarifythat the reckless or intentional disregardfor the facts exceptions will be applied onan individual basis. In addition, the com-menter asked that the final regulations ad-dress how the intentional or reckless dis-regard for the facts exception, as it appliesto the employee safe harbor in § 1.36B–2(c)(3)(v)(A)(3), will be implemented bythe Exchanges.
Finally, one commenter requested thatthe final regulations not adopt the inten-tional or reckless disregard for the factsexceptions.
After careful consideration of the com-ments received, the final regulations adoptthe intentional or reckless disregard forthe facts exception, and the definition ofits terms, to the section 36B eligibilitysafe harbors for household income below100 percent of the FPL, government pro-grams such as Medicaid, and employer-sponsored coverage. As clarified in theproposed and final regulations, the inten-tional or reckless disregard for the factsexception applies only when the taxpayerknowingly provides inaccurate informa-tion to the Exchange or makes little or noeffort to determine whether the informa-tion provided is accurate under circum-stances that demonstrate a substantial de-viation from the standard of conduct of areasonable person. The commenters’ con-cerns are further addressed in this preamble.
These final regulations, in adopting theintentional or reckless disregard for thefacts exceptions set forth in the proposedregulations without modification, do notcreate new or heightened standards orrules for determining whether a taxpayeracted with intentional or reckless disre-gard for the facts. Rather, the phrase “in-tentional or reckless disregard for thefacts” as used in the section 36B regula-tions has a similar meaning and applica-tion currently used in other areas of the
Code. For example, an intentional or reck-less disregard standard also is applied indetermining eligibility for other tax cred-its such as the earned income tax creditand the American opportunity tax credit,see sections 32(k) and 25A(i)(7)(A).
The IRS is responsible for enforcementof the intentional or reckless disregard forthe facts exceptions during an examina-tion of a taxpayer’s tax return. Thus, theIRS must make the initial showing of factsdemonstrating intentional or reckless be-havior. Exchanges have no role in enforc-ing or implementing this standard, al-though other provisions of law provideExchanges the authority to impose penal-ties on individuals who provide incorrectinformation to an Exchange.
To provide additional clarity, in gen-eral, the intentional or reckless disregardfor the facts exception only applies to theconduct of the individual attesting to theExchange. Thus, an individual is only re-sponsible for the information that he orshe provides to the Exchange and is notliable for inaccurate information providedby third parties, such as an employer.
An individual’s attestations, however,may affect the eligibility of all individualswho are listed on a Marketplace Applica-tion for Health Coverage and who thetaxpayer intends at the time of enrollmentto claim as a dependent. For example, if ataxpayer, with intentional or reckless dis-regard for the facts, provides incorrectinformation to an Exchange concerninghis household income and receives ad-vance credit payments for coverage ofhimself and his three dependents, and hisactual household income is below 100%of the applicable FPL, then the taxpayer isnot an applicable taxpayer and a premiumtax credit is not allowed for his coverageor the coverage of his three dependents.
Similarly, many individuals solicit andreceive assistance with enrollment andcompleting the Marketplace Applicationfor Health Coverage. To ensure effectiveand efficient enrollment through the Ex-change, the Department of Health and Hu-man Services uses Navigators, as de-scribed at 45 CFR 155.210, to assistpotential applicants. In addition, the Mar-ketplaces administer a program for indi-viduals and entities to apply for and re-ceive recognition as a certified applicationcounselor, as defined in 45 CFR 155.225,
January 17, 2017 Bulletin No. 2017–3408
who may formally offer and provide en-rollment assistance to individuals andsmall businesses. Finally, 45 CFR155.220 provides standards under whichagents and brokers may register and facil-itate enrollments through the Market-places. Navigators, certified applicationcounselors, agents, and brokers (collec-tively, authorized advisors) receive com-prehensive training on enrollment andcompletion of a Marketplace Applicationfor Health Coverage, and individuals areencouraged to use them when making en-rollment and advance credit payment de-cisions. Accordingly, for purposes of thefinal regulations, an individual does notact recklessly when following the adviceof an authorized advisor, so long as theindividual provided the authorized advisorwith necessary and accurate information.Whether reliance on advice provided by aperson other than an authorized advisor isreckless will depend on all of the relevantfacts and circumstances, including whetherreliance was reasonable and whether thetaxpayer provided necessary and accurateinformation to the other person.
To illustrate, assume Individual D istold by a Navigator that the child supportpayments D receives from her formerspouse are included in her household in-come in determining whether she is eligi-ble for advance credit payments. Relyingon that information, D reports on a Mar-ketplace Application for Health Coveragethat her household income for the year ofcoverage will be over 100 percent of theapplicable FPL for D’s family size, and Dreceives the benefit of advance credit pay-ments for the year. When filing her taxreturn for the year of coverage, D learnsthat child support payments are not in-cluded in her household income for theyear of coverage and, thus, her householdincome is actually under 100 percent ofthe applicable FPL. D is not considered tohave acted with intentional or recklessdisregard for the facts because she reliedon the advice of a Navigator in providingthe information that the Marketplace usedto determine whether she was eligible foradvance credit payments. Thus, the provi-sion in § 1.36B–2(b)(6) that allows a tax-
payer whose household income is below100 percent of the applicable FPL to betreated as an applicable taxpayer will ap-ply to D despite the fact that her house-hold income for the taxable year is below100 percent of the applicable FPL.
In contrast, assume Individual E toldthe Navigator assisting with E’s Market-place Application for Health Coveragethat E’s lowest-cost option for purchasingself-only employer-sponsored coveragethat provides minimum value would costE $10,000 for the taxable year, when infact E knew that he could purchase suchcoverage for $5,000. Based on the infor-mation E provided, the Navigator advisesE that he should indicate on his Market-place Application for Health Coveragethat his required contribution for employer-sponsored coverage is $10,000. E followsthis advice and consequently receives thebenefit of advance credit payments for theyear. During a subsequent examination,the IRS determines that E could have pur-chased employer-sponsored coverage thatprovides minimum value for $5,000. Forthe year of coverage, E is not consideredto have reasonably relied on the advice ofa Navigator in providing information tothe Marketplace because E knowinglyprovided inaccurate information to theNavigator. Thus, the employee safe har-bor in § 1.36B–2(c)(3)(v)(A)(3) does notapply to E.
b. Nonappropriated Fund HealthBenefits Program of the Department ofDefense
The proposed regulations provide thatthe Nonappropriated Fund Health BenefitsProgram of the Department of Defense(the Program) is treated as an eligibleemployer-sponsored plan for purposes ofdetermining if an individual is eligible forminimum essential coverage under sec-tion 36B. This treatment conforms theregulations under section 36B to the reg-ulations under section 5000A, which treatthe Program as an eligible employer-sponsored plan. Thus, if coverage underthe Program does not provide minimumvalue (under § 1.36B–2(c)(3)(vi)) or is not
considered affordable (under § 1.36B–2(c)(3)(v)) for an individual who does notenroll in the coverage, he or she is nottreated as eligible for minimum essentialcoverage under the Program for purposesof premium tax credit eligibility.
One commenter requested that the finalregulations clarify how Marketplaces willdetermine and verify whether an offer ofcoverage under the Program providesminimum value and is affordable. In gen-eral, employers are required to providecertain information to employees aboutthe coverage that they offer, including in-formation that is relevant to affordabilityand minimum value. These regulations donot make any changes to those require-ments.
c. Eligibility for employer-sponsoredcoverage for months during a plan year
The existing section 36B regulationsprovide that an individual is eligible forminimum essential coverage through aneligible employer-sponsored plan if theindividual had the opportunity to enroll inthe plan and the plan is affordable andprovides minimum value. Because insome instances individuals may not beallowed an annual opportunity to decidewhether to enroll in eligible employer-sponsored coverage, the proposed regula-tions provide that if an individual declinesto enroll in employer-sponsored coveragefor a plan year and does not have theopportunity to enroll in that coverage forone or more succeeding plan years, forpurposes of section 36B, the individual istreated as ineligible for that coverage forthe succeeding plan year or years forwhich there is no enrollment opportunity.This rule relating to eligibility foremployer-sponsored coverage is proposedto apply for taxable years beginning afterDecember 31, 2016.2
One commenter sought clarification onhow this rule relating to eligibility foremployer-sponsored coverage applies toemployers with fiscal-year employerplans. The commenter also requests a de-lay in the effective date to allow addi-tional time for implementation.
2Note that for purposes of section 4980H, in general, an applicable large employer will not be treated as having made an offer of coverage to a full-time employee for a plan year if theemployee does not have an effective opportunity to elect to enroll in the coverage at least once with respect to the plan year. For this purpose, a plan year must be twelve consecutive months,unless a short plan year of less than twelve consecutive months is permitted for a valid business purpose. For additional rules on the definition of ‘‘offer’’ and ‘‘plan year’’ under section4980H, see §§ 54.4980H–1(a)(35), 54.4980H–4(b), and 54.4980H–5(b).
Bulletin No. 2017–3 January 17, 2017409
The rule in the proposed regulations re-lating to eligibility for employer-sponsoredcoverage applies to fiscal year plans in thesame manner that it applies to calendaryear plans. For example, assume an em-ployer offers an employee affordable,minimum value coverage for a plan yearof April 1, 2017 through March 30, 2018.In addition, under the terms of the em-ployer’s plan, if the employee declines thecoverage beginning on April 1, 2017, theemployee is precluded from enrolling forthe plan year of April 1, 2018 throughMarch 30, 2019, absent a special enroll-ment period. Under the proposed regula-tions, the employee is treated as eligiblefor this employer-sponsored coverageonly for the period between April 1, 2017and March 31, 2018. Thus, assuming theemployee does not enroll in the employer-sponsored coverage through a special en-rollment period, the employee is not con-sidered eligible for this employercoverage during the period April 1, 2018through March 31, 2019.
The final regulations do not adopt thecommenter’s suggestion to delay the ap-plicability date of the provision relating toeligibility for employer-sponsored cover-age to a year after 2017. The TreasuryDepartment and the IRS believe that itwould be unfair to employees and theirfamily members who do not have an an-nual opportunity to enroll in coverage of-fered to them by an employer to delay theapplicability date of this provision. Con-sequently, the final regulations providethat this provision is applicable for taxableyears beginning after December 31, 2016.
d. Opt-out arrangements and anemployee’s required contribution
The proposed regulations provide ruleson the effect of payments made availableunder opt-out arrangements on an em-ployee’s required contribution for pur-poses of eligibility for the premium taxcredit and an exemption from the section5000A individual shared responsibilityprovision.3 An opt-out arrangement is anarrangement under which a payment(called an opt-out payment) is made avail-
able to an employee by an employer onlyif the employee declines coverage underan eligible employer-sponsored planoffered by the employer. Prior to the pro-posed regulations, the Treasury Depart-ment and the IRS released Notice 2015–87, 2015–52 I.R.B. 889, which alsoaddressed the effect of opt-out arrange-ments on an employee’s required contri-bution.
Several comments on the proposed rulewere received. The Treasury Departmentand the IRS continue to examine the is-sues raised by opt-out arrangements andexpect to finalize regulations on the effectof opt-out arrangements on an employee’srequired contribution at a later time.
As provided in Notice 2015–87, Q&A9, and reiterated in the proposed rule, theregulations on opt-out arrangements gen-erally will apply only for periods after theapplicability of those final regulations.Until those final regulations are applica-ble, individuals and employers can con-tinue to rely on the guidance provided inNotice 2015–87 and on the proposed rule,including transition relief as clarified andexpanded in section 2.f of the preamble tothe proposed rule (for opt-out arrange-ments contained in collective bargainingagreements in effect before December 16,2015). See 81 FR 44,561.
Accordingly, until the applicabilitydate of final regulations on opt-out ar-rangements, individuals may treat opt-outpayments made available under uncondi-tional opt-out arrangements (as defined inthe Background section of the preamble tothe proposed regulations (see 81 FR44,560)) as increasing the employee’s re-quired contribution for purposes of sec-tions 36B and 5000A. In addition, for thesame period, an individual who can dem-onstrate that he or she meets the condi-tion(s) (in addition to declining the em-ployer’s health coverage) that must besatisfied to receive an opt-out paymentunder a conditional opt-out arrangement(as defined in the Background section ofthe preamble to the proposed regulations(see 81 FR 44,560)), may treat the amountof the conditional opt-out payment as in-creasing the employee’s required contri-
bution for purposes of sections 36B and5000A.
In contrast, until the applicability dateof final regulations on opt-out arrange-ments, employers are not required to in-crease an employee’s required contribu-tion by the amount of an opt-out paymentmade available under an opt-out arrange-ment (other than a payment made avail-able under a non-relief-eligible opt-out ar-rangement4) for purposes of section 6056(Form 1095–C, Employer-Provided HealthInsurance Offer and Coverage), and an opt-out payment made available under an opt-out arrangement (other than a paymentmade available under a non-relief-eligibleopt-out arrangement) will not be treated asincreasing an employee’s required contri-bution for purposes of any potential con-sequences under section 4980H.
e. Effective date of eligibility forminimum essential coverage whenadvance credit payments discontinuanceis delayed
The proposed regulations provide thatif an individual who is enrolled in a qual-ified health plan for which advance creditpayments are made informs the Exchangethat the individual is or will soon be eli-gible for other minimum essential cover-age and that advance credit paymentsshould be discontinued, but the Exchangedoes not discontinue advance credit pay-ments for the first calendar month begin-ning after the month the individual noti-fies the Exchange, the individual is treatedas eligible for the other minimum essen-tial coverage no earlier than the first dayof the second calendar month beginningafter the first month the individual mayenroll in the other minimum essential cov-erage. Similarly, if a determination ismade that an individual is eligible forMedicaid or CHIP but advance credit pay-ments are not discontinued for the firstcalendar month beginning after the eligi-bility determination, the individual istreated as eligible for Medicaid or CHIPno earlier than the first day of the secondcalendar month beginning after the deter-mination.
3The amount of an employee’s required contribution has consequences under section 4980H and the related reporting requirements under section 6056. For more information, see Notice2015–87, Q&A 7-9 and section 2.f of the preamble to the proposed rule (see 81 FR 44,561).
4For a discussion of non-relief-eligible opt-out arrangements, see Notice 2015–87, Q&A 9 and section 2.f of the preamble of the proposed rule. See 81 FR 44,561.
January 17, 2017 Bulletin No. 2017–3410
Commenters noted that the proposedregulations do not address how the IRSwill identify and verify scenarios in whichan individual requested prospective dis-continuation of advance credit paymentsbut there was a delay in the discontinua-tion. The commenters also pointed outthat consumers may request an acceler-ated termination if the Exchange andhealth plan issuer allow it and the pro-posed regulations do not address howthese scenarios will be handled. Conse-quently, the commenters requested thatthe IRS issue clear instructions and guid-ance for taxpayers and tax preparers forsituations in which there is a delay discon-tinuing or terminating advance credit pay-ments to ensure that taxpayers will not besubject to penalties or repayment of ad-vance credit payments for which they arenot responsible.
The Instructions to Form 8962, Pre-mium Tax Credit (PTC), and Publication974, Premium Tax Credit, will include adiscussion of this rule concerning eligibil-ity for certain non-Marketplace minimumessential coverage when the discontinu-ance of advance credit payments is de-layed. Furthermore, the IRS intends to, inQuestions and Answers on www.irs.gov,address situations in which there is a delayin the discontinuance of advance creditpayments and the taxpayer is allowed apremium tax credit for a month for whichthe taxpayer receives a Form 1095–B orForm 1095–C showing that the taxpayerwas enrolled in non-Marketplace mini-mum essential coverage.
Commenters requested that the finalregulations acknowledge that this ruleconcerning eligibility for non-Marketplaceminimum essential coverage when there hasbeen a delay in the discontinuance of ad-vance credit payments does not change theobligations of health plan issuers for prioryears, notwithstanding that the rule in theproposed regulations may be relied on bytaxpayers for taxable years beginning afterDecember 31, 2013. Although the obliga-tions of health plan issuers are generallyoutside the scope of these regulations, it isthe understanding of the Treasury Depart-ment and the IRS, in consultation with theDepartment of Health and Human Services(HHS), that this rule regarding when anindividual is eligible for certain non-Marketplace coverage does not affect the
obligations of health plan issuers or thedeadlines imposed by or on those issuers.
One commenter requested that the ruleextend to other situations, such as when anindividual receiving the benefit of ad-vance credit payments is incarcerated af-ter disposition of charges. Under section1312(f)(1)(B) of the Affordable Care Act(42 U.S.C. 18032(f)(1)(B)), incarceratedindividuals may not be enrolled through aMarketplace. However, unlike an individ-ual enrolled in minimum essential cover-age outside of the Marketplace, if there isa delay in disenrolling the incarceratedindividual and discontinuing the advancecredit payments, neither section 36B norits regulations prohibit a taxpayer fromclaiming a premium tax credit for an in-carcerated individual’s Marketplace cov-erage. Thus, the final regulations do notadopt this comment.
The same commenter also requested achange in the rule concerning delays indiscontinuance of advance credit pay-ments after a Medicaid or CHIP determi-nation. Under the proposed regulations, ifthere is a delay in discontinuance of ad-vance credit payments following a Med-icaid or CHIP eligibility determination,the individual is treated as eligible forMedicaid or CHIP no earlier than the firstday of the second calendar month begin-ning after the determination. The com-menter stated that, under the final regula-tions, an individual should be treated aseligible for Medicaid or CHIP no earlierthan the first day of the second calendarmonth beginning after the eligibility de-termination is communicated to the Ex-change.
The final regulations do not adopt thiscomment. The commenter is likely con-cerned about a situation in which the of-fice that made a Medicaid or CHIP deter-mination for an individual does notpromptly notify the Marketplace of thatstatus and the individual remains enrolledin Marketplace coverage with advancecredit payments for multiple months.However, individuals enrolled in Market-place coverage with advance credit pay-ments who are determined eligible forMedicaid or CHIP should also promptlynotify their Marketplace to discontinuethe advance credit payments. Amendingthe rule to delay eligibility until the sec-ond month after the determination is com-
municated to the Marketplace effectivelyallows individuals who fail to promptlycommunicate with their Marketplaces tobe dual enrolled for multiple months withadvance credit payments.
2. Premium Assistance Amount
a. Payment of taxpayer’s share ofpremiums for advance credit paymentsfollowing appeal determinations
Under existing § 1.36B–3(c)(1)(ii), amonth is a coverage month for an individ-ual only if the share of the premium forthe individual’s coverage for the monthnot covered by advance credit payments ispaid by the unextended due date of theincome tax return for the year of coverageof the taxpayer claiming a personal ex-emption for the individual.
As discussed in the preamble to theproposed regulations, instances arise inwhich an individual is initially determinedineligible for advance credit payments,does not enroll in a qualified health planpending the individual’s appeal of the de-termination, and is later determined to beeligible for advance credit paymentsthrough the appeals process. If the indi-vidual then elects to be retroactively en-rolled in an Exchange health plan, thedeadline for paying premiums for the ret-roactive coverage may be after the unex-tended due date for filing an income taxreturn for the year of coverage. To addressthis issue, the proposed regulations pro-vide that a taxpayer who is eligible foradvance credit payments pursuant to aneligibility appeal for a member of the tax-payer’s coverage family who, based onthe appeals decision, retroactively enrollsin a qualified health plan, is considered tohave met the requirement in § 1.36B–3(c)(1)(ii) for a month if the taxpayer paysthe individual’s share of the premium forcoverage under the plan for the month onor before the 120th day following the dateof the appeals decision (the appeal pre-mium payment period).
A commenter opined that to ensure ac-curate and consistent identification and re-porting of payment deadlines, the trigger-ing event that begins the appeal premiumpayment period under the section 36Bregulations should align with the trigger-ing event provided in 45 CFR 155.400
Bulletin No. 2017–3 January 17, 2017411
(e)(1)(iii), which provides as follows:“For coverage to be effectuated under ret-roactive effective dates, . . . the deadlinefor making the binder payment must be noearlier than 30 calendar days from the datethe issuer receives the enrollment transac-tion.” The commenter notes that the datethe appeal premium payment period be-gins under the proposed regulations (thedate of the appeals decision) is differentfrom the date the period begins under 45CFR 155.400(e)(1)(iii) (the date the issuerreceives the enrollment transaction) andsuggests that the final regulations conformto the language in 45 CFR 155.400(e)(1)(iii)because qualified health plan issuers wouldnot know the date of the appeals decisionand would not know whether the premiumpayment was made within 120 days of theappeals decision. The commenter alsoopined that the 120-day period in the pro-posed regulations may be too long forsome retroactive enrollment scenarios,such as a situation in which an individualis enrolled in retroactive coverage for onlya few months. The commenter also sug-gested that the appeal premium paymentrule in the section 36B regulations shouldapply only in situations in which the ap-peal decision is after the individual’s un-extended due date for filing an income taxreturn for the year of coverage.
The final regulations do not adopt thesuggested changes. The purpose of the ap-peal premium payment period in the section36B regulations is to ensure that taxpayerswho pay their premiums within a reason-able time following a favorable appealdecision may qualify for a premium taxcredit. On the other hand, the paymentdate rule in 45 CFR 155.400(e)(1)(iii) re-lates to when the payment must be madeto effectuate the retroactive coverage.Qualified health plan issuers need to knowthe date they received the enrollmenttransaction and thus whether the premiumpayments were timely made to effectuatethe retroactive coverage, but have no needto know whether the payments were madewithin 120 days of the appeal decision. Inaddition, the 120-day period is needed toprovide equitable treatment, whether theappeal decision is before or after the un-extended due date for filing an income taxreturn for the year of coverage. It wouldbe inequitable to allow a taxpayer whogets a favorable appeal decision five days
after the unextended due date of his or hertax return the benefit of the 120-day ap-peal premium payment period but not ex-tend the same benefit to a taxpayer whogets an appeal decision five days beforethe unextended due date.
3. Benchmark Plan Premium
a. Pediatric dental benefits
Under the existing section 36B regula-tions, if a member of a taxpayer’s cover-age family is enrolled in a stand-alonedental plan, the portion of the monthlypremium for the stand-alone dental planallocable to pediatric dental benefits isadded to the taxpayer’s monthly enroll-ment premium in determining the taxpay-er’s premium assistance amount for themonth. Under the existing regulations,however, the portion of the monthly pre-mium for a stand-alone dental plan allo-cable to pediatric dental benefits does notaffect the taxpayer’s applicable bench-mark plan premium.
Because the existing regulations frus-trate the goal of section 36B of makingcoverage for essential health benefits af-fordable to individuals eligible for the pre-mium tax credit, the proposed regulationsprovide that, if an Exchange offers one ormore silver-level qualified health plansthat do not include pediatric dental bene-fits, the applicable benchmark plan is de-termined by ranking (1) the premiums forthe silver-level qualified health plans thatinclude pediatric dental benefits offeredby the Exchange and (2) the aggregate ofthe premiums for the silver-level qualifiedhealth plans offered by the Exchange thatdo not include pediatric dental benefitsplus the portion of the premium allocableto pediatric dental benefits for stand-alonedental plans offered by the Exchange. Inconstructing this ranking, the proposedregulations provide that the premium forthe lowest-cost silver plan that does notinclude pediatric dental benefits is addedto the lowest cost portion of the premiumfor a stand-alone dental plan that is allo-cable to pediatric dental benefits, and sim-ilarly, the premium for the second lowest-cost silver plan that does not includepediatric dental benefits is added to thesecond-lowest cost portion of the pre-mium for a stand-alone dental plan that is
allocable to pediatric dental benefits. Thesecond lowest-cost amount from this com-bined ranking of premiums is the taxpay-er’s applicable benchmark plan premium.Finally, the proposed regulations providethat the rule for determining the applica-ble benchmark plan for situations inwhich an Exchange offers one or moresilver-level qualified health plans that donot cover pediatric dental benefits (thepediatric dental rule) is applicable for tax-able years beginning after December 31,2018.
One commenter noted that the effect ofthe rule in the proposed regulations relat-ing to pediatric dental benefits is thatsome taxpayers will have a lower monthlypremium assistance amount as comparedto their monthly premium assistanceamount under the existing section 36Bregulations. In particular, the commenterpointed to Example 4 of § 1.36B–3(f)(9)of the proposed regulations in which thetaxpayer’s benchmark plan premium islower under the rules of the proposed reg-ulations than under the existing section36B regulations. Under this example, theapplicable benchmark plan premiumwould be based on the lowest-cost ratherthan the second-lowest-cost silver-levelqualified health plan. The commenter sug-gested that this is likely not a result in-tended by the Treasury Department andthe IRS and recommended that the finalregulations include a revision to the lan-guage of the proposed regulations to fixthis unintended result.
The final regulations adopt the recom-mendation in this comment. Under thefinal regulations, if one or more silver-level qualified health plans offeredthrough an Exchange do not cover pedi-atric dental benefits, the premium for theapplicable benchmark plan is determinedbased on the second lowest-cost optionamong (i) the silver-level qualified healthplans that are offered by the Exchange tothe members of the coverage family andthat provide pediatric dental benefits; and(ii) the silver-level qualified health plansthat are offered by the Exchange to themembers of the coverage family that donot provide pediatric dental benefits inconjunction with the second lowest-costportion of the premium for a stand-alonedental plan (within the meaning of section1311(d)(2)(B)(ii) of the Affordable Care
January 17, 2017 Bulletin No. 2017–3412
Act (42 U.S.C. 18031(d)(2)(B)(ii))) of-fered by the Exchange to the members ofthe coverage family that is properly allo-cable to pediatric dental benefits. Thus,under the final regulations, if a taxpayer’scoverage family is able to enroll in one ormore silver-level qualified health plansthat do not provide pediatric dental bene-fits, the second lowest-cost portion of thepremium for a stand-alone dental plan of-fered by the Exchange to the members ofthe coverage family that is properly allo-cable to pediatric dental benefits is addedto the premium for each of those silver-level plans in determining the taxpayer’sapplicable benchmark plan.
One commenter requested clarificationon how to determine the portion of thepremium of a stand-alone dental planproperly allocable to the cost of pediatricdental benefits. According to the com-menter, the portion of a plan’s premiumthat is allocable to each essential healthbenefit (EHB) is determined by using anEHB factor (a multiplier that applies tothe plan and represents the portion of thetotal benefit package that represents theEHB), and the EHB factor does notchange based on who is purchasing theplan and what benefits they are eligible touse. The commenter asks for clarificationon if, and how, an EHB factor is to beapplied to a stand-alone dental plan andwhether a stand-alone dental plan shouldhave a different EHB factor apply basedon whether children, or only adults, areenrolled in the plan.
The determination of the portion of thepremium of a stand-alone dental planproperly allocable to pediatric dental ben-efits is outside the scope of these regula-tions. However, HHS has confirmed that,under its guidance, if no members of ataxpayer’s coverage family are eligible forpediatric dental benefits, the portion of thepremium allocable to pediatric dental ben-efits for all stand-alone dental plans thefamily may enroll in is $0.
Another commenter stated that the pe-diatric dental rule in the proposed regula-tions is inconsistent with the provisions ofsection 36B. Specifically, the commentercontends that the clear meaning of section36B(b)(3)(E) is that the portion of a stand-alone pediatric dental plan premium allo-cable to pediatric dental benefits is addedonly to the enrollment premium, not the
benchmark plan premium, in computingthe premium tax credit, and is added onlyfor taxpayers who have a family memberwho enrolls in a stand-alone dental plan.In addition, the commenter opines thatthe pediatric dental rule in the proposedregulations is overly complex and pro-vides minimal benefit to a small groupof taxpayers.
The Treasury Department and the IRSdisagree that the pediatric dental rule isinconsistent with the provisions of section36B. Although, as noted by the com-menter, section 36B(b)(3)(E) relates onlyto the portion of a stand-alone dental planpremium that is added to a taxpayer’senrollment premium, the proposed regula-tions do not rely upon an interpretation ofsection 36B(b)(3)(E). Rather, as discussedin the preamble of the proposed regula-tions, the pediatric dental rule is based onstatutory references to “self-only cover-age” and “family coverage” in section36B(b)(3)(B)(ii), and is consistent withthe overall goal of section 36B, which isto make affordable the coverage of eachof the essential health benefits describedin section 1302(b) of the Affordable CareAct for individuals eligible for a premiumtax credit. As discussed, that coveragemay be obtained from either a qualifiedhealth plan covering all of the essentialhealth benefits or one covering all benefitsexcept pediatric dental in combinationwith a stand-alone dental plan. Finally,although the pediatric dental rule does addsome complexity to the determination of ataxpayer’s applicable benchmark plan, therule will, in general, not result in morecomplexity to taxpayers because they gen-erally use the benchmark plan premiumamount reported to them by Exchanges tocompute their premium tax credit. In ad-dition, the pediatric dental rule in the finalregulations, which, for stand-alone dentalplans, considers just the second lowest-cost portion of the premium properly al-locable to pediatric dental benefits in thedetermination of a taxpayer’s applicablebenchmark plan, is less complex than therule in the proposed regulations, whichrequires consideration of both the lowest-cost and the second lowest-cost portion.
Other commenters supported the pedi-atric dental rule and asked that taxpayersbe allowed to compute their applicablebenchmark plan using the pediatric dental
rule in the proposed regulations for tax-able years beginning before January 1,2019. However, taxpayers must knowtheir benchmark plan premium amount toproperly compute their premium tax creditand, consequently, Exchanges must pro-vide this information to taxpayers. Be-cause this pediatric dental rule involves achange in the manner in which a taxpay-er’s applicable benchmark plan is deter-mined, Exchanges need time to imple-ment the new rule and have indicated thatthey are likely unable to do so for taxableyears beginning before January 1, 2019.Consequently, the final regulations do notadopt this comment.
b. Members of coverage family residingin different states
Under existing § 1.36B–3(f)(4), ifmembers of a taxpayer’s family reside indifferent states and enroll in separate qual-ified health plans, the premium for thetaxpayer’s applicable benchmark plan isthe sum of the premiums for the applica-ble benchmark plans for each group offamily members living in the same state.Because this rule may not accurately re-flect the cost of available coverage for ataxpayer whose family members reside indifferent locations in the same state, theproposed regulations provide that if mem-bers of a taxpayer’s coverage family re-side in different locations, whether withinthe same state or in different states, thetaxpayer’s benchmark plan premium isthe sum of the premiums for the applica-ble benchmark plans for each group ofcoverage family members residing in dif-ferent locations, based on the plans of-fered to the group through the Exchangefor the rating area where the group re-sides. The proposed regulations providethat the rules for calculating the premiumtax credit operate the same for familiesresiding in multiple locations within astate and families residing in multiplestates.
One commenter expressed concern thatthe rule in the proposed regulations con-cerning the benchmark plan premium formembers of the coverage family residingin different locations could result in un-equal treatment of separate families, par-ticularly in Marketplaces in which thereare many rating areas within a relatively
Bulletin No. 2017–3 January 17, 2017413
small geographic area and numerous plansare available for enrollment in many or allrating areas. Thus, the commenter askedthat Marketplaces be allowed to use theirown benchmark plan rating methodologyrather than the rule in the proposed regu-lations for members of the coverage fam-ily who reside in different locations withina state.
The final regulations do not adopt thiscomment. The amount of a taxpayer’s pre-mium tax credit depends on the taxpayer’sapplicable benchmark plan and the pre-mium for that plan. Allowing Exchangesto use different methodologies to deter-mine the benchmark plan premium couldresult in inequitable treatment of taxpay-ers in different locations. One Exchange’smethodology would undoubtedly providea more generous benchmark plan pre-mium for taxpayers who enroll in aqualified health plan through that Ex-change as compared to taxpayers whoenroll through another Exchange using adifferent methodology.
Another commenter asked that the finalregulations clarify how the rule relating tofamily members residing in different lo-cations works for farm workers who fre-quently migrate to find agricultural work,especially those who stay enrolled in thesame plan despite the relocations. The ruleconcerning family members residing indifferent locations has no unique effect forindividuals who frequently move to newlocations and thus the final regulationsinclude no new rules addressing this situ-ation. HHS regulations at 45 CFR155.335(e) require individuals who moveto a new rating area to inform the Ex-change in the new rating area of theirmove. The move may require a recompu-tation of the individual’s advance creditpayments, or perhaps necessitate the indi-vidual to enroll in a new qualified healthplan, both of which are determined by theExchange in the new rating area.
c. Aggregation of silver-level policies
Existing § 1.36B–3(f)(3) provides thatif one or more silver-level plans offeredthrough an Exchange do not cover allmembers of a taxpayer’s coverage familyunder one policy (for example, because anissuer will not cover a taxpayer’s depen-dent parent on the same policy the tax-
payer enrolls in), the premium for theapplicable benchmark plan may be thepremium for a single policy or for morethan one policy, whichever is the secondlowest-cost silver option. Because thisrule is complex for taxpayers and difficultfor Exchanges and the IRS to administer,the proposed regulations delete the exist-ing rule and provide a new rule in itsplace. Under the proposed regulations, if asilver-level plan offers coverage to allmembers of a taxpayer’s coverage familywho reside in the same location under asingle policy, the plan premium taken intoaccount for purposes of determining theapplicable benchmark plan is the premiumfor that policy. However, if a silver-levelplan would require multiple policies tocover all members of a taxpayer’s cover-age family who reside in the same loca-tion, the plan premium taken into ac-count for purposes of determining theapplicable benchmark plan is the sum ofthe premiums for self-only policies un-der the plan for each member of thecoverage family who resides in the samelocation. The proposed regulations alsorequested comments on an alternativerule under which the sum of the premi-ums for self-only policies under a planfor each member of the taxpayer’s cov-erage family would always be used todetermine a taxpayer’s applicable bench-mark plan.
One commenter asked that the finalregulations adopt the alternative rule dis-cussed in the preamble to the proposedregulations concerning the determinationof a taxpayer’s applicable benchmarkplan, not the rules in the proposed regula-tions, which vary based on whether a sin-gle policy or multiple policies are neededto cover a taxpayer’s family. The com-menter opined that this alternative rule hasthe potential to streamline the applicablebenchmark plan calculation with minimalimpact to the amount of premium taxcredit a taxpayer is allowed.
The final regulations do not adopt thiscomment. Under HHS regulations, thequalified health plan premium for a tax-payer with three dependents is not in-creased by adding one or more additionaldependents to the taxpayer’s family. 45CFR 147.102(c)(1). That is, the portion ofthe premium due to the taxpayer’s depen-dents is capped at three dependents and
does not increase as a result of addingmore dependents to the family. However,if the alternative rule suggested by thecommenter is adopted, a taxpayer withfour or more dependents would have ahigher benchmark plan premium than asimilarly-situated taxpayer with three de-pendents even though the additional de-pendents do not add to the cost of thecoverage for the taxpayer with four ormore dependents. Thus, aggregating thesum of the self-only policies under a planfor each member of a taxpayer’s coveragefamily may provide an undue benefit totaxpayers with four or more dependents.Accordingly, this approach should be lim-ited to situations in which a silver-levelplan requires multiple policies to cover allmembers of a taxpayer’s coverage familywho reside in the same location.
d. Effective/applicability dates
Under the proposed regulations, thechanges to the rules concerning the deter-mination of a taxpayer’s applicablebenchmark plan are proposed to be appli-cable for tax years beginning after De-cember 31, 2018. Commenters noted thatState-based Marketplaces often have verydifferent eligibility and enrollment sys-tems from the Federally-Facilitated Mar-ketplace and from each other, and thechanges to the applicable benchmark planrules will require significant changes totheir systems and long timelines for im-plementation. Consequently, the com-menters asked that the Treasury Depart-ment and the IRS provide flexibility toState-based Marketplaces and provideample time between the effective date ofthe final regulations and the date the statesmust implement the benchmark planchanges.
The final regulations do not alter theapplicability date for the rule for comput-ing the benchmark plan. Doing so wouldpermit inequitable treatment of taxpayersin different locations and potentially havean adverse impact on certain taxpayers.Thus, the final regulations provide that thechanges to the benchmark plan rules areapplicable for taxable years beginning af-ter December 31, 2018.
January 17, 2017 Bulletin No. 2017–3414
4. Information Reporting
The proposed regulations provide thatwhen multiple families enroll in a singlequalified health plan and advance creditpayments are made for the coverage, theenrollment premiums reported by the Ex-change for each family are the family’sallocable share of the enrollment premi-ums, which is based on the proportion ofeach family’s applicable benchmark planpremium. One commenter requested clar-ification that this reporting rule appliesonly in situations in which a taxpayer re-quests financial assistance through ad-vance credit payments or cost-sharing re-ductions, or is seeking to enroll inMedicaid. The final regulations, like theproposed regulations, provide that the Ex-change must report a portion of the plan’senrollment premium to each enrolled fam-ily if multiple families enroll in a singlequalified health plan and advance creditpayments are made for coverage under theplan. The portion reported is based on theproportion of each family’s applicablebenchmark plan premium.
The proposed regulations also providethat, if an individual’s coverage in a qual-ified health plan is terminated before thelast day of a month, or if an individual isenrolled in coverage after the first day of amonth and the coverage is effective on thedate of the individual’s birth, adoption, orplacement for adoption or in foster care,or on the effective date of a court order, anExchange must report the enrollment pre-miums for the month (excluding the pre-mium allocated to benefits in excess ofessential health benefits), reduced by anyamount that was refunded because the en-rollment was for less than a full month.This reporting requirement was proposedto apply for taxable years beginning afterDecember 31, 2016.
One commenter expressed concernwith the rule requiring that Exchanges re-duce the reported enrollment premium byany amounts of the enrollment premiumsthat are refunded by the issuer of the qual-ified health plan. The commenter statedthat this requirement is not something thatcurrently is captured by its reporting sys-tem, and updating the system would re-quire an effort that would be out of scalewith the small size of the population en-rolled for less than a full month. The com-
menter suggests that refund informationcould be obtained when a taxpayer com-putes his or her premium tax credit on thetaxpayer’s Federal income tax return. Al-ternatively, the commenter requested thatthis requirement become effective for ataxable year later than 2017. To provideenrollment systems additional time to im-plement the updates and system modifica-tions necessary to accurately report re-funds for partial months of coverage, thefinal regulations delay the applicabilitydate for this rule by two years, so that itapplies for taxable years beginning afterDecember 31, 2018. Exchanges able tocomply with the reporting rule before thatdate are encouraged to do so.
Effective/Applicability Date
Except as otherwise provided, these fi-nal regulations apply for taxable years be-ginning after December 31, 2016. Therules relating to the benchmark plan pre-mium described in section 3 of this pre-amble and the rules relating to reportingby the Exchanges described in section 4 ofthis preamble apply for taxable years be-ginning after December 31, 2018. As dis-cussed in the Effective/Applicability Datesection of the preamble to the proposedregulations, taxpayers may rely on certainprovisions of the proposed regulations fortaxable years ending after December 31,2013.
See section 1.d of this preamble for adiscussion of the effective date/applicabil-ity date for proposed regulations regard-ing opt-out arrangements.
Special Analyses
Certain IRS regulations, includingthese, are exempt from the requirementsof Executive Order 12866, as supple-mented and reaffirmed by Executive Or-der 13563. Therefore, a regulatory assess-ment is not required.
It is hereby certified that these regula-tions will not have a significant economicimpact on a substantial number of smallentities. This certification is based on thefact that the information collection re-quired under these regulations is imposedunder section 36B. Consistent with thestatute, these regulations require Ex-changes to report certain coverage infor-mation to the IRS and to furnish a state-
ment to the responsible individual whoenrolled an individual or family in thecoverage. These regulations merely pro-vide the method for reporting the informa-tion and furnishing the statements re-quired under section 36B. Moreover, theregulations attempt to minimize the bur-den associated with this collection of in-formation by limiting reporting to the in-formation that the IRS requires toadminister the premium tax credit.
Based on these facts, a RegulatoryFlexibility Analysis under the RegulatoryFlexibility Act (5 U.S.C. chapter 6) is notrequired.
Pursuant to section 7805(f) of theCode, the notice of proposed rulemakingthat preceded this regulation was submit-ted to the Chief Counsel for Advocacy ofthe Small Business Administration forcomment on its impact on small business.No comments were received.
Drafting Information
The principal authors of these pro-posed regulations are Lisa Mojiri-Azad,Shareen S. Pflanz, and Stephen J. Toomeyof the Office of Associate Chief Counsel(Income Tax and Accounting). However,other personnel from the IRS and theTreasury Department participated in thedevelopment of the regulations.
* * * * *
26 CFR Part 301
Employment taxes, Estate taxes, Ex-cise taxes, Gift taxes, Income taxes, Pen-alties, Reporting and recordkeeping re-quirements.
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 301are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation forpart 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805***Par. 2. Section 1.36B–0 is amended
by:1. Adding the entries for § 1.36B–
2(b)(6)(i) and (ii).2. Redesignating entry for § 1.36B–
2(c)(4) as (c)(5) and adding new entries
Bulletin No. 2017–3 January 17, 2017415
for § 1.36B–2(c)(3)(v)(A)(7), (c)(4),(c)(4)(i), (c)(4)(ii), (c)(4)(ii)(A), (c)(4)(ii)(B), (c)(5), (d), and (e).
3. Redesignating entry for § 1.36B–3(c)(4) as (c)(5) and adding a new entryfor § 1.36B–3(c)(4).
4. Revising entries for § 1.36B–3(d)(1)and (2).
5. Revising entries for § 1.36B–3(f)(3),(4), and (5).
6. Adding entries for § 1.36B–3(f)(5)(i) and (ii).
7. Revising entries for § 1.36B–3(f)(6)and (7).
8. Adding entries for § 1.36B–3(f)(8),(f)(9), (m), and (n).
9. Adding entries for § 1.36B–5(c)(3)(iii), (c)(3)(iii)(A), and (c)(3)(iii)(B).
The revisions and additions read as fol-lows:
§ 1.36B–0 Table of contents.
* * * * *
§ 1.36B–2 Eligibility for premium taxcredit.
* * * * *(b) * * *(6) * * *(i) In general.(ii) Exceptions.* * * * *(c) * * *(3) * * *(v) * * *(A) * * *(7) Opt-out arrangements.* * * * *(4) Special eligibility rules.(i) Related individual not claimed as apersonal exemption deduction.(ii) Exchange unable to discontinue ad-vance credit payments.(A) In general.(B) Medicaid or CHIP.(5) Related individuals not claimed as apersonal exemption deduction.(d) [Reserved](e) Effective/applicability dates.
* * * * *
§ 1.36B–3 Computing the premiumassistance credit amount.
* * * * *(c) * * *(4) Appeals of coverage eligibility.(d) * * *(1) Premium assistance amount.(2) Examples.* * * * *(f) * * *(3) Silver-level plan not covering pediat-ric dental benefits.(4) Family members residing in differentlocations.(5) Single or multiple policies needed tocover the family.(i) Policy covering a taxpayer’s family.(ii) Policy not covering a taxpayer’s fam-ily.(6) Plan not available for enrollment.(7) Benchmark plan terminates or closesto enrollment during the year.(8) Only one silver-level plan offered tothe coverage family.(9) Examples.* * * * *(m) [Reserved](n) Effective/applicability date.
§ 1.36B–5 Information reporting byExchanges.
* * * * *(c) * * *(3) * * *(iii) Partial month of coverage.(A) In general.(B) Certain mid-month enrollments.* * * * *
Par. 3. Section 1.36B–1 is amended byrevising paragraphs (l), (m), and (o) toread as follows:
§ 1.36B–1 Premium tax creditdefinitions.
* * * * *(l) Self-only coverage. Self-only cover-
age means health insurance that coversone individual and provides coverage forthe essential health benefits as defined insection 1302(b)(1) of the Affordable CareAct (42 U.S.C. 18022).
(m) Family coverage. Family coveragemeans health insurance that covers morethan one individual and provides coveragefor the essential health benefits as defined
in section 1302(b)(1) of the AffordableCare Act (42 U.S.C. 18022).* * * * *
(o) Effective/applicability date. Exceptfor paragraphs (l) and (m), this sectionapplies to taxable years ending after De-cember 31, 2013. Paragraphs (l) and (m)of this section apply to taxable years be-ginning after December 31, 2018. Para-graphs (l) and (m) of § 1.36B–1 as con-tained in 26 CFR part I edition revised asof April 1, 2016, apply to taxable yearsending after December 31, 2013, and be-ginning before January 1, 2019.
Par. 4. Section 1.36B–2 is amended by:1. Revising paragraph (b)(6) introduc-
tory text and paragraphs (b)(6)(i) and (ii).2. Adding three sentences to the end of
paragraph (c)(2)(v).3. Revising paragraph (c)(3)(i).4. Revising paragraph (c)(3)(iii)(A).5. Removing the sentence at the end of
the paragraph (c)(3)(v)(A)(3) and addingin its place three new sentences.
6. Adding paragraph (c)(3)(v)(A)(7).7. Revising paragraph (c)(4).8. Removing and reserving paragraph
(d).9. Adding paragraph (e).The revisions and additions read as fol-
lows:
§ 1.36B–2 Eligibility for premium taxcredit.
* * * * *(b) * * *(6) Special rule for taxpayers with
household income below 100 percent ofthe Federal poverty line for the taxableyear—(i) In general. A taxpayer (otherthan a taxpayer described in paragraph(b)(5) of this section) whose householdincome for a taxable year is less than 100percent of the Federal poverty line for thetaxpayer’s family size is treated as an ap-plicable taxpayer for the taxable year if—
(A) The taxpayer or a family memberenrolls in a qualified health plan throughan Exchange for one or more months dur-ing the taxable year;
(B) An Exchange estimates at the timeof enrollment that the taxpayer’s house-hold income will be at least 100 percentbut not more than 400 percent of the Fed-eral poverty line for the taxable year;
January 17, 2017 Bulletin No. 2017–3416
(C) Advance credit payments are au-thorized and paid for one or more monthsduring the taxable year; and
(D) The taxpayer would be an applica-ble taxpayer if the taxpayer’s householdincome for the taxable year was at least100 but not more than 400 percent of theFederal poverty line for the taxpayer’sfamily size.
(ii) Exceptions. This paragraph (b)(6)does not apply for an individual who, withintentional or reckless disregard for thefacts, provides incorrect information to anExchange for the year of coverage. Areckless disregard of the facts occurs if thetaxpayer makes little or no effort to deter-mine whether the information provided tothe Exchange is accurate under circum-stances that demonstrate a substantial de-viation from the standard of conduct areasonable person would observe. A dis-regard of the facts is intentional if thetaxpayer knows the information providedto the Exchange is inaccurate.* * * * *
(c) * * *(2) * * *(v) * * * This paragraph (c)(2)(v) does
not apply for an individual who, with in-tentional or reckless disregard for thefacts, provides incorrect information to anExchange for the year of coverage. Areckless disregard of the facts occurs if thetaxpayer makes little or no effort to deter-mine whether the information provided tothe Exchange is accurate under circum-stances that demonstrate a substantial de-viation from the standard of conduct areasonable person would observe. A dis-regard of the facts is intentional if thetaxpayer knows that information providedto the Exchange is inaccurate.* * * * *
(3) * * *(i) In general. For purposes of section
36B, an employee who may enroll in aneligible employer-sponsored plan (as de-fined in section 5000A(f)(2) and the reg-ulations under that section) that is mini-mum essential coverage, and an individualwho may enroll in the plan because of arelationship to the employee (a relatedindividual), are eligible for minimum es-sential coverage under the plan for anymonth only if the plan is affordable andprovides minimum value. Except for theNonappropriated Fund Health Benefits
Program of the Department of Defense,established under section 349 of the Na-tional Defense Authorization Act for Fis-cal Year 1995 (Public Law 103–337; 10U.S.C. 1587 note), government-sponsoredminimum essential coverage is not aneligible employer-sponsored plan. TheNonappropriated Fund Health BenefitsProgram of the Department of Defense isconsidered eligible employer-sponsoredcoverage, but not government-sponsoredcoverage, for purposes of determining ifan individual is eligible for minimum es-sential coverage under this section.* * * * *
(iii) * * *(A) Failure to enroll in plan. An em-
ployee or related individual may be eligi-ble for minimum essential coverage underan eligible employer-sponsored plan for amonth during a plan year if the employeeor related individual could have enrolledin the plan for that month during an openor special enrollment period for the planyear. If an enrollment period relates tocoverage for not only the upcoming planyear (or the current plan year in the caseof an enrollment period other than an openenrollment period), but also coverage inone or more succeeding plan years, thisparagraph (c)(3)(iii)(A) applies only to el-igibility for the coverage in the upcomingplan year (or the current plan year in thecase of an enrollment period other than anopen enrollment period).* * * * *
(v) * * *(A) * * *(3) * * * This paragraph (c)(3)(v)
(A)(3) does not apply for an individualwho, with intentional or reckless disregardfor the facts, provides incorrect informa-tion to an Exchange concerning the por-tion of the annual premium for coveragefor the employee or related individual un-der the plan. A reckless disregard of thefacts occurs if the taxpayer makes little orno effort to determine whether the infor-mation provided to the Exchange is accu-rate under circumstances that demonstratea substantial deviation from the standardof conduct a reasonable person would ob-serve. A disregard of the facts is inten-tional if the taxpayer knows that the in-formation provided to the Exchange isinaccurate.* * * * *
(7) Opt-out arrangements. [Reserved]* * * * *
(4) Special eligibility rules—(i) Re-lated individual not claimed as a personalexemption deduction. An individual whomay enroll in minimum essential coveragebecause of a relationship to another per-son eligible for the coverage, but forwhom the other eligible person does notclaim a personal exemption deduction un-der section 151, is treated as eligible forminimum essential coverage under thecoverage only for months that the relatedindividual is enrolled in the coverage.
(ii) Exchange unable to discontinueadvance credit payments—(A) In general.If an individual who is enrolled in a qual-ified health plan for which advance creditpayments are made informs the Exchangethat the individual is or will soon be eli-gible for other minimum essential cover-age and that advance credit paymentsshould be discontinued, but the Exchangedoes not discontinue advance credit pay-ments for the first calendar month begin-ning after the month the individual in-forms the Exchange, the individual istreated as eligible for the other minimumessential coverage no earlier than the firstday of the second calendar month begin-ning after the first month the individualmay enroll in the other minimum essentialcoverage.
(B) Medicaid or CHIP. If a determina-tion is made that an individual who isenrolled in a qualified health plan forwhich advance credit payments are madeis eligible for Medicaid or CHIP but theadvance credit payments are not discon-tinued for the first calendar month begin-ning after the eligibility determination, theindividual is treated as eligible for theMedicaid or CHIP no earlier than the firstday of the second calendar month begin-ning after the eligibility determination.
(d) [Reserved](e) Effective/applicability date. (1) Ex-
cept as provided in paragraph (e)(2) ofthis section, this section applies to taxableyears ending after December 31, 2013.
(2) Paragraph (b)(6)(ii), the last threesentences of paragraph (c)(2)(v), para-graph (c)(3)(i), paragraph (c)(3)(iii)(A),the last three sentences of paragraph(c)(3)(v)(A)(3), and paragraph (c)(4) ofthis section apply to taxable years begin-ning after December 31, 2016. Paragraphs
Bulletin No. 2017–3 January 17, 2017417
(b)(6), (c)(3)(i), (c)(3)(iii)(A), and (c)(4)of § 1.36B–2 as contained in 26 CFR partI edition revised as of April 1, 2016, applyto taxable years ending after December31, 2013, and beginning before January 1,2017.
Par. 5. Section 1.36B–3 is amended by:1. Redesignating paragraph (c)(4) as
paragraph (c)(5) and adding a new para-graph (c)(4).
2. Revising paragraph (d)(1).3. Revising paragraph (d)(2).4. Revising paragraph (f).5. Adding paragraph (n).The revisions and additions read as fol-
lows:
§ 1.36B–3 Computing the premium taxcredit amount.
* * * * *(c) * * *(4) Appeals of coverage eligibility. A
taxpayer who is eligible for advance creditpayments pursuant to an eligibility appealdecision implemented under 45 CFR§ 155.545(c)(1)(ii) for coverage of amember of the taxpayer’s coverage familywho, based on the appeal decision, retro-actively enrolls in a qualified health planis considered to have met the requirementin paragraph (c)(1)(ii) of this section for amonth if the taxpayer pays the taxpayer’sshare of the premiums for coverage underthe plan for the month on or before the120th day following the date of the ap-peals decision.* * * * *
(d) * * *(1) Premium assistance amount. The
premium assistance amount for a cover-age month is the lesser of—
(i) The premiums for the month, re-duced by any amounts that were refunded,for one or more qualified health plans inwhich a taxpayer or a member of thetaxpayer’s family enrolls (enrollment pre-miums); or
(ii) The excess of the adjusted monthlypremium for the applicable benchmarkplan (benchmark plan premium) over 1/12of the product of a taxpayer’s householdincome and the applicable percentage forthe taxable year (the taxpayer’s contribu-tion amount).
(2) Examples. The following examplesillustrate the rules of paragraph (d)(1) ofthis section.
Example 1. Taxpayer Q is single and has nodependents. Q enrolls in a qualified health plan witha monthly premium of $400. Q’s monthly bench-mark plan premium is $500, and his monthly con-tribution amount is $80. Q’s premium assistanceamount for a coverage month is $400 (the lesser of$400, Q’s monthly enrollment premium, and $420,the difference between Q’s monthly benchmark planpremium and Q’s contribution amount).
Example 2. (i) Taxpayer R is single and has nodependents. R enrolls in a qualified health plan witha monthly premium of $450. The difference betweenR’s benchmark plan premium and contributionamount for the month is $420.
(ii) The issuer of R’s qualified health plan isnotified that R died on September 20. The issuerterminates coverage as of that date and refunds theremaining portion of the September enrollment pre-miums ($150) for R’s coverage.
(iii) R’s premium assistance amount for eachcoverage month from January through August is$420 (the lesser of $450 and $420). Under paragraph(d)(1) of this section, R’s premium assistanceamount for September is the lesser of the enrollmentpremiums for the month, reduced by any amountsthat were refunded ($300 ($450 – $150)) or thedifference between the benchmark plan premiumand the contribution amount for the month ($420).R’s premium assistance amount for September is$300, the lesser of $420 and $300.
Example 3. The facts are the same as in Example2 of this paragraph (d)(2), except that the qualifiedhealth plan issuer does not refund any enrollmentpremiums for September. Under paragraph (d)(1) ofthis section, R’s premium assistance amount for Sep-tember is $420, the lesser of $450 and $420.
* * * * *(f) Applicable benchmark plan—(1) In
general. Except as otherwise provided inthis paragraph (f), the applicable bench-mark plan for each coverage month is thesecond- lowest-cost silver plan (as de-scribed in section 1302(d)(1)(B) of theAffordable Care Act (42 U.S.C.18022(d)(1)(B))) offered to the taxpayer’scoverage family through the Exchange forthe rating area where the taxpayer residesfor—
(i) Self-only coverage for a taxpayer—(A) Who computes tax under section
1(c) (unmarried individuals other thansurviving spouses and heads of house-hold) and is not allowed a deduction undersection 151 for a dependent for the taxableyear;
(B) Who purchases only self-only cov-erage for one individual; or
(C) Whose coverage family includesonly one individual; and
(ii) Family coverage for all other tax-payers.
(2) Family coverage. The applicablebenchmark plan for family coverage is thesecond lowest-cost silver plan that wouldcover the members of the taxpayer’s cov-erage family (such as a plan covering twoadults if the members of a taxpayer’s cov-erage family are two adults).
(3) Silver-level plan not covering pedi-atric dental benefits. If one or more silver-level qualified health plans offeredthrough an Exchange do not cover pedi-atric dental benefits, the premium for theapplicable benchmark plan is determinedbased on the second lowest-cost optionamong—
(i) The silver-level qualified healthplans that are offered by the Exchange tothe members of the coverage family andthat provide pediatric dental benefits; and
(ii) The silver-level qualified healthplans that are offered by the Exchange tothe members of the coverage family thatdo not provide pediatric dental benefits inconjunction with the second lowest-costportion of the premium for a stand-alonedental plan (within the meaning of section1311(d)(2)(B)(ii) of the Affordable CareAct (42 U.S.C. 18031(d)(2)(B)(ii))) of-fered by the Exchange to the members ofthe coverage family that is properly allo-cable to pediatric dental benefits deter-mined under guidance issued by the Sec-retary of Health and Human Services.
(4) Family members residing in differ-ent locations. If members of a taxpayer’scoverage family reside in different loca-tions, the taxpayer’s benchmark plan pre-mium is the sum of the premiums for theapplicable benchmark plans for eachgroup of coverage family members resid-ing in different locations, based on theplans offered to the group through theExchange where the group resides. If allmembers of a taxpayer’s coverage familyreside in a single location that is differentfrom where the taxpayer resides, the tax-payer’s benchmark plan premium is thepremium for the applicable benchmarkplan for the coverage family, based on theplans offered through the Exchange to thetaxpayer’s coverage family for the ratingarea where the coverage family resides.
(5) Single or multiple policies neededto cover the family—(i) Policy covering ataxpayer’s family. If a silver-level plan or
January 17, 2017 Bulletin No. 2017–3418
a stand-alone dental plan offers coverageto all members of a taxpayer’s coveragefamily who reside in the same locationunder a single policy, the premium (orallocable portion thereof, in the case of astand-alone dental plan) taken into ac-count for the plan for purposes of deter-mining the applicable benchmark plan un-der paragraphs (f)(1), (f)(2), and (f)(3) ofthis section is the premium for this singlepolicy.
(ii) Policy not covering a taxpayer’sfamily. If a silver-level qualified healthplan or a stand-alone dental plan wouldrequire multiple policies to cover allmembers of a taxpayer’s coverage familywho reside in the same location (for ex-ample, because of the relationships withinthe family), the premium (or allocableportion thereof, in the case of a standalonedental plan) taken into account for theplan for purposes of determining the ap-plicable benchmark plan under paragraphs(f)(1), (f)(2), and (f)(3) of this section isthe sum of the premiums (or allocableportion thereof, in the case of a stand-alone dental plan) for self-only policiesunder the plan for each member of thecoverage family who resides in the samelocation.
(6) Plan not available for enrollment.A silver-level qualified health plan or astand-alone dental plan that is not open toenrollment by a taxpayer or family mem-ber at the time the taxpayer or familymember enrolls in a qualified health planis disregarded in determining the applica-ble benchmark plan.
(7) Benchmark plan terminates orcloses to enrollment during the year. Asilver-level qualified health plan or astand-alone dental plan that is used forpurposes of determining the applicablebenchmark plan under this paragraph (f)for a taxpayer does not cease to be theapplicable benchmark plan for a taxableyear solely because the plan or a lowercost plan terminates or closes to enroll-ment during the taxable year.
(8) Only one silver-level plan offeredto the coverage family. If there is only onesilver-level qualified health plan or onestand-alone dental plan offered through anExchange that would cover all membersof a taxpayer’s coverage family who re-side in the same location (whether underone policy or multiple policies), that plan
is used for purposes of determining thetaxpayer’s applicable benchmark plan.
(9) Examples. The following examplesillustrate the rules of this paragraph (f).Unless otherwise stated, in each examplethe plans are open to enrollment to a tax-payer or family member at the time ofenrollment and are offered through theExchange for the rating area where thetaxpayer resides:
Example 1. Single taxpayer enrolls in Exchangecoverage. Taxpayer A is single, has no dependents,and enrolls in a qualified health plan. The Exchangein the rating area in which A resides offers onlysilver-level qualified health plans that provide pedi-atric dental benefits. Under paragraphs (f)(1) and(f)(2) of this section, A’s applicable benchmark planis the second lowest cost silver plan providing self-only coverage for A.
Example 2. Single taxpayer enrolls with depen-dent child through an Exchange where all qualifiedhealth plans provide pediatric dental benefits. Tax-payer B is single and claims her 12-year old daugh-ter, C, as a dependent. B purchases family coveragefor herself and C. The Exchange in the rating area inwhich B and C reside offers qualified health plansthat provide pediatric dental benefits but does notoffer qualified health plans without pediatric dentalbenefits. Under paragraphs (f)(1) and (f)(2) of thissection, B’s applicable benchmark plan is the secondlowest-cost silver plan providing family coverage toB and C.
Example 3. Single taxpayer enrolls with depen-dent child through an Exchange where one or morequalified health plans do not provide pediatric den-tal benefits. (i) Taxpayer D is single and claims his10-year old son, E, as a dependent. The Exchange inthe rating area in which D and E reside offers threesilver-level qualified health plans, one of which pro-vides pediatric dental benefits (S1) and two of whichdo not (S2 and S3), in which D and E may enroll.The Exchange also offers two stand-alone dentalplans (DP1 and DP2) available to D and E. Themonthly premiums allocable to essential health ben-efits for the silver-level plans are as follows:
S1 – $650S2 – $620S3 – $590
(ii)The monthly premiums, and theportion of the premium allocable to pedi-atric dental benefits, for the two dentalplans are as follows:DP1 – $50 ($20 allocable to pediatric den-tal benefits)DP2 – $40 ($15 allocable to pediatric den-tal benefits).
(iii) Under paragraph (f)(3) of this sec-tion, D’s applicable benchmark plan is thesecond lowest cost option among the fol-lowing offered by the rating area in whichD resides: silver-level qualified healthplans providing pediatric dental benefits($650 for S1) and the silver-level qualified
health plans not providing pediatric dentalbenefits, in conjunction with the secondlowest-cost portion of the premium for astand-alone dental plan properly allocableto pediatric dental benefits ($590 for S3 inconjunction with $20 for DP1 � $610 and$620 for S2 in conjunction with $20 forDP1 � $640). Under paragraph (e) of thissection, the adjusted monthly premium forD’s applicable benchmark plan is $640.
Example 4. Single taxpayer enrolls with depen-dent adult through an Exchange where one or morequalified health plans do not provide pediatric den-tal benefits. (i) The facts are the same as in Example3, except Taxpayer D’s coverage family consists ofD and D’s 22-year old son, F, who is a dependent ofD. The monthly premiums allocable to essentialhealth benefits for the silver-level plans are as fol-lows:
S1 – $630S2 – $590S3 – $580
(ii) Because no one in D’s coveragefamily is eligible for pediatric dental ben-efits, $0 of the premium for a stand-alonedental plan is allocable to pediatric dentalbenefits in determining D’s applicablebenchmark plan. Consequently, underparagraphs (f)(1), (f)(2), and (f)(3) of thissection, D’s applicable benchmark plan isthe second lowest-cost option among thefollowing options offered by the ratingarea in which D resides: silver-level qual-ified health plans providing pediatric den-tal benefits ($630 for S1) and the silver-level qualified health plans not providingpediatric dental benefits, in conjunctionwith the second lowest-cost portion of thepremium for a stand-alone dental planproperly allocable to pediatric dental ben-efits ($580 for S3 in conjunction with $0for DP1 � $580 and $590 for S2 in con-junction with $0 for DP1 � $590). Underparagraph (e) of this section, the adjustedmonthly premium for D’s applicablebenchmark plan is $590.
Example 5. Single taxpayer enrolls with depen-dent and nondependent. Taxpayer G is single andresides with his 25-year old daughter, H, and withhis 14-year old son, I. G may claim I, but not H, asa dependent. G, H, and I enroll in coverage throughthe Exchange in the rating area in which they allreside. The Exchange offers only silver-level plansproviding pediatric dental benefits. Under para-graphs (f)(1) and (f)(2) of this section, G’s applicablebenchmark plan is the second lowest-cost silver plancovering G and I. However, H may qualify for apremium tax credit if H is otherwise eligible. Seeparagraph (h) of this section.
Example 6. Change in coverage family. Tax-payer J is single and has no dependents when she
Bulletin No. 2017–3 January 17, 2017419
enrolls in a qualified health plan. The Exchange inthe rating area in which she resides offers onlysilver-level plans that provide pediatric dental bene-fits. On August 1, J has a child, K, whom she claimsas a dependent. J enrolls in a qualified health plancovering J and K effective August 1. Under para-graphs (f)(1) and (f)(2) of this section, J’s applicablebenchmark plan for January through July is the sec-ond lowest-cost silver plan providing self-only cov-erage for J, and J’s applicable benchmark plan forthe months August through December is the secondlowest-cost silver plan covering J and K.
Example 7. Minimum essential coverage forsome coverage months. Taxpayer L claims his 6-yearold daughter, M, as a dependent. L and M are enrolledfor the entire year in a qualified health plan that offersonly silver-level plans that provide pediatric dentalbenefits. L, but not M, is eligible for government-sponsored minimum essential coverage for Septemberto December. Thus, under paragraph (c)(1)(iii) of thissection, January through December are coveragemonths for M, and January through August are cover-age months for L. Because, under paragraphs (d) and(f)(1) of this section, the premium assistance amountfor a coverage month is computed based on the appli-cable benchmark plan for that coverage month, L’sapplicable benchmark plan for January through Augustis the second lowest-cost option covering L and M.Under paragraph (f)(1)(i)(C) of this section, L’s appli-cable benchmark plan for September through Decem-ber is the second lowest-cost silver plan providingself-only coverage for M.
Example 8. Family member eligible for minimumessential coverage for the taxable year. The facts arethe same as in Example 7, except that L is not eligiblefor government-sponsored minimum essential cover-age for any months and M is eligible for governmentsponsored minimum essential coverage for the entireyear. Under paragraph (f)(1)(i)(C) of this section, L’sapplicable benchmark plan is the second lowest-costsilver plan providing self-only coverage for L.
Example 9. Benchmark plan premium for a cov-erage family with family members who reside in differ-ent locations. (i) Taxpayer N’s coverage family con-sists of N and her three dependents O, P, and Q. N, O,and P reside together but Q resides in a different loca-tion. The monthly applicable benchmark plan premiumfor N, O, and P is $1,000 and the monthly applicablebenchmark plan premium for Q is $220.
(ii) Under paragraph (f)(4) of this section, be-cause the members of N’s coverage family reside indifferent locations, the monthly premium for N’sapplicable benchmark plan is the sum of $1,000, themonthly premiums for the applicable benchmarkplan for N, O, and P, who reside together, and $220,the monthly applicable benchmark plan premium forQ, who resides in a different location than N, O, andP. Consequently, the premium for N’s applicablebenchmark plan is $1,220.
Example 10. Aggregation of silver-level policiesfor plans not covering a family under a single policy.(i) Taxpayers R and S are married and live with S’smother, T, whom they claim as a dependent. TheExchange for their rating area offers self-only andfamily coverage at the silver level through Issuers A,B, and C, which each offer only one silver-levelplan. The silver-level plans offered by Issuers A andB do not cover R, S, and T under a single policy. The
silver-level plan offered by Issuer A costs the fol-lowing monthly amounts for self-only coverage of R,S, and T, respectively: $400, $450, and $600. Thesilver-level plan offered by Issuer B costs the fol-lowing monthly amounts for self-only coverage of R,S, and T, respectively: $250, $300, and $450. Thesilver-level plan offered by Issuer C provides cover-age for R, S, and T under one policy for a $1,200monthly premium.
(ii) Under paragraph (f)(5) of this section, IssuerC’s silver-level plan that covers R, S, and T underone policy ($1,200 monthly premium) and Issuer A’sand Issuer B’s silver-level plans that do not cover R,S and T under one policy are considered in deter-mining R’s and S’s applicable benchmark plan. Inaddition, under paragraph (f)(5)(ii) of this section, indetermining R’s and S’s applicable benchmark plan,the premium taken into account for Issuer A’s plan is$1,450 (the aggregate premiums for self-only poli-cies covering R ($400), S ($450), and T ($600) andthe premium taken into account for Issuer B’s plan is$1,000 (the aggregate premiums for self-only poli-cies covering R ($250), S ($300), and T ($450).Consequently, R’s and S’s applicable benchmarkplan is the Issuer C silver-level plan covering R’sand S’s coverage family and the premium for theirapplicable benchmark plan is $1,200.
Example 11. Benchmark plan premium for a tax-payer with family members who cannot enroll in onepolicy and who reside in different locations. (i) Tax-payer U’s coverage family consists of U, U’s mother,V, and U’s two daughters, W and X. U and V residetogether in Location 1 and W and X reside together inLocation 2. The Exchange in the rating area in which Uand V reside does not offer a silver-level plan thatcovers U and V under a single policy, whereas all thesilver-level plans offered through the Exchange in therating area in which W and X reside cover W and Xunder a single policy. Both Exchanges offer onlysilver-level plans that provide pediatric dental benefits.The silver plan offered by the Exchange for the ratingarea in which U and V reside that would cover U andV under self-only policies with the second-lowest ag-gregate premium costs $400 a month for self-onlycoverage for U and $600 a month for self-only cover-age for V. The monthly premium for the second-lowestcost silver plan covering W and X that is offered by theExchange for the rating area in which W and X resideis $500.
(ii) Under paragraph (f)(5)(ii) of this section,because multiple policies are required to cover U andV, the members of U’s coverage family who residetogether in Location 1, the premium taken into ac-count in determining U’s benchmark plan is $1,000,the sum of the premiums for the second-lowest ag-gregate cost of self-only policies covering U ($400)and V ($600) offered by the Exchange to U and Vfor the rating area in which U and V reside. Underparagraph (f)(5)(i) of this section, because all silver-level plans offered by the Exchange in which W andX reside cover W and X under a single policy, thepremium for W and X’s coverage that is taken intoaccount in determining U’s benchmark plan is $500,the second-lowest cost silver policy covering W andX that is offered by the Exchange for the rating areain which W and X reside. Under paragraph (f)(4) ofthis section, because the members of U’s coveragefamily reside in different locations, U’s monthly
benchmark plan premium is $1,500, the sum of thepremiums for the applicable benchmark plans foreach group of family members residing in differentlocations ($1,000 for U and V, who reside in Loca-tion 1, plus $500 for W and X, who reside in Loca-tion 2).
Example 12. Qualified health plan closed to en-rollment. Taxpayer Y has two dependents, Z andAA. Y, Z, and AA enroll in a qualified health planthrough the Exchange for the rating area where thefamily resides. The Exchange, which offers onlyqualified health plans that include pediatric dentalbenefits, offers silver-level plans J, K, L, and M,which are, respectively, the first, second, third, andfourth lowest cost silver plans covering Y’s family.When Y’s family enrolls, Plan J is closed to enroll-ment. Under paragraph (f)(6) of this section, Plan J isdisregarded in determining Y’s applicable bench-mark plan. Plan L is Y’s applicable benchmark plan.
Example 13. Benchmark plan closes to new en-rollees during the year. (i) Taxpayers BB, CC, andDD each have coverage families consisting of twoadults. In that rating area, Plan 2 is the second lowestcost silver plan and Plan 3 is the third lowest costsilver plan covering the two adults in each coveragefamily offered through the Exchange. The BB andCC families each enroll in a qualified health plan thatis not the applicable benchmark plan (Plan 4) inNovember during the annual open enrollment period.Plan 2 closes to new enrollees the following June.Thus, on July 1, Plan 3 is the second lowest costsilver plan available to new enrollees through theExchange. The DD family enrolls in a qualifiedhealth plan in July.
(ii) Under paragraphs (f)(1), (f)(2), (f)(3), and(f)(7) of this section, with BB’s and CC’s applicablebenchmark plan for all coverage months during theyear is plan 2. DD’s applicable benchmark plan isPlan 3, because Plan 2 is not open to enrollmentthrough the Exchange when the DD family enrolls.
Example 14. Benchmark plan terminates for allenrollees during the year. The facts are the same asin Example 13, except that Plan 2 terminates for allenrollees on June 30. Under paragraphs (f)(1), (f)(2),(f)(3), and (f)(7) of this section, Plan 2 is BB’s andCC’s applicable benchmark plan for all coveragemonths during the year, and Plan 3 is DD’s applica-ble benchmark plan.
Example 15. Exchange offers only one silver-level plan. Taxpayer EE’s coverage family consistsof EE, his spouse FF, and their two dependent chil-dren GG and HH, who all reside together. The Ex-change for the rating area in which they reside offersonly one silver-level plan that EE’s family mayenroll in and the plan does not provide pediatricdental benefits. The Exchange also offers one stand-alone dental plan in which the family may enroll.Under paragraph (f)(8) of this section, the silver-level plan and the stand-alone dental plan offered bythe Exchange are used for purposes of determiningEE’s applicable benchmark plan under paragraph(f)(3) of this section. Moreover, the lone silver-levelplan and the lone stand-alone dental plan offered bythe Exchange are used for purposes of determiningEE’s applicable benchmark plan regardless ofwhether these plans cover EE’s family under a singlepolicy or multiples policies.
* * * * *
January 17, 2017 Bulletin No. 2017–3420
(n) Effective/applicability date. (1) Ex-cept as provided in paragraph (n)(2) ofthis section, this section applies to taxableyears ending after December 31, 2013.
(2) Paragraphs (c)(4), (d)(1) and (d)(2)of this section apply to taxable years be-ginning after December 31, 2016. Para-graph (f) of this section applies to taxableyears beginning after December 31, 2018.Paragraphs (d)(1) and (d)(2) of § 1.36B–3,as contained in 26 CFR part I editionrevised as of April 1, 2016, applies totaxable years ending after December 31,2013, and beginning before January 1,2017. Paragraph (f) of § 1.36B–3, as con-tained in 26 CFR part I edition revised asof April 1, 2016, applies to taxable yearsending after December 31, 2013, and be-ginning before January 1, 2019.
Par. 6. Section 1.36B–5 is amended by:1. Adding a sentence to the end of
paragraph (c)(3)(i).2. Adding paragraphs (c)(3)(iii) and (h).The additions read as follows:
§ 1.36B–5 Information reporting byExchanges.
* * * * *(c) * * *(3) * * *(i) * * * If advance credit payments are
made for coverage under the plan, theenrollment premiums reported to eachfamily under paragraph (c)(1)(viii) of thissection are the premiums allocated to thefamily under § 1.36B–3(h) (allocating en-rollment premiums to each taxpayer inproportion to the premiums for each tax-payer’s applicable benchmark plan).* * * * *
(iii) Partial month of coverage.—(A)In general. Except as provided in para-graph (c)(3)(iii)(B) of this section, if anindividual is enrolled in a qualified healthplan after the first day of a month, theamount reported for that month underparagraphs (c)(1)(iv), (c)(1)(v), and(c)(1)(viii) of this section is $0.
(B) Certain mid-month enrollments.For information reporting that is due on orafter January 1, 2019, if an individual’squalified health plan is terminated beforethe last day of a month, or if an individualis enrolled in coverage after the first day
of a month and the coverage is effectiveon the date of the individual’s birth, adop-tion, or placement for adoption or in fostercare, or on the effective date of a courtorder, the amount reported under para-graphs (c)(1)(iv) and (c)(1)(v) of this sec-tion is the premium for the applicablebenchmark plan for a full month of cov-erage (excluding the premium allocated tobenefits in excess of essential health ben-efits), and the amount reported under para-graph (c)(1)(viii) of this section is theenrollment premium for the month re-quired to be reported under paragraphs(c)(1)(Viii)(A), (B), and (C) of this sec-tion, reduced by any amounts that wererefunded.* * * * *
(h) Effective/applicability date. Exceptfor the last sentence of paragraph (c)(3)(i) ofthis section and paragraph (c)(3)(iii) of thissection, this section applies to taxable yearsending after December 31, 2013. The lastsentence of paragraph (c)(3)(i) of this sec-tion and paragraph (c)(3)(iii) of this sectionapply to taxable years beginning after De-cember 31, 2018. Paragraph (c)(3) of§ 1.36B–5 as contained in 26 CFR part Iedition revised as of April 1, 2016, appliesto information reporting for taxable yearsending after December 31, 2013, and begin-ning before January 1, 2019.
Par. 7. Section 1.5000A–3 is amendedby adding a new paragraph (e)(3)(ii)(G) toread as follows:
§ 1.5000A–3 Exempt individuals.
* * * * *(e) * * *(3) * * *(ii) * * *(G) Opt-out arrangements. [Reserved]
* * * * *Par. 8. Section 1.6011–8 is revised to
read as follows:
§ 1.6011–8 Requirement of income taxreturn for taxpayers who claim thepremium tax credit under section 36B.
(a) Requirement of return. Except asotherwise provided in this paragraph (a), ataxpayer who receives the benefit of ad-vance payments of the premium tax credit
under section 36B must file an income taxreturn for that taxable year on or beforethe due date for the return (including ex-tensions of time for filing) and reconcilethe advance credit payments. However, ifadvance credit payments are made forcoverage of an individual for whom notaxpayer claims a personal exemption de-duction, the taxpayer who attests to theExchange to the intention to claim a per-sonal exemption deduction for the indi-vidual as part of the determination that thetaxpayer is eligible for advance creditpayments must file a tax return and rec-oncile the advance credit payments.
(b) Effective/applicability date. Exceptas otherwise provided, this section appliesfor taxable years beginning after December31, 2016. Paragraph (a) of § 1.6011–8 ascontained in 26 CFR part I edition revised asof April 1, 2016, applies to taxable yearsending after December 31, 2013, and begin-ning before January 1, 2017.
PART 301—PROCEDURE ANDADMINISTRATION
Par. 9. The authority citation for part301 continues to read in part as follows:
AUTHORITY: 26 U.S.C. 7805. * * *Section 301.6011–2 also issued under
26 U.S.C. 6011(e). * * *
§ 301.6011–2 [Amended]
Par. 10. Section 301.6011–2(b)(1) isamended by adding “1095–B, 1095–C”after “1094 series”, and removing “1095series”.
John Dalrymple,Deputy Commissioner forService and Enforcement.
Approved: December 8, 2016
Mark J. Mazur,Assistant Secretary of the
Treasury (Tax Policy).
(Filed by the Office of the Federal Register on December 14,2016, at 4:15 p.m., and published in the issue of the FederalRegister for December 19, 2016, 81 F.R. 91755)
Bulletin No. 2017–3 January 17, 2017421
Part III. Administrative, Procedural, and MiscellaneousExtension of Eligibility RuleWaivers for CertainAutomatic Changes MadeTo Comply with the FinalTangible PropertyRegulationsNotice 2017–06
PURPOSE
This notice extends the waiver of theeligibility rule set out in section 5.01(1)(f)of Rev. Proc. 2015–13, 2015–5 I.R.B.419, (which Revenue Procedure was clar-ified and modified by Rev. Proc. 2015–33,2015–24 I.R.B. 1067, and modified byRev. Proc. 2016–1, 2016–1 I.R.B. 1) thatwas provided under Rev. Proc. 2016–29,2016–21 I.R.B. 880, for making certainautomatic changes in accounting methods.Specifically, this notice extends this eligi-bility rule waiver for one year to anytaxable year beginning before January 1,2017, for taxpayers making certain auto-matic changes to utilize the final tangibleproperty regulations under §§ 162(a) and263(a) of the Internal Revenue Code (theCode) and for making certain automaticchanges to depreciation and dispositionsunder § 168 of the Code.
BACKGROUND
On September 19, 2013, the Depart-ment of the Treasury (Treasury Depart-ment) and the Internal Revenue Service(IRS) published in the Federal Register(78 Fed. Reg. 57686) final regulations un-der §§ 1.162–3, 1.162–4, 1.168(i)–1,1.168(i)–7, 1.168(i)–8, 1.263(a)–1, 1.263(a)–2, and 1.263(a)–3 of the Income TaxRegulations (T.D. 9636). See also2013–43 I.R.B. 331. Corrections to thoseregulations were published in the FederalRegister (79 Fed. Reg. 42189) on July 21,2014, and the final regulations and thecorrections thereto are referred to collec-tively in this notice as the final tangibleproperty regulations. The final tangibleproperty regulations provide guidance onthe treatment of amounts paid to acquire,produce, or improve tangible property andgenerally apply to taxable years beginningon or after January 1, 2014, or, at the
option of the taxpayer, to taxable yearsbeginning on or after January 1, 2012.
On August 18, 2014, the Treasury De-partment and the IRS published in theFederal Register (79 Fed. Reg. 48661)final regulations under §§ 1.168(i)–1,1.168(i)–7, and 1.168(i)–8 (T.D. 9689).See also 2014–36 I.R.B. 456. Correctionsto those regulations were published in theFederal Register (79 Fed. Reg. 78696) onDecember 31, 2014, and the final regula-tions and the corrections thereto are re-ferred to collectively in this notice as thefinal depreciation and disposition regula-tions. The final depreciation and disposi-tion regulations provide guidance regard-ing accounting for property depreciatedunder § 168, the Modified AcceleratedCost Recovery System (MACRS), and fordispositions of MACRS property. Theserules also generally apply to taxable yearsbeginning on or after January 1, 2014, or,at the option of the taxpayer, to taxableyears beginning on or after January 1,2012.
Except as otherwise provided in theCode or regulations, a change to complywith the final tangible property regula-tions and the final depreciation and dispo-sition regulations is a change in method ofaccounting to which the provisions of§§ 446 and 481 and the accompanyingregulations apply. A taxpayer seeking tochange its method of accounting underthese regulations must secure the consentof the Commissioner of Internal Revenuein accordance with § 1.446–1(e) and fol-low the administrative procedures issuedunder § 1.446–1(e)(3)(ii).
Rev. Proc. 2015–13 provides the gen-eral procedures under § 446(e) for a tax-payer to obtain the automatic or non-automatic consent of the Commissioner tochange a method of accounting. Rev.Proc. 2016–29 provides the list of auto-matic changes in methods of accountingto which the automatic change proceduresof Rev. Proc. 2015–13 apply.
Section 11.08 of Rev. Proc. 2016–29provides for certain automatic changes toutilize the final tangible property regula-tions. Section 6.14 of Rev. Proc. 2016–29provides for automatic changes to permis-sible methods of accounting for deprecia-tion of MACRS property under sections
§§ 1.168(i)–1, 1.168(i)–7, and 1.168(i)–8.In addition, sections 6.15 through 6.17 ofRev. Proc. 2016–29 provide for automaticchanges related to dispositions of certainMACRS property under §§ 1.168(i)–1and 1.168(i)–8.
Section 5 of Rev. Proc. 2015–13 pro-vides certain eligibility rules for a tax-payer that applies for the Commissioner’sconsent to make a change in method ofaccounting under the automatic changeprocedures. Section 5.01(1)(f) providesthat the automatic change procedures maynot be utilized if the taxpayer has made orrequested a change for the same item dur-ing any of the five taxable years endingwith the year of change. This rule gener-ally precludes a taxpayer from using theautomatic change procedures to changethe treatment of the same item more thanonce within a five-year period. However,in order to facilitate the transition to thefinal tangible property regulations and thefinal depreciation and disposition regula-tions, sections 6.14(2)(b), 6.15(2)(b),6.16(2)(b), 6.17(2)(b), and 11.08(2) ofRev. Proc. 2016–29 provide a waiver ofthis eligibility rule for a limited periodof time. Each of these sections of Rev.Proc. 2016–29 specifically provides thatthe eligibility rule in section 5.01(1)(f) ofRev. Proc. 2015–13 does not apply to ataxpayer that makes one or more of thechanges in method of accounting permit-ted under that section for any taxable yearbeginning before January 1, 2016.
DISCUSSION
The Treasury Department and the IRSare aware that taxpayers continue to re-quest consent to change their methods ofaccounting to utilize the final tangibleproperty regulations and final depreciationand disposition regulations. To continueto ease taxpayers’ transition to these finalregulations and to reduce the administra-tive burden that would result from requir-ing taxpayers to apply for non-automaticchanges of accounting methods for eachof the changes specified above, this noticemodifies the applicable sections of Rev.Proc. 2016–29 to extend the waiver of theeligibility rule under section 5.01(1)(f) ofRev. Proc. 2015–13 for one year to any
January 17, 2017 Bulletin No. 2017–3422
taxable year beginning before January 1,2017. The applicable sections are:
(1) Section 6.14, relating to a changefrom a permissible to another permissiblemethod of accounting for depreciation ofMACRS property under § 1.168(i)–1,§ 1.168(i)–7, and § 1.168(i)–8, as appli-cable;
(2) Section 6.15, relating to a change inmethod of accounting for dispositions of abuilding or structural component under§ 1.168(i)–8;
(3) Section 6.16, relating to a change inmethod of accounting for dispositions oftangible depreciable assets (other than abuilding or its structural components) un-der § 1.168(i)–8;
(4) Section 6.17, relating to a change inmethod of accounting for dispositions oftangible depreciable assets in a generalasset account under § 1.168(i)–1; and
(5) Section 11.08, relating to changes inmethods of accounting for tangible prop-erty under the final tangible property reg-ulations.
Specifically, sections 6.14(2)(b),6.15(2)(b), 6.16(2)(b), and 6.17(2)(b) ofRev. Proc. 2016–29, which waive certaineligibility rules for making automaticchanges under the final depreciation anddisposition regulations, are modified byreplacing the references to the date, “Jan-uary 1, 2016,” with the date, “January 1,2017.” In addition, section 11.08(2) ofRev. Proc. 2016–29, which waives certaineligibility rules for making automaticchanges under the tangible property regu-lations, including the eligibility rule undersection 5.01(1)(d) of Rev. Proc. 2015–13,is modified by replacing all references tothe date, “January 1, 2016,” with the date,“January 1, 2017.” These modificationsalso apply for purposes of the concurrentautomatic changes that are specificallyreferenced in these sections.
TRANSITION RULE
If, before December 20, 2016, a tax-payer properly filed a Form 3115 underthe non-automatic change procedures inRev. Proc. 2015–13 requesting the Com-missioner’s consent for a change inmethod of accounting described in thisnotice, and the Form 3115 is pending withthe national office on December 20, 2016,the taxpayer may choose to make thechange of accounting method under the
automatic change procedures in Rev.Proc. 2015–13 by following the require-ments and procedures in subsection .02(1)of the EFFECTIVE DATE section in Rev.Proc. 2016–29 with the following modi-fications:
(1) The references to the date, “May 5,2016,” are replaced with the date, “De-cember 20, 2016” and
(2) The references to the date, “June 6,2016,” are replaced with the date, “Janu-ary 19, 2017.”
EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2016–29 is modified.
EFFECTIVE DATE
This notice is effective December 20,2016.
CONTACT INFORMATION
The principal author of this notice isMerrill D. Feldstein of the Office ofAssociate Chief Counsel (Income Taxand Accounting). For further informa-tion regarding this notice, contact Ms.Feldstein at (202) 317-5100 (not a toll-free number).
Foreign currency guidanceunder section 987Notice 2017–07
On December 7, 2016, the Departmentof the Treasury (Treasury Department)and the Internal Revenue Service (IRS)filed with the Federal Register TreasuryDecision 9795, which includes temporaryregulations under § 1.987–12T relating tothe recognition and deferral of foreigncurrency gain or loss under section 987with respect to a qualified business unit inconnection with a deferral event or out-bound loss event. Section 1.987–12T(j)(1)provides that § 1.987–12T generally ap-plies to any deferral event or outboundloss event that occurs on or after January6, 2017. Under § 1.987–12T(j)(2), how-ever, § 1.987–12T also applies to any de-ferral event or outbound loss event thatoccurs on or after December 7, 2016, ifsuch deferral event or outbound loss eventis undertaken with a principal purpose ofrecognizing section 987 gain or loss.
In order to prevent abuse, § 1.987–12T(j)(2) will be modified so that § 1.987–12T also will apply to any deferral event oroutbound loss event that is undertaken witha principal purpose of recognizing section987 gain or loss and that occurs as a result ofan entity classification election made under§ 301.7701–3 that is filed on or after De-cember 22, 2016, and that is effective beforeDecember 7, 2016. Additionally, § 1.987–12T(j)(1) will be modified so that § 1.987–12T also will apply to any deferral event oroutbound loss event that occurs as a result ofan entity classification election made under§ 301.7701–3 that is filed on or after Janu-ary 6, 2017, and that is effective beforeJanuary 6, 2017.
The principal author of this notice isSteven D. Jensen of the Office of Associ-ate Chief Counsel (International). How-ever, other personnel from the TreasuryDepartment and the IRS participated in itsdevelopment. For further information re-garding this notice contact Steven D. Jen-sen at (202) 317-6938 (not a toll-freenumber).
Transaction of Interest—Section 831(b) Micro-Captive Transactions
Notice 2017–08
SECTION 1. BACKGROUND
On November 1, 2016, the Departmentof the Treasury (the “Treasury Depart-ment”) and the Internal Revenue Service(the “IRS”) released Notice 2016–66,2016–47 I.R.B. 745, identifying transac-tions that are the same as, or substantiallysimilar to, the transaction described insection 2.01 of Notice 2016–66 as trans-actions of interest for purposes of§ 1.6011–4(b)(6) of the Income Tax Reg-ulations and §§ 6111 and 6112 of theInternal Revenue Code. Notice 2016–66alerted persons involved in these transac-tions to certain responsibilities and penal-ties that may arise from their involvementwith these transactions.
Generally, § 1.6011–4(e)(1) providesthat the disclosure statement for a report-able transaction must be attached to thetaxpayer’s tax return for each taxable yearfor which a taxpayer participates in a re-
Bulletin No. 2017–3 January 17, 2017423
portable transaction. In addition, a disclo-sure statement for a reportable transactionmust be attached to each amended returnthat reflects a taxpayer’s participation in areportable transaction. A copy of the dis-closure statement must be sent to the Of-fice of Tax Shelter Analysis (OTSA) atthe same time that any disclosure state-ment is first filed by the taxpayer pertain-ing to a particular reportable transaction.
In addition, § 1.6011–4(e)(2)(i) pro-vides that if a transaction becomes a trans-action of interest after the filing of a tax-payer’s tax return (including an amendedreturn) reflecting the taxpayer’s participa-tion in the transaction of interest and be-fore the end of the period of limitationsfor assessment of tax for any taxable yearin which the taxpayer participated in thetransaction of interest, then a disclosurestatement must be filed, regardless ofwhether the taxpayer participated in thetransaction in the year the transaction be-came a transaction of interest, with OTSAwithin 90 calendar days after the date onwhich the transaction became a transac-tion of interest.
Section 301.6111–3(e) of the Proce-dure and Administration Regulations, pro-vides that the material advisor’s disclo-sure statement for a reportable transactionmust be filed with OTSA by the last dayof the month that follows the end of thecalendar quarter in which the advisor be-came a material advisor with respect tothe reportable transaction or in which thecircumstances necessitating an amendeddisclosure statement occur.
Section 3.03 of Notice 2016–66 pro-vided that the rules regarding the time forproviding disclosure of a transaction de-scribed in section 2.01 of Notice 2016–66are in § 1.6011–4(e), with respect to par-ticipants in the transaction of interest, and§ 301.6111–3(e), with respect to materialadvisors. Notice 2016–66 further pro-vided that, if, under § 1.6011–4(e), a par-ticipant is required to file a disclosurestatement with respect to a transaction de-scribed in section 2.01 of Notice 2016–66after November 1, 2016, and prior to Jan-uary 30, 2017, that disclosure statementwill be considered to be timely filed if thetaxpayer alternatively files the disclosurewith the OTSA by January 30, 2017.
After the release of Notice 2016–66,the Treasury Department and the IRS re-
ceived several requests for an extension oftime for participants and material advisorsfiling disclosure statements. This noticemodifies section 3.03 of Notice 2016–66to provide an extension of time for thefiling of those disclosure statements.
SECTION 2. EXTENSION ANDMODIFICATION OF TIME FORDISCLOSURE
The time for providing disclosure of atransaction described in section 2.01 ofNotice 2016–66 set forth in § 1.6011–4(e), with respect to participants in thetransaction of interest, and § 301.6111–3(e), with respect to material advisors, isextended. Accordingly, section 3.03 ofNotice 2016–66 is modified as follows:
.03 Time for Disclosure
a. Participants
For rules regarding the time for pro-viding disclosure of a transaction de-scribed in section 2.01 of this notice,see § 1.6011–4(e). However, if, under§ 1.6011–4(e)(1), a taxpayer is required tofile a disclosure statement with respect toa transaction described in section 2.01 ofthis notice after November 1, 2016, andprior to May 1, 2017, that disclosure state-ment will be considered to be timely filedif the taxpayer alternatively files the dis-closure with the Office of Tax ShelterAnalysis by May 1, 2017 (because April30 is a Sunday). In addition, for purposesof disclosure of transactions described insection 2.01 of this notice, the 90-dayperiod provided in § 1.6011–4(e)(2)(i) isextended to 180 days.
b. Material advisors
For rules regarding the time for pro-viding disclosure of a transaction de-scribed in section 2.01 of this notice,see § 301.6111–3(e). However, if, under§ 301.6111–3(e), a material advisor is re-quired to file a disclosure statement withrespect to a transaction described in sec-tion 2.01 of this notice by January 31,2017, that disclosure statement will beconsidered to be timely filed if the mate-rial advisor files the disclosure with theOffice of Tax Shelter Analysis by May 1,2017 (because April 30 is a Sunday).
SECTION 3. EFFECT ON OTHERDOCUMENTS
Section 3.03 of Notice 2016–66 ismodified.
SECTION 4. DRAFTINGINFORMATION
The principal author of this notice isJohn E. Glover of the Office of AssociateChief Counsel (Financial Institutions &Products). For further information regard-ing this notice contact Mr. Glover at (202)317-6995 (not a toll-free number).
26 CFR § 601.105: Examination of returns andclaims for refund, credit or abatement; determina-tion of correct tax liability.
Rev. Proc. 2017–12
SECTION 1. PURPOSE
This revenue procedure provides thatthe Internal Revenue Service (IRS) willtreat an instrument described in section 3of this revenue procedure as indebtednessfor federal tax purposes.
SECTION 2. BACKGROUND
.01 In addition to special provisions ofthe Internal Revenue Code and Treasuryregulations relating to the federal incometaxation of banks, banks are generallysubject to comprehensive non-tax regula-tion that governs their capital structureand their transactions with affiliates. Topromote consistency between the rules ofdifferent countries, and to enhance globalfinancial stability by improving the qual-ity of banking supervision worldwide, aninternational body known as the BaselCommittee on Banking Supervision (Ba-sel) sets internationally agreed minimumstandards for the regulation and supervi-sion of banks. Another international body,the Financial Stability Board (FSB) alsodevelops regulatory and supervisory poli-cies for financial entities, including banks.The FSB focuses on the risk that the fail-ure of one financial institution or the col-lapse of one financial system could triggera chain reaction throughout the broaderfinancial system, commonly referred to assystemic risk. Additionally, the Dodd-Frank Wall Street Reform and ConsumerProtection Act, Public Law 111–203 (124
January 17, 2017 Bulletin No. 2017–3424
Stat. 1376 (2010)) (Dodd-Frank), includesrules prescribing the “orderly liquidationauthority,” which permits the Federal De-posit Insurance Corporation to take overand resolve certain bank holding compa-nies in a process similar to that which ituses to resolve a failing bank. Dodd-Frankalso requires each large bank to prepare a“living will,” which sets out a plan forunwinding the bank group so that the crit-ical services provided to the U.S. financialsystem by core members – notably thebank – can continue even if other servicesare terminated or other members are liq-uidated or sold off. The living will processhas required banks to restructure to facil-itate the implementation of these plans.
.02 The current framework for bankcapital is commonly known as Basel III.1
Basel III responds to events of the pastdecade by strengthening both capital andliquidity requirements for banks, espe-cially global systemically important bank-ing organizations (GSIBs). In addition tothe enhanced capital required by Basel III,regulators have sought to minimize therisk of insolvency by requiring GSIBs toissue instruments that provide total loss-absorbing capacity (TLAC). Standards is-sued by the FSB describe the require-ments for an instrument to qualify as aTLAC and require GSIBs to issue anamount of TLAC determined by referenceto the bank group’s risk-weighted assetsand Basel III leverage ratio. The FSBstandard distinguishes between “external”and “internal” TLAC. External TLAC aresecurities issued to third-party investorsby an entity subject to resolution powers(generally, the top-most parent bank orbank holding company). Internal TLACare securities issued by a subsidiary of aresolution entity to the resolution entity.Thus, for example, a foreign GSIB with asignificant U.S. presence would be re-quired under the FSB standard to establisha domestic intermediate holding company(IHC) to hold its U.S. subsidiaries, and theIHC would be required to issue internalTLAC to the foreign GSIB.
.03 Both external and internal TLACare issued in the form of debt. The FSB
standard requires TLAC to have a matu-rity of at least one year, to be callableprior to maturity only with regulatory ap-proval, to be unsecured, and generally tobe subordinated to insured deposits, othershort-term deposits, derivatives, struc-tured notes, non-contractual liabilities liketax liabilities, and secured liabilities.TLAC may rank senior to certain securi-ties that can qualify for equity credit underBasel III,2 but generally must be subordi-nate to a bank’s depositors and generalcreditors. The FSB standard also calls forTLAC to contain a contractual trigger orbe subject to a statutory mechanism thatpermits the relevant resolution authorityto effectively write the TLAC down orconvert TLAC to equity in resolution.
.04 Separately, the Board of Governorsof the Federal Reserve Bank (Board) hasissued regulations (Board regulations)3
that prescribe the amount and form ofboth external and internal TLAC requiredfor domestic GSIBs and the U.S. opera-tions of foreign GSIBs. In the case ofinternal TLAC, the Board regulations re-quire the IHC of a foreign GSIB to issue aspecified minimum amount of TLAC toits foreign parent (and not to third parties).Under 12 CFR § 252.161, the Board reg-ulations generally require that internalTLAC:
• not be secured, not be guaranteed bythe IHC or a subsidiary of the IHC,and not be subject to any other ar-rangement that legally or economi-cally enhances the seniority of the in-strument;
• have a maturity of greater than orequal to one year from the date ofissuance;
• be governed by the laws of the UnitedStates or any State thereof;
• not provide the holder of the TLAC acontractual right to accelerate paymentof items denominated as principal orinterest on the instrument, except aright that is exercisable on one or moredates that are specified in the instru-ment or in the event of (A) a receiver-ship, insolvency, liquidation, or simi-
lar proceeding of the IHC or (B) afailure of the IHC to pay principal orinterest on the instrument when dueand payable that continues for 30 daysor more;
• be issued to and held by a companythat is incorporated or organized out-side of the United States, and directlyor indirectly controls the IHC or is awholly owned subsidiary of such com-pany; and
• have a contractual provision approvedby the Board that provides for the im-mediate conversion or exchange of theinstrument into common equity tier 1of the IHC upon the Board’s issuanceof an internal debt conversion orderfor the TLAC.
An internal debt conversion ordermeans an order by the Board to immedi-ately convert or exchange to common eq-uity tier 1 capital an amount of TLACspecified by the Board in its discretion. TheBoard may issue an internal debt conversionorder only if the Board has determined thatthe IHC is in default or danger of defaultand any of three enumerated circumstancesapply. 12 CFR § 252.163(a). One of thosecircumstances is that the home country su-pervisor of the top-tier foreign banking or-ganization has consented or not promptlyobjected after notification by the Board tothe conversion or exchange of the TLACissued by the IHC. 12 CFR § 252.163(a)(2)(ii). The Board regulations also prescribethe circumstances in which an IHC will beconsidered to be in default or danger ofdefault. 12 CFR § 252.163(b). An objectionby the home country supervisor to the con-version or exchange of TLAC issued by theIHC is considered to be prompt if the Boardreceives the objection no later than 24 hoursafter the Board requests the consent or non-objection from the home country supervisor.12 CFR § 252.163(b)(2). Finally, the pre-amble to the Board regulations acknowl-edges that the regulations do not restrict theability of an IHC to include certain tradi-tional debt terms in TLAC, provided thatsuch terms are consistent with applicablelaw. Examples of such terms noted in thepreamble are terms providing that existing
1See Basel Committee on Banking Supervision, Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (December 2010; revised June 2011), availableonline at http://www.bis.org/publ/bcbs189.pdf (Basel III Bank Capital Rules).
2Basel III 2011 Bank Capital Rules, Part I.B.3, at 17-19.
3The final regulations were approved by the Board of Governors of the Federal Reserve System on December 15, 2016.
Bulletin No. 2017–3 January 17, 2017425
equity would be transferred to the IHC andcanceled upon transfer if the TLAC con-verts to equity, or debt covenants on thesame terms permissible for covered bankholding companies.
.05 TLAC is issued in the form of debt.An instrument issued in the form of debt,however, may have one or more features,or lack one or more features, that causethe instrument not to be respected as in-debtedness for federal tax purposes. Inparticular, an instrument that does not un-conditionally obligate the issuer to pay asum certain on demand or at one or morefixed dates, or that does not provide theholder with the rights of a creditor toenforce the obligation, generally will notbe treated as indebtedness for federal taxpurposes. The rights of a creditor typicallyinclude the right to force an issuer intoinsolvency, and a right superior to that ofa shareholder to share in the assets of theissuer in case of dissolution. Despite beingdebt in form, internal TLAC issued underthe Board regulations lacks several of theelements that generally are required for aninstrument to be treated as indebtednessfor federal tax purposes.
.06 GSIBs play a unique role in theglobal economy, and are consequentlysubject to extensive oversight of theirtransactions and capital structure. As partof this oversight the Board has prescribedunique and highly specific rules to mini-mize the risks that GSIBs present, includ-ing the use of TLAC to enable the Boardto resolve an IHC owned by a GSIB. TheTreasury Department and the IRS believethat it is in the interest of sound tax ad-ministration to apply federal tax principlesin a manner that will support the rulespromulgated by the Board for recapitaliz-ing the issuer of internal TLAC on agoing-concern basis.
SECTION 3. SCOPE
This revenue procedure applies to in-ternal TLAC that is issued by an IHC of aforeign GSIB pursuant to the Board reg-ulations described in section 2.04 of thisrevenue procedure.
SECTION 4. APPLICATION
The IRS will treat an instrument de-scribed in section 3 of this revenue proce-dure as indebtedness for federal tax pur-
poses to the extent that the internal TLAChas not been subject to a debt conversionorder.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective foran instrument described in section 3 ofthis revenue procedure issued on or afterDecember 15, 2016.
SECTION 6. NO INFERENCE
This revenue procedure provides guid-ance with respect to the federal tax char-acterization of an instrument described insection 3 of this revenue procedure. Noinference should be drawn about the fed-eral tax characterization of an instrumentthat is outside the scope of this revenueprocedure.
SECTION 7. CONTACTINFORMATION
For further information regarding thisrevenue procedure, contact William E.Blanchard or Diana Imholtz of the Officeof Associate Chief Counsel (Financial In-stitutions & Products) at (202) 317-3900(not a toll-free number).
26 CFR 301.7705: Maintaining certification as acertified professional employer organization.
Rev. Proc. 2017–14
SECTION 1. BACKGROUND ANDDEFINITIONS
The Stephen Beck, Jr., Achieving aBetter Life Experience (ABLE) Act of2014, enacted on December 19, 2014, aspart of The Tax Increase Prevention Actof 2014 (Pub. L. 113–295), added newsections 3511 and 7705 to the InternalRevenue Code (Code) relating to the cer-tification requirements for, and the federalemployment tax consequences of being, acertified professional employer organiza-tion (CPEO). The ABLE Act requires theestablishment of a voluntary program forpersons to apply to become certified as aCPEO. Temporary and final regulationsunder section 7705 of the Code (TD 9768,published May 6, 2016, at 81 FR 27315,as corrected July 12, 2016, at 81 FR45012) describe the certification require-ments necessary for a person to become
and remain a CPEO, and proposed reg-ulations under section 3511 of the Code(REG–127561–15, published May 6,2016, at 81 FR 27360) describe the fed-eral employment tax consequences ofbecoming a CPEO. Revenue Procedure2016 –33, 2016 –25 I.R.B. 1034, setsforth the detailed procedures for apply-ing to be certified as a CPEO. Notice2016 – 49, 2016 –34 I.R.B. 265, providesinterim guidance and describes modifi-cations to certain certification requirementsthat the Department of the Treasury (Trea-sury) and the Internal Revenue Service(IRS) intend to make when publishing finalregulations and updating Rev. Proc. 2016–33.
This revenue procedure addresses therequirements for a CPEO to remain certi-fied and the procedures relating to suspen-sion and revocation of CPEO certification,and consolidates in one place the ongoingrequirements articulated in the regulations(both proposed and temporary) under sec-tions 3511 and 7705 of the Code as wellas certain applicable requirements of Rev.Proc. 2016–33, as modified by Notice2016–49. In addition, this revenue proce-dure provides guidance, including certaintransition relief, to CPEOs with an effec-tive date of certification of January 1,2017, that receive notice of certificationafter that date.
.01 Definitions. For purposes of thisrevenue procedure—
(1) The term “application” means theelectronic submission by a CPEO appli-cant and its responsible individuals of allinformation required by the online appli-cation form for CPEO certification (madeavailable by the IRS on www.irs.gov), aswell as all accompanying forms and doc-umentation required by § 301.7705–2T,Rev. Proc. 2016–33, Notice 2016–49,and instructions accompanying the appli-cation.
(2) The term “controlled group” meansany controlled group of corporations ortrades or businesses under common con-trol within the meaning of sections 414(b)and (c) of the Code, and the regulationsthereunder.
(3) The term “certified public accoun-tant” (CPA) means a certified public ac-countant who—
(a) With respect to a CPEO, is inde-pendent of the CPEO (as prescribed by the
January 17, 2017 Bulletin No. 2017–3426
American Institute of Certified Public Ac-countants’ Professional Standards, Codeof Professional Conduct, and its interpre-tations and rulings);
(b) Is not currently under suspensionor disbarment from practice before theIRS;
(c) Is duly qualified to practice in anystate; and
(d) Files with the IRS a written dec-laration that he or she is currently quali-fied as a CPA.
(4) The term “covered employee”means, with respect to a customer, anyindividual (other than a self-employed in-dividual, as defined in section 1.01(14) ofthis revenue procedure) who performs ser-vices for the customer and who is coveredby a CPEO contract between the CPEOand the customer.
(5) The term “CPEO” means a personthat has been certified by the Commis-sioner as meeting the requirements of§ 301.7705–2T, Rev. Proc. 2016–33, No-tice 2016–49, the instructions accompa-nying the application, and any applicablesubsequent guidance and whose certifica-tion has not been revoked or voluntarilyterminated.
(6) The term “CPEO contract” means aservice contract between a CPEO and acustomer that satisfies the requirements insection 7705(e)(2) of the Code.
(7) The term “customer” means anyperson who enters into a CPEO contractwith a CPEO, except that a provider ofemployment-related services that uses itsown employer identification number(EIN) for filing federal employment taxreturns on behalf of its clients (or thatused its own EIN immediately prior toentering into a CPEO contract with theCPEO) is not a customer, even if it hasentered into a CPEO contract with theCPEO.
(8) The term “federal employmenttaxes” means the taxes imposed by subti-tle C of the Code.
(9) The term “guidance” includes guid-ance published in the Federal Register orInternal Revenue Bulletin, as well as ad-ministrative guidance such as forms, in-structions, publications, or other guidanceon the irs.gov Web site.
(10) The term “precursor entity” meansan entity described in § 301.7705–1T(b)(10).
(11) The term “qualified surety” meansa surety that meets the requirements of§ 301.7705–2T(g)(6).
(12) The term “related entity” meansan entity described in § 301.7705–1T(b)(12).
(13) The term “responsible individ-ual” means an individual described in§ 301.7705–1T(b)(13).
(14) The term “self-employed individ-ual” means an individual with net earn-ings from self-employment (as defined insection 1402(a) of the Code and withoutregard to the exceptions thereunder) de-rived from providing services covered bya CPEO contract, whether such net earn-ings from self-employment are derivedfrom providing services as a non-employee to a customer of the CPEO,from the individual’s own trade or busi-ness as a sole proprietor customer of theCPEO, or as an individual who is a partnerin a partnership that is a customer of theCPEO, but only with regard to such netearnings.
(15) The term “work site” means aphysical location at which an individualregularly performs services for a customerof a CPEO or, if there is no such location,the location from which the customer as-signs work to the individual. A work sitemay not be the individual’s residence or atelework site unless the customer requiresthe individual to work at that site. Forpurposes of this section 1.01(15), worksites that are contiguous locations will betreated as a single physical location andthus a single work site, and noncontiguouslocations that are not reasonably proxi-mate will be treated as separate physicallocations and thus separate work sites. ACPEO may treat noncontiguous locationsthat are reasonably proximate as a singlephysical location and thus a single worksite. Any two work sites that are separatedby 35 or more miles or that operate in adifferent industry or industries will not betreated as reasonably proximate for pur-poses of this section 1.01(15).
(16) The term “work site employee”means, with respect to a customer, a cov-ered employee who performs services forsuch customer at a work site where, at anytime during a calendar quarter, at least 85percent of the individuals performing ser-vices for the customer are covered em-ployees of the customer. To be a work site
employee, a covered employee regularlyperforming services for a customer at awork site during a calendar quarter is notrequired to be performing services for thecustomer at the time the work site cover-age requirement is met at that work site.
(a) Solely for purposes of determiningwhether the 85 percent threshold de-scribed in this section 1.01(16) is met, aself-employed individual described in sec-tion 1.01(14) of this revenue procedure istreated as a covered employee if such in-dividual is performing services at thework site and would be a covered em-ployee but for the exclusion of self-employed individuals from the definitionof covered employee in section 1.01(4) ofthis revenue procedure.
(b) In determining whether the 85 per-cent threshold described in this section1.01(16) is met, an individual who is anexcluded employee described in section414(q)(5) of the Code is not treated eitheras an individual providing services or acovered employee.
(c) Notwithstanding the first sentenceof this section 1.10(16), a covered em-ployee will be considered a work site em-ployee for the entirety of a calendar quar-ter with respect to all services performedfor a customer at one or more work sites ifthe employee qualifies as a work site em-ployee with respect to such customer atany work site during that calendar quarter.
(d) The determination of whether awork site meets the 85 percent thresholddescribed in this section 1.01(16) is madeseparately with respect to each customerof a CPEO and with respect to each worksite of a customer. In making this deter-mination, a covered employee is takeninto account at each work site of a cus-tomer at which the employee regularlyperforms services for such customer.
.02 Changes and request for com-ments. This revenue procedure may beupdated periodically to improve CPEOprogram procedures. The IRS solicitscomments on this revenue procedure andthe administration of the CPEO program.All comments will be available for publicinspection and copying. Comments maybe submitted in one of three ways:
(1) By mail to CC:PA:LPD:PR (Rev.Proc. 2017–14), Room 5203, InternalRevenue Service, P.O. Box 7604, BenFranklin Station, Washington, DC 20044.
Bulletin No. 2017–3 January 17, 2017427
(2) Electronically to [email protected]. Please include “Rev.Proc. 2017–14” in the subject line of any elec-tronic communications.
(3) By hand-delivery Monday throughFriday between the hours of 8 a.m. and 4p.m. to CC:PA:LPD:PR (Rev. Proc.2017–14), Courier’s Desk, Internal Reve-nue Service, 1111 Constitution Ave., NW,Washington, DC 20224.
SECTION 2. PROCEDURES FORMAINTAINING CERTIFICATIONAS A CPEO
.01 In general. To maintain certifica-tion, a CPEO must meet the applicablerequirements described in § 301.7705–2T,this revenue procedure, and other guid-ance. In addition, any responsible individ-uals of the CPEO must meet any require-ments applicable to them that aredescribed in § 301.7705–2T, this revenueprocedure, and other guidance. Except asotherwise provided in this revenue proce-dure or other guidance, the informationand documents required in sections 2.02through 2.05, 2.06(3), and 2.06(4) of thisrevenue procedure must be submittedelectronically via the online account cre-ated by the CPEO or responsible individ-ual, as applicable. The individual submit-ting information and documents on behalfof the CPEO through the CPEO’s onlineaccount must be authorized by section6103(e) of the Code to inspect the returnsand return information of the CPEO. Formore information on how to electronicallysubmit the information and documents re-quired in this revenue procedure, see in-structions accompanying the CPEO’s orresponsible individual’s online account(accessible on www.irs.gov).
.02 Annual verification.(1) In general. Consistent with
§ 301.7705–2T(j), a CPEO must submita properly completed and executed on-line annual verification to maintain cer-tification. CPEOs that are members of acontrolled group must each submit aseparate annual verification. The duedate for submitting the annual verifica-tion is 30 days before the anniversary ofthe date (month and day) on which theCPEO’s certification became effective.
(2) User fee. Consistent with section7528(b)(4) of the Code, upon submissionof the online annual verification, the indi-
vidual that submits the verification on be-half of the CPEO will be automaticallydirected to pay a user fee in the amount of$1,000 through www.pay.gov. Paymentconfirmations are provided through thewww.pay.gov portal. Additional informa-tion about payment submission can befound under Frequently Asked Questionsat www.pay.gov. No CPEO annual verifi-cation will be processed until a user fee inthe amount of $1,000 is received. Onceprocessing of the annual verification hasbegun, the user fee will not be returned.
(3) Background check and tax compli-ance check. As part of a CPEO’s annualverification, the IRS may investigate theaccuracy of statements and representa-tions made by a CPEO and its responsibleindividuals by conducting backgroundchecks, including checks on tax compli-ance, criminal background, professionalexperience, credit history, professionalsanctions, and other relevant facts. Bysubmitting an annual verification, a CPEOand its responsible individuals agree toprovide the IRS with such additional in-formation as the IRS may request to facil-itate its background investigations. ACPEO and each of its responsible individ-uals must take such actions as are neces-sary to authorize the IRS to conduct back-ground checks and to investigate theaccuracy of statements and submissions.This may include waiving confidentialityand privilege in situations in which theIRS would otherwise be prevented fromobtaining or confirming information nec-essary to evaluate a CPEO’s qualificationfor certification from relevant third parties(such as former employers) because ofthe existence of confidentiality, non-disclosure, or similar agreements. Failureto provide such information or take suchaction may result in revocation of certifi-cation.
.03 Bond requirements.(1) In general. In addition to the bond
that must be posted within 30 days of thenotice of certification, as provided in sec-tion 7705(c) of the Code, § 301.7705–2T(g), and section 2.04(2) of Rev. Proc.2016–33, a CPEO must continue to post abond (or bonds, as described in section2.03(3) of this revenue procedure) from aqualified surety for the payment of federalemployment taxes using Form 14751,Certified Professional Employer Organi-
zation Surety Bond, in the amount de-scribed in § 301.7705–2T(g)(2) and thissection 2.03, for each period beginning onApril 1 of any calendar year and endingon March 31 of the following calendaryear (the bond period). As prescribed by§ 301.7705–2T(g)(2)(i), the amount of thebond (or bonds, as described in section2.03(3) of this revenue procedure) withrespect to the bond period must be at leastequal to the greater of 5 percent of theCPEO’s liability under section 3511 of theCode during the preceding calendar year(up to $1,000,000) or $50,000. See§ 301.7705–2T(g)(2)(ii) for special rulesapplying to a CPEO in its first or secondyear of certification. The bond, any ridersthereto, and any strengthening bondsposted to satisfy the requirements of sec-tion 2.03(3) of this revenue procedure, areconsidered one continuous obligation ofthe surety for unpaid tax liabilities ac-crued by the CPEO under subtitle C fromthe effective date of the bond until thebond is superseded, as described in sec-tion 2.03(3) of this revenue procedure, orcancelled, as described in section 2.03(4)of this revenue procedure (the term of thebond).
(2) Controlled Groups. All CPEOmembers of a controlled group are re-quired to be covered by the same bond inthe amount required by § 301.7705–2T(g)(2), applied as if all such CPEOmembers were one organization.
(3) Increase in bond amount. ByMarch 1 in any calendar year, a CPEOmust determine if an increase in bondamount for the new bond period begin-ning on April 1 of that calendar year isnecessary and, if so, increase the amountof the bond covering the new bond period.That is, if 5 percent of a CPEO’s liabilityunder section 3511 of the Code (or otherapplicable federal employment tax liabil-ity) for the preceding calendar year ex-ceeds the current amount of the bond, theCPEO must increase the amount of itsbond with respect to the new bond periodbeginning on April 1 (up to the$1,000,000 maximum bond amount). Toincrease the amount of the bond, theCPEO must submit a properly completedand executed Form 14751, or such otherform or document required by the IRS inthe instructions for Form 14751 or furtherguidance, by March 1 of the calendar year
January 17, 2017 Bulletin No. 2017–3428
in which the new bond period begins. TheCPEO must also increase the amount ofits bond if, at a later point in the bondperiod, the CPEO or the IRS determinesthat the applicable federal employmenttax liability for the preceding calendaryear was higher than the amount reportedand paid and on which the bond amountfor the bond period was based and makesan adjustment or assessment reflectingsuch determination. To increase theamount of its bond due to such an adjust-ment or assessment, the CPEO must sub-mit a properly completed and executedForm 14751, or such other form or docu-ment required by the IRS in the instruc-tions for Form 14751 or further guidance,within 30 days of the date of the adjust-ment or assessment. To increase the bondamount, a CPEO may amend an existingbond through the use of a rider, or post astrengthening, superseding, or new bond,where applicable.
(a) For these purposes, a rider is anamendment to an existing bond that in-creases the bond amount. The rider mustapply to liabilities that arise on or after theeffective date of the bond that the rideramends. The surety remains liable underthe existing bond, as amended by therider, for the assessment and collectionperiods applicable to the CPEO under sec-tions 6501 and 6502 of the Code, respec-tively, with respect to any taxable periodthat occurs during the term of the bondunless and until the bond is superseded.
(b) For these purposes, a strengtheningbond is an additional bond posted in theincremental amount of the increase so thatthe strengthening bond together with theexisting bond equal the total requiredbond amount. The strengthening bondmust apply to liabilities that arise on orafter the effective date of the bond itstrengthens. Both the strengthening bondand the bond it strengthens must remain ineffect, and the surety remains liable underboth bonds for the assessment and collec-tion periods applicable to the CPEO undersections 6501 and 6502 of the Code, re-spectively, with respect to any taxable pe-riod that occurs during the term of thebonds, unless and until the bonds are su-perseded.
(c) For these purposes, a supersedingbond is a bond posted for the total re-quired bond amount, not just the incre-
mental increase. Upon execution of thesuperseding bond, the superseded bond isno longer in effect, and the surety thatprovided the superseded bond is no longerliable under the superseded bond. The su-perseding bond must apply to liabilitiesthat arise on or after the effective date ofthe superseded bond.
(d) For these purposes, a new bond is abond posted for the total required bondamount and may only be posted upon theCPEO’s initial certification or immedi-ately following cancellation of an existingbond. In the case of a cancellation of anexisting bond, the effective date of thenew bond must be no later than the effec-tive date of the cancellation of the existingbond, and the surety providing the exist-ing (now cancelled) bond remains liablefor liabilities that accrued during the termof the cancelled bond for the assessmentand collection periods applicable to theCPEO under sections 6501 and 6502 ofthe Code, respectively, with respect to anytaxable period that occurred during theterm of that bond.
(4) Cancellation of bond. Consistentwith § 301.7705–2T(g)(3), a bond may becancelled by the surety only after thesurety gives written notice of such cancel-lation to the IRS and the CPEO in themanner provided in the instructions forForm 14751. Similarly, a bond may becancelled by the CPEO only after theCPEO gives written notice of such can-cellation to the IRS in the manner pro-vided in the instructions for Form 14751or other guidance. If a CPEO either re-ceives a notice of cancellation from thesurety provider of its bond, or gives noticeto the IRS of the CPEO’s intent to cancelthe bond, the CPEO must post a new orsuperseding bond for the required amountby submitting Form 14751 no later than30 days prior to the effective date of thecancellation of the previous bond.
(5) Loss of qualified surety. If thesurety provider of a CPEO’s bond no lon-ger meets the requirements for a qualifiedsurety, the CPEO must post a new orsuperseding bond with a qualified suretyfor the required amount by submittingForm 14751 no later than 30 days afternotification that the previous surety nolonger meets the requirements of a quali-fied surety.
.04 Submission of annual audited fi-nancial statements.
(1) Copy of financial statements. Bythe last day of the sixth month after theend of each fiscal year of the CPEO (theaudit date as defined in section 7705(c)(6)of the Code), and beginning with the firstfiscal year that ends after the CPEO’s ef-fective date of certification, a CPEO mustsubmit a copy of its annual audited finan-cial statements for the fiscal year.
(2) CPA opinion. With its annual au-dited financial statements, a CPEO mustsubmit an opinion of a CPA that suchfinancial statements are presented fairlyand in accordance with generally acceptedaccounting principles (GAAP). The CPAopinion must be an unmodified opinion(i.e., it cannot be a qualified opinion, anadverse opinion, or an opinion subject to adisclaimer of opinion) and accompaniedby a written declaration, signed by theCPA, that he or she is currently qualifiedas a CPA.
(3) Working capital statement. Eitherthe CPA opinion or a Note to the Finan-cial Statements covered by the CPA opin-ion must state that the CPEO’s financialstatements reflect positive working capital(as defined by GAAP), or, only if therequirements of section 2.04(4) of thisrevenue procedure are met, reflect nega-tive working capital, and, in either case,set forth in detail a calculation of theCPEO’s working capital as reflected in thefinancial statements.
(4) Exception for negative workingcapital. A working capital statement thatstates that a CPEO’s annual audited finan-cial statements reflect negative workingcapital will meet the requirements of sec-tion 2.04(3) of this revenue procedureonly if—
(a) The CPEO has negative workingcapital for no more than two consecutivefiscal quarters of the fiscal year, as dem-onstrated by the required annual auditedfinancial statements or the statements de-scribed in section 2.05(3) of this revenueprocedure, or the submission of quarterlyunaudited financial statements;
(b) The CPEO provides with the state-ment a detailed calculation of its negativeworking capital and an explanation to theIRS describing the reason for the negativeworking capital; and
Bulletin No. 2017–3 January 17, 2017429
(c) The IRS determines, in its solediscretion, that the negative working cap-ital does not present a material risk to theIRS’s collection of federal employmenttaxes. The determination of whether thefailure presents a material risk to theIRS’s collection of federal employmenttaxes may depend, in part, on whether theCPEO has identified facts and circum-stances that will result in positive workingcapital in the near future.
(5) Annual audited financial statementsfor controlled groups. In the case of acontrolled group in which more than onemember of the controlled group is aCPEO, each CPEO in the controlled groupmust submit the annual audited financialstatements described in section 2.04(1) ofthis revenue procedure, with an accompa-nying CPA opinion described in section2.04(2) of this revenue procedure, on acombined or consolidated basis for allCPEOs in the controlled group, ratherthan for the CPEO individually. Althoughthe CPEO is not required to provide acopy of its separate financial statements aspart of its submission, if the financial po-sition of a CPEO is unclear from the com-bined or consolidated financial statementsof the controlled group of which theCPEO is a member, the IRS may requestadditional financial information that isneeded to evaluate the CPEO’s position,such as the annual balance sheet, incomestatement, and statement of cash flow ofthe individual CPEO.
(a) The combined or consolidatedannual audited financial statements pro-vided pursuant to this section 2.04(5)may, but are not required to, also includeall members of the controlled group thatare not CPEOs. The name and EIN ofeach member of the controlled group thatis included within the consolidated au-dited financial statements of the controlledgroup so provided (including each mem-ber that is not a CPEO) must be listed inthe CPA opinion, a Note to the FinancialStatements covered by the CPA opinion,or in a separate attachment signed by aresponsible individual of the CPEO underpenalties of perjury.
(b) As required by section 2.04(3) ofthis revenue procedure, a CPEO that is amember of a controlled group of whichother members are CPEOs must provide,in the CPA opinion or in a Note to the
Financial Statements covered by the CPAopinion, a statement that the individualCPEO’s financial statements reflect posi-tive working capital (as defined byGAAP) or, if the requirements of section2.04(4) of this revenue procedure are met,reflect negative working capital, with thestatement in either case setting forth indetail a calculation of the individualCPEO’s working capital. If it is unclearwhether the CPEO has positive or nega-tive working capital for the last quarter ofthe fiscal year based on the combined orconsolidated financial statements of thecontrolled group of which the CPEO is amember, the IRS may request additionalfinancial information on an individualCPEO basis. The status of other CPEOs inthe controlled group is not affected if theCPEO’s certification is suspended or re-voked because the CPEO’s working cap-ital statement reflects negative workingcapital and the CPEO fails to meet theexception described in section 2.04(4).
.05 Submission of quarterly assertions,attestations, and working capital state-ments. By the last day of the secondmonth after the end of each calendar quar-ter, a CPEO must provide an assertion, asdescribed in section 2.05(1) of this reve-nue procedure, that it has withheld andmade deposits of all federal employmenttaxes for which the CPEO is liable for thequarter; an examination level attestationfrom a CPA, as described in section2.05(2) of this revenue procedure, statingthat this assertion is fairly stated in allmaterial respects; and a statement verify-ing that the CPEO has positive workingcapital, as described in section 2.05(3) ofthis revenue procedure.
(1) Assertion. The assertion must besigned under penalties of perjury by aresponsible individual of the CPEO andstate that the CPEO has withheld andmade deposits of all federal employmenttaxes for the calendar quarter as requiredby subtitle C (except that the assertion isnot required with respect to federal em-ployment taxes imposed by chapter 23 ofthe Code).
(2) Examination level attestation. Theexamination level attestation from a CPAmust state that the assertion described insection 2.05(1) of this revenue procedureis fairly stated in all material respects andcomplies with the requirements of the
American Institute of Certified Public Ac-countants’ Statements of Standards forAttestation Engagements, including thespecific requirements for Examination Re-ports. The attestation must be accompa-nied by a written declaration, signed bythe CPA, that he or she is currently qual-ified as a CPA. A CPEO will not fail tomeet the requirements of this section2.05(2) if the examination level attestationindicates that the CPEO has failed to with-hold or make deposits in certain immate-rial respects, provided that—
(a) The attestation provides a sum-mary of the immaterial failures that werefound;
(b) The attestation states that, and ex-plains why, the failures were immaterialand isolated and do not reflect a meaning-ful lapse in compliance with federal em-ployment tax withholding and deposit re-quirements; and
(c) The IRS determines, in its solediscretion, that the isolated and immaterialfailures identified by the CPA do not pres-ent a material risk to the IRS’s collectionof federal employment taxes.
(3) Working capital statement. Thestatement verifying positive working cap-ital must be signed by a responsible indi-vidual under penalties of perjury and ver-ify that the CPEO has positive workingcapital (as defined by GAAP) with respectto the most recently completed fiscal quar-ter. The statement must include a detailedcalculation of the CPEO’s working capitaland be accompanied by a copy of theCPEO’s unaudited financial statementsfor the most recently completed fiscalquarter, if such statements are available. ACPEO will not fail to meet the require-ments of this section 2.05(3) as a result ofhaving negative working capital at the endof the fiscal quarter if—
(a) The CPEO does not have negativeworking capital at the end of the two fiscalquarters immediately preceding such fis-cal quarter, as demonstrated by the re-quired annual audited financial statementsdescribed in section 2.04 of this revenueprocedure or the statements described inthis section 2.05(3), or by the submissionof quarterly unaudited financial state-ments;
(b) The CPEO provides a detailed cal-culation of its negative working capital,unaudited financial statements for the
January 17, 2017 Bulletin No. 2017–3430
quarter, if available, and an explanation tothe IRS describing the reason for suchnegative working capital; and
(c) The IRS determines, in its solediscretion, that the negative working cap-ital does not present a material risk to theIRS’s collection of federal employmenttaxes. The determination of whether thenegative working capital presents a mate-rial risk to the IRS’s collection of federalemployment taxes may depend, in part, onwhether the CPEO has identified facts andcircumstances that will result in positiveworking capital in the near future.
(4) Quarterly assertions, attestations,and working capital statements for con-trolled groups. In the case of a controlledgroup in which more than one member ofthe controlled group is a CPEO, eachCPEO in the controlled group must sub-mit for each calendar quarter the assertiondescribed in section 2.05(1) of this reve-nue procedure and the examination levelattestation described in section 2.05(2) ofthis revenue procedure on a combined orconsolidated basis for all CPEOs in thecontrolled group, rather than for theCPEO individually. The assertion mustcontain the name and EIN of each CPEOin the controlled group. However, theworking capital statement described insection 2.05(3) of this revenue proceduremust relate to the CPEO alone and mustnot be prepared on a combined or consol-idated basis with other members of thecontrolled group. For purposes of the re-quirements of section 2.05(3), if it is un-clear whether the CPEO has positive ornegative working capital for the last quar-ter of the fiscal year based on the com-bined or consolidated annual audited fi-nancial statements of the controlled groupof which the CPEO is a member, the IRSmay request additional financial informa-tion about the individual CPEO. The sta-tus of other CPEOs in the controlledgroup is not affected if the CPEO’s certi-fication is suspended or revoked becausethe working capital statement described insection 2.05(3) reflects negative workingcapital and the CPEO fails to meet theexception described in section 2.05(3).
.06 Reporting Requirements.(1) Commencement and termination
of contracts. A CPEO must report thecommencement or termination of anyCPEO contract between the CPEO and a
customer, or any service agreement de-scribed in § 31.3504–2(b)(2) between theCPEO and a client, and the name and EINof such customer or client, using Form8973, Certified Professional EmployerOrganization/Customer Reporting Agree-ment.
(a) Except as provided in section2.06(1)(b) of this revenue procedure, aCPEO must submit Form 8973 within 30days of the commencement of any CPEOcontract or service agreement described in§ 31.3504–2(b)(2) (including the conver-sion of an existing service agreement de-scribed in § 31.3504–2(b)(2) to a CPEOcontract and vice versa).
(b) To provide a newly certifiedCPEO with sufficient time to completeForms 8973 for clients with whom it hashad service agreements prior to certifica-tion as a CPEO (existing clients), a CPEOhas six months from the date of its noticeof certification to submit Forms 8973 withrespect to the commencement of anyCPEO contracts with existing clients (in-cluding the conversion of a service agree-ment described in § 31.3504–2(b)(2) withan existing client to a CPEO contract) orthe commencement of any service agree-ments described in § 31.3504–2(b)(2)with existing clients (including thecontinuation by a newly certified CPEOof a service agreement described in§ 31.3504 –2(b)(2) with an existing cli-ent).
(c) A CPEO must submit Form 8973to the IRS within 30 days of the termina-tion of any CPEO contract or serviceagreement described in § 31.3504–2(b)(2).
(d) Form 8973 includes a CPEOConsent to Disclosure of Tax Information,on which the CPEO consents to the IRSdisclosing to the customer or client iden-tified on the Form 8973 information fromthe CPEO’s employment tax returns (forexample, Forms 940 and 941) filed withrespect to the customer or client identifiedon the Form 8973 and information aboutthe CPEO’s certification. The CPEO con-sents to such disclosure only to the extentnecessary to carry out the purposes of theCPEO program, and will list on the CPEOConsent to Disclosure of Tax Informationthe specific year(s) or period(s) for whichconsent to disclosure of employment taxreturn information is provided. The CPEO
must file a new CPEO Consent to Disclo-sure of Tax Information before the end ofthe last year or period listed on the mostrecent prior consent for the customer orclient, unless and until the CPEO submitsa Form 8973 to report the termination ofsuch CPEO contract or service agreement.For more information, see Form 8973 andits instructions.
(2) Employment tax reporting. ACPEO that is treated as an employer of acovered employee under section 3511 ofthe Code must meet all reporting and re-cordkeeping requirements described insubtitle F of the Code that are applicableto employers, in a manner consistent withsuch treatment. Specifically, with anyForm 940, Employer’s Annual FederalUnemployment (FUTA) Tax Return, andForm 941, Employer’s QUARTERLY Fed-eral Tax Return, that it files, a CPEO mustfile Schedule R (Form 940), AllocationSchedule for Aggregate Form 940 Filers,and Schedule R (Form 941), AllocationSchedule for Aggregate Form 941 Filers,respectively, providing all the informationrequired by the form and its instructions.In addition, Form 940 and, except withrespect to the first calendar quarter forwhich the CPEO is certified, Form 941,along with all required schedules, includ-ing Schedule R, must be electronicallyfiled. A CPEO may file the Form 941,along with all required schedules, includ-ing Schedule R, on paper with respect tothe calendar quarter that begins on theeffective date of certification. See the in-structions for Form 940, Form 941,Schedule R (Form 940), and Schedule R(Form 941) for additional information onfiling these forms. The IRS may waive theelectronic filing requirements of this sec-tion 2.06(2) in case of undue economichardship. The principal factor in determin-ing undue economic hardship will be theamount, if any, by which the cost of elec-tronically filing Form 940 and Form 941(and all applicable schedules) exceeds thecost of paper filing. To request a waiverfrom electronic filing requirements, aCPEO must submit in writing a requestthat specifies the type of filing (that is, thename of the form or schedule), as well asthe period to which it applies, and thatexplains the undue economic hardshipcaused by electronic filing. In addition,the waiver will be subject to such terms
Bulletin No. 2017–3 January 17, 2017431
and conditions regarding the method offiling as may be prescribed by the IRS.For additional information on how to re-quest a waiver from electronic filing re-quirements, see the information providedon the IRS CPEO web page on www.irs.gov.
(3) Reporting of material changes. ACPEO must notify the IRS of any changethat materially affects the continuing ac-curacy of any agreement or informationthat was previously made or provided tothe IRS (material change), including amodification or update to previously pro-vided information, as well as new infor-mation (for example, a new responsibleindividual). A CPEO must notify the IRSof a material change no later than 30 days(45 days in the case of a new responsibleindividual) after the date of the materialchange. Notification must be providedthrough the online account of the CPEOby which the initial application was sub-mitted, or through such other means as theIRS prescribes in further guidance. Mate-rial changes that must be reported as pre-scribed in this section 2.06(3) include, butare not limited to, the following items:
(a) Any change to the informationpreviously provided by the CPEO as partof its initial application for certification oras part of a prior material change notifi-cation or annual verification related tobusiness name or organization, address,fiscal year, licensing information, precur-sor entities, related entities, controlledgroup information, responsible individu-als, or background information.
(b) Any change to the tax complianceinformation previously provided by theCPEO as part of its initial application forcertification or as part of a prior materialchange notification or annual verification.When reporting material changes to theCPEO’s tax compliance information, theCPEO must specifically report: (i) the dis-covery of any failure (other than immate-rial and isolated failures that do not reflecta meaningful lapse in compliance withfederal employment tax withholding anddeposit requirements) by the CPEO or anyof its precursor or related entities withinthe last six years to timely and accuratelyfile federal, state, or local tax or informa-tion returns (including federal employ-ment tax returns) or pay any applicablefederal, state, or local tax (including fed-
eral employment taxes), except that withrespect to precursor entities that are nolonger related entities, the CPEO mustreport only those failures of which it be-comes aware and that relate to the precur-sor entity’s tax and reporting responsibil-ities connected with any assets that weretransferred to the CPEO from the precur-sor entity; and (ii) the assessment of fraudpenalties by the IRS or a state or local taxauthority against the CPEO or any of itsprecursor or related entities for any year,including for years before the CPEO wascertified, except that with respect to pre-cursor entities that are no longer relatedentities, the CPEO must report only thoseassessments of fraud penalties of which itbecomes aware and that relate to the pre-cursor entity’s tax and reporting responsi-bilities connected with any assets thatwere transferred to the CPEO from theprecursor entity.
(c) Any change to any annual auditedfinancial statements or annual workingcapital statements previously submitted tothe IRS in accordance with section 2.04 ofthis revenue procedure, section 2.05 ofRev. Proc. 2016–33, and § 301.7705–2T(e), that would require a restatement ofpreviously submitted annual audited fi-nancial statements.
(d) Any change to the quarterly work-ing capital statements previously submit-ted to the IRS in accordance with section2.05 of this revenue procedure, section2.06 of Rev. Proc. 2016–33, and§ 301.7705–2T(f), that causes workingcapital to no longer be positive or thatcauses a CPEO with negative workingcapital that met the requirements of sec-tion 2.05(3) of this revenue procedure tono longer meet those requirements.
(e) The discovery by the CPEO of taxfraud or criminal activity in violation offederal, state, or local laws by a responsi-ble individual.
(f) The charging or conviction of theCPEO, or a related entity or a responsibleindividual of the CPEO, with or for anyfederal, state, or local criminal offense.
(g) The commencement of an activeIRS criminal investigation of the CPEO,or the discovery by the CPEO of an activeIRS criminal investigation of a related en-tity or a responsible individual.
(h) The occurrence of a transaction bywhich a person or group of persons gain
control or effective control, directly orindirectly (including through control ofthe owner of the CPEO), of 50 percent ormore of the stock or other ownership in-terests in a CPEO (determined by vote orvalue).
(i) The sale, transfer, or disposition ofall or substantially all of the CPEO busi-ness, or the reorganization, spin off orsimilar division, liquidation, or closure ofthe CPEO business, directly or indirectly(including through sale, transfer, disposi-tion, reorganization, spin off, or divisionof the owner of the CPEO) regardless ofwhether the event is taxable or tax free.
(4) Reporting of material changes byresponsible individuals and reporting ofnew responsible individuals. Responsibleindividuals of a CPEO must notify theIRS of any material changes to the infor-mation they submitted on the ResponsibleIndividual Personal Attestation (RIPA)pursuant to section 2.01 of Rev. Proc.2016–33 or this section 2.06(4), within 30days of the change, by submitting an up-date through the online account of theresponsible individual who submitted theprevious RIPA. Material changes thatmust be reported as prescribed in this sec-tion 2.06(4) include any change to theresponsible individual’s basic informa-tion, address, business information, re-lated entities, and other attestations (suchas attestations related to the denial, sus-pension, or revocation of licenses, regis-trations, or accreditations; disbarments;charges or convictions for any federal,state, or local criminal offense; IRS crim-inal investigations; any failures to file anyrequired federal, state, or local tax or in-formation returns, or to pay any requiredfederal, state, or local taxes, in a timely oraccurate manner; the initiation of a bank-ruptcy proceeding by the responsible in-dividual; and any assessments of the TrustFund Recovery Penalty on the responsibleindividual). This reporting requirement isin addition to the requirement that theCPEO report material changes relating toresponsible individuals, as provided insections 2.06(3)(a), (e), (f), and (g) of thisrevenue procedure. In addition, each indi-vidual who, since the CPEO’s effectivedate of certification, becomes a responsi-ble individual of the CPEO must, within30 days of becoming a responsible indi-vidual, either, (i) if the responsible indi-
January 17, 2017 Bulletin No. 2017–3432
vidual had previously completed a RIPAfor any CPEO, submit an update throughhis or her online account adding theCPEO as a CPEO with which the respon-sible individual is associated; or, (ii) if theresponsible individual had not previouslycompleted a RIPA, electronically submit aproperly completed and executed onlineRIPA and provide a FD-258, FingerprintCard, obtain an individual (INDV) num-ber from the IRS, and provide this INDVnumber to the CPEO in the manner de-scribed on www.irs.gov (all of which musttake place before the CPEO can update itsresponsible individual information).
(5) Reporting to customers. A CPEOmust meet the following reporting re-quirements with respect to its customers:
(a) A CPEO must notify a customer inwriting if its CPEO contract has beentransferred to another person (or if anotherperson will report, withhold, or pay, undersuch other person’s EIN, any applicablefederal employment taxes with respect tothe remuneration of any individuals cov-ered by its CPEO contract with the cus-tomer) and provide the customer with thename and EIN of such other person nolater than 10 days after the transfer orother applicable event.
(b) A CPEO must provide its custom-ers with the information necessary toclaim the credits specified in section3511(d)(2) of the Code and any othercredits specified in future guidance, andthe information necessary to properly re-port employee tips, as provided in section6053(c)(8) of the Code.
(c) If a CPEO’s certification is sus-pended or revoked, as described in section3 of this revenue procedure, the CPEOmust provide written notice to each of itscustomers within 10 days of the effectivedate of such suspension or revocation, asprovided in sections 3.03(1) and 3.09 ofthis revenue procedure.
(d) If any covered employees are not,or cease to be, work site employees be-cause they perform services at a locationat which the 85 percent threshold de-scribed in section 7705(e)(3) of the Codeis not met, the CPEO must notify thecustomer in writing within 30 days fol-lowing the end of the applicable calendarquarter that the customer may also be li-able for the federal employment taxes im-
posed on remuneration remitted by theCPEO to such covered employees.
(6) Information and agreements re-quired in any contract between a CPEOand a client or customer.
(a) In general. In the case of a serviceagreement described in § 31.3504–2(b)(2)that is not a CPEO contract (as a result ofwhich the individuals covered by that ser-vice agreement are not covered employees),or if section 3511 of the Code does notapply to a CPEO contract in accordancewith paragraph (b) of this section 2.06(6),the agreement or contract must notify, or beaccompanied by a notification to, the clientor customer that the service agreement orcontract is not covered by section 3511 ofthe Code and does not alter the client orcustomer’s liability for federal employmenttaxes on remuneration remitted by theCPEO to the employees covered by the ser-vice agreement or contract.
(b) Section 3511 of the Code doesnot apply to a CPEO contract under thefollowing circumstances—
(i) The customer has a relationship toa CPEO described in section 267(b) of theCode (including by cross-reference to sec-tion 267(f) of the Code) or section 707(b)of the Code, except that “10 percent” shallbe substituted for “50 percent” wherever itappears in the applicable sections;
(ii) The customer has commenced aCPEO contract with the CPEO but suchcommencement has not been reported tothe IRS in accordance with section 2.06(1)of this revenue procedure;
(iii) The CPEO contract has been en-tered into by the CPEO while its certifi-cation has been suspended by the IRS; or
(iv) The certification of a CPEO hasbeen revoked or voluntarily terminatedbut only for the period following the re-vocation or voluntary termination, and insuch case the notification required byparagraph (a) of this section 2.06(6)should be sent as required by sections 3.09and 4.01 of this revenue procedure.
(c) In situations in which a CPEO con-tract with a customer covers remunerationpaid by a CPEO to self-employed individ-uals, the CPEO contract must notify, or beaccompanied by notification to, the cus-tomer that the remuneration paid by theCPEO to any self-employed individuals isnot covered by section 3511 of the Code.
(7) Penalties and additions to tax. ACPEO is subject to the penalty under sec-tion 6652(n) of the Code for failure tomake any report required by sections 3511and 7705 of the Code (and the guidancethereunder), which includes the reportingrequirements described in this section2.06. In addition, a CPEO is subject to thesame penalties and additions to tax as anyemployer that fails to meet the applicableemployment tax reporting requirementsdiscussed in section 2.06(2) of this reve-nue procedure, including but not limitedto penalties and additions to tax undersections 6651, 6656, 6672, 6721, 6722,and 6723 of the Code. However, the fail-ure to file Forms 940 and 941, along withall required schedules, electronically, asprovided in section 2.06(2) of this revenueprocedure, does not constitute a failure tofile for purposes of the section 6651(a)(1)addition to tax or a failure to make areport for purposes of the section 6652(n)penalty. The consequence of any failure tofile these forms and associated scheduleselectronically is the potential suspensionor revocation of certification as a CPEO,addressed in section 3 of this revenue pro-cedure.
SECTION 3. SUSPENSION ANDREVOCATION OF CPEOCERTIFICATION
.01 In general. The IRS may suspendand/or revoke the certification of anyCPEO as a result of one or more failuresto comply with any of the requirementsfor CPEOs described in sections 3511 and7705 of the Code, the regulations there-under, Rev. Proc. 2016–33, Notice 2016–49, this revenue procedure, and any otherguidance issued by the IRS applicable toCPEOs, and will do so if the IRS deter-mines, in its sole discretion and based ona review of the relevant facts and circum-stances, that one or more of such failurespresent a material risk to the IRS’s collec-tion of federal employment taxes. Section3.02 of this revenue procedure providesexamples of specific failures that may re-sult in the issuance of a notice of suspen-sion and proposed revocation, the conse-quences of which are described in section3.03(1) of this revenue procedure. ACPEO may request review of the pro-posed revocation, in the manner describedin section 3.03(2) of this revenue proce-
Bulletin No. 2017–3 January 17, 2017433
dure, which may result in the lifting of thesuspension or the issuance of a notice offinal revocation. Consequences of revoca-tion of certification are described in sec-tion 3.09 of this revenue procedure.
.02 Specific failures resulting in sus-pension and proposed revocation. Spe-cific circumstances that may result in sus-pension and proposed revocation ofcertification include, but are not limitedto—
(1) A failure to timely complete anannual verification, timely submit annualaudited financial statements and an ac-companying CPA opinion, or timely sub-mit a quarterly assertion, attestation, orworking capital statement, as provided insections 2.02, 2.04, and 2.05 of this reve-nue procedure;
(2) A failure to maintain a bond orbonds in the required bond amount, asprovided in section 2.03 of this revenueprocedure;
(3) A failure to satisfy the reportingrequirements provided in section 2.06 ofthis revenue procedure, including a failureof the CPEO or a responsible individual ofthe CPEO to notify the IRS of a materialchange (as provided in sections 2.06(3)and 2.06(4) of this revenue procedure);
(4) The charging or conviction of theCPEO, or a related entity or a responsibleindividual of the CPEO, with or for anycriminal offense under the laws of theUnited States or a state or political subdi-vision;
(5) The CPEO, or a related entity or aresponsible individual of the CPEO, beingthe subject of an active IRS criminal in-vestigation;
(6) A failure (other than an immaterialand isolated failure that does not reflect ameaningful lapse in compliance with fed-eral employment tax withholding and de-posit requirements) by the CPEO or anyresponsible individual to pay any applica-ble federal, state, or local taxes or file anyrequired federal, state, or local tax or in-formation returns in a timely and accuratemanner, unless the failure is determined tobe due to reasonable cause and not due towillful neglect;
(7) The assessment of fraud penaltiesagainst the CPEO or any of its responsibleindividuals or related entities by the IRSor another tax authority; and
(8) The discovery of any errors oromissions in any annual audited financialstatements or working capital statementspreviously submitted to the IRS in ac-cordance with sections 2.04 and 2.05 ofthis revenue procedure, sections 2.05and 2.06 of Rev. Proc. 2016 –33, and§§ 301.7705–2T(e) and (f), that wouldrequire a restatement of previously sub-mitted statements.
.03 Notice of suspension and proposedrevocation. If the CPEO program officedetermines that suspension and proposedrevocation of certification is appropriate,the IRS will issue a notice of suspensionand proposed revocation to the CPEO thatwill explain the reason(s) for and con-sequences of the suspension and pro-posed revocation, as described in sec-tion 3.03(1) of this revenue procedure,and advise the CPEO of its opportunityto request review of the proposed revo-cation, as described in section 3.03(2) ofthis revenue procedure. The CPEO’ssuspension is effective as of the date onthe notice.
(1) Consequences of suspension of cer-tification. Within 10 days of the date ofthe notice of suspension and proposed re-vocation, the CPEO must provide writtennotice to its customers of its suspendedstatus. Moreover, the IRS will include thesuspended CPEO in the published list ofsuspended CPEOs, available on www.irs.gov, and may also individually notify theCPEO’s customers of the suspension. ACPEO that has received a notice of sus-pension and proposed revocation is stillresponsible for meeting all applicable cer-tification requirements contained in theregulations and this revenue procedure.However, section 3511 of the Code willnot apply to any new CPEO contract (notincluding modifications or extensions toexisting contracts) that the CPEO entersinto while its certification is suspended.Notwithstanding the foregoing, any newCPEO contract entered into while theCPEO’s certification is suspended is stillsubject to the applicable provisions of sec-tions 2.06(1), (2), and (6) of this revenueprocedure, which restate requirementsstated in § 31.3511–1(g) of the proposedregulations, assuming such contract other-wise constitutes a service agreement de-scribed in § 31.3504–2(b)(2).
(2) Request for review of proposed re-vocation. A notice of suspension and pro-posed revocation, in accordance with thissection 3.03, will advise the CPEO of itsopportunity to request review of the pro-posed revocation. To request a review, theCPEO must submit to the CPEO programoffice identified in the notice of suspen-sion and proposed revocation, within 30days of the date of the notice and in themanner prescribed by the notice, a writtenrequest for review that contains a state-ment of the facts, law, and arguments insupport of the CPEO’s position, includinga description of the actions it has taken, istaking, or intends to take to cure the fail-ure(s) identified in the notice (if possible)and to prevent the failure(s) from reoccur-ring. The arguments in support of theCPEO’s position should focus on the fac-tual information being provided by theCPEO concerning its failure(s) to complywith the requirements for CPEOs and/oron the factual information being providedas evidence disputing any underlying factson which the IRS based its conclusion, aswell as on the actions it has taken orintends to take to cure the failure(s) (ifpossible) and to prevent the failure(s)from reoccurring. Although argumentsconcerning whether the actions the CPEOhas taken or intends to take have cured orwill cure the failure(s) (if possible) andwill prevent the failure(s) from reoccur-ring are appropriate for the CPEO to makein its request for review, arguments con-cerning whether the failure(s) presented orcontinue to present a material risk to theIRS’s collection of federal employmenttaxes are outside the scope of review andwill not be considered.
.04 Notice of final revocation issued ifno request for review of the proposed re-vocation is submitted. If the CPEO doesnot timely submit a request for review ofthe proposed revocation in accordancewith section 3.03(2) of this revenue pro-cedure, a notice of final revocation will beissued to the CPEO by the CPEO programoffice.
.05 How the IRS handles a request forreview of the proposed revocation. TheCPEO program office will first review therequest.
(1) If the CPEO program office findsthat the CPEO’s actions have cured or willcure the failure(s) (if possible) and will
January 17, 2017 Bulletin No. 2017–3434
prevent the failure(s) from reoccurring,the suspension will be lifted. The CPEOprogram office will provide to the CPEOwritten notice of this finding that will in-clude the date the suspension is lifted.Section 3511 of the Code will apply toany new CPEO contract that the CPEOenters into on or after the date the suspen-sion is lifted. However, section 3511 ofthe Code does not apply to any CPEOcontract that the CPEO entered intowhile it was suspended. The IRS willremove the listed CPEO from the pub-lished list of suspended CPEOs as soonas practicable, but no later than the nextupdate of the list that occurs after thesuspension is lifted.
(2) If, upon review of the CPEO’srequest for review of the proposed revo-cation, the CPEO program office deter-mines that the CPEO’s actions have notcured or will not cure the failure(s) andwill not prevent the failure(s) from reoc-curring, it will forward the notice of sus-pension and proposed revocation, theCPEO’s request for review, and all ac-companying supporting documentation tothe IRS Office of Professional Responsi-bility (OPR).
.06 Consideration by OPR. If the re-quest for review of the proposed revoca-tion is forwarded to OPR, OPR will con-sider the CPEO’s request for review. OPRwill apply an abuse-of-discretion standardto its review, and if, applying this stan-dard, OPR finds that the CPEO programoffice erred in proposing revocation or indetermining that the CPEO’s actions havenot cured or will not cure the failure(s)and will not prevent the failure(s) fromreoccurring, the CPEO’s certification willnot be revoked, and its suspension will belifted. OPR will provide written notice ofits finding to both the CPEO and theCPEO program office, which will includethe date the suspension is lifted. As of thedate the suspension is lifted, the CPEOwill be restored to full status as a CPEO,section 3511 of the Code will once againapply to any new CPEO contract that theCPEO enters into. However, section 3511of the Code does not apply to any CPEOcontract that the CPEO entered into whileit was suspended. The IRS will removethe listed CPEO from the list of suspendedCPEOs as soon as practicable, but no laterthan the next update of the list that occurs
after the suspension is lifted. If OPR findsno abuse of discretion, OPR will providewritten notice of its finding to both theCPEO and the CPEO program office andwill issue a notice of final revocation tothe CPEO, which is described in section3.08 of this revenue procedure.
.07 A request for review may be with-drawn. A CPEO may withdraw its requestfor review of the notice of proposed revo-cation before OPR provides written noticeof its finding to the CPEO. A request forreview may be withdrawn only upon thewritten request of the CPEO. Upon receiptof the CPEO’s withdrawal request, theIRS will issue a notice of final revocation.
.08 Notice of final revocation. The no-tice of final revocation will incorporate byreference the notice of suspension andproposed revocation (including an expla-nation of the reason(s) for the suspensionand proposed revocation) and explain theconsequences of revocation of certifica-tion, as described in section 3.09 of thisrevenue procedure. If the CPEO requestedreview of the proposed revocation (anddid not withdraw its request for review),the notice of final revocation will alsoinclude additional discussion of the IRS’srationale for revocation of certification inresponse to arguments made in theCPEO’s request for review. The notice offinal revocation will state the effectivedate of the revocation.
.09 Consequences of revocation. ACPEO is no longer a CPEO as of theeffective date of revocation stated in thenotice of final revocation, and the provi-sions of section 3511 of the Code no lon-ger apply to the organization as of thatdate. Unless otherwise stated in the noticeof final revocation, within 10 days afterthe date of the notice of final revocationand no less than 30 days before the effec-tive date of revocation, the CPEO mustprovide written notice to each of its cus-tomers that the CPEO’s certification hasbeen revoked, that the provisions of sec-tion 3511 of the Code no longer apply tothe customer’s relationship with theCPEO, and that the customers may also beliable (as of the effective date of revoca-tion) for federal employment taxes im-posed on remuneration remitted by theCPEO to all employees covered by thecustomer’s contract with the CPEO.Moreover, the IRS will include the CPEO
in the published list of revoked CPEOs,available on www.irs.gov, as soon as prac-ticable, but no later than the next update ofthe list that occurs after the effective dateof revocation, and may also individuallynotify the CPEO’s customers of the revo-cation. The former CPEO may not reapplyto be certified as a CPEO until one yearhas passed after the effective date of itsrevocation.
SECTION 4. VOLUNTARYTERMINATION
.01 Notice of voluntary termination. ACPEO may voluntarily terminate its certi-fication at any time other than while itscertification is suspended. To voluntarilyterminate its certification, the CPEO mustsubmit to the IRS, via the CPEO’s onlineaccount or such other method as the IRSshall prescribe in further guidance, a writ-ten notice of voluntary termination at least30 days prior to the date on which theCPEO intends for the termination to takeeffect. The effective date chosen by theCPEO must coincide with the first day ofa calendar quarter. Prior to sending theIRS the notice of voluntary termination,the CPEO must notify each of its custom-ers in writing of the CPEO’s intention toterminate its certification and of the pro-posed effective date of termination, andprovide an explanation of the employmenttax consequences of termination, includ-ing a statement that the customer may alsobe liable (as of the effective date of ter-mination) for federal employment taxesimposed on remuneration remitted by theCPEO to all employees covered by thecustomer’s contract with the CPEO. Asample of the notification to customersreferred to in the preceding sentence mustbe attached to the notice of voluntary ter-mination submitted by the CPEO to theIRS.
.02 Notice of termination sent to cus-tomers by IRS. Upon receipt of a CPEO’snotice of voluntary termination, the IRSmay also send notification of the CPEO’sintent to terminate certification to theCPEO’s customers.
.03 Effect of voluntary termination. ACPEO that voluntarily terminates its cer-tification is, as of the effective date statedin the notice of voluntary termination, nolonger a CPEO and the provisions of sec-tion 3511 of the Code will no longer apply
Bulletin No. 2017–3 January 17, 2017435
to the organization. The CPEO will alsobe removed from the list of CPEOs thatthe IRS publishes on www.irs.gov, whichis updated by the 15th day of the firstmonth of every calendar quarter.
SECTION 5. GUIDANCE FORCPEOS WITH AN EFFECTIVEDATE OF CERTIFICATION OFJANUARY 1, 2017, THAT RECEIVENOTICE OF CERTIFICATIONAFTER THAT DATE
.01 In general. Rev. Proc. 2016–33, asmodified by Notice 2016–49, providesthat the effective date of certification for aCPEO applicant that submits a completeand accurate application before October 1,2016, and is certified, will be January 1,2017, even if the date of its notice ofcertification is after January 1, 2017. ACPEO applicant that submitted a completeand accurate application before October 1,2016, under this special rule should beginkeeping track of the information neces-sary to properly complete a Schedule R(Form 941), Allocation Schedule for Ag-gregate Form 941 Filers (a draft of thenew Schedule R (Form 941) that includesCPEO reporting is available at www.irs.gov) as of January 1, 2017, even if theCPEO applicant has not yet received no-tice of certification. The IRS anticipatesthat a CPEO that receives a notice ofcertification during the first quarterof 2017 providing for an effective date ofcertification of January 1, 2017, will beable to comply with CPEO employmenttax reporting requirements, as described insection 2.06(2) of this revenue procedure,and file Form 941 with an attached Sched-ule R by the first quarter deadline of April30, 2017. However, in the event a CPEOreceives a notice of certification after theend of the first quarter of 2017 (that is,after March 31, 2017) that provides for aneffective date of certification of January 1,2017, the CPEO may file Form 941 for thefirst quarter of 2017 without an attachedSchedule R, but then must file Form 941–X,Adjusted Employer’s QUARTERLY FederalTax Return or Claim for Refund, with aproperly completed Schedule R for the firstquarter by July 31, 2017.
.02 Transition rule for filing Form14751. Under § 301.7705–2T(g) and sec-tion 2.04(2) of Rev. Proc. 2016–33, aCPEO applicant that is certified under the
special rule described in section 5.01 ofthis revenue procedure would have 30days to post a bond that is effective be-ginning January 1, 2017, (using Form14751) in the amount required by§ 301.7705–2T(g)(2). To comply withsection 2.03(3) of this revenue proce-dure, a CPEO that is certified under thespecial rule and whose bond amount un-der § 301.7705–2T(g)(2) increases forthe bond period beginning April 1,2017, would need to increase its bondamount (using Form 14571) for the newbond period by March 1, 2017. If aCPEO that is certified under the specialrule receives its notice of certificationafter March 1, 2017, meeting this March1 deadline will not be possible. More-over, whether or not notice of certifica-tion is received by the March 1 deadline,obtaining a bond for a three-month pe-riod beginning January 1, 2017, andthen within a short timeframe increasingthat bond amount for a period beginningApril 1, 2017, may prove administra-tively difficult.
Accordingly, Treasury and the IRS areproviding transition relief for newly certi-fied CPEOs that are certified with an ef-fective date of January 1, 2017, under thespecial rule described in section 5.01 ofthis revenue procedure. Specifically, withrespect to both the bond period from Jan-uary 1, 2017, to March 31, 2017, and thebond period from April 1, 2017, to March31, 2018, such a CPEO will be required tosubmit only one properly completed andexecuted Form 14751 covering both bondperiods. The single bond posted using thisForm 14751 must have an effective dateof January 1, 2017, and cover both bondperiods using the same bond amount,which is in the amount required by§ 301.7705–2T(g)(2), calculated for thebond period beginning April 1, 2017,and ending March 31, 2018. In addition,the CPEO will have 30 days from thedate of its notice of certification to sub-mit this Form 14751, without regard towhen the CPEO’s notice of certificationis received.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effectiveDecember 29, 2016.
SECTION 7. PAPERWORKREDUCTION ACT
The collection of information con-tained in this revenue procedure has beenreviewed and approved by the Office ofManagement and Budget (OMB) in accor-dance with the Paperwork Reduction Act(44 U.S.C. § 3507) under control number1545-2266.
The collection of information in thisrevenue procedure relates to the informa-tion a person must submit to the IRS tomaintain certification as a CPEO for pur-poses of sections 3511 and 7705 of theCode and to the information a CPEO mustreport to the IRS and to its customers andclients to ensure the accurate, efficient,and transparent payment and reporting ofemployment taxes. Generally, the collec-tion of information burden associated withsections 2 through 4 of this revenue pro-cedure is reflected in the burden estimatesfor Form 14737, Request for VoluntaryIRS Certification of a Professional Em-ployer Organization; Form 14737–A, Re-sponsible Individual Personal Attestation;Form 14751, Certified Professional Em-ployer Organization Surety Bond; and§ 301.7705–2T and § 31.3511–1, all ofwhich are under the same control number.The collection of information burden as-sociated with sections 2.06(1) and 2.06(2)of this revenue procedure, in particular,will be reflected in the burden estimatesfor new Form 8973, Certified ProfessionalEmployer Organization/Customer Report-ing Agreement, and for the amendmentsmade to the applicable Schedules R ofForms 940 and 941.
An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information un-less the collection of information displaysa valid OMB control number.
Books and records relating to the col-lection of information must be retained aslong as their contents may become mate-rial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by section 6103 of the Code.
SECTION 8. DRAFTINGINFORMATION
The principal authors of this revenueprocedure are Andrew Holubeck and Me-
January 17, 2017 Bulletin No. 2017–3436
lissa Duce of the Office of the AssociateChief Counsel (Tax Exempt and Govern-ment Entities). For further information re-garding this revenue procedure, pleasecontact Andrew Holubeck at (202) 317-4774 (not a toll-free number).
Qualified Intermediary Agreement
Revenue Procedure 2017–15SECTION 1. PURPOSE
.01 In General. This Revenue Proce-dure sets forth the final qualified interme-diary (QI) withholding agreement (QIagreement) entered into under §1.1441–1(e)(5).4 In general, the QI agreement al-lows foreign persons to enter into anagreement with the Internal Revenue Ser-vice (IRS) to simplify their obligations aswithholding agents under chapters 3 and 4and as payors under chapter 61 and sec-tion 3406 for amounts paid to their ac-count holders. The QI agreement also al-lows certain foreign persons to enter intoan agreement with the IRS to act as qual-ified derivatives dealers (QDDs) and toassume primary withholding and report-ing responsibilities on all dividend equiv-alent payments that they make.
.02 Withholding Foreign Partnershipand Withholding Foreign Trust Agree-ments. Revenue Procedure 2014-47,2014-35 I.R.B. 393, includes the with-holding foreign partnership (WP) andwithholding foreign trust (WT) agree-ments that are currently in effect, andthat are supposed to expire on December31, 2016. This revenue procedure an-nounces that because the updated WPand WT agreements will not be pub-lished before December 31, 2016, WPsand WTs with agreements currently ineffect may continue to treat those agree-ments as in effect until updated agree-ments are issued in January 2017.
SECTION 2. SCOPE
.01 Entities Eligible to Execute a QIAgreement. A QI agreement may be en-tered into by persons described in§1.1441–1(e)(5)(ii), including foreign fi-
nancial institutions (FFIs) (as defined in§1.1471–5(d)), foreign clearing organiza-tions, and foreign branches of U.S. finan-cial institutions and clearing organiza-tions. An eligible entity (as defined in§1.1441–1(e)(6)(ii)) may also enter into aQI agreement for purposes of becoming aqualified derivatives dealer (QDD).
An FFI may apply to enter into a QIagreement if the FFI is able to, and agreesto, satisfy the requirements and obligationsof (1) a participating FFI (including a report-ing Model 2 FFI), (2) a registered deemed-compliant FFI (including a reporting Model1 FFI and a nonreporting Model 2 FFItreated as registered deemed-compliant), or(3) a registered deemed-compliant Model 1IGA FFI (as defined in section 2.17(C) ofthe 2017 QI Agreement). An FFI that is acertified deemed-compliant FFI (including anonreporting IGA FFI, as defined in§1.1471–1(b)(83)) may enter into a QIagreement if the FFI is able to and agrees toassume the obligations of, and to be treatedas, a participating FFI (including a reportingModel 2 FFI), a registered deemed-compliant FFI (including a reporting Model1 FFI or a nonreporting Model 2 FFI treatedas registered deemed-compliant), or a regis-tered deemed-compliant Model 1 IGA FFIwith respect to all accounts that it maintains(even if the FFI does not intend to act as aQI for all of the accounts it maintains). Acentral bank of issue may enter into a QIagreement provided that it meets and agreesto assume the obligations of, and to betreated as, a participating FFI (including areporting Model 2 FFI) or registereddeemed-compliant FFI (including a report-ing Model 1 FFI) with respect to any ac-count that it maintains that is held in con-nection with a commercial financial activitydescribed in §1.1471–6(h) and for which itreceives a withholdable payment (as definedin §1.1471–1(b)(145)). A foreign branch ofa U.S. financial institution or clearing orga-nization may also apply to enter into a QIagreement provided that it is a reportingModel 1 FFI or it agrees to assume therequirements and obligations of a participat-ing FFI (including a reporting Model 2 FFI).
An entity that is a territory financialinstitution (territory FI) (as defined in§1.1471–1(b)(130)) or a nonparticipating
FFI (as defined in §1.1471–1(b)(82)) maynot apply to enter into a QI agreement.
A foreign corporation that is a non-financial foreign entity or NFFE (as de-fined in §1.1471–1(b)(80)) that is de-scribed in one of the categories in§1.1441–1(e)(5)(ii) may also apply to en-ter into a QI agreement. An NFFE thatseeks to act as an intermediary on behalfof its shareholders should not apply for QIstatus and instead should apply for with-holding foreign partnership status as a re-verse hybrid entity. An NFFE that entersinto a QI agreement to act an as interme-diary on behalf of persons other than itsshareholders will be required to satisfy thewithholding and reporting requirements of§§1.1472–1(a) and 1.1474–1(i) with re-spect to any NFFE that is a beneficialowner for whom the QI is acting withrespect to a withholdable payment. The QIagreement generally does not apply to aforeign partnership or foreign trust. A for-eign partnership or foreign trust may ap-ply for status as a withholding foreignpartnership or withholding foreign trust.See §§1.1441–5(c)(2)(ii) and 1.1441–5(e)(5)(v).
.02 Effect on Other Documents. Reve-nue Procedure 2014-39, 2014-29 I.R.B.150, is superseded with respect to a QI’srequirements that apply after December31, 2016. A QI agreement in effect priorto December 31, 2016 expires, in accor-dance with its terms, on December 31,2016.
SECTION 3. BACKGROUND –WITHHOLDING AND REPORTINGREQUIREMENTS UNDERCHAPTERS 3, 4, AND 61 ANDSECTION 3406
.01 Withholding and Reporting underChapter 4 on Payments Made to FFIs andOther Payees. Section 1471(a) requires awithholding agent to deduct and withholda tax equal to 30 percent on any withhold-able payment made to an FFI, unless theFFI agrees to and complies with the termsof the FFI agreement to satisfy the obli-gations specified in section 1471(b) (aparticipating FFI); is deemed to meet therequirements under section 1471(b) (adeemed-compliant FFI), or is treated as an
1Unless otherwise provided, all citations in this Revenue Procedure and the QI agreement included in this Revenue Procedure are to the Internal Revenue Code of 1986, as amended (Code)and the Income Tax Regulations thereunder.
Bulletin No. 2017–3 January 17, 2017437
exempt beneficial owner under §1.1471–6. Section 1472(a) requires a withholdingagent to deduct and withhold a tax equalto 30 percent on any withholdable pay-ment made to an NFFE (other than anexcepted NFFE) unless such entity pro-vides a certification that it does not haveany substantial U.S. owners or providesinformation regarding its substantial U.S.owners.
A participating FFI (including a report-ing Model 2 FFI) or registered deemed-compliant FFI (other than a reportingModel 1 FFI) will satisfy its requirementto withhold under sections 1471(a) and1472(a) on withholdable payments madeto accounts held by entities by withhold-ing on accounts that the FFI is required totreat as held by nonparticipating FFIs andrecalcitrant account holders under the FFIagreement, §1.1471–5(f), or an applicableModel 2 IGA. A participating FFI (includ-ing a reporting Model 2 FFI) or registereddeemed-compliant FFI (other than a re-porting Model 1 FFI) is also required towithhold on withholdable payments madeto accounts held by individuals that theFFI is required to treat as recalcitrant ac-count holders to the extent required underthe FFI agreement, §1.1471–5(f), or anapplicable Model 2 IGA. See, however,the Model 2 IGA for the suspension ofwithholding on non-consenting U.S. ac-counts. A QI that is a reporting Model 1FFI or a registered deemed-compliantModel 1 IGA FFI will satisfy its require-ment to withhold under section 1471(a) onwithholdable payments made to accountsheld by entities by withholding on ac-counts that the FFI is required to treat asheld by nonparticipating FFIs.
A participating FFI (including a report-ing Model 2 FFI), a registered deemed-compliant FFI, and a registered deemed-compliant Model 1 IGA FFI must reportcertain account information regardingeach U.S. account (or U.S. reportable ac-count) that it maintains to the extent re-quired under the FFI agreement, §1.1471–5(f), or a Model 1 or Model 2 IGA. Aparticipating FFI (including a reportingModel 2 FFI) or a registered deemed-compliant FFI (other than a reportingModel 1 FFI) must report certain informa-tion about accounts that it maintains thatare held by recalcitrant account holders(or non-consenting U.S. accounts). A
withholding agent making payments to anNFFE that is not reported by an FFI as aU.S. account (or U.S. reportable account)is also required to report withholdablepayments made to an NFFE (other than anexcepted NFFE) with substantial U.S.owners on Form 8966, FATCA Report.See §§1.1472–1(b)(1)(iii) and 1.1474 –1(i). A withholding agent (including aparticipating FFI or registered deemed-compliant FFI) that is required to with-hold on a withholdable payment mustreport the payment on Form 1042-S,Foreign Person’s U.S. Source IncomeSubject to Withholding.
.02 Withholding and Reporting underChapter 3 on Payments to Foreign Per-sons. Sections 1441 and 1442 require awithholding agent to deduct and withholda tax equal to 30 percent on any paymentof U.S. source fixed or determinable an-nual or periodical (FDAP) income that isan amount subject to withholding (as de-fined in §1.1441–2(a)) made to a foreignperson. A lower rate of withholding mayapply under the Code (for example, sec-tion 1443), the regulations, or an incometax treaty. Generally, a withholding agentmust also report the payments on Form1042-S regardless of whether withholdingwas required. See §1.1461–1(c).
.03 Backup Withholding under Section3406 and Reporting on Payments to Cer-tain U.S. Persons under Chapter 61. Un-der sections 6041, 6042, 6045, 6049,and 6050N (chapter 61 or the Form 1099reporting provisions), payors of interest,dividends, royalties, gross proceedsfrom the sales of securities, and otherfixed or determinable income must re-port payments made to certain U.S. per-sons (that is, U.S. non-exempt recipientsor presumed U.S. non-exempt recipi-ents) on the appropriate Form 1099 un-less an exception to reporting applies.See §§1.6041– 4(a); 1.6042–3(b)(1)(iii);1.6045–1(g)(1)(i); 1.6049 –5(b)(12);and 1.6050N–1(c)(1)(i). Under section3406, a payor must generally obtain aForm W-9, Request for Taxpayer Iden-tification Number and Certification,from a U.S. non-exempt recipient re-ceiving a payment reportable on a Form1099 or must otherwise backup with-hold under section 3406 and report thepayment on Form 1099.
.04 Coordination of Withholding andReporting Requirements under Chapters 3and 4. With respect to a withholdable pay-ment that is subject to withholding underchapter 4, a withholding agent may creditany tax withheld under chapter 4 againstits liability for any tax due with respect tothe payment under chapter 3. A withhold-ing agent is required to report on a singleForm 1042-S the information required un-der both chapters 3 and 4 with respect to apayment subject to withholding underboth chapters 3 and 4. With respect to awithholdable payment that is not subjectto withholding under chapter 4 and that isan amount subject to withholding underchapter 3, a withholding agent is also re-quired to report on Form 1042-S the ap-plicable chapter 4 exemption code for thepayment and the recipient’s chapter 4 sta-tus.
.05 Responsibilities of Intermediariesthat Enter into QI Agreements. When theIRS enters into a QI agreement with aforeign person (or foreign branch of aU.S. person), that foreign person (or for-eign branch of a U.S. person) becomes aQI. A QI is a withholding agent underchapters 3 and 4 and a payor under chap-ter 61 and section 3406 for amounts that itpays to its account holders. The generalobligations of a QI as a withholding agentand payor are described in section 1.01 ofthe QI agreement and are relevant towhether an event of default occurs undersection 11.04 of the QI agreement.
SECTION 4. SUMMARY OFCHANGES TO THE QIAGREEMENT
Notice 2016-42, 2016-19 I.R.B. 67, setforth a proposed QI agreement (the Pro-posed QI Agreement) that included revi-sions to the QI agreement currently ineffect, contained in Revenue Procedure2014-39 (the 2014 QI Agreement) as wellas provisions relating to QDDs. Com-ments were received in response to theProposed QI Agreement. This section pro-vides a summary of changes reflected inthe QI agreement provided in this Reve-nue Procedure (the 2017 QI Agreement),including changes made in response tocertain of the comments received to theProposed QI Agreement.
.01 Provisions Applicable to QualifiedDerivatives Dealers. On September 18,
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2015, final and temporary regulations un-der section 871(m) and sections 1441,1461, and 1473 (collectively, the 871(m)regulations) were published in T.D. 9734,which addressed the treatment of dividendequivalents from U.S. sources. On July 1,2016, the Treasury Department and theIRS released Notice 2016-42, containingthe Proposed QI Agreement that describesrequirements and obligations that wereproposed to be applicable to QDDs andthat requested comments. On December 2,2016, the Treasury Department and theIRS released Notice 2016-76, 2016-51I.R.B. 834, providing guidance for com-plying with the section 871(m) regulationsin 2017 and 2018 and explaining how theIRS intends to administer those regula-tions in 2017 and 2018. The QDD provi-sions of the 2017 QI Agreement reflectanticipated changes to the 871(m) regula-tions, which are discussed below.
(1) Updates to reflect Notice 2016-76.The Proposed QI Agreement providedrules for how a QDD calculates its section871(m) amount and determines its QDDtax liability. Based on comments receivedon the Proposed QI Agreement, Notice2016-76 revised the methodology for de-termining the section 871(m) amount touse a net delta approach and announcedthat the regulations under §1.871–15(q)(1) would be revised to provide that aQDD will remain liable for tax under sec-tion 881(a)(1) and subject to withholdingunder chapters 3 and 4 on dividends onphysical shares and deemed dividends re-ceived. Notice 2016-76 also makes calen-dar year 2017 a phase-in year for QDDs,as it provides that, in enforcing and ad-ministering the QDD rules in the section871(m) regulations and the relevant pro-visions of the QI agreement for 2017, theIRS will take into account the extent towhich the QDD made a good faith effortto comply with the section 871(m) regu-lations and the relevant provisions of theQI agreement.
The 2017 QI Agreement further modi-fies the computation of a QDD’s section871(m) amount for 2017 and describescertain anticipated changes to the 871(m)regulations, which are expected to be re-leased in January 2017. To provide QDDswith the time necessary to implementthe computation of the section 871(m)amount announced in Notice 2016-76, a
QDD will not be liable for tax under sec-tion 881(a)(1) on dividends on physicalshares (including deemed dividends) or ondividend equivalents that the QDD re-ceives in its capacity as an equity deriva-tives dealer in calendar year 2017. Boththe Proposed QI Agreement and Notice2016-76 provided that a QDD will remainliable for tax under section 881(a)(1) ondividends and dividend equivalents that aQDD receives in any capacity other thanas an equity derivatives dealer. The 2017QI Agreement does not change this result.In addition, a QDD is responsible forwithholding on dividend equivalents itpays to a foreign person on a section871(m) transaction, whether in its capac-ity as an equity derivatives dealer or oth-erwise.
The 2017 QI Agreement provides thata QDD will be required to compute itssection 871(m) amount using the net deltaapproach (as defined in section 2.47 of the2017 QI Agreement) beginning in 2018,and will be subject to withholding on div-idends (including deemed dividends) re-ceived on or after January 1, 2018. TheTreasury Department and the IRS willconsider comments recommending ap-proaches for alleviating any overwith-holding (and preventing any underwith-holding) that might occur on dealertransactions with customers and on posi-tions that hedge customer transactionswhen withholding on dividends (includingdeemed dividends) begins in 2018.
(2) Eligible entity. The Proposed QIAgreement provided that an entity mustenter into a QI agreement and be an eli-gible entity to be a QDD. Comments tothe Proposed QI Agreement requested thatthe definition of an eligible entity be ex-panded.
In response to comments regarding theapplication of the QDD rules to branches,the 2017 QI Agreement clarifies the treat-ment of branches. The 2017 QI Agree-ment provides that the home office (asdefined in section 2.43 of the 2017 QIAgreement) and each branch of the personthat is applying for the QI agreement mustseparately qualify and be approved forQDD status. The home office and anybranch that wants to be a QDD must eachseparately meet the eligible entity require-ments as if it were a separate entity. Whenapproved as a QDD, the home office and
each branch are treated as a separate QDDand must apply the QDD provisions as ifeach home office and branch were sepa-rate entities. If a foreign person has one ormore branches, the home office is the for-eign person, excluding any branches ofthe foreign person.
As provided in section 1.02 of the 2017QI Agreement, if a QI is an FFI, it canonly have a branch also act as a QI if thatbranch is located in a jurisdiction identi-fied on the IRS’s Approved KYC List.This rule applies to QIs that are FFIs andare applying for QDD status on behalf ofthe home office or any branch. The QIagreement does not require NFFEs apply-ing for QI status to be located or operatingin an approved KYC jurisdiction (becauseNFFEs under the QI agreement are re-quired to document their account holdersby collecting withholding certificates andare not allowed to document their accountholders solely with documentary evi-dence). Similarly, a branch of a NFFE isnot required to be located in a jurisdictionidentified on the IRS’s Approved KYCList (and must document its account hold-ers with withholding certificates) to beable to act as a QI, including a branchacting as a QDD.
Comments also requested that the def-inition of an eligible entity be expanded toinclude bank holding companies and theirsubsidiaries. The comments noted thatbank holding companies are subject toextensive regulation, including compli-ance with risk management standards. Inresponse to comments, the 2017 QIAgreement expands the eligible entitydefinition to include a bank holding com-pany that is subject to regulatory supervi-sion as a bank holding company by thegovernmental authority in the jurisdictionin which it is organized or operates. Theeligible entity definitions is also expandedin the 2017 QI Agreement to include anentity that is wholly-owned (directly orindirectly) by a bank holding companysubject to regulatory supervision as a bankholding company by a governmental au-thority in the jurisdiction in which thebank holding company is organized oroperates. To qualify as a QDD, any bankholding company or wholly-owned sub-sidiary of a bank holding company mustsatisfy the other requirements of the eligi-ble entity definition. Finally, to provide
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the IRS with flexibility to administer theQDD regime, an eligible entity will bedefined to include any other person ac-ceptable to the IRS, which is similar tothe allowance provided to the IRS indefining persons eligible to enter into QIagreement as provided in §1.1441–1(e)(5)(ii)(D).
(3) Section 871(m) amount. The Pro-posed QI Agreement described the section871(m) amount as the sum of the amountsby which, for each dividend on each un-derlying security, (A) the dividends onunderlying securities associated with po-tential section 871(m) transactions anddividend equivalent payments that a QDDreceives in its dealer capacity exceed (B)the dividend equivalent payments and thequalifying dividend equivalent offsettingpayments that a QDD makes with respectto the same dividend in its dealer capacity.Comments requested that a QDD calcu-late its section 871(m) amount based onits net delta exposure to an underlyingsecurity. Comments noted that the netdelta exposure is used for business or non-tax regulatory purposes. The net delta ex-posure is calculated by multiplying therelevant dividend amount per share by thenet delta exposure (measured in numberof shares) of the QDD in its dealer capac-ity generally as of the close of the daybefore the ex-dividend date for the under-lying security.
In response to comments, the 2017 QIAgreement provides that the section871(m) amount is determined for eachdividend on each underlying security bymultiplying (A) the QDD’s net delta ex-posure to the underlying security for theapplicable dividend by (B) the applicabledividend amount per share. The net deltaexposure to an underlying security for anapplicable dividend is the amount (mea-sured in number of shares) by which (A)the aggregate number of shares in the un-derlying security that the QDD has expo-sure to as a result of positions in theunderlying security (including as a resultof owning the underlying security) withvalues that move in the same direction asthe value of the underlying security (thelong positions) exceeds (B) the aggregatenumber of shares of in the underlyingsecurity that the QDD has exposure to asa result of positions in the underlying se-curity with values that move in the oppo-
site direction from the value of the under-lying security (the short positions). Thenet delta exposure calculation only in-cludes long positions and short positionsthat the QDD holds in its equity deriva-tives dealer business. Any long positionsor short positions that are treated as effec-tively connected with the QDD’s conductof a trade or business in the United Statesfor U.S. federal income tax purposes areexcluded from the net delta exposurecomputation. The net delta exposure to anunderlying security is determined at theend of the day on the date provided in§1.871–15(j)(2) for the applicable divi-dend. If a QDD calculates net delta fornon-tax business purposes, that net deltaordinarily will be used for this purpose,subject to the modifications required bythe net delta exposure definition. EachQDD must determine its net delta expo-sure separately only taking into accounttransactions that exist and are attributableto that QDD for federal income tax pur-poses.
(4) QDD tax liability. Under the Pro-posed QI Agreement, the QDD tax liabil-ity was the sum of a QDD’s section 881tax liability for (A) its section 871(m)amount, (B) its dividends that are not onunderlying securities associated with po-tential section 871(m) transactions and itsdividend equivalent payments received asa QDD in its non-dealer capacity, and (C)any payments, such as interest, receivedas a QDD with respect to potential section871(m) transactions or underlying securi-ties that are not dividend or dividendequivalent payments.
As a result of the changes announced inNotice 2016-76 to modify the section871(m) amount and to require withhold-ing on dividends paid to a QDD, the 2017QI Agreement makes correspondingchanges to the QDD tax liability. The2017 QI Agreement revises the section871(m) amount to reflect the net deltaexposure computation and permit a QDDto reduce the tax liability on its section871(m) amount by taking into accountwithholding taxes paid on that same div-idend. While the section 871(m) amountcomputation was expanded to permit off-sets for amounts that do not give rise towithholding tax payments under the 2017QI Agreement, the QDD is liable for taxon any dividends received, without offset
or credit forward to address concernsraised by the expansion of offsets in thesection 871(m) amount computation. The2017 QI Agreement is also revised to re-flect that QDDs are subject to withholdingon all U.S. source FDAP payments madeto a QDD on underlying securities, otherthan dividend equivalents.
Under the 2017 QI Agreement, aQDD’s QDD tax liability is the sum of(A) for each dividend on each underlyingsecurity, the amount by which its tax lia-bility under section 881 for its section871(m) amount exceeds the amount of taxpaid by the QDD in its capacity as anequity derivatives dealer under section881(a)(1) on that dividend, (B) its taxliability under section 881 for dividendequivalent payments received as a QDDin its non-equity derivatives dealer capac-ity, and (C) its tax liability under section881 for any payments, such as dividendsor interest, received as a QDD with re-spect to potential section 871(m) transac-tions that are not dividend or dividendequivalent payments to the extent the fullliability was not satisfied by withholding.
Under the Proposed QI Agreement, aQDD was required to pay its QDD taxliability based on the withholding timingand deposit rules for those payments.Comments requested that the timing forQDD tax liability payments be changed.After considering the comments, the 2017QI Agreement removes the requirementthat the QDD tax liability be paid in thesame time and manner as would havebeen required for withholding on the ap-plicable payments. Instead, the generalrules regarding the time for a taxpayer topay its tax liability will apply, which willtypically require a QDD to make quarterlyestimates of its QDD tax liability that willbe added to the QI’s tax liability and filingan appropriate U.S. tax return.
(5) QDD withholding and reporting ofpayments. A QDD must assume primarywithholding responsibility for purposes ofchapters 3 and 4 for all payments it makesas a QDD. The amount subject to with-holding is determined under the InternalRevenue Code and the regulations pro-mulgated thereunder and is not reduced byany taxes paid by the QDD, including anytax paid as part of its QDD tax liability. AQI can elect whether or not to assumeprimary withholding responsibility for
January 17, 2017 Bulletin No. 2017–3440
purposes of chapters 3 and 4 for paymentsfor which it is not required to act as aQDD. Comments requested that the Pro-posed QI Agreement be revised to clarifythat a QI that is not acting as a QDD mayelect whether to assume primary with-holding responsibility for payments thatare not related to its QDD activities.While the Proposed QI Agreement al-ready contained a rule that allowed a QI toelect whether or not to assume primarywithholding responsibility for paymentsfor which it was not required to act as aQDD, the 2017 QI Agreement furtherclarifies this rule.
The Proposed QI Agreement providedthat there would be no withholding orreporting on payments made to a QDDwith respect to potential section 871(m)transactions and underlying securities,other than reporting for dividends andsubstitute dividends. A comment re-quested that the exclusion be limited todividends and dividend equivalents. As aresult of changes to the section 871(m)amount in the 2017 QI Agreement, allpayments (other than dividend equivalentpayments) made to a QDD with respect tounderlying securities will be subject towithholding and reporting if the paymentswould be subject to withholding and re-porting to a non-QDD. As described insection 4.01(1) of the preamble to the2017 QI Agreement, however, a QDDwill be subject to withholding on divi-dends (including deemed dividends) be-ginning with those payments received onor after January 1, 2018. The 2017 QIAgreement retains the same withholdingand reporting rules for payments made toa QDD with respect to potential section871(m) transactions as in the Proposed QIAgreement.
The Proposed QI Agreement expandedthe scope of payments that QDDs wouldreceive without withholding to includeany payments on underlying securities orpotential section 871(m) transactions. Acomment requested that the withholdingexclusion be limited to dividends and div-idend equivalents. The 2017 QI Agree-ment provides that a QDD will be subjectto withholding on all payments, other thandividend equivalents, received by theQDD with respect to underlying securi-ties. In addition, the 2017 QI Agreement
removes the withholding timing and de-posit rules for these payments.
(6) Securities lending and sale-repurchase transactions. The ProposedQI Agreement provided that a QI mustact as a QDD for any securities lending orsale-repurchase transaction it enters intothat is a section 871(m) transaction, andthat for purposes of the agreement, a QDDis deemed to make and receive paymentspursuant to those securities lending andsale-repurchase transactions as a princi-pal. Comments requested that this provi-sion be revised to permit entities acting asagents of lenders in securities lending orsale-repurchase transactions to act as in-termediaries and not be required to obtainQDD status. In response to that comment,the 2017 QI Agreement provides that tothe extent a QI determines that it is actingas an intermediary with respect to a secu-rities lending or sale-repurchase transac-tion that is a section 871(m) transaction, itwill not be treated as entered into by theQI as a principal; therefore, those transac-tions will not be treated as entered into bythe QI in its QDD capacity.
Pursuant to Notice 2016-76, taxpayersmay continue to rely on Notice 2010-46,2010-24 I.R.B. 757, during calendar year2017. As a result, the 2017 QI Agreementaddresses QIs who are qualified securitieslenders (QSLs) during 2017. If a QI isacting as a QDD, the QI must act as aQDD for all payments made as a principalwith respect to potential section 871(m)transactions and all payments received asa principal with respect to potential sec-tion 871(m) transactions and underlyingsecurities. Therefore, a QI cannot be botha QSL and a QDD, except with respect toa securities lending or sale-repurchasetransaction for which the QI has deter-mined that it is acting as an intermediary.
(7) Form 1042-S reporting. Commentsto the Proposed QI Agreement requestedthat a QI that is also acting as a QDD beallowed to separate its Form 1042-S re-porting and report payments separatelywhen acting as a QI and when acting as aQDD. Consistent with the 2017 Form1042-S and the box 12b requirement onForm 1042-S that a withholding agentprovide its chapter 3 status code, a QI thatis also acting as a QDD is required to fileseparate Forms 1042-S to report paymentsmade in each capacity by identifying its
specific chapter 3 status code as a QI orQDD. Section 8.01 of the 2017 QI Agree-ment has been updated to reflect this re-quirement. In addition, when a withhold-ing agent makes a payment to a QDD thatis subject to reporting under chapter 3 or4, a separate Form 1042-S is required foreach QDD, identifying the QDD by itshome office or branch, if applicable.
(8) Responsible officer and scope ofcertification. A comment to the ProposedQI Agreement requested that QIs that alsoact as QDDs be able to designate differentresponsible officers for purposes of theirQDD compliance. Because there is al-ready flexibility for a QI’s responsible of-ficer to rely on any process, procedure,review, or certification in making its cer-tification and for a QI’s responsible officerto delegate its responsibilities as appropri-ate, this request was not adopted. A QI’sresponsible officer may designate a spe-cific person to be responsible for QDDcompliance, but only the responsible offi-cer may make the certification to the IRS.
.02 Periodic Review and Certificationsof Compliance. The 2014 QI Agreementreplaced the previous external audit re-quirement applicable to a QI with an in-ternal compliance and review program. Aspart of this compliance program, the re-sponsible officer is required to make pe-riodic compliance certifications andprovide, with the certifications, certainfactual information to the IRS based, inpart, on the results of a periodic review.After the 2014 QI Agreement was pub-lished, comments raised concerns aboutthe administration of the compliance pro-cedures, including potential costs of im-plementing and conducting a complianceprogram, difficulties in allocating re-sources to conduct the periodic review inthe last year of the certification period (asrequired by the 2014 QI Agreement), andthe lack of detailed standards for perfor-mance of the QI’s periodic review similarto those provided in Rev. Proc. 2002-55,2002-2 C.B. 435. To address these com-ments, the Proposed QI Agreement mod-ified and expanded upon the complianceprovisions in section 10 and included, inAppendix I, the factual information to beprovided by the QI, and, in Appendix II, astatistical sampling procedure that a QI’sreviewer may use for conducting the pe-riodic review.
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(1) Certification of internal controls.The 2017 QI Agreement requires the QI’sresponsible officer to make a periodic cer-tification of internal controls provided inAppendix I, as previewed in the ProposedQI Agreement. The Proposed QI Agree-ment also listed the elements of the certi-fication both in section 10.03 and in Ap-pendix I. The 2017 QI Agreement retainsthe specified list of elements but eliminatesthe duplication by only listing the elementsof the certification in Appendix I.
In making the periodic certification ofinternal controls, the responsible officermay rely on, in addition to the results ofthe periodic review (if required), any otherprocesses, procedures, reviews, or certifi-cations made by other persons that theresponsible officer has determined arenecessary in order to make the certifica-tion. This flexibility allows the responsi-ble officer to decide, for example, whetherto hire an external reviewer (for example,a law firm or accounting firm) and whatthe scope of the engagement should be(for example, whether the external re-viewer will conduct a review of the suffi-ciency of the QI’s internal controls orwhether the review will be limited to theperiodic review, if required). A responsi-ble officer may also rely on a review,report, or certification made by anotherofficer or employee who may, for exam-ple, have greater subject matter expertisein a particular area (including a responsi-ble officer for FATCA purposes). The re-sponsible officer must, however, docu-ment what he or she has relied on inmaking the certification and retain suchdocumentation for the same period of timefor which the compliance review reportand certifications are required to be re-tained pursuant to section 10.06(D) of the2017 QI Agreement. For example, if theresponsible officer relies on an internal orexternal reviewer to conduct a review ofthe QI’s internal controls, the responsibleofficer must retain any report delivered bythe reviewer.
Comments to the Proposed QI Agree-ment requested further clarification re-garding the certification of internal con-trols, including what a responsible officershould rely on if the QI requests and ob-tains a waiver of the periodic review re-quirement. When a QI does not request, ordoes not obtain, a waiver, the responsible
officer must take into account the resultsof the periodic review in making the cer-tification of internal controls and mustalso use any other process, certification, orreview necessary in order to be able tocertify to the QI’s internal controls. Whena QI does request and obtain a waiver anddoes not conduct a periodic review, theresponsible officer must use the other pro-cesses, certifications, or reviews that he orshe determines are necessary in order tobe able to make the required certification.
Generally, regardless of whether awaiver is applied for and obtained, the2017 QI Agreement does not provide fur-ther prescriptive requirements about whatprocess or documentation the responsibleofficer must rely on to make the certifica-tion of internal controls because such pre-scriptive guidance may unnecessarilylimit a responsible officer’s discretion tostructure a compliance program that, inhis or her judgment, is necessary for theresponsible officer to make the certifica-tion of internal controls.
A comment to the Proposed QI Agree-ment also requested that a QI be able todesignate different responsible officersbased on lines of business (such as formaking the certification when the QI actsas a nonqualified intermediary for pay-ments). Because there is already flexibilityallowing a responsible officer to rely onothers in making his or her certification ofinternal controls to the IRS, as notedabove with respect to requests for separateresponsible officers for QDD purposes,this comment was not adopted.
(2) Certification period. Under the2014 QI Agreement and the Proposed QIAgreement, the initial certification periodends at the end of the third full calendaryear that the agreement is in effect. Eachsubsequent certification period is threefull calendar years thereafter. A commentto the Proposed QI Agreement requestedthat the initial certification period beshortened and/or the second certificationperiod be extended, so that the initial cer-tification period would end on December31, 2016, the termination date of the 2014QI Agreement. Because the certificationperiods include any renewals of the QIagreement, it is not necessary that thecertification period and an interim termi-nation date be the same. In addition, theproposed solution fails to address cases of
those QIs that had QI agreements witheffective dates in 2015 and 2016. As aresult, the 2017 QI Agreement does notincorporate this change.
Another comment to the Proposed QIAgreement requested that a QI be allowedto apply the provisions of the 2014 QIAgreement to its initial certification pe-riod for purposes of making the initialperiodic certification of compliance andproviding the factual information re-quired. This comment was not adoptedbecause the 2014 QI Agreement, unlikethe 2017 QI Agreement, does not containcompliance provisions and requirementsspecific enough for a QI to apply thatagreement to its initial compliance periodand provide the factual information re-quired with the periodic certification.
With respect to the requirement in PartII.F of Appendix I of the Proposed QIAgreement that a QI certify to its FATCAstatus, a comment requested clarificationwhether the requirement that the QI cer-tify to its FATCA status over the certifi-cation period meant certification period orcalendar year. As having an appropriateFATCA status is a prerequisite to enterinto a QI agreement and to maintain theagreement, a QI is required to certify to itsFATCA status for the entire certificationperiod and not just the calendar year se-lected for the periodic review.
(3) Periodic review. In addition tomaking the periodic certification of inter-nal controls, a QI is required to reportcertain factual information regarding itsdocumentation, withholding, reporting,and other obligations under the QI agree-ment. This factual information will begathered, in part, through the testing ofaccounts and transactions required as partof the periodic review, as described insections 10.04 and 10.05 of the 2017 QIAgreement. This review is focused on thetesting of accounts and transactions ratherthan a substantive evaluation of the suffi-ciency of a QI’s policies and procedures.Section 10.05(A) through (E) of the 2017QI Agreement provides the objectives forperforming the review, and Appendix I tothe 2017 QI Agreement describes the fac-tual information that will be required to bereported to the IRS following the reviewwhen making the periodic certification.
The 2014 QI Agreement required thatthe periodic review be conducted for the
January 17, 2017 Bulletin No. 2017–3442
last year of the certification period. Inresponse to comments regarding potentialdifficulties with this requirement, includ-ing resource constraints, the Proposed QIAgreement allowed a QI to choose anyyear within the certification period to se-lect for its periodic review. The 2017 QIAgreement retains this allowance.
Comments to the Proposed QI Agree-ment requested that QIs that are also act-ing as QDDs be allowed to select differentyears within the certification period forthe QI and QDD portions of their periodicreviews. Requiring a QI to use the sameyear for both the QI and QDD portions ofthe periodic review (when required) im-proves the efficiency of the IRS reviewprocess and assists the IRS with its com-pliance and administration of the QI pro-gram. As a result, the request was notadopted.
(4) Certification date. The 2014 QIAgreement provides that the initial certi-fication period ends at the end of the thirdfull calendar year that the 2014 QI Agree-ment (and any superseding agreement) isin effect. Therefore, for a QI with a 2014QI Agreement with an effective date ofJune 30, 2014 through December 31,2016, the initial certification period wouldend December 31, 2017, and the certifica-tion would be required to be provided tothe IRS on or before July 1, 2018. TheProposed QI Agreement included theseprovisions without modification. Com-ments to the Proposed QI Agreement re-quested a six-month extension of the July1 certification due date, and some com-ments also requested an additional, auto-matic six-month extension. Because itwould be difficult for QIs that choose thelast year of the certification period fortheir periodic reviews to make the certifi-cation on July 1 of the following year, the2017 QI Agreement provides QIs usingthe third year of the certification periodfor their periodic review an additional sixmonths to make the certification. In suchcases, the certification will be due Decem-ber 31 of the year following the end of thecertification period (for example, Decem-ber 31, 2018 for a certification period end-ing December 31, 2017). For QIs thatchoose either the first or second year fortheir periodic review, the same concernsare not present, and the certification will
continue to be due on July 1 following theend of the certification period.
(5) Consolidated Compliance Pro-gram. Comments raised questions regard-ing the consolidated compliance program,specifically what is required to apply fora consolidated compliance program andwhether NFFEs are allowed to be in consol-idated compliance programs. There is norestriction against NFFEs participating inconsolidated compliance programs. Formore information about consolidated com-pliance programs or to apply to operate aconsolidated compliance program, contactthe Foreign Intermediaries Program bye-mail at: [email protected].
A comment also requested that, in aconsolidated compliance program, the re-sponsible officer of the compliance QI beallowed to rely on certifications by otherresponsible officers of the other QIs in thegroup. A responsible officer (of a QI or acompliance QI) may rely on any process,procedure, review, or certification that heor she determines is appropriate in makingthe periodic certification of compliance.Therefore, the responsible officer of acompliance QI may rely on certificationsmade by other officers or individuals inthe QI compliance group. Notwithstand-ing that the responsible officer may relyon certifications made by other officers orindividuals within the group, the periodiccertification of compliance for the groupmay only be made by the responsible of-ficer of the compliance QI.
(6) FATCA requirements. A QI that isan FFI is required to comply with theFATCA requirements applicable to itschapter 4 status as a participating FFI,registered deemed-compliant FFI, or reg-istered deemed-compliant Model 1 IGAFFI. In response to concerns raised fol-lowing the 2014 QI Agreement, the Pro-posed QI Agreement clarified that a QI’sresponsible officer may rely on other per-sonnel with oversight or responsibility forthe QI’s FATCA compliance in makingits certifications relating the QI’s compli-ance with its FATCA obligations. TheProposed QI Agreement also clarified thatin conducting the periodic review relatingto its FATCA compliance, a QI is onlyrequired to review those accounts forwhich it is acting as a QI. Comments tothe Proposed QI Agreement raised thisquestion again, so further revisions were
made to the 2017 QI Agreement to clarifythe scope of QI’s FATCA requirements(and related certifications).
(7) Standards for internal and externalreviewers. A QI may use either an internalor an external reviewer to conduct theperiodic review required by section 10.04of the 2017 QI Agreement. In response tocomments to the 2014 QI Agreement andas previewed in the Proposed QI Agree-ment, section 10 of 2017 QI Agreementhas been clarified to prevent unintendedinferences in the 2014 QI Agreement thatthe periodic review must satisfy the stan-dards of a financial audit or other attesta-tion engagement of a certified public ac-countant. References to an “auditor”(whether internal or external) in the 2014QI Agreement have been replaced with“reviewer” in the Proposed QI Agreementand the 2017 QI Agreement.
The Proposed QI Agreement also clar-ified the description of the standard ofindependence required of a reviewer.Whether the reviewer is an internal orexternal reviewer, the reviewer must havesufficient independence to objectivelyconduct the review and cannot review hisor her own work (for example, systemsthat the reviewer designed, or documenta-tion that the reviewer validated in assist-ing a QI in its account opening processes).
Comments to the Proposed QI Agree-ment have requested further clarificationof the independence standard, particularlyas applicable to external reviewers. Manyof these comments requested that thisstandard, which is described differentlyfor internal and external reviewers, be re-laxed to allow a wider range of externalreviewers who have connections to, orexperience with, the QI’s systems or com-pliance. For example, comments re-quested that independence for external re-viewers be determined based on anindividual or team basis (that is, even if anindividual or team had established a QI’scompliance program, another individualor team in the same company or firmcould review the first individual’s orteam’s work). One comment suggestedthat the independence standard be clari-fied so that any individual with manage-ment responsibility for implementation ofthe QI agreement would not be allowed tohave significant involvement with the re-view. The comment also proposed that
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people who review client tax forms, per-form withholding for clients, and calculateamounts required to be reported be dis-qualified from performing the review. Un-der this proposal, people who advise onwhat the FATCA and QI rules are andhow they are applied to a particular situ-ation, provide advice on how the with-holding rules apply to a particular factpattern, assist in reporting by physicalsubmission of data to a tax authority(without responsibility for the underlyingdata), or provide quality assurance reviewservices would be permitted to conductthe review.
The provisions of the 2017 QI Agree-ment regarding the independence of thereviewer are unchanged from the Pro-posed QI Agreement. The independenceof a reviewer necessarily depends on spe-cific facts and circumstances, and, as aresult, providing more prescriptive rulesthan what is in the 2017 QI Agreementwould likely be both over and under-inclusive. Even though the 2017 QIAgreement does not contain comprehen-sive rules regarding what constitutes inde-pendence, the independence standard, asapplied to external reviewers, should notbe applied on an individual or team basisbut should be applied on a company orfirm-wide basis when the firm has devel-oped or assisted in the development ofpolicies and procedures relevant to a QI’scompliance with the agreement. To main-tain an appropriate level of independenceand integrity in the review process, re-viewers should not be reviewing their ownwork and should be in a position wherethey would be able to make a negativeassessment of the QI’s practices and pro-cedures without concern about any nega-tive impact for themselves or their em-ployers. With respect to the comment thatrequested a specific allowance for a re-viewer that also assisted with physicalsubmission of client data, it is unclear whythat activity would raise questions aboutindependence with respect to a QI’s com-pliance with the QI Agreement.
A comment also requested the QIagreement not reference a reviewer’s “in-dependence” because that term mighthave a particular meaning for public ac-counting firms that may not be relevantfor this purpose, however, no suggestionsfor alternative language were offered.
This comment was not accepted as theterm “independent” or “independence” isappropriate in this context, and it is ap-propriate for a reviewer to consider thestandards of independence applicable to apublic accounting firm to the extent theyapply to a review it is engaged to conductfor a QI.
The terms of the Proposed QI Agree-ment also required that an internal re-viewer be “competent” to perform the re-view. A comment requested that thedefinition of “competence” in this contextbe clarified, particularly with respect to aninternal reviewer. A reviewer must haveenough knowledge and experience (in-cluding that received by training) to con-duct the required review in order to pro-vide the necessary information to the IRS,as required by Appendix I to the 2017 QIAgreement, and to enable the responsibleofficer to make the required certification.
(8) Waiver. Section 10.07 of the Pro-posed QI Agreement allowed, under cer-tain circumstances, a QI that is an FFI thatis not acting as a QDD and that is not partof a consolidated compliance group to ap-ply for a waiver of the requirement toconduct the periodic review. In caseswhere a QI applies for a waiver, it isrequired to provide certain factual infor-mation along with its periodic certifica-tion, as specified in Parts I and III ofAppendix I. Comments to the ProposedQI Agreement requested that the informa-tion required to be provided with a waiverrequest be reduced. In order to obtain thenecessary information to approve a waiverrequest, it is important for the IRS toreceive information regarding the QI’s ac-count population that is specified in PartIII of Appendix I (information that is gen-erally consistent with the information thatwas required for a waiver of a QI auditunder the QI agreement that was in effectprior to the 2014 QI Agreement). As aresult, this request was not adopted, andthe information required to be providedwith a waiver request remains unchangedfrom the Proposed QI Agreement. How-ever, in response to comments, Part III ofAppendix I of the 2017 QI Agreementclarifies that a QI is not required to con-duct a periodic review in order to providethe factual information required for thewaiver request.
In addition, a comment to the ProposedQI Agreement requested that QIs in a con-solidated compliance group also be al-lowed to apply for a waiver of the periodicreview. This request was not adopted dueto concerns that allowing a waiver for QIsthat participate in a consolidated compli-ance program would reduce the effective-ness of the consolidated compliance pro-gram. Thus, the 2017 QI Agreementretains this prohibition, consistent withthe terms of the QI agreements prior to the2014 QI Agreement.
(9) Statistical sampling for periodic re-view. The Proposed QI Agreement al-lowed for the use of statistical sampling ofa QI’s accounts for purposes of the peri-odic review (rather than requiring a re-view of all accounts) provided that the QIhas 50 or more accounts to review. TheProposed QI Agreement also included, inAppendix II, a safe harbor method fordetermining a statistical sample of ac-counts for the periodic review.
Comments were received on AppendixII to the Proposed QI Agreement, andchanges in response to certain of thosecomments are reflected in Appendix II tothe 2017 QI Agreement. One commentrequested that a QI’s reviewer be permit-ted to perform a “spot check” (rather thantake a statistical sample) for certain partsof the review to the extent that spot checkprocedures were permitted for a QI’s auditunder the former QI agreement auditguidelines in Rev. Proc. 2002-55. In re-sponse to this comment, Appendix II hasbeen revised to permit the use of spotcheck procedures with respect to the re-view procedures performed pursuant tosections 10.05(B) through (D) of the 2017QI Agreement and to specify the require-ments for these procedures.
Other comments requested that a QI’sreviewer not be required to project anamount of underwithholding determinedas a result of a sample tested for the pe-riodic review unless specifically requestedto do so by the IRS during its review of aQI’s compliance. One comment also re-quested that projection not be required asa result of a single error. In response tothese comments, Appendix II to the 2017QI Agreement provides that a QI will payany underwithheld tax without regard toprojection and that the IRS will determineif a projection of any underwithholding
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from a sample is required at the time ofthe IRS’s review of the QI’s periodic cer-tification (and, if so, will direct the re-viewer in performing the projection). Ap-pendix II to the 2017 QI Agreement wasalso revised to indicate that when a re-viewer determines an amount of under-withholding, the QI should pay theamount determined and report both theunderwithholding determined by the re-view and any amount of underwithholdingthat was cured (that is, for which validdocumentation to support a reduced rateof withholding applied by the QI was ob-tained after the selection of the sample)following the review.
Another comment requested that theU.S. account population used for the sam-ple be limited to accounts that received areportable amount (rather than a report-able payment, as required by the ProposedQI Agreement) given the additional re-quirements for a QI that is a non-U.S.payor to determine reportable paymentsmade to an account that are not reportableamounts. The comment was not acceptedbecause sampling of U.S. accounts receiv-ing reportable payments (not just report-able amounts) is useful for determiningwhether such payments have been prop-erly reflected on Forms 1099 or identifiedon Forms 8966 for purposes of the reviewsteps under section 10.05(D) of the 2017QI Agreement. Additionally, this require-ment imposes minimal additional burdenon a QI’s review as the reviewer maydetermine such payments based on thedeterminations made by the QI for pur-poses of identifying the population of U.S.accounts for the sample.
Other changes were made to AppendixII to the 2017 QI Agreement upon furtherconsideration by the IRS. Appendix II tothe 2017 QI Agreement does not include asample of QDD accounts, which will beadded in 2017 for use by QIs that act asQDDs to conduct a periodic review whenthe QI’s certification period ends after De-cember 31, 2017. Appendix II to the 2017QI Agreement specifies that a reviewer,when applying statistical sampling basedon the Appendix, is required to take intoaccount the principles of Notice 2011-42,2011 I.R.B. 318 (providing guidance ontaxpayers applying statistical sampling).To better target circumstances where thestatistical sampling approach is appropri-
ate, the 2017 QI Agreement has been re-vised to permit statistical sampling to beused for purposes of the periodic reviewonly when there are 60 or more accountsto review (rather than 50, as in the Pro-posed QI Agreement). This requirementapplies regardless of whether the QI’s re-viewer applies the provisions of AppendixII in determining a statistical sample.
The strata required for determining thesample have been consolidated in Appen-dix II to the 2017 QI Agreement, and theseparate stratum for those accounts forwhich the QI has assumed primary with-holding responsibilities for substitute in-terest has been removed (that is, such ac-counts are now included in the populationof QI accounts). This consolidation willreduce the number of transactions re-quired to be reviewed for purposes of thespot check procedures.
Appendix II to the 2017 QI Agreementhas also been revised to address how ac-counts of those partnerships and trusts towhich a QI applies the agency option areto be included in the sample for cases inwhich the partnership or trust did not ar-range for the performance of its own pe-riodic review. These accounts, similar toaccounts held by private arrangement in-termediaries (PAIs), are to be included inseparate strata in addition to the strataalready applicable to the sample of QIaccounts, and the number of sample unitsrequired has been specified.
(10) Information and certifications inAppendix I. The Proposed QI Agreementrequired a QDD to report certain factualinformation (described in Appendix I) re-lated to the determination of its QDD taxliability (as described in section 3.09 ofthe Proposed QI Agreement). The factualinformation relating to a QDD’s tax lia-bility in Appendix I of the 2017 QI Agree-ment is reserved and will be added in2017. In addition, Appendix I to the 2017QI Agreement was also revised to includea limited number of changes and minorcorrections to conform to the changes toAppendix II and in response to comments.
(11) Form 8966 XML schema. Com-ments to the Proposed QI Agreementnoted that section 10.05(D)(3) requires re-view of Form 8966 reporting and re-quested clarification of whether review ofthe Form 8966 XML schema rather thanpaper forms would be sufficient. Although
no change is being made to the 2017 QIAgreement, in this context an “original”Form 8966 does not refer exclusively to apaper form, and review of the Form 8966XML schema would be appropriate. Inaddition, for purposes of the review, a QIthat is a reporting Model 1 FFI shouldinclude in its review any analogous formsused for reporting account informationpursuant to the applicable Model 1 IGA.
.03 Limited FFIs and Limited Branches.As noted in the preamble to the Proposed QIAgreement, because limited FFI (and lim-ited branch) status will no longer be avail-able as of January 1, 2017 (pursuant to theregulations under chapter 4), and, as pre-viewed in the Proposed QI Agreement, the2017 QI Agreement removes limited FFI asa category of entity eligible to enter into aQI agreement.
.04 Entities Eligible for QI Agreements.Pursuant to §1.1441–1(e)(5)(ii) and the2014 QI Agreement, the QI Agreement maybe entered into by (1) FFIs that are partici-pating FFIs, registered deemed-compliantFFIs, or registered deemed-compliantModel 1 IGA FFIs, (2) foreign branches ofU.S. financial institutions or clearing orga-nizations that are either reporting Model 1FFIs or agree to the reporting requirementsof a PFFI; (3) foreign corporations (that is,NFFEs) for purposes of presenting claims ofbenefits under an income tax treaty on be-half of their shareholders, and (4) any otherpersons acceptable to the IRS. In the pream-ble to the Proposed QI Agreement, the Trea-sury Department and the IRS requestedcomments on the types of entities where anNFFE would be acting as a QI on behalf ofits shareholders rather than entering into awithholding foreign partnership agreementas a reverse hybrid. No comments werereceived. As a result, and consistent withrevisions to the chapter 3 regulations, thiscategory of NFFE is removed from the 2017QI Agreement as an entity eligible to enterinto the QI agreement, together with therelated requirement for such QIs to also actas direct reporting NFFEs for purposes ofchapter 4.
.05 Assumption of Withholding onSubstitute Interest. As noted in the pream-ble to the Proposed QI Agreement, com-ments requested that, as the QSL regime isincorporated into the QDD regime, con-sideration be given to covering paymentsof substitute interest on debt securities
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under the QI agreement in addition tosubstitute dividend payments. The Pro-posed QI Agreement previewed this al-lowance for a QI to assume primary chap-ters 3 and 4 withholding responsibilityand primary Form 1099 reporting and sec-tion 3406 backup withholding responsibil-ity for payments of interest and substituteinterest it receives in connection with asale-repurchase or similar agreement, asecurities lending transaction, or collateralthat it holds in connection with its activi-ties as a securities dealer. The 2017 QIAgreement retains this allowance.
Enabling a QI to assume primary with-holding responsibility for payments of in-terest and substitute interest will allow aQI to provide a Form W-8IMY, Certifi-cate of Foreign Intermediary, ForeignFlow-Through Entity, or Certain U.S.Branches for United States Tax Withhold-ing and Reporting, to a withholding agentto certify that the QI is a QI assumingprimary withholding responsibility with-out requiring the QI to distinguish be-tween payments of interest and substituteinterest the QI receives as a principal andthose that it receives as an intermediary.QIs that assume primary withholding re-sponsibility for payments of interest andsubstitute interest as described in thisparagraph will be required to assume pri-mary withholding responsibility for allsuch payments.
Some comments to the Proposed QIAgreement asked for more clarity as towhether the allowance for a QI to assumeprimary withholding responsibility forpayments of interest and substitute inter-est required a QI to be a QDD. A QI’sassumption of primary withholding re-sponsibility for payments of interest andsubstitute interest is independent from re-sponsibilities the QI has when it acts asQDD or whether a QI is eligible to act asa QDD, and thus a QI is permitted toassume primary withholding responsibil-ity for such payments without having toact as a QDD and without regard towhether the QI is eligible to act as a QDD.
.06 Partnerships or Trusts Applying theJoint Account or Agency Options. TheProposed QI Agreement previewed twochanges to the application of the jointaccount and agency options. Commentswere received on the 2014 QI Agreementregarding the chapter 4 statuses required
of a partnership or trust to which a QI mayapply these options. As previewed inthe Proposed QI Agreement, sections4.05(A)(1) and 4.06(A)(2) of the 2017 QIAgreement have been modified to allow aQI to apply the joint account or agencyoption to partnerships or trusts that arecovered as accounts that are excludedfrom the definition of financial accountsunder Annex II of an applicable IGA orunder §1.1471–5(a). In addition, consis-tent with the withholding foreign partner-ship and withholding foreign trust agree-ments, a QI can apply the joint account oragency option to partnerships or trusts thatare owner-documented FFIs with respectto the QI.
Comments to the Proposed QI Agree-ment noted an inconsistency between sec-tion 4.05(B)(3) of the Proposed QI Agree-ment and section 8.02(E) and Appendix Ito the Proposed QI Agreement with re-spect to whether a QI would be required tospecifically report and provide the namesof partnerships or trusts to which it appliesthe joint account option. Consistent withthe obligations described in section4.05(B)(3) that do not require specific re-porting for a partnership or trust to whicha QI applies the joint account option, the2017 QI Agreement does not require thatthe partnership or trust be identified on aForm 1042-S; accordingly, section8.02(E) was removed, and Appendix Iwas modified to remove the requirementthat a QI disclose to the IRS the namesof these partnerships and trusts.
Similarly, comments requested thatAppendix I be modified to remove therequirement that QIs provide the names ofpartnerships or trusts to which they applythe agency option. This requirement hasbeen removed from Appendix I to the2017 QI Agreement, except for cases inwhich the QI reports a material failurewith respect to the partnership or trust.
A comment to the Proposed QI Agree-ment requested clarification regarding therequirement in section 4.05(A)(1) that apartnership or trust to which a QI appliesthe joint account option is required to pro-vide the QI with a certification regardingits chapter 4 status. This certification re-quirement was a new requirement in theProposed QI Agreement and is maintainedin the 2017 QI Agreement, although thepartnership or trust to which a QI applies
the joint account or agency option, evenprior to this change, was required to main-tain a certain chapter 4 status and to cer-tify to that status on the Form W-8IMY itprovided to the QI.
The Proposed QI Agreement did notallow QIs that are QDDs to enter into aprivate arrangement intermediary (PAI)agreement or to apply the joint account oragency options with respect to accounts ortransactions in their QDD capacities.Comments requested that QIs acting asQDDs be allowed to use the joint accountoption. This request was adopted, and ac-cordingly the 2017 QI Agreement allowsQIs to use the joint account option whenmaking payments in its capacity as aQDD. The 2017 QI Agreement does notallow a QDD to apply the agency optionwith respect to an account or transactionin its QDD capacity due to concerns aboutthe administration of the QDD rules andthe calculation of the QDD tax liability.
.07 Limitation on Benefits for TreatyClaims. Form W-8BEN-E, Certificate ofStatus of Beneficial Owner for UnitedStates Tax Withholding and Reporting(Entities), was revised in April 2016 toinclude checkboxes for a beneficial ownerto provide information regarding the lim-itation on benefits provision of an appli-cable treaty that it satisfies, and Form1042-S was revised in 2016 to include aline for a withholding agent to report thecorresponding limitation on benefits pro-vision code, when required. The ProposedQI Agreement previewed the standard ofknowledge required by a withholdingagent with respect to an applicable limi-tation on benefits claim associated with aclaim for treaty benefits. Consistent withrevisions to the chapter 3 regulations, theProposed QI Agreement modified the re-quirements for a QI using documentaryevidence to document an entity accountholder claiming a reduced rate of with-holding under an income tax treaty to re-quire the collection of information regard-ing limitation on benefits on the treatystatement provided by the account holder,and the 2017 QI Agreement includes thisrevision. A QI opening an account for anentity account holder on or after January1, 2017, will be required to collect thislimitation on benefits information. ForQIs with pre-existing entity accounts (asdescribed in section 5.10(A) of the 2017
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QI Agreement) that were documentedwith documentary evidence, there will bea two-year transition period provided forthe collection of the appropriate limitationon benefits information (unless there is achange in circumstances that requires theQI to obtain corrected information soonerthan the two-year period). For QIs thatdocumented entity accounts with FormsW-8, those forms may be relied up onuntil their normal expiration period (un-less there is a change in circumstancesthat requires a QI to obtain corrected in-formation sooner than the expiration pe-riod). Comments to the Proposed QIAgreement requested a three-year transi-tion period for accounts documentedwith documentary evidence, consistentwith the validity period for a Form W-8with respect to a claim for reduced with-holding under an income tax treaty. Thisrequest was not adopted because a QI thatdocuments account holders making atreaty claim on a withholding certificatewould not in all cases have a full three-year period starting in 2017 to obtain anew withholding certificate containing thelimitation on benefits information. Addi-tionally, the Treasury Department and theIRS believe that two years is a reasonableperiod for a QI to obtain the limitation onbenefits information from these accountholders, especially considering that the re-quirement is intended to enhance compli-ance of persons claiming treaty benefits.
The standard of knowledge for the lim-itation on benefits claims under the Pro-posed QI Agreement was actual knowl-edge. The chapter 3 regulations are alsoamended to apply an actual knowledgestandard for limitation on benefits claims.The 2017 QI Agreement removes the dis-cussion of the actual knowledge standardfrom section 5.10(A) and replaces it witha citation to the chapter 3 regulations in§1.1441–6(b)(1) that include this stan-dard.
.08 Validity Period for DocumentaryEvidence and Treaty Statements. In con-nection with the revisions to the chapter 3regulations requiring limitation on bene-fits information, the chapter 3 regulationsare also amended to provide that treatystatements associated with documentaryevidence for establishing residence in atreaty country have a three-year validityperiod, consistent with the validity period
for withholding certificates that contain aclaim for treaty benefits. Section 5.11(A)of the 2017 QI Agreement provides that atreaty statement (including a statementprovided in section 5.03 of the 2017 QIAgreement) will be subject to the samevalidity period as prescribed in the chapter3 regulations. The 2017 QI Agreementdoes not, however, change the existingrule for the validity period of documen-tary evidence that was included in priorversions of the QI agreement, includingdocumentary evidence supporting a claimfor treaty benefits. The Treasury Depart-ment and the IRS are considering apply-ing the same three-year validity period todocumentary evidence obtained QIs sup-porting an account holder’s claim fortreaty benefits to align with the validityperiod of the treaty statement.
.09 Validation of Treaty Claims. In ad-dition to the standard of knowledge for lim-itation on benefits claims, the Proposed QIAgreement provided that a QI will be con-sidered to have reason to know that a claimfor treaty benefits is unreliable or incorrectif, among other requirements, the accountholder claims benefits under a treaty thatdoes not exist or is not in force. QIs maydetermine this, for example, by checkingwhether a jurisdiction is included on thelist maintained at https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z. This rea-son to know rule will generally apply topre-existing accounts for which the QIalready holds valid documentation onlyupon a change in circumstances. For apre-existing entity account, this reason toknow rule will also apply when the QIobtains a written limitation on benefitsstatement. For purposes of applying thisrule, a “pre-existing account” or “pre-existing entity account” is an account forwhich QI holds valid documentation priorto January 1, 2017, for a QI with a QIagreement in effect prior to that date. Fora QI that did not have a QI agreement ineffect prior to January 1, 2017, a pre-existing account means an account main-tained (and for which QI has valid docu-mentation) prior to the effective date of itsQI agreement. For all new accounts, thereason-to-know rule will apply upon ac-count opening. The chapter 3 regulationsare also revised to include this reason toknow rule for all withholding agents, and
the 2017 QI Agreement removes the ref-erence to this standard from section5.10(A) of the Proposed QI Agreementand replaces it with a citation to this samegeneral rule in the chapter 3 regulations.
.10 Term of Agreement. The ProposedQI Agreement specified a term of threefull calendar years following the effectivedate of the QI agreement. Comments re-quested that the three year term be ex-tended, with suggestions of a six yearagreement or an agreement that was validindefinitely. The 2017 QI Agreement hasbeen revised to include a six-year term.
.11 Effective Date. Notice 2016-42 andthe Proposed QI Agreement included ap-plication procedures that provided that if aprospective QI applies prior to March 31of a given calendar year and its applica-tion is approved, its QI agreement willhave an effective date as of January 1 ofthat year. Similarly, if an existing QI re-news its 2014 QI Agreement prior toMarch 31, 2017, it will be considered tohave a January 1 effective date for its2017 QI Agreement with no change in itsQI status. If a prospective QI applies afterMarch 31 of a calendar year but has notreceived any reportable payments prior tosubmitting its application and its applica-tion is approved, its QI agreement willhave an effective date of January 1 of thatyear. However, if a prospective QI appliesafter March 31 of a calendar year and hasreceived a reportable payment prior tosubmitting its application and its applica-tion is approved, its QI agreement willhave an effective date of the first of themonth in which both its application isapproved and its QI-EIN is issued.
Comments to the Proposed QI Agree-ment requested that prospective QIs beallowed to apply for QI status at any pointduring the calendar year and, if their ap-plications are approved, have effectivedates retroactive to January 1 of that year.This suggestion was not adopted. Al-though comments noted potential incon-venience with having two types of typesof reporting (QI and NQI) in a single year,this inconvenience is outweighed by thepotential for underwithholding and misre-porting for the period during which theentity was not yet approved for QI status.A prospective QI could wait until the nextyear to apply for QI status (similar to the
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process for withholding foreign partner-ships and withholding foreign trusts).
.12 Documentation of Account Holdersand Presumption Rules.
(1) Interaction with IntergovernmentalAgreements (IGAs). Comments to the2014 QI Agreement and the Proposed QIAgreement noted an inconsistency in thedocumentation requirements with anFFI’s requirements under an applicableIGA. In response to these comments, sec-tion 5 of the 2017 QI Agreement has beenmodified to clarify that a QI that is an FFImay document account holders for chap-ter 4 purposes consistent with its applica-ble requirements under Annex I of theapplicable IGA. In addition, section5.10(B) was clarified and simplified byreplacing the parts of the text of the Pro-posed QI Agreement that were identical tothe provisions of the chapter 3 regulationswith a cross-reference to the chapter 3regulations.
In addition, a comment to the 2014 QIAgreement raised the question of whetherthe presumption rules under an applicableIGA apply rather than the presumptionrules in the QI agreement or in the regu-lations. A QI that is also a reportingModel 1 or 2 FFI may apply the duediligence procedures described in Annex Ito document the status of its account hold-ers under the IGA as U.S. accounts, non-participating FFIs, in the case of a report-ing Model 2 FFI, non-consenting U.S.accounts, or, in the case of a Model 1 FFI,U.S. reportable accounts, and if such pro-cedures are applied, cases in which anentity account holder is undocumentedshould not arise. If a QI that is a reportingModel 1 FFI or reporting Model 2 FFIdoes not have information in its posses-sion or that is publicly available based onwhich it can reasonably determine thechapter 4 status of an entity accountholder, the FFI must obtain a self-certification to establish the status ofsuch entity (or in some cases, a self-certification to establish the status of thecontrolling persons of a passive NFFE)consistent with Annex I of the applica-ble IGA. When the QI acts as an inter-mediary for a withholdable paymentmade to an entity account and is unableto document the account by obtaininginformation or a self-certification con-sistent with the procedures described in
Annex I of the applicable IGA, the chap-ter 4 regulations and the 2017 QI Agree-ment provide that the QI must apply thepresumption rules in §1.1471–3(f) totreat such entity account as a nonpartic-ipating FFI. Additionally, because theretypically should not be undocumentedaccounts pursuant to the IGA, if an FFIhas many such undocumented accounts,the U.S. Competent Authority may de-termine that there is significant non-compliance with respect to the FFI.
(2) FFIs not using documentary evi-dence. A comment to the Proposed QIAgreement requested that QIs that areFFIs and that document their accountholders using withholding certificatesrather than documentary evidence be al-lowed to operate as QIs in jurisdictionswithout KYC rules approved by the IRS.This request was not adopted because af-ter a QI enters into the agreement, there isno further distinction between whether anFFI documents with withholding certifi-cates or documentary evidence (that is,nothing in the agreement prevents an FFIfrom documenting with documentary ev-idence, notwithstanding an intent not to doso). Allowing this could also create ad-ministration and compliance issues for theIRS.
.13 Collective Refunds. Section 9.04 ofthe Proposed QI Agreement provided thatif there has been overwithholding and aQI does not apply for a collective refund,it must provide a specific Form 1042-S forthe payment subject to the overwithhold-ing if requested by an account holder.Comments to the Proposed QI Agreementasked that this provision be removed be-cause of potential administrative difficul-ties. This request was not adopted becausean account holder can only get a refundfor overwithholding through a QI’s col-lective refund or by having a Form 1042-Sto substantiate the withholding (see§301.6402–3(e)), and a QI should not pre-vent its account holders from obtainingrefunds by declining to apply the collec-tive refund procedures or by refusing toissue a specific Form 1042-S if it declinesto apply the collective refund procedures.
.14 Correction of Errors. In addition tothe minor changes and corrections thatwere previewed in the Proposed QIAgreement, the 2017 QI Agreement in-cludes additional minor changes and cor-
rections. For example, references to the“KYC attachment” or other attachmentswere deleted because printed and signedagreements are no longer used. In addi-tion, in response to comments regardingthe length and complexity of the agree-ment, certain nonsubstantive clarificationsand deletions were made to remove repet-itive references and generally simplify theagreement (including with respect to thestandard of knowledge for limitation onbenefits claims and reason to know fortreaty claims, as discussed previously inthis section).
.15 Revised Chapter 3 and 61 Regula-tions and Revised Chapter 4 Regulations.The 2017 QI agreement also incorporatesand references certain provisions in finaland temporary regulations issued underchapters 3 and 61 of the Code (T.D. 9808)and under chapter 4 of the Code (T.D.9809), both of which are to be publishedshortly after the publication date of the2017 QI Agreement.
SECTION 5. APPLICATION FOR QISTATUS
.01 Prospective QI (Including a QIActing as a QDD). Prior to submitting theinformation specified in Form 14345,Application for Qualified Intermediary,Withholding Foreign Partnership, orWithholding Foreign Trust Status, a pro-spective QI (other than an NFFE that isacting as an intermediary on behalf ofpersons other than its shareholders andcertain foreign central banks of issue)must have submitted the informationspecified in Form 8957, Foreign AccountTax Compliance Act (FATCA) Registra-tion, through the FATCA registrationwebsite available at www.irs.gov/FATCA,and obtained its chapter 4 status as aparticipating FFI (including a reportingModel 2 FFI), registered deemed-compliant FFI (including a reportingModel 1 FFI and a nonreporting Model 2FFI treated as registered deemed-compliant), registered deemed-compliantModel 1 IGA FFI, or sponsoring entity ofa direct reporting NFFE, as applicable,along with a global intermediary identifi-cation number (GIIN) to be used to iden-tify itself to withholding agents and to taxadministrators for FATCA reporting (theGIIN is separate from the QI-EIN).
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The IRS will not enter into a QI agree-ment with an FFI if the IRS has not ap-proved the know-your-customer practicesand procedures for opening accounts ofthe jurisdiction where the FFI is locatedbecause the QI agreement as applicable toan FFI allows for the use of documentaryevidence obtained under a jurisdiction’sknow-your-customer practices. A list of ju-risdictions for which the IRS has receivedknow-your-customer information and forwhich the know-your-customer rules havebeen approved is available at: http://www.irs.gov/Businesses/International-Businesses/List-of-Approved-KYC-Rules. To requestapproval of a jurisdiction’s know-your-customer rules, contact the KYC coor-dinator in the Foreign IntermediariesProgram at [email protected].
A QI that is an NFFE generally is notrequired to be located in an approvedKYC jurisdiction because an NFFE is re-quired to collect Forms W-8 and W-9 andmay not use KYC documentation. Seesection 5.01(B)(2) of the 2017 QI Agree-ment for the documentation requirementsapplicable to a QI that is an NFFE.
To become a QI, a prospective QImust submit the information specified inForm 14345 through the QI/WP/WT Appli-cation and Accounts Management Systemaccessible through the QI landing pageavailable at: https://www.irs.gov/businesses/corporations/qualified-intermediary-system.An application must also include any addi-tional information and documentation re-quested by the IRS. The application mustestablish to the satisfaction of the IRS thatthe applicant has adequate resources andprocedures to comply with the terms of theagreement. An entity that would like to be-come a QI to act as a QDD must apply toenter into a QI agreement and include theinformation on the application relating toQDDs.
If the IRS approves the QI application,it will notify the QI of its approval. Theapproval notice will include a QI-EIN forfulfilling the requirements of a QI (includ-ing a QI acting as a QDD if approved forsuch purpose) under the QI Agreement.
.02 Existing QI. An FFI that seeks torenew its QI agreement must do sothrough the QI/WP/WT Application andAccounts Management System. The QIwill retain its QI-EIN to fulfill the require-ments of a QI under chapters 3, 4, and 61
and sections 871, 881, and 3406, includ-ing making tax deposits and filing Forms945, 1042, 1042-S, 1099, and 8966.
A QI that seeks to renew its QI agree-ment and also seeks to act as a QDD mustsupplement the renewal request by pro-viding all of the information required bythe application relating to a QDD.
.03 Effective Date. The QI agreementprovided in section 6 of this Revenue Pro-cedure is effective on or after January 1,2017. The effective date of the QI agree-ment for a new QI applicant will dependon when the QI submits its applicationand whether the QI has received any re-portable payments prior to when it sub-mits its application. Beginning on January1, 2017, a prospective QI that applies forQI status on or before March 31 of acalendar year and is approved will have aQI agreement with an effective date ofJanuary 1 of that year. If a prospective QIapplies for QI status after March 31 of acalendar year and has not received a re-portable payment prior to the date it ap-plies for QI status and is approved, it willhave a QI agreement with an effectivedate of January 1 of that year. If a pro-spective QI applies for QI status afterMarch 31 and has received a reportablepayment prior to the date it applies and isapproved, it will have a QI agreementwith an effective date of the first of themonth in which its QI application is ap-proved and the prospective QI is issued aQI-EIN. A QI that seeks to renew its QIagreement must renew prior to March 31,2017 for its renewed QI agreement tohave an effective date of January 1, 2017.
.04 Contact Information. For questionsregarding the QI application process, con-tact the Foreign Intermediaries Program [email protected].
SECTION 6. QUALIFIEDINTERMEDIARY AGREEMENT
The text of the QI agreement is setforth below. The IRS will not providesigned copies of the QI agreement. A re-porting Model 2 FFI should apply thisAgreement by substituting the term “re-porting Model 2 FFI” for “participatingFFI” throughout this Agreement, except incases where this Agreement explicitly re-fers to a reporting Model 2 FFI. A report-ing Model 1 FFI and nonreporting Model2 FFI treated as a registered deemed-
compliant FFI should apply this Agree-ment by substituting the term “reportingModel 1 FFI” or “nonreporting Model 2FFI” (as applicable) for “registereddeemed-compliant FFI” throughout thisAgreement, except in cases where thisAgreement explicitly refers to a reportingModel 1 FFI or nonreporting Model 2 FFItreated as a registered deemed-compliantFFI.THIS AGREEMENT is made under andin pursuance of sections 1441, 1442,1471, and 1472 and §§1.1441–1(e)(5) and1.1441–1(e)(6):
WHEREAS, QI has submitted an ap-plication in accordance with Revenue Pro-cedure 2017-15 to be a qualified interme-diary;
WHEREAS, QI and the IRS desire toenter into an agreement to establish QI’srights and obligations regarding documen-tation, withholding, information report-ing, tax return filing, deposit, and refundprocedures under sections 1441, 1442,1443, 1461, 1471, 1472, 1474, 3406,6041, 6042, 6045, 6049, 6050N, 6302,6402, and 6414, and tax liability undersections 871(a) and 881 for a QI that isacting as a qualified derivatives dealer(QDD), with respect to certain types ofpayments;
WHEREAS, QI represents that thereare no legal restrictions that prohibit itfrom complying with the requirements ofthis Agreement; and
WHEREAS, if QI is a foreign finan-cial institution (FFI), QI represents that, asof the effective date of this Agreement, ithas agreed to comply with the require-ments of the FFI agreement, in the case ofa participating FFI (including a reportingModel 2 FFI); §1.1471–5(f)(1) or the ap-plicable Model 2 IGA, in the case of aregistered deemed-compliant FFI (otherthan a reporting Model 1 FFI); or theapplicable Model 1 IGA, in the case of areporting Model 1 FFI or a registereddeemed-compliant Model 1 IGA FFI;
NOW, THEREFORE, in consider-ation of the following terms, representa-tions, and conditions, the parties agree asfollows:
SECTION 1. PURPOSE AND SCOPE
Sec. 1.01. General Obligations. Whenthe IRS enters into a QI Agreement with aforeign person or a foreign branch of a
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U.S. person, that foreign person (or for-eign branch) becomes a QI. QI is a with-holding agent under chapters 3 and 4, anda payor under chapter 61 and section3406, for amounts that it pays to its ac-count holders.
If QI is an FFI, the requirements QI hasagreed to as a participating FFI, registereddeemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI ap-ply in addition to the requirements underthis Agreement. If QI acts as a QI withrespect to an account, this Agreement willreference QI’s chapter 4 obligations whennecessary to facilitate coordination withthe QI’s obligations under chapters 3, 4,and 61 and section 3406 with respect tosuch account holders. A participatingFFI’s (including a reporting Model 2 FFI)obligations are provided in the FFI agree-ment, a registered deemed-compliantFFI’s (other than a reporting Model 1 FFI)obligations are provided in §1.1471–5(f)(1) or the applicable Model 2 IGA,and the obligations of a reporting Model 1FFI or a registered deemed-compliantModel 1 IGA FFI are provided in theapplicable Model 1 IGA. For purposes ofchapter 4, QI must comply with itsFATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI (as applicable) in order to main-tain its required chapter 4 status, as well asthe requirements of a withholding agentfor any payee that is a nonparticipatingFFI or NFFE that is not an account holder.If QI is an FFI, QI must also, pursuant tothis Agreement, assume primary reportingresponsibility for purposes of section1472, for certain indirect account holdersfor which it acts as a QI. If QI is an NFFEacting on behalf of persons other than itsshareholders, QI must assume primary re-porting responsibility for purposes of sec-tion 1472 for any person for which it actsas a QI.
If QI acts as a sponsoring entity onbehalf of a sponsored FFI (as defined in§1.1471–1(b)(121)) or sponsored directreporting NFFE (as defined in §1.1471–1(b)(123)), it must comply with the duediligence, withholding, reporting, andcompliance requirements of a sponsoringentity in addition to its requirements underthis Agreement.
For purposes of chapters 3 and 61 andsection 3406, QI must act in its capacity asa QI pursuant to this Agreement for thoseaccounts that QI holds with a withholdingagent and that QI has identified as ac-counts for which it acts as a QI. QI is notrequired to act as a QI for all accounts thatit holds with a withholding agent. How-ever, QI must, as part of its QI Agreement,materially comply with the requirementsof a withholding agent or payor, as appli-cable to a nonqualified intermediary(NQI) under chapters 3 and 61 and section3406, for any account for which it doesnot (or cannot) act as a QI and for anypayee that is not an account holder. If QIidentifies an account as one for which itwill act as a QI, it must act as a QI for allpayments made to that account and obtainthe documentation required under section5 of this Agreement for such account.
When QI acts as a QI for an accountand assumes primary chapter 3 withhold-ing responsibility for payments to the ac-count, QI must also assume primary with-holding responsibility for withholdablepayments made to such account for chap-ter 4 purposes.
If QI acts as a QI with respect to pay-ments of substitute interest, as describedin section 3.03(A) of this Agreement, itmust act as a QI and assume primarywithholding responsibility for all suchpayments of substitute interest.
If QI acts as a qualified securitieslender (QSL) with respect to substitutedividend payments (as defined in §1.861–3(a)(6)), QI is required to act as a QSLand assume primary withholding respon-sibility for all substitute dividends re-ceived and paid by QI when acting as anintermediary or dealer with respect to se-curities lending and similar transactions.A QI that acts as a QDD may not act as aQSL, except with respect to a payment ona securities lending or sale-repurchasetransaction for which the QI has deter-mined that it is acting as an intermediaryfor the payment.
The home office (as defined in section2.43 of this Agreement) and each branchof a foreign person that intends to act as aQDD must each separately qualify and beapproved for QDD status, as provided insection 1.02 of this Agreement. A foreignbranch of a U.S. financial institution mayalso apply for QI and QDD status pro-
vided it separately qualifies as an eligibleentity. If QI acts as a QDD with respect tothe home office or branch, the home officeor branch, as applicable, must act as aQDD for all payments made as a principalwith respect to potential section 871(m)transactions and all payments received asa principal with respect to potential sec-tion 871(m) transactions and underlyingsecurities, excluding any payments madeor received by the QDD to the extent thepayment is treated as effectively con-nected with the conduct of a trade or busi-ness within the United States within themeaning of section 864. For purposes ofthis Agreement, any securities lending orsale-repurchase transaction (as defined in§1.871–15(a)(13)) QI enters into that is asection 871(m) transaction is treated asentered into by QI as a principal unless QIdetermines that it is acting as an interme-diary with respect to that transaction. A QImay not act as a QDD when it receives ormakes payments as an intermediary andmust act as either a QI or NQI for thepayment. A QI acting as a QDD mustassume primary chapter 3 and chapter 4withholding responsibility and primaryForm 1099 reporting and backup with-holding responsibility under section 3406for payments made as a QDD with respectto any potential section 871(m) transac-tion provided the amount paid is anamount subject to chapter 3 or 4 withhold-ing or a reportable payment under chapter61. A QI acting as a QDD (other than aQDD that is a foreign branch of a U.S.financial institution) also must satisfy itsQDD tax liability as determined undersection 3.09 of this Agreement. The QDD(other than a QDD that is a foreign branchof a U.S. financial institution) must reportits withholding tax liability under chapters3 and 4 on Form 1042 and must report itsQDD tax liability on the appropriate U.S.tax return (as prescribed by the IRS). AU.S. financial institution with a foreignbranch that acts as a QDD must file theappropriate U.S. income tax return (e.g.,Form 1120, U.S. Corporation Income TaxReturn) for the tax year covered by thisAgreement to report and pay its tax liabil-ity under chapter 1 and would not have aseparate QDD tax liability.
A dividend or dividend equivalent istreated as received by a QDD acting in itsnon-equity derivatives dealer capacity if
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the dividend or dividend equivalent is re-ceived by a QDD acting as a proprietarytrader. Transactions properly reflected in aQDD’s equity derivatives dealer book arepresumed to be held by a dealer in itsequity derivatives dealer capacity for pur-poses of determining the QDD tax liabil-ity. In addition, for purposes of determin-ing whether a dealer is acting in its equityderivatives dealer capacity, only the deal-er’s activities as an equity derivativesdealer are taken into account.
Sec. 1.02. Parties to the Agreement.This Agreement applies to:(A) QI; and(B) The Internal Revenue Service.
If QI is an FFI, QI can only act as a QIfor an account if the branch of QI thatholds the account operates in a KYC ju-risdiction identified on the IRS’s Ap-proved KYC List. QI may add any juris-diction in which it operates a branch thatis not initially included in its QI applica-tion without prior IRS approval if the ju-risdiction is identified on the IRS’s Ap-proved KYC List and QI updates itsinformation on the QI/WP/WT Applica-tion and Accounts Management Systemwith respect to such branch prior to treat-ing such branch as a QI. Notwithstandingthe preceding sentence, a QI may not adda branch that will act as a QDD throughthe QI/WP/WT Application and AccountsManagement System. Instead, the branchmust separately qualify and be approvedfor QDD status in accordance with theprocedures to be prescribed by the IRS. Abranch of a QI that is not subject to theprovisions of this Agreement remains sub-ject to the rules of chapters 3, 4, and 61and section 3406, as provided in section1.01 of this Agreement.
SECTION 2. DEFINITIONS
For purposes of this Agreement, exceptas otherwise provided in this Agreement,the terms listed below are defined as fol-lows:
Sec. 2.01. Account. “Account” or “Fi-nancial Account” has the meaning givento that term in §1.1471–1(b) with respectto QI’s obligations for chapter 4 purposes.For other purposes under this Agreement,“account” or “financial account” meansany account for which QI acts as a QI.With respect to a QI acting as a QDD,“account” means any potential section
871(m) transaction or underlying securitywhere QDD receives payments as a prin-cipal and any potential section 871(m)transaction where QDD makes paymentsas a principal.
Sec. 2.02. Account Holder. If QI is anFFI, an “account holder” means any per-son that is a direct account holder or anindirect account holder of an account thatQI has identified to a withholding agent asan account for which it is acting as a QIand also includes any person that receivesa U.S. source substitute dividend paymentfrom a QI that is a QSL for the payment.“Account holder” also means any personthat enters into or holds a potential section871(m) transaction with a QI acting as aQDD. If QI is an NFFE acting as a QI onbehalf of persons other than its sharehold-ers, an “account holder” means any personfor whom QI is acting as an intermediarywith respect to a reportable payment orwithholdable payment. With respect to aQI that assumes primary withholding re-sponsibility for a substitute interest pay-ment as described in section 3.03(A) ofthis Agreement, an “account holder” in-cludes any person that receives such apayment from the QI.
(A) Direct Account Holder. A directaccount holder is any account holder whohas a direct relationship with QI. In thecase of an NFFE acting as a QI on behalfof persons other than its shareholders, adirect account holder is any person forwhom QI is acting with respect to a re-portable payment regardless of whethersuch person is the beneficial owner.
(B) Indirect Account Holder. An in-direct account holder is any accountholder who does not have a direct rela-tionship with QI. For example, a personthat holds an account with a foreign inter-mediary or an interest in a foreign flow-through entity which, in turn, has a directrelationship with QI is an indirect accountholder of QI. A person is an indirect ac-count holder even if there are multipletiers of intermediaries or flow-through en-tities between the person and QI.
Sec. 2.03. Agreement. “Agreement”means this Agreement, the Appendices tothis Agreement, and QI’s application tobecome a QI. The Appendices and QI’sapplication are incorporated into thisAgreement by reference.
Sec. 2.04. Amount Subject to Chap-ter 3 Withholding. An “amount subjectto chapter 3 withholding” is an amountdescribed in §1.1441–2(a) regardless ofwhether such amount is withheld upon.
Sec. 2.05. Amount Subject to Chap-ter 4 Withholding. An “amount subjectto chapter 4 withholding” is a withhhold-able payment (as defined in §1.1473–1(a)) for which withholding is requiredunder chapter 4 or an amount for whichwithholding was otherwise applied underchapter 4.
Sec. 2.06. Assuming Primary With-holding Responsibility. “Assuming pri-mary withholding responsibility” refers towhen a QI assumes primary chapters 3and 4 withholding responsibility with re-spect to payments of U.S. source FDAPincome or assumes primary Form 1099reporting and backup withholding respon-sibility. A QI that assumes primarywithholding responsibility assumes theprimary responsibility for deducting,withholding, and depositing the appropri-ate amount from a payment. Generally, aQI assuming primary chapters 3 and 4withholding responsibility or assumingprimary backup withholding responsibil-ity relieves the person who makes a pay-ment to the QI from the responsibility towithhold. Notwithstanding the precedingsentence, a QI acting as a QDD (that as-sumes primary withholding responsibilityas required by section 3 of this Agree-ment) remains liable for the tax undersection 881 and therefore remains subjectto withholding on all U.S. source FDAPpayments with respect to underlying secu-rities, other than dividend equivalents;however, with respect to dividends (in-cluding deemed dividends), a QDD willnot be subject to withholding on thosepayments until January 1, 2018.
Sec. 2.07. Backup Withholding.“Backup withholding” means the with-holding required under section 3406.
Sec. 2.08. Beneficial Owner. A “ben-eficial owner” has the meaning given tothat term in §1.1441–1(c)(6).
Sec. 2.09. Broker Proceeds. “Brokerproceeds” means gross proceeds (as de-fined in §1.6045–1(d)(5)) from a sale thatis reportable under §1.6045–1(c).
Sec. 2.10. Chapter 3. Any reference to“chapter 3” means sections 1441, 1442,1443, 1461, 1463, and 1464.
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Sec. 2.11. Chapter 3 Reporting Pool.A “chapter 3 reporting pool” means a re-porting pool described in section 8.03(B)of this Agreement.
Sec. 2.12. Chapter 4. Any reference to“chapter 4” means sections 1471, 1472,1473, and 1474.
Sec. 2.13. Chapter 4 Reporting Pool.A “chapter 4 reporting pool” means a re-porting pool described in section 8.03(A)of this Agreement.
Sec. 2.14. Chapter 4 Status. “Chapter4 status” means the status of a person as aU.S. person, a specified U.S. person, anindividual that is a foreign person, a par-ticipating FFI, a deemed-compliant FFI, arestricted distributor, an exempt beneficialowner, a nonparticipating FFI, a territoryfinancial institution, an excepted NFFE, ora passive NFFE.
Sec. 2.15. Chapter 61. Any referenceto “chapter 61” means sections 6041,6042, 6045, 6049, and 6050N.
Sec. 2.16. Dealer. A “dealer” has themeaning given to the term dealer in§1.871–15(a)(2) (i.e., a dealer in securitieswithin the meaning of section 475(c)(1)).
Sec. 2.17. Deemed-Compliant FFI.“Deemed-compliant FFI” means an FFIthat is treated, pursuant to section1471(b)(2) and §1.1471–5(f), as meetingthe requirements of section 1471(b).
(A) Certified Deemed-Compliant FFI.“Certified deemed-compliant FFI” meansan FFI described in §1.1471–5(f)(2) and in-cludes a nonreporting IGA FFI but excludesa nonreporting Model 2 FFI that is treated asa registered deemed-compliant FFI.
(B) Registered Deemed-CompliantFFI. “Registered deemed-compliant FFI”means an FFI described in §1.1471–5(f)(1) and includes a reporting Model 1FFI and a nonreporting Model 2 FFI thatis treated as registered deemed-compliantFFI. For purposes of this Agreement, a ref-erence to a registered deemed-compliantFFI that is providing a chapter 4 withhold-ing rate pool of U.S. payees includes a reg-istered deemed-compliant Model 1 IGAFFI.
(C) Registered Deemed-CompliantModel 1 IGA FFI. “Registered deemed-compliant Model 1 IGA FFI” means anFFI treated as a deemed-compliant FFIunder an applicable Model 1 IGA that issubject to similar due diligence andreporting requirements with respect to
U.S. accounts as those applicable to aregistered deemed-compliant FFI under§1.1471–5(f)(1), including the require-ment to register with the IRS.
Sec. 2.18. Deposit Interest. “Depositinterest” means interest described in sec-tion 871(i)(2)(A).
Sec. 2.19. Dividend Equivalent. A“dividend equivalent” has the meaninggiven to that term in §1.871–15(c).
Sec. 2.20. Documentary Evidence.“Documentary evidence” means any doc-umentation obtained under the appropriateknow-your-customer rules, any documen-tary evidence described in §1.1441–6 suf-ficient to establish entitlement to a re-duced rate of withholding under anincome tax treaty, or any documentaryevidence described in §1.6049–5(c) suffi-cient to establish an account holder’s sta-tus as a foreign person for purposes ofchapter 61. Documentary evidence doesnot include a Form W-8 or Form W-9 (oran acceptable substitute Form W-8 orForm W-9).
Sec. 2.21. Documentation. “Docu-mentation” means any valid Form W-8,Form W-9 (or an acceptable substituteForm W-8 or Form W-9), or documentaryevidence as defined in section 2.20 of thisAgreement, including all statements orother information required to be associ-ated with the form or documentary evi-dence.
Sec. 2.22. Effective Date. For a pro-spective QI that applies to be a QI on orbefore to March 31 of a given calendaryear, the effective date of this Agreementwill be January 1 of that year. For a pro-spective QI that applies after March 31 ofa given calendar year and that has notreceived any reportable payments prior tothe date the application is submitted, theeffective date of this Agreement will beJanuary 1 of that year. For a prospectiveQI that applies after March 31 of a givencalendar year and that has received a re-portable payment in the calendar yearprior to the date the application is submit-ted, the effective date of this Agreementwill be the first of the month in which theQI application is complete and the QI hasreceived its QI-EIN.
Sec. 2.23. Eligible Entity. “Eligibleentity” for QDD status means a homeoffice or branch that is a QI and that is—
(A) An equity derivatives dealer sub-ject to regulatory supervision as a dealerby a governmental authority in the juris-diction in which it was organized or op-erates;
(B) A bank or bank holding companysubject to regulatory supervision as a bankor bank holding company, as applicable,by a governmental authority in the juris-diction in which it was organized or op-erates and that, in its equity derivativesdealer capacity, (1) issues potential sec-tion 871(m) transactions to customers, and(2) receives dividends with respect tostock or dividend equivalent paymentspursuant to potential section 871(m)transactions that hedge potential section871(m) transactions that it issued;
(C) An entity that is wholly-owned (di-rectly or indirectly) by a bank or bankholding company subject to regulatory su-pervision as a bank or bank holding com-pany, as applicable, by a governmentalauthority in the jurisdiction in which thebank or bank holding company was orga-nized or operates and that, in its equityderivatives dealer capacity, (1) issues po-tential section 871(m) transactions to cus-tomers, and (2) receives dividends withrespect to stock or dividend equivalentpayments pursuant to potential section871(m) transactions that hedge potentialsection 871(m) transactions that it issued;or
(D) A foreign branch of a U.S. finan-cial institution, if the foreign branchwould meet the requirements of paragraph(A), (B), or (C), if it were a separateentity.
The home office or any branch thatwants to be a QDD must separately meetthe requirements of paragraph (A), (B), or(C) as if it were a separate entity.
Sec. 2.24. Excepted NFFE. “ExceptedNFFE” means a person described in§1.1471–1(b)(41).
Sec. 2.25. Exempt Beneficial Owner.“Exempt beneficial owner” means a per-son described in §1.1471–1(b)(42) and in-cludes any person that is treated as anexempt beneficial owner under an appli-cable Model 1 or Model 2 IGA.
Sec. 2.26. Exempt Recipient. For pur-poses of Form 1099 reporting and backupwithholding, an “exempt recipient” meansa person described in §1.6049–4(c)(1)(ii) (for interest, dividends, and royalties),
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a person described in §1.6045–2(b)(2)(i) (for broker proceeds), and a persondescribed in §1.6041–3(q) (for rents,amounts paid on notional principal con-tracts, and other fixed or determinable in-come), for which no Form 1099 reportingis required. Exempt recipients are not ex-empt from reporting or withholding underchapter 3 or 4.
Sec. 2.27. FATCA Requirements as aParticipating FFI, Registered Deemed-Compliant FFI, or Registered Deemed-Compliant Model 1 IGA FFI. “FATCArequirements as a participating FFI, regis-tered deemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI”means—
(A) For a participating FFI or an FFIthat agrees to be treated as a participatingFFI, the requirements set forth in the FFIagreement;
(B) For a registered deemed-compliantFFI (other than a reporting Model 1 FFI)or an FFI that agrees to be treated as aregistered deemed-compliant FFI, the re-quirements under §1.1471–5(f)(1) or anapplicable Model 2 IGA; or
(C) For a registered deemed-compliantModel 1 IGA FFI, reporting Model 1 FFI,or an FFI that agrees to be treated as aregistered deemed-compliant Model 1IGA FFI or reporting Model 1 FFI, therequirements under an applicable Model 1IGA.
Sec. 2.28. Financial Institution (FI).“Financial institution” or “FI” is definedin §1.1471–5(d) and includes a financialinstitution as defined under an applicableModel 1 or Model 2 IGA.
Sec. 2.29. Foreign Financial Institu-tion (FFI). “Foreign Financial Institu-tion” or “FFI” means a foreign entity (asdefined in §1.1473–1(e)) that is a financialinstitution.
Sec. 2.30. FFI Agreement. “FFIAgreement” means an agreement de-scribed in §1.1471–4(a) and provided inRev. Proc. 2014-3, 2014-3 I.R.B. 419, asrevised by Rev. Proc. 2014-38, 2014-29I.R.B. 131 (and any superseding revenueprocedure).
Sec. 2.31. Flow-Through Entity. Aflow-through entity is a foreign partner-ship described in §301.7701–2 or 3 (otherthan a withholding foreign partnership), aforeign trust (other than a withholding for-eign trust) that is described in section
651(a), or a foreign trust if all or a portionof such trust is treated as owned by thegrantor or other person under sections 671through 679. For an item of income forwhich a treaty benefit is claimed, an entityis also a flow-through entity to the extentit is treated as fiscally transparent undersection 894 and the regulations thereun-der.
Sec. 2.32. Foreign Person. A “foreignperson” is any person that is not a “UnitedStates person” and includes a “nonresi-dent alien individual,” a “foreign corpora-tion,” a “foreign partnership,” a “foreigntrust,” and a “foreign estate,” as thoseterms are defined in section 7701. Forpurposes of chapters 3 and 4, the termforeign person also means, with respect toa payment by a withholding agent, a for-eign branch (including a foreign disre-garded entity) of a U.S. person that pro-vides a valid Form W-8IMY on which itrepresents that it is a QI. A foreign branchof a U.S. person that is a QI is, however,a U.S. payor for purposes of chapter 61and section 3406.
Sec. 2.33. Foreign TIN. A “foreignTIN” is a taxpayer identification numberissued by a foreign person’s country ofresidence.
Sec. 2.34. Form W-8. “Form W-8”means IRS Form W-8BEN, Certificate ofForeign Status of Beneficial Owner forUnited States Tax Withholding (Individu-als); IRS Form W-8BEN-E, Certificate ofStatus of Beneficial Owner for UnitedStates Tax Withholding and Reporting(Entities); IRS Form W-8ECI, Certificateof Foreign Person’s Claim That Income isEffectively Connected With the Conduct ofa Trade or Business in the United States;IRS Form W-8EXP, Certificate of For-eign Government or Other Foreign Orga-nization for United States Tax Withhold-ing and Reporting; and IRS FormW-8IMY, Certificate of Foreign Interme-diary, Foreign Flow-Through Entity, orCertain U.S. Branches for United StatesTax Withholding and Reporting, as appro-priate. It also includes any acceptable sub-stitute Form W-8.
Sec. 2.35. Form W-9. “Form W-9”means IRS Form W-9, Request for Tax-payer Identification Number and Certifi-cation, or any acceptable substitute FormW-9.
Sec. 2.36. Form 945. “Form 945”means IRS Form 945, Annual Return ofWithheld Federal Income Tax.
Sec. 2.37. Form 1042. “Form 1042”means IRS Form 1042, Annual Withhold-ing Tax Return for U.S. Source Income ofForeign Persons.
Sec. 2.38. Form 1042-S. “Form 1042-S”means IRS Form 1042-S, Foreign Person’sU.S. Source Income Subject to Withholding.
Sec. 2.39. Form 1099. “Form 1099”means IRS Form 1099-B, Proceeds FromBroker and Barter Exchange Transac-tions; IRS Form 1099-DIV, Dividendsand Distributions; IRS Form 1099-INT,Interest Income; IRS Form 1099-MISC,Miscellaneous Income; IRS Form 1099-OID, Original Issue Discount; and anyother form in the IRS Form 1099 seriesappropriate to the type of payment re-quired to be reported.
Sec. 2.40. Form 8966. “Form 8966”means IRS Form 8966, FATCA Report.
Sec. 2.41. Form 1099 Reporting.“Form 1099 reporting” means the report-ing required on Form 1099.
Sec. 2.42. Global Intermediary Iden-tification Number (GIIN). “Global inter-mediary identification number” or “GIIN”means the identification number that isassigned to a participating FFI, registereddeemed-compliant FFI, direct reportingNFFE, or sponsoring entity of a direct re-porting NFFE. The term also includes theidentification number assigned to a report-ing Model 1 FFI or registered deemed-compliant Model 1 IGA FFI that is a QI forthe purpose of identifying itself to withhold-ing agents.
Sec. 2.43. Home Office. “Home of-fice” means a foreign person, excludingany branches of the foreign person, thatapplies for QDD status.
Sec. 2.44. Intermediary. An “interme-diary” means any person that acts on be-half of another person such as a custodian,broker, nominee, or other agent or a per-son that acts as a QSL with respect to asubstitute dividend payment.
Sec. 2.45. Know-Your-CustomerRules. “Know-your-customer rules” re-fers to the applicable laws, regulations,rules, and administrative practices andprocedures governing the requirementsof QI to obtain documentation confirm-ing the identity of QI’s account holders.
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Sec. 2.46. Marketable Securities. Forpurposes of this Agreement, the term“marketable securities” means those secu-rities described in §1.1441–6 for which aU.S. TIN (or foreign TIN) is not requiredto obtain treaty benefits.
Sec. 2.47. Net Delta Exposure. Netdelta exposure to an underlying security isthe amount (measured in number ofshares) by which (A) the aggregate num-ber of shares in an underlying security thatthe QDD has exposure to as a result ofpositions in the underlying security (in-cluding as a result of owning the underly-ing security) with values that move in thesame direction as the underlying security(the “long positions”) exceeds (B) the ag-gregate number of shares of in an under-lying security that the QDD has exposureto as a result of positions in the underlyingsecurity with values that move in the op-posite direction from the underlying secu-rity (the “short positions”). The net deltaexposure calculation only includes longpositions and short positions that the QDDholds in its equity derivatives dealer busi-ness. Any long positions or short positionsthat are treated as effectively connectedwith the QDD’s conduct of a trade orbusiness in the United States for U.S. fed-eral income tax purposes are excludedfrom the net delta exposure computation.The net delta exposure to an underlyingsecurity is determined at the end of theday on the date provided in §1.871–15(j)(2) for the applicable dividend. Forpurposes of this calculation, net delta mustbe determined in a commercially reason-able manner. If a QDD calculates net deltafor non-tax business purposes, the netdelta ordinary will be the delta used forthis purpose, subject to the modificationsrequired by this definition. Each QDDmust determine its net delta exposure sep-arately only taking into account transac-tions that exist and are attributable to thatQDD for U.S. federal income tax pur-poses.
Sec. 2.48. Non-Consenting U.S. Ac-count. For purposes of a reporting Model2 FFI, “non-consenting U.S. account” hasthe meaning that such term has under anapplicable Model 2 IGA.
Sec. 2.49. Non-Exempt Recipient. A“non-exempt recipient” means a personthat is not an exempt recipient under the
definition in section 2.26 of this Agree-ment.
Sec. 2.50. Non-Financial Foreign En-tity (NFFE). A “non-financial foreign en-tity” or “NFFE” means a foreign entitythat is not a financial institution (includingan entity that is incorporated or organizedunder the laws of any U.S. territory andthat is not a financial institution). The termalso means a foreign entity treated as anNFFE pursuant to a Model 1 or Model 2IGA.
Sec. 2.51. Nonparticipating FFI. A“nonparticipating FFI” means an FFIother than a participating FFI, a deemed-compliant FFI, or an exempt beneficialowner.
Sec. 2.52. Nonqualified Intermediary(NQI). A “nonqualified intermediary” or“NQI” is any intermediary that is not aqualified intermediary. An NQI includesany intermediary that is a foreign personunless such person enters an agreement tobe a QI and acts in such capacity. An NQIalso includes an intermediary that is aterritory FI unless such institution agreesto be treated as a U.S. person.
Sec. 2.53. Non-U.S. Payor. A “non-U.S. payor” means a payor other than aU.S. payor as defined in this section 2.81of this Agreement.
Sec. 2.54. Nonwithholding ForeignPartnership. A “nonwithholding foreignpartnership” means a foreign partnershipother than a withholding foreign partner-ship as defined in §1.1441–5(c)(2)(i).
Sec. 2.55. Nonwithholding ForeignTrust. A “nonwithholding foreign trust”means a foreign trust (as defined in sec-tion 7701(a)(31)(B)) that is a foreign sim-ple trust or a foreign grantor trust and thatis not a withholding foreign trust.
Sec. 2.56. Overwithholding. The term“overwithholding” means any amount ac-tually withheld (determined before appli-cation of the adjustment procedures de-scribed in section 9 of this Agreement)from an item of income or other paymentthat is in excess of:
(A) The amount required to be with-held under chapter 4 with respect to suchitem of income or other payment, if appli-cable, and,
(B) In the case of an amount subject tochapter 3 withholding, the actual tax lia-bility of the beneficial owner of the in-come or payment to which the withheld
amount is attributable, regardless ofwhether such overwithholding was in er-ror or appeared correct at the time it oc-curred.
For purposes of section 3406, the term“overwithholding” means the excess ofthe amount actually withheld under sec-tion 3406 over the amount required to bewithheld.
Sec. 2.57. Participating FFI. A “par-ticipating FFI” means an FFI described in§1.1471–1(b)(91). The term participatingFFI also includes a QI branch of a U.S.financial institution, unless such branch isa reporting Model 1 FFI.
Sec. 2.58. Payee. For chapter 4 pur-poses, a “payee” means a person de-scribed in §1.1471–3(a). For purposes ofchapter 61, a “payee” means the person towhom a payment is made. For purposes ofchapter 3, a “payee” means a person de-scribed in §1.1441–1(c)(12).
Sec. 2.59. Payment. A “payment” isconsidered made to a person if that personrealizes income, whether or not such in-come results from an actual transfer ofcash or other property. See §1.1441–2(e). For example, a payment includescrediting an amount to an account. Forany payment of a dividend equivalent, a“payment” has the meaning provided in§1.871–15(i).
Sec. 2.60. Payor. A “payor” is definedin §31.3406(a)–2 and §1.6049–4(a)(2) and generally means any person re-quired to make an information return un-der chapter 61. The term includes anyperson that makes a payment, directly orindirectly, to QI and to whom QI providesinformation, pursuant to this Agreement,so that such person can report a paymenton Form 1099 and, if appropriate, backupwithhold. See also sections 2.81 and 2.53of this Agreement for the definition ofU.S. payor and non-U.S. payor.
Sec. 2.61. Potential Section 871(m)Transaction. A “potential section 871(m)transaction” is any securities lending orsale-repurchase transaction, notional prin-cipal contract (NPC), or equity linked in-strument (ELI) that references one ormore underlying securities. For purposesof this definition, securities lending orsale-repurchase transaction, NPC, ELI,reference, and underlying security havethe meaning given to the terms in
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§§1.871–15(a)(13), (7), (4), (11), and(15), respectively.
Sec. 2.62. Private Arrangement In-termediary (PAI). A “private arrange-ment intermediary” or “PAI” is an inter-mediary described in section 4 of thisAgreement.
Sec. 2.63. Qualified DerivativesDealer (QDD). A “qualified derivativesdealer” or “QDD” is an eligible entitythat agrees to meet the requirements of§1.1441–1(e)(6)(i) and of this Agree-ment with respect to payments on po-tential section 871(m) transactions andunderlying securities that it receives ormakes as a principal. In order to act as aQDD, the home office or branch, as ap-plicable, must qualify and be approvedfor QDD status and must represent itselfas a QDD on its Form W-8IMY andseparately identify the home office orbranch as the recipient on a withholdingstatement (if necessary). Each home of-fice or branch that obtains QDD status istreated as a separate QDD.
Sec. 2.64. QDD Tax Liability. A“QDD tax liability” is the amount de-scribed in section 3.09 of this Agreement.
Sec. 2.65. Qualified Intermediary(QI). A “qualified intermediary” or “QI”is a person (or branch) described in§1.1441–1(e)(5)(ii) that has in effect anagreement with the IRS to be treated as aQI and acts as a QI.
Sec. 2.66. QI-EIN. A “QI-EIN” meansthe employer identification number as-signed by the IRS to a QI. QI’s QI-EIN isonly to be used when QI is acting as a QI.For example, QI must give a withholdingagent its EIN (other than its QI-EIN), ifany, if it is receiving income as a benefi-cial owner (excluding when it receivesincome as a principal when acting as aQDD or as a QI assuming primary with-holding responsibility for a substitute in-terest payment). QI must also use itsnon-QI EIN, if any, when acting as anNQI. Each signatory to this Agreementmust have its own QI-EIN.
Sec. 2.67. Qualified SecuritiesLender (QSL). A “qualified securitieslender” or “QSL” is a person describedas a qualified securities lender in Notice2010-46, 2010-24 I.R.B. 757. A QI thatacts as a QSL with respect to a substi-tute dividend payment (as defined in§1.861–3(a)(6)) is required to act as a
QSL for all U.S. source substitute divi-dends received by the QI when acting asan intermediary or dealer with respect tosecurities lending and similar transac-tions. A QI is only permitted to act as aQSL until December 31, 2017.
Sec. 2.68. Reportable Amount. A “re-portable amount” means U.S. sourceFDAP income that is an amount subject tochapter 3 withholding, U.S. source depositinterest, and U.S. source interest or origi-nal issue discount paid on the redemptionof short-term obligations. The term doesnot include payments on deposits withbanks and other financial institutions thatremain on deposit for two weeks or less. Italso does not include amounts of originalissue discount arising from a sale and re-purchase transaction completed within aperiod of two weeks or less, or amountsdescribed in §1.6049–5(b)(7), (10), or(11) (relating to certain foreign targetedregistered obligations and certain obliga-tions issued in bearer form).
Sec. 2.69. Reportable Payment. Forpurposes of this Agreement, a “reportablepayment” means an amount described insection 2.69(A) of this Agreement, in thecase of a U.S. payor, and an amount de-scribed in section 2.69(B) of this Agree-ment, in the case of a non-U.S. payor.
(A) U.S. Payor. If QI is a U.S. payor,a “reportable payment” means, unless anexception to reporting applies under chap-ter 61,—
(1) Any reportable amount;(2) Any broker proceeds from a sale
reportable under §1.6045–1(c); and(3) Any foreign source interest, divi-
dends, rents, royalties, or other fixed anddeterminable income.
(B) Non-U.S. Payor. If QI is a non-U.S. payor, a “reportable payment”means, unless an exception to reportingapplies under chapter 61, —
(1) Any reportable amount;(2) Any broker proceeds from a sale
effected at an office inside the UnitedStates, as defined in §1.6045–1(g)(3)(iii);and
(3) Any foreign source interest, divi-dends, rents, royalties, or other fixed anddeterminable income if such income is notpaid outside the United States as de-scribed under section 5.13(C)(1) of thisAgreement.
Sec. 2.70. Reporting Model 1 FFI. A“reporting Model 1 FFI” means an FFIwith respect to which a foreign govern-ment or agency thereof agrees to obtainand exchange information pursuant to aModel 1 IGA, other than an FFI that istreated as a nonreporting Model 1 FFI(including a registered deemed-compliantModel 1 IGA FFI) or a nonparticipatingFFI under an applicable Model 1 IGA.
Sec. 2.71. Reporting Pool. A “report-ing pool” is defined in section 8 of thisAgreement.
Sec. 2.72. Responsible Officer. A “re-sponsible officer” of a QI means an officerof the QI with sufficient authority to fulfillthe duties of a responsible officer as de-scribed in section 10 of this Agreement,including the requirements to periodicallycertify and to respond to requests by theIRS for additional information to reviewthe QI’s compliance.
Sec. 2.73. Section 871(m) Amount.For each dividend on each underlying se-curity, the “section 871(m) amount” is (A)the QDD’s net delta exposure to the un-derlying security for the applicable divi-dend multiplied by (B) the applicable div-idend amount per share.
Sec. 2.74. Section 871(m) Transac-tion. A “section 871(m) transaction” isany securities lending or sale-repurchasetransaction, specified NPC, or specifiedELI described in §1.871–15(a)(13), (d),and (e), respectively.
Sec. 2.75. Short-Term Obligation. A“short-term obligation” is any obligationdescribed in section 871(g)(1)(B)(i).
Sec. 2.76. Substitute Interest. “Sub-stitute interest” means a substitute interestpayment described in §1.861–2(a)(7).
Sec. 2.77. Underlying Security. Forpurposes of a QI acting as a QDD or anydetermination relating to section 871(m),“underlying security” has the meaningprovided in §1.871–15(a)(15).
Sec. 2.78. Underwithholding. “Un-derwithholding” means the excess of theamount required to be withheld underchapter 3 or 4 or section 3406 over theamount actually withheld.
Sec. 2.79. Undocumented AccountHolder. An “undocumented accountholder” is an account holder for whomQI does not hold valid documentation.
Sec. 2.80. U.S. Account. A “U.S. ac-count” is any financial account maintained
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by an FFI that is held by one or morespecified U.S. persons or U.S.-owned for-eign entities that such FFI reports or electsto report under the FFI Agreement or§1.1471–5(f), as applicable.
Sec. 2.81. U.S. Payor. The term “U.S.payor” has the same meaning as in§1.6049–5(c)(5).
Sec. 2.82. U.S. Person. A “U.S. per-son” (or “United States person”) is a per-son described in section 7701(a)(30), theU.S. government (including an agency orinstrumentality thereof), a State of theUnited States (including an agency or in-strumentality thereof), or the District ofColumbia (including an agency or instru-mentality thereof). An individual will notbe treated as a U.S. person for purposes ofthis section for a taxable year or any por-tion of a taxable year that the individual isa dual resident taxpayer (within the mean-ing of §301.7701(b)–7(a)(1)) who istreated as a nonresident alien pursuant to§301.7701(b)–7 for purposes of comput-ing his or her U.S. tax liability. The term“U.S. person” or “United States person”also means a foreign insurance companythat has made an election under section953(d), provided that either the foreigninsurance company is not a specifiedinsurance company (as described in§1.1471–5(e)(1)(iv)), or the foreign insur-ance company is a specified insurancecompany and is licensed to do business inany State of the United States.
Sec. 2.83. U.S. Reportable Account.A “U.S. reportable account” means a fi-nancial account maintained by a reportingModel 1 FFI or registered deemed-compliant Model 1 IGA FFI that such FFIreports or elects to report under the appli-cable domestic law for compliance withand implementation of FATCA.
Sec. 2.84. U.S. Source FDAP. “U.S.source FDAP” means amounts fromsources within the United States that con-stitute fixed or determinable annual or pe-riodical income, as defined in §1.1441–2(b)(1).
Sec. 2.85. U.S. TIN. A “U.S. TIN”means a U.S. taxpayer identification num-ber assigned under section 6109.
Sec. 2.86. Withholding Agent. A“withholding agent” has the same mean-ing as set forth in §1.1441–7(a) for pur-poses of chapter 3 and as set forth in§1.1473–1(d) for purposes of chapter 4,
and includes a payor (as defined in section2.60 of this Agreement).
Sec. 2.87. Withholding Foreign Part-nership (WP). A “withholding foreignpartnership” or “WP” means a partner-ship, described in §1.1441–5(c)(2), thathas entered into a withholding agreementwith the IRS to be treated as a withholdingforeign partnership.
Sec. 2.88. Withholding Foreign Trust(WT). A “withholding foreign trust” or“WT” means a trust, described in§1.1441–5(e)(5)(v), that has entered into awithholding agreement with the IRS to betreated as a withholding foreign trust.
Sec. 2.89. Withholdable Payment. A“withholdable payment” means anamount described in §1.1473–1(a).
Sec. 2.90. Withholding Rate Pool. A“withholding rate pool” is defined in sec-tion 6.03 of this Agreement and includes achapter 3 withholding rate pool and achapter 4 withholding rate pool.
Sec. 2.91. Other Terms. Any term notdefined in this section has the same mean-ing that it has under the Code, includingthe income tax regulations under theCode, any applicable income tax treaty, orany applicable Model 1 or Model 2 IGAwith respect to a QI’s FATCA require-ments as a participating FFI, registereddeemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI. Ex-cept as expressly provided in this Agree-ment, any term relating to a QDD or sec-tion 871(m) has the same meaning givento the term in §1.871–15.
SECTION 3. WITHHOLDINGRESPONSIBILITY AND QDD TAXLIABILITY
Sec. 3.01. Chapters 3 and 4Withholding Responsibilities.
(A) Chapter 4 Withholding. QI is awithholding agent for purposes of chapter4 and subject to the withholding and re-porting provisions applicable to withhold-ing agents under sections 1471 and 1472with respect to its accounts. QI is requiredto withhold 30 percent of any withhold-able payment made after June 30, 2014, toan account holder that is an FFI unlesseither QI can reliably associate the pay-ment (or portion of the payment) withdocumentation upon which it is permittedto rely to treat the payment as exempt
from withholding under §1.1471–2(a)(4) or the payment is made under a grand-fathered obligation described in §1.1471–2(b). See §1.1471–2(b)(2)(i)(A)(2) for thedefinition of grandfathered obligationwith respect to an obligation giving rise toa dividend equivalent. QI is also requiredto withhold 30 percent of any withhold-able payment made after June 30, 2014, toan account holder that is an NFFE unlesseither QI can reliably associate the pay-ment (or portion of the payment) with acertification described in §1.1472–1(b)(1)(ii) or an exception to withholding un-der §1.1472–1 otherwise applies.
If QI is a participating FFI or registereddeemed-compliant FFI (other than a re-porting Model 1 FFI), QI will satisfy itsrequirement to withhold under sections1471(a) and 1472(a) with respect to directaccount holders that are entities by with-holding on withholdable payments madeto nonparticipating FFIs and recalcitrantaccount holders to the extent required un-der its FATCA requirements as a partici-pating FFI or registered deemed-compliant FFI. See the FFI Agreement,§1.1471–5(f)(1), or the applicable Model2 IGA for the withholding requirementsthat apply to withholdable payments madeto account holders of the FFI that areindividuals treated as recalcitrant accountholders or non-consenting U.S. accounts.If QI is a reporting Model 1 FFI or aregistered deemed-compliant Model 1IGA FFI, QI will satisfy its requirement towithhold under section 1471(a) with re-spect to direct account holders by with-holding on withholdable payments madeto nonparticipating FFIs to the extent re-quired under its FATCA requirements as aregistered deemed-compliant FFI or reg-istered deemed-compliant Model 1 IGAFFI. QI must, however, withhold in themanner described in sections 3.02 and3.03 of this Agreement for when QI as-sumes or does not assume primary with-holding responsibility for purposes ofchapters 3 and 4 regardless of its chapter 4status.
(B) Chapter 3 Withholding. To theextent that QI makes a payment of anamount subject to chapter 3 withholding,QI is required to withhold 30 percent ofthe gross amount of any such paymentmade to an account holder that is (or ispresumed) a foreign person unless QI can
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reliably associate the payment with docu-mentation upon which it can rely to treatthe payment as made to a payee that is aU.S. person or as made to a beneficialowner that is a foreign person entitled to areduced rate of withholding. See section 5of this Agreement regarding documenta-tion requirements. With respect an amountsubject to chapter 4 withholding that isalso an amount subject to chapter 3 with-holding, QI may credit any tax withheldunder chapter 4 against its liability for anytax due under chapter 3 with respect to thepayment so that no additional withholdingis required on the payment for purposes ofchapter 3. Nothing in chapter 4 or theregulations thereunder (including the FFIAgreement) or any applicable IGA re-lieves QI of its requirements to withholdunder chapter 3 to the extent required inthis Agreement.
Sec. 3.02. Primary Chapters 3 and 4Withholding Responsibility NotAssumed.
Notwithstanding sections 1.01 and3.01 of this Agreement, QI is not be re-quired to withhold with respect to a pay-ment of U.S. source FDAP income if it (a)does not assume primary withholding re-sponsibility under section 3.03 of thisAgreement by electing to be withheldupon under §1.1471–2(a)(2)(iii) for pur-poses of chapter 4, (b) provides the with-holding agent from which QI receives thepayment with a valid withholding certifi-cate that indicates that QI does not assumeprimary withholding responsibility forchapters 3 and 4 purposes, and (c) pro-vides correct withholding statements (in-cluding information regarding any ac-count holders or interest holders of anintermediary or flow-through entity thatholds an account with QI, other than a QIthat assumes primary withholding respon-sibility, WP, or WT) as described in sec-tion 6.02 of this Agreement. Notwith-standing its election not to assumeprimary withholding responsibility underchapters 3 and 4, QI shall, however, with-hold the difference between the amount ofwithholding required under chapter 3 or 4and the amount actually withheld by an-other withholding agent if QI—
(A) Actually knows that the appropri-ate amount has not been withheld by an-other withholding agent; or
(B) Made an error which results in thewithholding agent’s failure to withholdthe correct amount due (e.g., QI fails toprovide an accurate withholding statementwith respect to the payment, including afailure to provide information regardingany account holders or interest holders ofan intermediary or flow-through entitythat holds an account with QI to the extentrequired in section 6 of this Agreement),and QI has not corrected the underwith-holding under section 9.05 of this Agree-ment.
Sec. 3.03. Primary Chapters 3 and 4Withholding Responsibility Assumed.
(A) In General. QI may assume pri-mary withholding responsibility for pur-poses of chapters 3 and 4 by providing avalid withholding certificate described insection 6 of this Agreement to a withhold-ing agent that makes a payment of U.S.source FDAP income to QI and by desig-nating on the withholding statement asso-ciated with such certificate the account(s)for which QI assumes primary withhold-ing responsibility (if required). QI is notrequired to assume primary withholdingresponsibility for all accounts it holdswith a withholding agent. If QI assumesprimary withholding responsibility forany account, it must assume that respon-sibility under chapters 3 and 4 for allwithholdable payments and amounts sub-ject to chapter 3 withholding made by thewithholding agent to that account.
If QI is acting as a QSL for a substitutedividend payment, QI must assume pri-mary withholding responsibility for anysuch payment made to any account holderreceiving a substitute dividend payment.
QI may assume primary withholdingresponsibility for U.S. source FDAP pay-ments of substitute interest as described in§1.861–2(a)(7). If QI assumes primarywithholding responsibility for paymentsof substitute interest (as described in thisparagraph), it must assume primary with-holding responsibility with respect to allsuch payments. QI assumes primary with-holding responsibility for payments ofsubstitute interest for purposes of thisAgreement when it assumes such respon-sibility for payments of interest and sub-stitute interest it receives in connectionwith a sale-repurchase or similar agree-ment, a securities lending transaction, or
collateral that it holds in connection withits activities as a dealer in securities. As aresult, QI may represent its status as a QIon the withholding certificate described insection 6.01 of this Agreement with re-spect to payments it receives of interestand substitute interest described in thepreceding sentence regardless of whetherit acts as an intermediary or as a principalwith respect to these payments.
To the extent that QI assumes primarywithholding responsibility, QI shall with-hold as described in section 3.01 of thisAgreement. QI is not required to withholdon amounts it pays to another QI that hasassumed primary withholding responsibil-ity with respect to the payment (includinga QI acting as a QDD except for all pay-ments with respect to underlying securi-ties, other than dividend equivalents, paidto a QDD for which withholding is re-quired) or to a WP or a WT.
(B) Assumption of Withholding Re-sponsibility by a QDD. If QI is acting asa QDD, it must assume primary chapters 3and 4 withholding responsibility for anydividend equivalent payment that it makesand must withhold with respect to a divi-dend equivalent payment on the dividendpayment date for the applicable dividend(as determined in §1.1441–2(e)(4)). Not-withstanding the preceding sentence, aQDD remains liable for tax under section881 and subject to withholding on all U.S.source FDAP payments with respect tounderlying securities, other than dividendequivalents; however, with respect to div-idends (including deemed dividends), aQDD will not be subject to withholdingon those payments until January 1, 2018.A QDD must treat any dividend equiva-lent as a dividend from sources within theUnited States for purposes of section 881and chapter 3 and chapter 4 consistentwith section 871(m) and the regulationsthereunder. A QDD may reduce the rate ofwithholding under chapter 3 only basedon a beneficial owner’s claim of treaty-reduced withholding for portfolio divi-dends under the dividends article of anapplicable income tax treaty. A QDDmust also assume primary chapter 3 andchapter 4 withholding responsibility forpayments made with respect to a potentialsection 871(m) transaction even if thepayment is not a dividend equivalent if theamount paid is an amount subject to chap-
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ter 3 or 4 withholding. A QDD is notrequired to withhold under chapter 3 or 4on amounts it pays to another QI that hasassumed primary withholding responsibil-ity with respect to the payment or to a WPor a WT. In addition, the QDD must no-tify each payee in writing that it will with-hold on the dividend payment date beforethe time for determining the payee’s firstdividend equivalent payment (as deter-mined under §1.871–15(j)(2)).
Sec. 3.04. Backup Withholding UnderSection 3406 and Form 1099Reporting Responsibility.
(A) Backup Withholding. QI is apayor under section 3406 with respect toreportable payments. Under section 3406,unless an exception to backup withhold-ing applies, a payor is required to deductand withhold 285 percent from a report-able payment to an account holder that isa U.S. non-exempt recipient if the U.S.non-exempt recipient has not provided itsU.S. TIN in the manner required underthat section; the IRS notifies the payor thatthe U.S. TIN furnished by the payee isincorrect; there has been a notified payeeunder-reporting described in section3406(c); or there has been a payee certi-fication failure described in section3406(d).
(B) Coordination of Chapter 4 With-holding and Backup Withholding. Withrespect to a withholdable payment that isalso a reportable payment subject tobackup withholding under section 3406,QI is not required to withhold under sec-tion 3406 if QI withheld on such paymentunder chapter 4. See §31.3406(g)–1(e). Alternatively, if QI is a participatingFFI or a registered deemed-compliant FFI(other than a reporting Model 1 FFI), itmay elect to satisfy its obligation to with-hold under chapter 4 (or the FFI Agree-ment) on a withholdable payment made toa recalcitrant account holder that is a U.S.non-exempt recipient by satisfying itsbackup withholding obligation under sec-tion 3406 provided that the payment isalso a reportable payment. See section 4of the FFI Agreement. Nothing in chapter4 (including the FFI Agreement) or anyapplicable IGA relieves QI of its require-
ments to backup withhold under section3406 to the extent required by this Agree-ment.
(C) Form 1099 Reporting. If QI ap-plies backup withholding (as described insection 3.04(B) of this Agreement), itmust report the amount subject to backupwithholding on Form 1099 and not onForm 1042-S.
Sec. 3.05. Primary Form 1099 Re-porting and Backup Withholding Re-sponsibility for Reportable PaymentsOther Than Reportable Amounts. QI isresponsible for Form 1099 reporting andbackup withholding on reportable pay-ments other than reportable amounts tothe extent required under this section 3.05and section 8.06 of this Agreement,whether or not QI assumes primary Form1099 reporting and backup withholdingresponsibility with respect to reportableamounts under section 3.07 of this Agree-ment. Further, no provision of this Agree-ment which requires QI to provide anotherwithholding agent with information re-garding reportable amounts shall be con-strued as relieving QI of its Form 1099reporting and backup withholding obliga-tions with respect to reportable paymentsthat are not reportable amounts. See, how-ever, §31.3406(g)–1(e) providing that apayor (irrespective of whether the payor isa U.S. or non-U.S. payor) is not requiredto backup withhold under section 3406 ona reportable payment that is paid and re-ceived outside the United States with re-spect to an offshore obligation or on grossproceeds from a sale effected outside theUnited States, unless the payor has actualknowledge that the payee is a U.S. person.
(A) U.S. Payor. Except as provided insection 3.05(C) of this Agreement, if QI isa U.S. payor, QI has primary Form 1099reporting and backup withholding respon-sibility for reportable payments other thanreportable amounts. For example, if QI isa U.S. payor, it has primary Form 1099reporting and backup withholding respon-sibility for payments of foreign sourceincome as well as all broker proceeds paidto account holders that are, or are pre-sumed to be, U.S. non-exempt recipients.
(B) Non-U.S. Payor. If QI is a non-U.S. payor, QI has primary Form 1099reporting and backup withholding respon-
sibility for broker proceeds described insection 2.69(B)(2) of this Agreement andforeign source fixed and determinable in-come other than income paid and receivedoutside United States as described in sec-tion 2.69(B)(3) of this Agreement, if suchpayments are made (or presumed made) toU.S. non-exempt recipients.
(C) Special Procedure for BrokerProceeds. If QI is a U.S. payor, QI mayrequest another payor that is either a U.S.financial institution or another QI to reporton Form 1099 and, if required, backupwithhold with respect to broker proceedsfrom a sale that is effected at an officeoutside the United States (as defined in§1.6045–1(g)(3)(iii)) that QI is otherwiserequired to report under section 3.05(A)and section 8.05 of this Agreement, pro-vided the other payor actually receives thebroker proceeds. In such a case, QI willnot be responsible for primary Form 1099reporting and backup withholding with re-spect to broker proceeds, provided that theother payor agrees to do the reporting andbackup withholding and QI provides all ofthe information necessary for the otherpayor to properly report and backup with-hold. QI, however, remains responsiblefor primary Form 1099 reporting andbackup withholding if the other payordoes not agree to report and backup with-hold, or if QI knows that the other payorfailed to do so. If, however, QI is a par-ticipating FFI or registered deemed-compliant FFI (other than a reportingModel 1 FFI) that reports an account onForm 1099 in order to satisfy its U.S.account reporting requirement underchapter 4, as described in section 8.04 ofthis Agreement, QI is responsible for re-porting on Form 1099 with respect to re-portable payments made to such U.S. ac-count and must report in the mannerdescribed in the FFI Agreement.
Sec. 3.06. Primary Form 1099 Re-porting and Backup Withholding Re-sponsibility For Reportable AmountsNot Assumed. Notwithstanding sections1.01 and 3.04 of this Agreement, QI shallnot be required to report on Form 1099and backup withhold with respect to areportable amount if QI does not assumeprimary Form 1099 reporting and backupwithholding responsibility and it provides
5See section 3406(a) providing that the current applicable rate of backup withholding is the fourth lowest rate of tax applicable under section 1(c).
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a payor from which it receives a report-able amount the Forms W-9 of its U.S.non-exempt recipient account holders (or,if a U.S. non-exempt recipient fails toprovide a Form W-9, information regard-ing the account holder’s name, address,and U.S. TIN, if a U.S. TIN is available)together with the withholding rate poolsattributable to U.S. non-exempt recipientaccount holders so that such payor mayreport on Form 1099 and, if required,backup withhold. If QI elects to backupwithhold on withholdable payments thatare also reportable amounts made to re-calcitrant account holders that are alsoU.S. non-exempt recipients, QI shall notbe required to report on Form 1099 andbackup withhold with respect to a report-able amount if it provides a payor fromwhich it receives a reportable amountinformation regarding such recalcitrantaccount holders. See section 6.03 of thisAgreement and section 4 of the FFIAgreement. If QI reports its U.S. ac-counts on Forms 1099 under its FATCArequirements as a participating FFI orregistered deemed-compliant FFI, seesection 8.04(A) of this Agreement pro-viding that QI cannot delegate to a with-holding agent its requirement to reportits U.S. accounts. If QI elects not toassume primary Form 1099 reportingand backup withholding responsibility,QI must provide the withholding agentwith such information regarding any ac-count holders or interest holders of anintermediary or flow-through entity thatholds an account with QI. Notwithstand-ing its election not to assume primaryForm 1099 reporting and backup with-holding responsibility, QI shall backupwithhold and report a reportable amountto the extent required under sections3.04 and 8.06 of this Agreement if—
(A) QI actually knows that a reportableamount is subject to backup withholdingand that another payor failed to applybackup withholding, or
(B) Another payor has not appliedbackup withholding to a reportableamount because of an error made by QI(e.g., QI failed to provide the other payorwith information regarding the name, ad-dress, U.S. TIN (if available), and with-holding rate pool for a U.S. non-exemptrecipient account holder subject to backupwithholding, including a failure to provide
information regarding any account hold-ers or interest holders of an intermediaryor flow-through entity that holds an ac-count with QI to the extent required insection 6 of this Agreement).
Sec. 3.07. Primary Form 1099 Re-porting and Backup Withholding Re-sponsibility Assumed. QI may assumeprimary Form 1099 reporting backupwithholding responsibility with respect toreportable amounts without obtaining ap-proval from the IRS. QI that assumes suchresponsibility is subject to all of the obli-gations imposed by chapter 61 and section3406, as modified by this Agreement, andQI shall be subject to any applicable pen-alties for failure to meet those obligations.QI shall inform a payor from which itreceives a reportable amount that it hasassumed primary Form 1099 reportingand backup withholding responsibility byproviding the payor with a valid withhold-ing certificate described in section 6 ofthis Agreement and by identifying on thewithholding statement associated withsuch certificate the account(s) for whichQI assumes primary Form 1099 reportingand backup withholding responsibility (ifrequired).
QI is not required to assume primaryForm 1099 reporting and backup with-holding responsibility for all accounts itholds with a payor. However, if QI as-sumes primary Form 1099 reporting andbackup withholding responsibility for anyaccount, it must assume that responsibilityfor all reportable amounts made by apayor to that account.
If QI is acting as a QDD, it must as-sume primary Form 1099 reporting andbackup withholding responsibility for anyreportable payments that are made withrespect to a potential section 871(m)transaction. Thus, for example, if QI actsas a QDD with respect to an NPC that is apotential section 871(m) transaction andmakes a payment pursuant to the NPC toa U.S. person that is a U.S. non-exemptrecipient, QI must backup withhold andreport any amount paid to the U.S. personto the extent required under section 3406and §1.6041–1(d)(5).
In addition, if QI is assuming primarywithholding responsibility for paymentsof substitute interest (as described in sec-tion 3.03(A) of this Agreement), it mustassume primary Form 1099 reporting and
backup withholding responsibility withrespect to all such payments.
QI is not required to backup withholdon a reportable amount it makes to a WP,WT, or another QI that has assumed pri-mary Form 1099 reporting and backupwithholding responsibility with respect tothe reportable amount. QI is also not re-quired to backup withhold on a reportableamount that QI makes to an intermediaryor flow-through entity that is a participat-ing FFI, registered deemed-compliantFFI, or another QI that does not assumeprimary Form 1099 reporting and backupwithholding responsibility with respect tothe payment provided that such interme-diary or flow-through entity allocates thepayment on its withholding statement to achapter 4 withholding rate pool of U.S.payees and the withholding statement isassociated with a valid Form W-8IMYthat provides the applicable certifica-tion(s) for allocating the payment to thispool or allocates the payment on its with-holding statement to a chapter 4 withhold-ing rate pool of recalcitrant account hold-ers.
Sec. 3.08. Deposit Requirements. IfQI assumes primary withholding respon-sibility under chapters 3 and 4 or primaryForm 1099 reporting and backup with-holding responsibility, it must depositamounts withheld under chapter 3 or 4or section 3406 at the time and in themanner provided under section 6302 (see§1.6302–2) by electronic funds transfer asprovided under §31.6302–1(h). If QI is anon-U.S. payor that does not assume pri-mary withholding responsibility underchapters 3 and 4 or primary Form 1099reporting and backup withholding respon-sibility, QI must deposit amounts with-held by the 15th day following the monthin which the withholding occurred.
Sec. 3.09. QDD Tax Liability. In ad-dition to satisfying its withholding tax li-ability as described in this Agreement andits section 881 tax on dividends receivedas a QDD, a QDD must satisfy its QDDtax liability. The QDD’s QDD tax liabilityis the sum of:
(A) its tax liability under section 881for its section 871(m) amount (as definedin section 2.73 of this Agreement) foreach dividend on each underlying securityreduced (but not below zero) by theamount of tax paid by the QDD under
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section 881(a)(1) on dividends receivedwith respect to that underlying security onthat same dividend in its capacity as anequity derivatives dealer;
(B) its tax liability under section 881for dividend equivalent payments re-ceived as a QDD in its non-equity deriv-atives dealer capacity; and
(C) its tax liability under section 881for any payments, such as dividends orinterest, received as a QDD with respectto potential section 871(m) transactions orunderlying securities that are not dividendequivalent payments, to the extent the fullliability was not satisfied by withholding.
A QDD that is a foreign branch of a U.S.financial institution does not have a QDDtax liability. Instead, such a QDD must de-termine and report its tax liability in accor-dance with chapter 1 and the appropriateU.S. tax return for the U.S. corporation.
For calendar year 2017, the QDD willnot be liable for tax under section881(a)(1) on actual dividends on physicalshares or deemed dividends or dividendequivalents that the QDD receives in itsequity derivatives dealer capacity. TheQDD is liable for tax on actual dividendson physical shares or deemed dividends ordividend equivalents received in its non-equity derivatives dealer capacity and onany other U.S. source FDAP paymentsreceived by the QDD.
(D) Timing for Determining QDDTax Liability. A QDD must determine itsQDD tax liability due under sections3.09(A) and (B) on the date provided in§1.871–15(j)(2) for the applicable divi-dend. A QDD must determine its QDD taxliability due under section 3.09(C) at thetime the payments are treated as receivedunder the Code and the regulations pro-mulgated thereunder.
See section 7.01(C) of this Agreementregarding a QI that is acting as a QDD’sresponsibility to report QDD tax liabilityon the appropriate U.S. tax return and tomaintain a reconciliation schedule for itssection 871(m) amount and other amountsrelated to its QDD tax liability.
SECTION 4. PRIVATEARRANGEMENTINTERMEDIARIES AND CERTAINPARTNERSHIPS AND TRUSTS
Sec. 4.01. Private Arrangement In-termediaries–In General. If QI is an FFI,
QI may enter into a private arrangementwith another intermediary under whichthe other intermediary agrees to performall of the obligations of QI under thisAgreement, except as modified in section4.02 of this Agreement. QI, however, maynot enter into a private arrangement underthis section 4.01 with any account holderfor which it acts as a QDD. The agreementbetween QI and the other intermediaryshall be between QI and all the offices ofthe other intermediary located in a partic-ular jurisdiction, which must be one forwhich the IRS has approved the know-your-customer rules. Such an intermedi-ary is referred to in this Agreement as aprivate arrangement intermediary (PAI).By entering into a PAI agreement, QI isnot assigning its liability for the perfor-mance of any of its obligations under thisAgreement. Therefore, QI shall remain li-able for any tax, penalties, interest, andany other sanctions that may result fromthe failure of the PAI to meet any of theobligations imposed by its agreement withQI. QI agrees not to assert any defensesagainst the IRS for the failures of the PAIor any defenses that the PAI may assertagainst QI. For purposes of this Agree-ment, the PAI’s actual knowledge or rea-son to know of facts relevant to withhold-ing or reporting shall be imputed to QI.QI’s liability for the failures of the PAIshall apply even though the PAI is itself awithholding agent under chapters 3 and 4and a payor under chapter 61 and section3406 and is itself separately liable for itsfailure to meet its obligations under theCode. Notwithstanding the foregoing, QIshall not be liable for tax, interest, orpenalties for failure to withhold and reportunder chapters 3, 4, and 61 and section3406 unless the underwithholding or thefailure to report amounts correctly onForms 945, 1042, 1042-S, 1099, or 8966is due to QI’s or its PAI’s failure to prop-erly perform its obligations under thisAgreement. The PAI is not required toenter into an agreement with the IRS butmust respond (either directly or throughQI) to IRS inquiries related to its compli-ance, as described in section 10.08 of thisAgreement. The IRS may, however, in itssole discretion, refuse to permit an inter-mediary to operate as a PAI by providingnotice to QI. QI may, however, appeal theIRS’s determination by following the no-
tice and cure provisions in section 11.06of this Agreement. For purposes of thisAgreement, an intermediary shall be con-sidered a PAI only if the following con-ditions are met:
(A) The PAI is a certified deemed-compliant FFI (other than a registereddeemed-compliant Model 1 IGA FFI)that acts as an intermediary with respectto reportable amounts and has providedQI with a certification that it has main-tained such certified deemed-compliantFFI status during each certificationperiod;
(B) The PAI does not act as an inter-mediary for a direct account holder that isa QI, WP, WT, participating FFI, regis-tered deemed-compliant FFI, or a regis-tered deemed-compliant Model 1 IGAFFI;
(C) The PAI is, pursuant to a writtenagreement between QI and the PAI (PAIagreement), subject to all the obligationsof QI under this Agreement, except to theextent modified by sections 4.02 and 4.03of this Agreement;
(D) For purposes of chapter 4, the PAIagrees to comply with the FATCA require-ments applicable to its chapter 4 status as acertified deemed-compliant FFI, as modi-fied by sections 4.02 and 4.03 of thisAgreement, and is not required to fulfillQI’s FATCA requirements as a participat-ing FFI, registered deemed-compliantFFI, or registered deemed-compliantModel 1 IGA FFI;
(E) QI identifies the PAI on the QI/WP/WT Application and Accounts Man-agement System before the first paymentfor which the PAI is operating under thePAI agreement;
(F) The PAI agrees, to the extent nec-essary for QI to satisfy its complianceobligations (i.e., if QI does not receive awaiver described in section 10.07 of thisAgreement), either to provide its docu-mentation and other information to QI forinclusion in QI’s periodic review de-scribed in section 10.04 of this Agreementor to conduct an independent periodic re-view in accordance with the proceduresdescribed in section 10.05 of this Agree-ment and provide QI with the same certi-fication as is required for QI’s responsibleofficer under section 10.03 of this Agree-ment for each certification period in orderto allow the responsible officer of QI to
January 17, 2017 Bulletin No. 2017–3460
make a certification to the IRS regardingPAI’s compliance. The PAI agrees to re-spond (either directly or through QI) toIRS inquiries regarding its periodic re-view and agrees to provide QI (and theIRS, upon request) with a periodic reviewreport (as described in section 10.06 ofthis Agreement);
(G) The PAI furnishes QI with a FormW-8IMY and withholding statement de-scribed in section 6 of this Agreement asmodified by this section 4.01(G). The PAIis required to provide QI with Forms W-9(or, in absence of the form, the name,address, and U.S. TIN (if available)) ofthe PAI’s U.S. non-exempt recipient ac-count holders and the withholding ratepool information for those account hold-ers as required by section 6.03(D) of thisAgreement so that the QI (or the payor)may report on Form 1099 and, if required,backup withhold. In addition, the PAI isrequired to disclose to QI any accountholder of PAI that is a passive NFFE withone or more substantial U.S. owners (orone or more controlling persons that is aspecified U.S. person) as defined in§§1.1471–1(b)(74) and 1.1473–1(b), re-spectively (or in the applicable IGA), andthe account holders or interest holders ofany nonqualified intermediary or flow-through entity, respectively, which has anaccount with the PAI, and provide all ofthe documentation and other informationrelating to those account holders and in-terest holders that is required for the QI, oranother withholding agent, to report thepayments made to those account holdersand interest holders to the extent requiredby sections 8.02(B) and 8.05 of thisAgreement. Except to the extent the PAIprovides its information to QI for pur-poses of performing the periodic review,the PAI is not required to disclose to QI,or another withholding agent, its directaccount holders that are foreign personsother than a passive NFFE with one ormore substantial U.S. owners (or one ormore controlling persons that is a speci-fied U.S. person); and
(H) The PAI agrees to notify QI if thePAI no longer meets the requirementsfor certified deemed-compliant status,and upon such notification, the agree-ment between the PAI and QI willterminate.
Sec. 4.02. Modification of Obligationsfor PAI Agreements.
(A) Payments Reportable underChapters 3 and 4. The agreement be-tween QI and a PAI must provide that QIshall report all payments of amounts sub-ject to chapter 3 or 4 withholding made bythe PAI on QI’s Forms 1042 and 1042-Sas if QI had made the payments directly tothe PAI’s account holders. Therefore, QIshall report payments made to each of thefollowing types of a PAI’s account hold-ers as follows:
(1) A direct account holder of the PAIthat is a nonparticipating FFI, QI shallreport an amount subject to chapter 4withholding using the chapter 4 reportingpool described in section 8.03 of thisAgreement with the PAI reported as therecipient with respect to the pool.
(2) A direct foreign account holder ofthe PAI for which no withholding is re-quired under chapter 4 (other than an in-termediary, custodian, nominee, agent, orflow-through entity described below), QIshall report an amount subject to chapter 3withholding using the chapter 3 reportingpools as described in section 8.03 of thisAgreement with the PAI reported as therecipient.
(3) A direct foreign account holder ofthe PAI that is a nonqualified intermediaryor flow-through entity, QI shall reportpayments of amounts subject to chapter 4withholding with respect to any indirectaccount holders of the PAI that the non-qualified intermediary or flow-through en-tity includes in a chapter 4 withholdingrate pool of nonparticipating FFIs usingthe chapter 4 reporting pool for such ac-count holders described in section 8.03 ofthis Agreement with the nonqualified in-termediary or flow-through entity reportedas the recipient and shall report paymentsof amounts subject to chapter 3 withhold-ing made with respect to indirect foreignaccount holders of the PAI that are notsubject to chapter 4 withholding by re-porting the payments as made to specificrecipients under the rules of section 8.02of this Agreement.
(B) Form 1099 Reporting andBackup Withholding. The agreement be-tween QI and a PAI must also provide thatQI shall report all reportable paymentsmade by the PAI on QI’s Forms 945 and
1099 to the extent required under this sec-tion 4.02(B). QI shall file Forms 1099 andbackup withhold, if required, on report-able payments made by QI (including by aPAI) to U.S. non-exempt recipients thatare direct or indirect account holders of aPAI in accordance with the terms of thisAgreement.
(C) Form 8966 Reporting. The agree-ment between QI and a PAI must alsoprovide that QI shall report all withhold-able payments made by the PAI on Form8966 to the extent required under this sec-tion 4.02(C). QI shall file Forms 8966 toreport withholdable payments made by QI(including by a PAI) to passive NFFEswith one or more substantial U.S. owners(or one or more controlling persons that isa specified U.S. person) that are direct orindirect account holders of a PAI in ac-cordance with section 8.05 of this Agree-ment.
Sec. 4.03. Other Requirements ofPAI Agreements. QI shall require a PAIto provide QI with all the informationnecessary for QI to meet its obligationsunder this Agreement. No provisions shallbe contained in the agreement between QIand a PAI that preclude, and no provisionsof this Agreement shall be construed topreclude, the PAI’s joint and several lia-bility for tax, penalties, and interest underchapters 3, 4, and 61 and section 3406 tothe extent that underwithholding, penal-ties, and interest have not been collectedfrom QI and the underwithholding or fail-ure to report amounts correctly on Forms945, 1042, 1042-S, 1099, or Form 8966are due to a PAI’s failure to properlyperform its obligations under its agree-ment with QI. Nothing in the agreementbetween QI and a PAI shall be construedto limit the PAI’s requirements underchapter 4 or an applicable IGA. Further,nothing in the agreement between QI anda PAI shall permit the PAI to assumeprimary chapters 3 and 4 withholding re-sponsibility or assume primary Form 1099reporting and backup withholding respon-sibility.
Sec. 4.04. Termination of Arrange-ment. Except as otherwise provided insection 4.01(H) of this Agreement, QIshall cease to treat an intermediary as aPAI within 90 days from the day QIknows that the PAI is in default of itsagreement with QI unless the PAI has
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cured the event of default prior to theexpiration of such 90-day period. QI mustprovide the IRS with notice of any PAIagreement that has been terminated within30 days of the termination by removingthe intermediary as a PAI on the QI/WP/WT Application and Accounts Man-agement System.
Sec. 4.05. Joint Account Treatmentfor Certain Partnerships and Trusts.
(A) In General. If QI is an FFI, QImay enter an agreement with a nonwith-holding foreign partnership or nonwith-holding foreign trust that is either a simpleor grantor trust described in this section4.05(A) to apply the simplified joint ac-count documentation, reporting, and with-holding procedures provided in section4.05(B) of this Agreement. QI and a part-nership or trust that apply this section 4.05to any calendar year must apply theserules to the calendar year in its entirety. QIand the partnership or trust may not applythis section 4.05 to any calendar year inwhich the partnership or trust has failed tomake available to QI or QI’s reviewer therecords described in this section 4.05(A)within 90 days after these records are re-quested, and the partnership or trust mustwaive any legal prohibitions against pro-viding such records to QI. If the partner-ship or trust has failed to make these re-cords available within the 90-day period,or if QI and the partnership or trust fail tocomply with any other requirements ofthis section 4.05, QI must apply the pro-visions of §§1.1441–1(c) and 1.1441–5(e)to the partnership or trust as a nonwith-holding foreign partnership or nonwith-holding foreign trust, must correct itswithholding for the period during whichthe failure occurred in accordance withsection 9.05 of this Agreement, and can-not apply this section 4.05 to subsequentcalendar years. QI and a partnership ortrust that apply this section 4.05 to anycalendar year are not required to applythis section 4.05 to subsequent calendaryears.
A partnership or trust is described inthis section 4.05(A) of this Agreement ifthe following conditions are met:
(1) The partnership or trust has a chap-ter 4 status as a certified deemed-compliant FFI (other than a registereddeemed-compliant Model 1 IGA FFI), an
owner-documented FFI with respect toQI, an exempt beneficial owner, or anNFFE or is covered as an account that isexcluded from the definition of financialaccount under Annex II of an applicableIGA or under §1.1471–5(a) and has pro-vided QI with a certification that it hasmaintained such chapter 4 status at alltimes during each certification period;
(2) The partnership or trust is a directaccount holder of QI;
(3) None of the partnership’s or trust’spartners, beneficiaries, or owners is aflow-through entity or is acting as inter-mediary for a payment made by QI to thepartnership or trust;
(4) None of the partnership’s or trust’spartners, beneficiaries, or owners is a U.S.person and none of its foreign partners,beneficiaries, or owners is subject to with-holding or reporting under chapter 4 (e.g.,a nonparticipating FFI and certain passiveNFFEs); and
(5) The partnership or trust agrees tomake available upon request to QI or QI’sreviewer for purposes of QI’s periodicreview under section 10 of this Agreement(including to respond to IRS inquiries re-garding its compliance review) recordsthat establish that the partnership or trusthas provided QI with documentation forpurposes of chapters 3 and 4 for all of itspartners, beneficiaries, or owners.
(B) Modification of Obligations for QI.
(1) QI may rely on a valid FormW-8IMY provided by the partnership ortrust and may rely on a withholding state-ment that meets the requirements of§1.1441–5(c)(3)(iv) or (e)(5)(iv), and§1.1471–3(c)(3)(iii)(B) (if the payment isa withholdable payment) and that pro-vides information for all partners, benefi-ciaries, or owners together with validForms W-8 or, in the case of a partnershipor trust that is a certified deemed-compliant FFI, documentary evidencepermitted under the applicable know-your-customer rules from each partner,beneficiary, or owner, and, for a withhold-able payment, documentation that meetsthe requirements of §1.1471–3(d) to es-tablish the partner’s, beneficiary’s, orowner’s chapter 4 status. The withholdingstatement need not provide any allocationinformation.
(2) QI must treat payments to the part-nership or trust as allocated solely to apartner, beneficiary, or owner that is sub-ject to the highest rate of withholding un-der chapter 3 and must withhold at thatrate.
(3) QI may pool report amounts dis-tributed to, or included in the distributiveshare of, the partnership’s or trust’s directpartners, beneficiaries, or owners in chap-ter 3 reporting pools on Form 1042-S asdescribed in section 8.03(B) of this Agree-ment.
(4) After QI has withheld in accor-dance with section 4.05(B)(2) of thisAgreement, it may file a separate Form1042-S for any partner, beneficiary, orowner who requests that it do so. If QIissues a separate Form 1042-S for anypartner, beneficiary, or owner, it cannotinclude such partner, beneficiary, orowner in its chapter 3 reporting pool. If QIhas already filed a Form 1042-S and in-cluded the partner, beneficiary, or ownerin a chapter 3 reporting pool, it must filean amended return to reduce the amountof the payment reported to reflect theamount allocated to the recipient on therecipient’s specific Form 1042-S. QI mayfile a separate Form 1042-S for a partner,beneficiary, or owner only if the partner-ship or trust provides a withholding state-ment that includes allocation informationfor the requesting partner, beneficiary, orowner and only if the partnership or trusthas agreed in writing to make available toQI or QI’s reviewer the records that sub-stantiate the allocation information in-cluded in its withholding statement.
(5) QI may not include any paymentsmade to a partnership or trust to which QIis applying the rules of this section 4.05 inany collective refund claim made undersection 9.04 of this Agreement.
Sec. 4.06. Agency Option for CertainPartnerships and Trusts.
(A) In General. QI may enter anagreement with a nonwithholding foreignpartnership or nonwithholding foreigntrust that is either a simple or grantor trustdescribed in section 4.06(A) of thisAgreement under which the partnership ortrust agrees to act as an agent of QI withrespect to its partners, beneficiaries, orowners, and, as QI’s agent, to apply theprovisions of the QI Agreement to the
January 17, 2017 Bulletin No. 2017–3462
partners, beneficiaries, or owners. QI,however, may not enter an agreement un-der this section 4.06 with any accountholder for which it acts as a QDD. Byentering into an agreement with a partner-ship or trust as described in this section4.06, QI is not assigning its liability forthe performance of any of its obligationsunder this Agreement. QI and the partner-ship or trust to which QI applies the rulesof this section 4.06 are jointly and sever-ally liable for any tax, penalties, and in-terest that may result from the failure ofthe partnership or trust to meet any of theobligations imposed by its agreement withQI. QI and a partnership or trust that ap-plies the agency option to any calendaryear must apply these rules to the calendaryear in its entirety. Generally, QI and apartnership or trust that applies the agencyoption to any calendar year are not re-quired to apply the agency option to sub-sequent calendar years. If, however, QIwithholds and reports any adjustments re-quired by corrected information in a sub-sequent calendar year under section4.06(B)(2) of this Agreement, QI mustapply the agency option to that calendaryear in its entirety. QI and a partnership ortrust may not apply the agency option toany calendar year when the partnership ortrust has failed to make available to QI orQI’s reviewer the records described insection 4.06 of this Agreement within 90days after these records are requested, andthe partnership or trust must waive anylegal prohibitions against providing suchrecords to QI. If, for any calendar year, thepartnership or trust has failed to makethese records available within the 90-dayperiod, or if QI and the partnership or trustfail to comply with any other requirementof this section 4.06, QI must apply§§1.1441–1(c) and 1.1441–5(e) to thepartnership or trust as a nonwithholdingforeign partnership or nonwithholdingforeign trust, must correct its withholdingfor the period in which the failure oc-curred in accordance with section 9.05 ofthis Agreement, and cannot apply theagency option to subsequent calendaryears.
A partnership or trust is described inthis section 4.06(A) of this Agreement ifthe following conditions are met:
(1) The partnership or trust is either adirect account holder of QI or an indirect
account holder of QI that is a direct part-ner, beneficiary, or owner of a partnershipor trust to which QI also applies theagency option.
(2) The partnership or trust has a chap-ter 4 status as a certified deemed-compliant FFI (other than a registereddeemed-compliant Model 1 IGA FFI), anowner-documented FFI, an NFFE, an ex-empt beneficial owner, or is covered as anaccount that is excluded from the defini-tion of financial account under Annex IIof an applicable IGA or under §1.1471–5(a) and has provided QI with a certifica-tion that it has maintained such chapter 4status during each certification period;
(3) None of the partnership’s or trust’spartners, beneficiaries, or owners is a WP,WT, participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or anotherQI acting as an intermediary for a pay-ment made by QI to the partnership ortrust.
(4) The partnership or trust agrees topermit QI to treat its direct partners, ben-eficiaries, or owners as direct accountholders of QI under this Agreement and totreat its indirect partners, beneficiaries, orowners as indirect account holders of QIunder this Agreement.
(5) The partnership or trust agrees, tothe extent necessary for QI to satisfy itscompliance obligations (e.g., if the QIdoes not receive a waiver described insection 10.07 of this Agreement), either toprovide its documentation and other infor-mation to QI for inclusion in QI’s periodicreview described in section 10.04 of thisAgreement or to conduct an independentperiodic review in accordance with theprocedures described in section 10.05 ofthis Agreement, provide QI with the cer-tification required under section 10.03 ofthis Agreement for each certification pe-riod in order to allow the responsible of-ficer of QI to make a certification to theIRS regarding the partnership’s or trust’scompliance with this section 4.06, andrespond (either directly or through QI) toIRS inquiries regarding its compliance re-view, as described in section 10.08 of thisAgreement, including providing the QIand the IRS with the results of the review-er’s testing of transactions and accountsdescribed in section 10.06 of this Agree-ment.
(B) Modification of Obligations for QI.
(1) QI may rely on a valid FormW-8IMY provided by the partnership ortrust, together with a withholding state-ment described in §1.1441–5(c)(3)(iv) or(e)(5)(iv) and §1.1471–3(c)(3)(iii)(B) (ifthe payment is a withholdable payment)that includes all information necessary forQI to fulfill its withholding, reporting, andfiling obligations under this Agreement.The withholding statement may includechapter 3 withholding rate pools for part-ners, beneficiaries, or owners that are notintermediaries, flow-through entities (orpersons holding interests in the partner-ship or trust through such entities), U.S.persons, or passive NFFEs with one ormore substantial U.S. owners (or one ormore controlling persons that is a speci-fied U.S. person), and the partnership ortrust need not provide to QI documenta-tion for these partners, beneficiaries, orowners. The withholding statement mayalso include a chapter 4 withholding ratepool of nonparticipating FFIs described insection 6.03 of this Agreement for pay-ments of amounts subject to chapter 4withholding. Notwithstanding the preced-ing sentences of this section 4.06(B)(1),the partnership or trust is required to dis-close to QI any interest holder that is apassive NFFE with substantial U.S. own-ers (or controlling persons that are speci-fied U.S. persons) or that is a U.S. non-exempt recipient, as well as the accountholders or interest holders of any non-qualified intermediary or flow-through en-tity, respectively, which has an interest inthe partnership or trust, and to provide allof the documentation and other informa-tion relating to those account holders andinterest holders that is required for the QI,or another withholding agent, to report thepayments made to those account holdersand interest holders to the extent requiredby sections 8.02(B) and 8.05 of thisAgreement.
(2) Timing of Withholding. QI mustwithhold on the date it makes a paymentto the partnership or trust based on a with-holding statement provided by the part-nership or trust on which QI is permittedto rely. The amount allocated to each part-ner, beneficiary, or owner in the withholdingstatement may be based on a reasonableestimate of the partner’s, beneficiary’s, or
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owner’s distributive share of income subjectto withholding for the year. The partnershipor trust must correct the estimated alloca-tions to reflect the partner’s, beneficiary’s,or owner’s actual distributive share andmust provide this corrected information toQI on the earlier of the date that the state-ment required under section 6031(b) (i.e.,Schedule K-1) or the Beneficiary Statementor Owner Statement is mailed or otherwiseprovided to the partner, beneficiary, orowner, or the due date for furnishing thestatement (whether or not the partnership ortrust is required to prepare and furnish thestatement). If that date is after the due date(without regard to extensions) for QI’sForms 1042 and 1042-S for the calendaryear, QI may withhold and report any ad-justments required by the corrected informa-tion in the following calendar year.
(3) Payments Reportable UnderChapters 3 and 4. QI shall report onForm 1042-S all amounts subject to chap-ters 3 and 4 withholding distributed to, orincluded in the distributive share of, thepartnership or trust as follows:
(a) For a direct partner, beneficiary, orowner of the partnership or trust that is anonparticipating FFI, QI shall report anamount subject to withholding using thechapter 4 reporting pool described in sec-tion 8.03(A) of this Agreement with thepartnership or trust reported as a recipient.
(b) For a direct partner, beneficiary, orowner of the partnership or trust that is aforeign person for which no withholdingis required under chapter 4 (other than anintermediary, agent, or flow-through en-tity described below), QI shall report anamount subject to chapter 3 withholdingusing the chapter 3 reporting pools de-scribed in section 8.03(B) of this Agree-ment with the partnership or trust reportedas a recipient.
(c) For a direct or indirect partner, ben-eficiary, or owner of the partnership ortrust that is a nonqualified intermediary orforeign flow-through entity, QI shall re-port payments of amounts subject to chap-ter 4 withholding in a chapter 4 withhold-ing rate pool of nonparticipating FFIsusing the chapter 4 reporting pool for suchpartner, beneficiary, or owner with thenonqualified intermediary or foreign flow-through entity reported as the recipient,and QI shall report payments of amountssubject to chapter 3 withholding for which
no chapter 4 withholding is required byreporting the payments as made to specificrecipients as described in section 8.02 ofthis Agreement.
(4) Form 1099 Reporting andBackup Withholding. The agreement be-tween QI and the partnership or trust mustalso provide that QI shall include all re-portable payments made by the partner-ship or trust in QI’s Forms 945 and 1099to the extent required under this section4.06(B)(4). QI shall file Forms 1099 andbackup withhold, if required, on report-able payments made by QI to U.S. non-exempt recipient that are direct or indirectpartners, beneficiaries, or owners of thepartnership or trust in accordance with theterms of this Agreement.
(5) Form 8966 Reporting Require-ments. The agreement between QI and thepartnership or trust must also provide thatQI shall report all withholdable paymentsmade by the partnership or trust on Form8966 to the extent required under this sec-tion 4.06(B)(5). If the partnership or trustis itself a passive NFFE and if any of itspartners, beneficiaries, or owners is a pas-sive NFFE with one or more substantialU.S. owners (or one or more controllingpersons that is a specified U.S. person), QIshall file Forms 8966 to report all with-holdable payments made by QI to anysuch passive NFFE in accordance withsections 8.04 and 8.05 of this Agreement.
(C) Other Requirements of AgencyAgreement. QI shall require the partner-ship or trust to provide QI with all theinformation necessary for QI to meet itsobligations under this Agreement. No pro-visions shall be contained in the agree-ment between QI and the partnership ortrust that preclude, and no provisions ofthis Agreement shall be construed to pre-clude, the partnership or trust’s joint andseveral liability for tax, penalties, and in-terest under chapters 3, 4, and 61 andsection 3406, to the extent that the under-withholding, penalties, and interest havenot been collected from QI and the under-withholding or failure to report amountscorrectly on Forms 945, 1042, 1042-S,1099, or 8966 is due to the partnership’sor trust’s failure to properly perform itsobligations under its agreement with QI.Nothing in the agreement between QI andthe partnership or trust shall be construedto limit the partnership’s or trust’s
requirements under chapter 4 as acertified deemed-compliant FFI, owner-documented FFI, NFFE, or exempt bene-ficial owner. Further, nothing in the agree-ment between QI and the partnership ortrust shall permit the partnership or trustto assume primary chapters 3 and 4 with-holding responsibility or primary Form1099 reporting and backup withholdingresponsibility.
SECTION 5. DOCUMENTATIONREQUIREMENTS
Sec. 5.01. DocumentationRequirements.
(A) General Documentation Re-quirements. QI agrees to use its best ef-forts to obtain documentation from ac-count holders that receive a reportablepayment to determine whether withhold-ing applies or whether a payment is re-portable under this Agreement. Under sec-tion 11.06 of this Agreement, failure toobtain documentation from a significantnumber of direct account holders consti-tutes an event of default. If QI is an FFIobtaining documentary evidence, QI alsoagrees to adhere to the know-your-customer rules that apply to QI with re-spect to the account holder from whomthe documentary evidence is obtained. IfQI cannot reliably associate a reportablepayment with valid documentation fromthe account holder, it must apply the ap-plicable presumption rules to determine ifwithholding is required under chapter 3 or4 or if backup withholding is requiredunder section 3406. QI agrees to reviewand maintain documentation in accor-dance with this section 5 and, in the caseof documentary evidence obtained fromdirect account holders, in accordance withthe applicable know-your-customer rules.QI also agrees, if the performance of anexternal review is requested by IRS (asdescribed in section 10.08(D) of thisAgreement), to make documentation (to-gether with any associated withholdingstatements and other documents or infor-mation) available upon request for inspec-tion by QI’s external reviewer. QI repre-sents that none of the laws to which it issubject prohibits disclosure of the identityof any account holder or account informa-tion to QI’s reviewer.
January 17, 2017 Bulletin No. 2017–3464
If QI is acting as a QDD, QI is requiredto apply the rules of this section 5 to eachaccount holder of an account for which itis acting as a QDD and to which it makesa reportable payment in accordance withthe applicable requirements in section5.01(A) and (B) of this Agreement.
(B) Coordination of Chapter 3 andChapter 4 DocumentationRequirements.
(1) QI that is an FFI. If QI is an FFI,for each account holder for whom QI isacting under this Agreement, QI is re-quired to perform the due diligence pro-cedures under its FATCA requirements asa participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI to determineif the account is a U.S. account (or U.S.reportable account) and to determine eachaccount holder that is a nonparticipatingFFI and, if applicable, recalcitrant accountholder (or non-consenting U.S. account).If an account holder receiving the pay-ment is not the payee, QI is also requiredto establish the chapter 4 status of thepayee or payees to determine whetherwithholding applies under chapter 4. Forpurposes of this section 5, with respect todocumenting an account holder for chap-ter 4 purposes, documentary evidence alsoincludes any documentary evidence al-lowed under an applicable IGA.
To the extent an account holder re-ceives a payment with respect to which QIhas determined that withholding is notrequired under chapter 4, QI shall obtain,unless already collected, documentationthat meets the requirements of this section5 to determine whether the account holderis a foreign person for which QI is re-quired to withhold under chapter 3 or aU.S. payee for which QI is required tobackup withhold under section 3406 orreport on Form 1099 under chapter 61.See, however, section 8.06 of this Agree-ment providing the circumstances inwhich reporting of U.S. accounts (or U.S.reportable accounts) under its FATCA re-quirements as a participating FFI, regis-tered deemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI sat-isfies QI’s Form 1099 reporting responsi-bilities. See Notice 2014-33, 2014-21I.R.B. 1033, modifying the time in whichQI is required to implement the applicable
due diligence procedures under itsFATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI with respect to an obligation heldby an entity that is opened, issued, orexecuted on or after July 1, 2014, andbefore January 1, 2015.
(2) QI that is an NFFE. If QI is anNFFE, QI is required to document thechapter 4 status of each account holder forwhom QI is acting to determine if with-holding and reporting apply under section1471 or 1472 on withholdable paymentsmade to the account holder. QI is requiredto obtain, unless already collected, a validForm W-8 or Form W-9 from each ac-count holder to determine whether QI isrequired to withhold under chapter 3 or 4or report on Form 1099 under chapter 61and backup withhold under section 3406.The allowance in this section 5 for QI toobtain documentary evidence does not ap-ply if QI is an NFFE. QI may, however,obtain appropriate documentary evidenceas additional documentation to establishthe foreign status of an account holder.
Sec. 5.02. Documentation for For-eign Account Holders. QI may treat anaccount holder as a foreign beneficialowner of an amount if the account holderprovides a valid Form W-8 (other thanForm W-8IMY unless provided by a QIthat is acting as a QDD or assuming pri-mary withholding responsibility for a sub-stitute interest payment) or valid docu-mentary evidence that supports theaccount holder’s status as a foreign per-son. QI may not treat an account holderthat provides documentation indicatingthat it is a bank, broker, intermediary, oragent (such as an attorney) as a beneficialowner unless QI receives a statement, inwriting and signed by a person with au-thority to sign such a statement, statingthat such account holder is the beneficialowner of the income. Further, QI may notreduce the rate of withholding with re-spect to an indirect account holder that isa foreign beneficial owner unless the cer-tification provided by the direct accountholder is a valid Form W-8IMY, and thenonly to the extent that QI can reliablyassociate the payment with valid docu-mentation that establishes that withhold-ing does not apply under chapter 4 in thecase of a withholdable payment made to
the account holder and establishes that theindirect account holder is entitled to a re-duced rate of withholding under chapter 3.
Sec. 5.03. Beneficial Owner’s Claimof Treaty Benefits. To the extent an ac-count holder receives a payment that isnot subject to withholding under chapter4, QI may not reduce the rate of withhold-ing under chapter 3 based on a beneficialowner’s claim of treaty benefits unless QIobtains the documentation required bysection 5.03(A) of this Agreement. In ad-dition, QI agrees to establish proceduresto inform account holders of the terms oflimitation on benefits provisions of atreaty (whether or not those provisions arecontained in a separate article entitledLimitation on Benefits) under which theaccount holder is claiming benefits. Foraccounts held by an entity opened or doc-umented on or after January 1, 2017, QI isrequired to obtain a Form W-8BEN-Ewith the appropriate limitation on benefitscertification or, if QI is allowed to andobtains documentary evidence, the writtencertification included in the treaty state-ment as described in section 5.03(B) ofthis Agreement. For accounts maintainedby QI prior to January 1, 2017, that weredocumented with documentary evidenceand for which treaty benefits are beingclaimed, QI is required to obtain the ap-propriate limitation on benefits statementprior to January 1, 2019.
(A) Treaty Documentation. Thedocumentation required by this section5.03(A) is as follows:
(1) The account holder has provided aproperly completed Form W-8BEN orForm W-8BEN-E on which a claim oftreaty benefits is made, including, for anentity, the appropriate limitation on bene-fits and section 894 certifications, as pro-vided in §1.1441–6(b)(1). A U.S. TIN orforeign TIN shall not be required, how-ever, if the beneficial owner is a directaccount holder. An indirect accountholder is required to have a either a U.S.TIN or foreign TIN to claim treaty bene-fits unless it is claiming treaty benefits onincome from marketable securities;
(2) The account holder has provideddocumentary evidence that has been ob-tained pursuant to the know-your-customerrules that apply to the account holder, andthe account holder, if it is an entity, hasmade the treaty statement (if applicable) re-
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quired by section 5.03(B) of this Agree-ment; or
(3) The account holder provides thetype of documentary evidence requiredunder §1.1441–6 to establish entitlementto a reduced rate of withholding under atreaty, and the account holder, if it is anentity, has made the treaty statement (ifapplicable) required by section 5.03(B) ofthis Agreement.
(B) Treaty Statement. The treatystatement required by an entity accountholder under this section 5.03(B) is asfollows:
[Name of entity account holder] meetsall provisions of the applicable treaty thatare necessary to claim a reduced rate ofwithholding, including any limitation onbenefits provisions, and derives the in-come within the meaning of section 894,and the regulations thereunder, as the ben-eficial owner.
QI is only required to obtain the treatystatement required by this section 5.03(B)from an account holder that is an entity.QI shall not be required to obtain a treatystatement required by this section 5.03(B)from an individual who is a resident of anapplicable treaty country or from the gov-ernment, or its political subdivisions, of atreaty country. QI is required to collectand report (as required on Form 1042-S)the specific category of limitation on ben-efits provision from all of its entity ac-count holders, including a government (orits political subdivisions).
Sec. 5.04. Documentation for Inter-national Organizations. To the extent anaccount holder receives a payment that isnot subject to withholding under chapter4, QI may not treat the account holder asan international organization entitled to anexemption from withholding under sec-tion 892 unless the name provided onthe documentation (including a FormW-8EXP) is the name of an entity desig-nated as an international organization byexecutive order pursuant to 22 UnitedStates Code 288 through 288(f) and thedocumentation is valid under section 5.10of this Agreement. If an international or-ganization is not claiming benefits undersection 892 but under another Code ex-ception, the provisions of section 5.02 ofthis Agreement shall apply rather than theprovisions of this section 5.04.
Sec. 5.05. Documentation for ForeignGovernments and Foreign CentralBanks of Issue.
(A) Documentation From a ForeignGovernment or Foreign Central Bankof Issue Claiming an Exemption FromWithholding Under Section 892 or Sec-tion 895. To the extent an account holderreceives a payment that is not subject towithholding under chapter 4, QI may nottreat an account holder as a foreign gov-ernment or foreign central bank of issueexempt from withholding under section892 or 895 unless—
(1) QI receives from the account holdera Form W-8EXP or documentary evi-dence establishing that the account holderis a foreign government or foreign centralbank of issue;
(2) The income paid to the accountholder is the type of income that qualifiesfor an exemption from withholding undersection 892 or 895; and
(3) QI does not know, or have reason toknow, that the account holder is a con-trolled commercial entity as described insection 892, that the income owned by theforeign government or foreign centralbank of issue is being received from acontrolled commercial entity, or that theincome is from the disposition of an in-terest in a controlled commercial entity.
(B) Treaty Exemption. To the extentan account holder receives a payment thatis not subject to withholding under chap-ter 4, QI may treat an account holder as aforeign government or foreign centralbank of issue entitled to a reduced rate ofwithholding under an income tax treatyfor purposes of chapter 3 if it has validdocumentation that is sufficient to obtain areduced rate of withholding under a treatyas described in section 5.03 of this Agree-ment.
(C) Other Code Exception. If a for-eign government or foreign central bankof issue is not claiming benefits undersection 892 or under an income tax treatybut under another Code exception (e.g.,the portfolio interest exception under sec-tion 871(h) or 881(c)), the provisions ofsection 5.02 of this Agreement applyrather than the provisions of this section5.05.
Sec. 5.06. Documentation for For-eign Tax-Exempt Organizations. To the
extent an account holder receives a pay-ment that is not subject to withholdingunder chapter 4, QI may not treat an ac-count holder as a foreign tax-exempt or-ganization and reduce the rate of or ex-empt the account holder from withholdingfor purposes of chapter 3 unless it satisfiesthe requirements provided in section5.06(A), (B), or (C) of this Agreement.
(A) Reduced Rate of WithholdingUnder Section 501. QI may not treat anaccount holder as a foreign organizationdescribed under section 501(c), and there-fore exempt from withholding underchapter 3 (or, if the account holder is aforeign private foundation, subject towithholding at a 4-percent rate under sec-tion 1443(b)) unless QI obtains a validForm W-8EXP on which Part IV of theform is completed.
(B) Reduced Rate of WithholdingUnder Treaty. QI may not treat an ac-count holder as a foreign organization thatis tax-exempt on an item of income pur-suant to an income tax treaty unless QIobtains valid documentation as describedunder section 5.03 of this Agreement thatis sufficient for obtaining a reduced rate ofwithholding under the treaty and the doc-umentation establishes that the accountholder is an organization exempt from taxunder the treaty on that item of income.
(C) Other Exceptions. If a tax-exemptentity is not claiming a reduced rate ofwithholding because it is a foreign orga-nization described under section 501(c) orunder a treaty article that applies to ex-empt certain foreign organizations fromtax, but is claiming a reduced rate of with-holding under another Code or income taxtreaty exception, the provisions of section5.02 or 5.03 (as applicable) of this Agree-ment shall apply rather than the provisionsof this section 5.06.
Sec. 5.07. Documentation from In-termediaries or Flow-Through Entities.QI must apply the presumption rules to areportable payment made to a nonquali-fied intermediary or flow-through entitythat is a direct account holder of QI to theextent QI fails to obtain the documenta-tion set forth below. If QI receives docu-mentation for the account holders or in-terest holders of an intermediary or flow-through entity, QI must apply the rules ofthis section 5 to determine the validity ofsuch documentation.
January 17, 2017 Bulletin No. 2017–3466
(A) Withholdable Payments Made toNonqualified Intermediaries and Flow-Through Entities. With respect to a with-holdable payment made to a nonqualifiedintermediary or flow-through entity—
(1) QI receives a valid Form W-8IMYprovided by the nonqualified intermediaryor the flow-through entity receiving thepayment that establishes the chapter 4 sta-tus of the intermediary or flow-throughentity; and
(2) If the payment is not subject towithholding under chapter 4 based onsuch entity’s chapter 4 status (or to theextent the payment is received on behalfof exempt beneficial owners), QI can reli-ably associate the payment with a withhold-ing statement that meets the requirements of§1.1471–3(c)(iii)(B) that includes the ac-count holders or interest holders of the in-termediary or flow-through entity in chapter4 withholding rate pools to the extent per-mitted or with valid documentation de-scribed in this section 5 provided by accountholders or interest holders of the intermedi-ary or flow-through entity that are not them-selves nonqualified intermediaries or flow-through entities and that QI can treat as notsubject to withholding under chapter 4.
(B) Reportable Payments Other thanWithholdable Payments Made to Non-qualified Intermediaries and Flow-Through Entities. With respect to a re-portable payment that is not awithholdable payment made to a non-qualified intermediary or flow-through en-tity—
(1) QI receives a valid Form W-8IMYprovided by the nonqualified intermediaryor the flow-through entity regardless ofwhether the form includes a chapter 4status of the nonqualified intermediary orflow-through entity unless such entity pro-vides a withholding statement allocating apayment to a chapter 4 withholding ratepool of U.S. payees; and
(2) QI can reliably associate the pay-ment with a chapter 4 withholding ratepool of U.S. payees or valid documenta-tion described in this section 5 providedby account holders or interest holders ofthe nonqualified intermediary or flow-through entity that are not themselvesnonqualified intermediaries or flow-through entities.
(C) Reportable Payments Made toQIs, WPs, and WTs. With respect to a
reportable payment made to a QI, WP, orWT, QI receives a valid Form W-8IMYprovided by the QI, WP, or WT that in-cludes the entity’s chapter 4 status for apayment that is a withholdable paymentand, for those payments for which a QIhas not assumed primary chapters 3 and 4withholding responsibility or primaryForm 1099 reporting and backup with-holding responsibility, QI can reliably as-sociate the payment with withholding ratepools, as described in section 6.03 of thisAgreement.
(D) Payments Made to QIs Acting asQDDs. For payments with respect to po-tential section 871(m) transactions or un-derlying securities made to a QI acting asa QDD, if QI receives a valid FormW-8IMY provided by the QI acting as aQDD that includes the QI’s chapter 4 sta-tus and the required certification that theQI is acting as a QDD and assumes pri-mary withholding responsibility for pay-ments it makes when the QI is acting as aQDD, then QI can reliably associate thepayments as made to the QI acting as aQDD.
(E) Private Arrangement Intermedi-aries. If QI has an agreement with a PAI,QI obtains from the PAI a Form W-8IMYcompleted as if the PAI were a QI that isan FFI (with the exception that the PAImust not provide a QI-EIN on the FormW-8IMY) and QI can reliably associatethe payment with a withholding state-ment, as described in section 4.01(G) ofthis Agreement and the information de-scribed in this section 5.07 for any ac-count holders of the PAI that are interme-diaries or flow-through entities and thedocumentation for any passive NFFE withone or more substantial U.S. owners (orone or more controlling persons that is aspecified U.S. person if QI is a reportingModel 1 or reporting Model 2 FFI).
(F) Partnerships or Trusts to whichQI Applies the Agency Option. If QI hasan agreement with a partnership or trustunder which the partnership or trustagrees to act as an agent of QI, QI obtainsfrom the partnership or trust a FormW-8IMY completed as if the partnershipor trust were a QI (with the exception thatthe partnership or trust must not provide aQI-EIN on the Form W-8IMY) and QIcan reliably associate the payment with awithholding statement, as described in
section 4.06(B)(1) of this Agreement, andthe information described in this section5.07 for any account holders that are in-termediaries or flow-through entities andthe documentation for any passive NFFEwith one or more substantial U.S. owners(or one or more controlling persons that isa specified U.S. person if QI is a reportingModel 1 or reporting Model 2 FFI).
Sec. 5.08. Documentation for U.S.Exempt Recipients. QI shall not treat anaccount holder as a U.S. exempt recipi-ent unless QI obtains from the accountholder—
(A) A valid Form W-9 on which theaccount holder includes an exempt payeecode to certify that the account holder is aU.S. exempt recipient for purposes ofchapter 4 reporting;
(B) Documentary evidence that is suf-ficient to establish that the account holderis a U.S. exempt recipient; or
(C) Documentary evidence that is suf-ficient to establish the account holder’sstatus as a U.S. person and QI can treat theperson as an exempt recipient under therules of §§1.6045–2(b)(2)(i) or 1.6049-4(c)(1)(ii), as appropriate, without obtain-ing documentation.
Sec. 5.09. Documentation for U.S.Non-Exempt Recipients. QI shall nottreat an account holder as a U.S. non-exempt recipient unless QI obtains a validForm W-9 or other similar agreed formunder its FATCA requirements as aparticipating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI from the ac-count holder, QI knows an account holderis a U.S. non-exempt recipient, or QI mustpresume a person is a U.S. non-exemptrecipient to the extent required under sec-tion 5.13(C)(3) or (4) of this Agreement.
Sec. 5.10. Documentation Validity.
(A) In General. QI may not rely ondocumentation if QI has actual knowl-edge, or reason to know that the informa-tion or certifications contained in the doc-umentation are unreliable or incorrect orthat there is a change in circumstanceswith respect to the information or state-ments contained in the documentation oraccount information that affects the reli-ability of the account holder’s claim. See§1.1441–1(e)(4)(ii)(D) for the definitionof change in circumstances and a
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withholding agent’s obligation with re-spect to a change in circumstances. See§31.3406(h)–3(e) for rules regardingwhen QI may rely on a Form W-9,§1.1441–7(b)(4) through (6) for rules re-garding when QI may rely on a FormW-8, and §1.1441–7(b)(7) through (9) forrules regarding documentary evidence (in-cluding §1.1441–7(b)(8)(i) for rules re-garding documentary evidence receivedprior to January 1, 2001). A change incircumstances affecting withholding in-formation, including allocation informa-tion or withholding rate pools contained ina withholding statement, will also causethe documentation provided with respectto that information to no longer be reli-able. Once QI knows, or has reason toknow, that documentation provided by anaccount holder is unreliable or incorrect toestablish foreign status or residency forpurposes of claiming benefits under anapplicable income tax treaty, it can nolonger reliably associate a payment withvalid documentation unless QI obtains theadditional documentation described in§1.1441–7(b)(5), (b)(6), (b)(8), or (b)(9)(as applicable). With respect to a with-holding agent’s reason to know that aclaim for treaty benefits is unreliable orincorrect based on the existence of a taxtreaty, the rule in §1.1441–6(b)(1)(ii) willapply to pre-existing accounts for whichQI held valid documentation upon achange in circumstances or, with respectto a pre-existing entity account, when itprovides a written limitation on benefitsstatement (as described in section 5.03(B)of this Agreement). For all new accounts,this rule will apply on account opening.For purposes of this section 5.10(A), a“pre-existing account” or “pre-existingentity account” is an account documentedby QI prior to January 1, 2017, for a QIwith a QI Agreement in effect prior to thatdate. For a QI that did not have a QIAgreement in effect prior to January 1,2017, a “pre-existing account” or “pre-existing entity account” means an accountmaintained (and for which QI has validdocumentation) prior to the effective dateof its QI Agreement.
In addition, if QI becomes aware ofinformation resulting in the documenta-tion no longer being reliable or correctand QI has not assumed primary with-holding responsibility under chapters 3
and 4 or primary Form 1099 reporting andbackup withholding responsibility, QIagrees that it will promptly provide awithholding agent with corrected informa-tion (e.g., corrected withholding ratepools, corrected Forms W-9, or correctedU.S. TINs) within 30 days after QI knowsor has reason to know that the documen-tation upon which it has relied is unreli-able or incorrect. If QI receives notifica-tion from the IRS that documentationprovided by an account holder is unreli-able or incorrect (e.g., that the U.S. TINprovided by an account holder is incor-rect), QI shall follow the procedures setforth in §31.3406(d)–5. See also QI’sFATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI or an NFFE’s requirements as awithholding agent under sections 1471and 1472 following a change in circum-stances.
(B) Reason to Know-Direct AccountHolders. If QI is a financial institution asdefined in §1.1471–5(e), an insurancecompany (without regard to whether suchcompany is a specified insurance com-pany), or a broker or dealer in securities,QI shall be considered to have reason toknow that documentation provided by adirect account holder is unreliable or in-correct only as prescribed in §1.1441–7(b)(3). If QI is an NFFE (other than aNFFE described in the first sentence ofthis paragraph), see §1.1441–7(b)(2) forwhen QI shall be considered to have rea-son to know that a withholding certificateprovided by a direct account holder isunreliable or incorrect.
(C) Reason to Know-Indirect Ac-count Holders. QI shall be considered tohave reason to know that relevant infor-mation or statements contained in docu-mentation provided by an indirect accountholder are unreliable or incorrect if a rea-sonably prudent person in the position of aQI would question the claims made. QIshall have reason to know that documen-tation provided by a nonqualified interme-diary or a flow-through entity is unreliableor incorrect if the nonqualified intermedi-ary or flow-through entity does not pro-vide QI with, to the extent required, thenames of the indirect account holders,their addresses, allocation information al-locating payments to each indirect ac-
count holder, and sufficient informationfor QI to report payments on Forms1042-S and 1099. In addition, QI shallhave reason to know that an indirect ac-count holder is not entitled to a reducedrate of withholding under an income taxtreaty if the nonqualified intermediary orflow-through entity has not provided suf-ficient information so that QI can verifythat the indirect account holder has pro-vided a U.S. TIN or foreign TIN, if re-quired, and made the necessary statementsregarding limitations on benefits provi-sions and deriving the income under sec-tion 894 and the regulations thereunder.See §1.1441–7(b)(10) and section 5.03 ofthis Agreement.
Sec. 5.11. Documentation ValidityPeriod.
(A) Documentation Other thanForm W-9. QI may rely on valid docu-mentary evidence obtained from accountholders in accordance with applicableknow-your-customer rules as long as thedocumentary evidence remains valid un-der those rules or until QI knows, or hasreason to know, that the information con-tained in the documentary evidence is in-correct. However, QI may only rely onstatements regarding entitlement to treatybenefits described in §1.1441–6(c)(5)(i) or the representations described in sec-tion 5.03 of this Agreement until the va-lidity expires under §1.1441–1(e)(4)(ii)(A)(2). For establishing an account hold-er’s chapter 3 status (as defined in§1.1441–1(c)(45)) or foreign status forchapter 61 purposes, QI may rely on aForm W-8 until its validity expires un-der §1.1441–1(e)(4)(ii) and may rely ondocumentary evidence (other than doc-umentary evidence obtained pursuant toapplicable know-your-customer rules)until its validity expires under §1.6049 –5(c).
(B) Form W-9. QI may rely on a validForm W-9 as long as it has not beeninformed by the IRS or another withhold-ing agent that the form is unreliable orincorrect. If QI has primary Form 1099reporting and backup withholding respon-sibility, it may rely on a Form W-9 unlessone of the conditions of §31.3406(h)–3(e)(2)(i) through (v) applies.
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Sec. 5.12. Maintenance and Retentionof Documentation.
(A) Maintaining Documentation. QIshall maintain documentation by retainingthe original documentation, a certifiedcopy, a photocopy, a scanned copy, a mi-crofiche, or other means that allow repro-duction (provided that the QI has recordedreceipt of the documentation and is able toproduce a hard copy). For a direct ac-count, if QI is not required to retain copiesof documentary evidence under its know-your-customer rules, QI may instead re-tain a notation of the type of documenta-tion reviewed, the date the documentationwas reviewed, the document’s identifica-tion number (if any, e.g., a passport num-ber), and whether such documentationcontained any U.S. indicia. For direct ac-counts opened prior to January 1, 2001, ifQI was not required under its know-your-customer rules to maintain originals orcopies of documentation, QI may rely onits account information if it has compliedwith all other aspects of its know-your-customer rules regarding establishment ofan account holder’s identity, it has a re-cord that the documentation required un-der the know-your-customer rules was ac-tually examined by an employee of QI inaccordance with the know-your-customerrules, and it has no information in itspossession that would require QI to treatthe documentation as invalid.
(B) Retention Period. QI shall retain arecord of the account holder’s documen-tation obtained under this section 5 for aslong as the documentation is relevant tothe determination of QI’s tax liability orreporting responsibilities under sections871, 881, 1461, 1474(a), and 3406.
Sec. 5.13. Application of PresumptionRules.
(A) In General. QI shall apply thepresumption rules of section 5.13(C) ofthis Agreement if QI cannot reliably asso-ciate a payment with valid documentationfrom an account holder. The presumptionrules cannot be used to grant a reducedrate of withholding. For example, theportfolio interest exception of sections871(h) and 881(c) shall not apply to aperson that is presumed to be foreign.Further, QI must apply the presumptionrules when required and may not rely on
its actual knowledge regarding an accountholder’s chapter 4 status or status as aU.S. or foreign person to apply a reducedrate of withholding. Failure to follow thepresumption rules may result in liabilityfor underwithholding, penalties, and inter-est. Notwithstanding the preceding sen-tences, QI must rely on its actual knowl-edge regarding an account holder ratherthan what is presumed if, based on suchknowledge, it should withhold an amountgreater than the withholding rate under thepresumption rules or it should report onForm 1042-S or Form 1099 an amountthat would otherwise not be reported.
(B) Reliably Associating a Paymentwith Documentation. Generally, QI canreliably associate a payment with docu-mentation if, for that payment, it holdsvalid documentation from the accountholder; it can reliably determine howmuch of the payment relates to the validdocumentation provided by such accountholder; and it has no actual knowledge orreason to know that any of the informa-tion, certifications, or statements in or as-sociated with the documentation are in-correct. See §1.1441–1(b)(2)(vii) or, for awithholdable payment, §1.1471–3(c) forrules regarding when a payment can bereliably associated with documentation.See also §1.1471–3(e)(4)(vi)(B) for whena QI that is an FFI may rely on documen-tation and information permitted in anapplicable IGA to document an accountholder’s chapter 4 status. Sections5.13(B)(1) through (5) of this Agreementdescribe when a payment is reliably asso-ciated with documentation if the paymentis made to an account holder that is anintermediary or flow-through entity (otherthan a nonparticipating FFI that is notacting on behalf of exempt beneficialowners).
(1) Reliably Associating a Paymentwith Documentation Provided by aNonqualified Intermediary or Flow-Through Entity. Generally, QI canreliably associate a payment with docu-mentation provided by a nonqualified in-termediary or flow-through entity if it canreliably associate the payment with a validForm W-8IMY provided by the nonquali-fied intermediary or flow-through entity,and it can determine the portion of thepayment that relates to valid documenta-tion associated with the Form W-8IMY
for an account holder or interest holder ofthe nonqualified intermediary or flow-through entity that is not itself a nonquali-fied intermediary or flow-through entity;and the nonqualified intermediary or flow-through entity provides sufficient infor-mation for QI to report the payments onForm 1042-S, Form 1099, or Form 8966 ifreporting is required.
If the payment is a withholdable pay-ment, the Form W-8IMY must provide thenonqualified intermediary’s or flow-through entity’s chapter 4 status to theextent required for chapter 4 purposes. Inlieu of the nonqualified intermediary orflow-through entity providing documenta-tion for an account holder that is subject tochapter 4 withholding, QI can reliably as-sociate a withholdable payment with validdocumentation associated with the FormW-8IMY from the nonqualified interme-diary or flow-through entity if it can de-termine the portion of the payment allo-cable to a chapter 4 withholding rate pool(to the extent permissible under §1.1471–3(c)(3)(iii)(B)).
If the payment is a reportable amount,QI can reliably associate such paymentwith valid documentation provided by anonqualified intermediary or a flow-through entity that is a participating FFI orregistered deemed-compliant FFI if, inlieu of providing documentation for itsaccount holders that are U.S. persons,such nonqualified intermediary or flow-through entity allocates the payment to achapter 4 withholding rate pool of U.S.payees and also certifies on a valid FormW-8IMY that it meets the requirements of§1.6049–4(c)(4)(iii) with respect to anyaccount holder of an account it maintainswithin the meaning of §1.1471–5(d)(5) (i.e., a direct account holder) that re-ceives a payment included in this pool orallocates a payment that is a withholdablepayment to a chapter 4 withholding ratepool of recalcitrant account holders.
Notwithstanding the preceding sen-tences in this section 5.13(B)(1), to theextent a payment is not subject to report-ing on Form 1042-S, Form 1099, or Form8966, QI can reliably associate the pay-ment with valid documentation if it candetermine the portion of the payment thatis allocable to a group of account holdersfor whom QI holds valid documentation(other than nonqualified intermediaries or
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flow-through entities) for whom withhold-ing and reporting is not required. For ex-ample, QI can treat a payment of shortterm OID allocable to a group of docu-mented foreign account holders as reliablyassociated with valid documentation. Fur-ther, if the documentation attached to anonqualified intermediary’s or flow-through entity’s Form W-8IMY is docu-mentation from another nonqualified in-termediary or flow-through entity, then QImust apply the rules of this paragraph tothat other nonqualified intermediary orflow-through entity.
(2) Reliably Associating a Paymentwith a Withholding Certificate Pro-vided by Another QI that Does notAssume Primary Chapters 3 and 4Withholding or Primary Form 1099Reporting and Backup WithholdingResponsibility. Generally, QI can reli-ably associate a payment with documen-tation provided by another QI that doesnot assume either primary chapters 3and 4 withholding responsibility or pri-mary Form 1099 reporting and backupwithholding responsibility if it can reli-ably associate the payment with a validForm W-8IMY and, if the form is asso-ciated with a withholdable payment, itincludes the QI’s chapter 4 status to theextent required for chapter 4 purposes.Additionally, the Form W-8IMY mustbe associated with a withholding state-ment that allocates the withholdablepayment among the chapter 4 withhold-ing rate pools (to the extent permissibleunder §1.1471–3(c)(3)(iii)(B)), and withrespect to a payment of an amount sub-ject to chapter 3 withholding that is ei-ther not a withholdable payment or awithholdable payment for which nochapter 4 withholding is required, thatallocates such payment among chapter 3withholding rate pools for foreign ac-count holders as described in section6.03(C) of this Agreement.
If the payment is a reportable amount,QI can reliably associate the payment withdocumentation provided by another QI ifthe withholding statement allocates thepayment to withholding rate pools attrib-utable to U.S. non-exempt recipients andthe documentation includes a valid FormW-9 for each U.S. non-exempt recipientaccount holder for which the other QI isrequired to report on Form 1099 and, if
required, backup withhold. QI can alsoreliably associate a reportable amountwith valid documentation provided by an-other QI that is a participating FFI orregistered deemed-compliant FFI if, inlieu of providing documentation for eachU.S. non-exempt recipient account holder,the QI allocates the payment to a chapter4 withholding rate pool of U.S. payeesand provides the applicable certifica-tion(s) on a valid Form W-8IMY for allo-cating the payment to this pool or allo-cates a payment that is a withholdablepayment to a chapter 4 withholding ratepool of recalcitrant account holders. Not-withstanding the preceding sentences inthis section 5.13(B)(2), the presumptionrules shall not apply if a payment cannotbe allocated to each U.S. non-exempt re-cipient account holder or to a chapter 4withholding rate pool of U.S. payees tothe extent the alternative procedures ofsection 6.03(D) of this Agreement apply.
(3) Reliably Associating a Paymentwith Documentation Provided by a QIthat Assumes Primary Chapters 3 and4 Withholding Responsibility and Doesnot Assume Primary Form 1099 Re-porting and Backup Withholding Re-sponsibility. Generally, QI can reliablyassociate a payment with valid documen-tation provided by another QI that as-sumes primary chapters 3 and 4 withhold-ing responsibility, but not primary Form1099 reporting and backup withholdingresponsibility, if it can associate the pay-ment with a valid Form W-8IMY from theQI and, if the form is associated with awithholdable payment, it includes the QI’schapter 4 status to the extent required forchapter 4 purposes. Additionally, theForm W-8IMY must be associated with awithholding statement that allocates apayment that is a withholdable payment oran amount subject to chapter 3 withhold-ing that is not a withholdable paymentamong a single withholding rate pool forall account holders with respect to whichthe QI assumes primary chapters 3 and 4withholding responsibility.
If the payment is a reportable amount,QI can reliably associate the payment withdocumentation provided by another QI ifthe withholding statement allocates thepayment to withholding rate pools attrib-utable to each U.S. non-exempt recipient,as described in section 6.03(D), and the
documentation includes a valid Form W-9for each U.S. non-exempt recipient ac-count holder for which the other QI isrequired to report on Form 1099 and, ifrequired, backup withhold. QI can alsoreliably associate such payment with validdocumentation provided by another QIthat is a participating FFI or registereddeemed-compliant FFI if, in lieu of pro-viding documentation for each U.S. non-exempt recipient account holder, the QIallocates the payment made to the U.S.non-exempt recipient to a chapter 4 with-holding rate pool of U.S. payees and pro-vides the applicable certifications on avalid Form W-8IMY for allocating thepayment to this pool or allocates a pay-ment that is a withholdable payment to achapter 4 withholding rate pool of recal-citrant account holders. Notwithstandingthe preceding sentences in this section5.13(B)(3), the presumption rules shallnot apply if a payment cannot be allocatedto each U.S. non-exempt recipient accountholder or to a chapter 4 withholding ratepool of U.S. payees to the extent the al-ternative procedures of section 6.03(D) ofthis Agreement apply.
(4) Reliably Associating a PaymentWith Documentation Provided by a QIthat Assumes Primary Form 1099 Re-porting and Backup Withholding Re-sponsibility. Generally, QI can reliablyassociate a payment with valid documen-tation provided by another QI that as-sumes primary Form 1099 reporting andbackup withholding responsibility, but notprimary chapters 3 and 4 withholding re-sponsibility, to the extent it can associatethe payment with a valid Form W-8IMYfrom the QI that, if the payment is a with-holdable payment, includes the QI’s chap-ter 4 status to the extent required for chap-ter 4 purposes. Additionally, the FormW-8IMY must be associated with a with-holding statement that allocates a paymentthat is a withholdable payment amongchapter 4 withholding rate pools (otherthan a pool of U.S. payees and to theextent permissible under §1.1471–3(c)(3)(iii)(B)) and, with respect to a paymentthat is an amount subject to chapter 3withholding but is either not a withhold-able payment or a withholdable paymentfor which no chapter 4 withholding isrequired, allocates the payment amongchapter 3 withholding rate pools for for-
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eign account holders as described in sec-tion 6.03(C) of this Agreement, and iden-tifies the portion of the payment for whichQI assumes primary Form 1099 reportingand backup withholding responsibility.
(5) Reliably Associating a Paymentwith Documentation Provided by a QIthat Assumes Both Primary Chapters 3and 4 Withholding Responsibility andPrimary Form 1099 Reporting andBackup Withholding Responsibility.Generally, QI can reliably associate a pay-ment with valid documentation providedby another QI that assumes both primarychapters 3 and 4 withholding responsibil-ity and primary Form 1099 reporting andbackup withholding responsibility if QIcan associate the payment with a validForm W-8IMY from the QI that, if thepayment is a withholdable payment, in-cludes the QI’s chapter 4 status. Addition-ally, the Form W-8IMY must also desig-nate the accounts for which the other QI isacting as a QI and is assuming primarychapters 3 and 4 withholding and primaryForm 1099 reporting and backup with-holding responsibility. If the other QI isacting as a QDD, the Form W-8IMY (orwithholding statement) must also desig-nate those accounts (1) for which theQDD is receiving payments with respectto potential section 871(m) transactions orunderlying securities as a QDD, (2) forwhich the QDD is receiving paymentswith respect to potential section 871(m)transactions (and that are not also under-lying securities) for which withholding isnot required, and (3) for which the QDD isreceiving payments with respect to under-lying securities for which withholding isrequired. If the other QI is acting as aQDD, the Form W-8IMY (or withholdingstatement) must also identify the homeoffice or branch acting as a QDD that isreceiving the payment. If the QI receivinga payment assumes both primary chapters3 and 4 withholding responsibility andprimary Form 1099 reporting and backupwithholding responsibility for substituteinterest payments as described in section3.03(A), the Form W-8IMY must indicatethat the QI is assuming primary withhold-ing responsibility for all such payments.
(C) Presumption Rules. With respectto a withholdable payment made to a for-eign entity, if QI is an NFFE, it mustfollow the presumption rules of §1.1471–
3(f) when it cannot reliably associate awithholdable payment with valid docu-mentation.
With respect to a payment that is anamount subject to chapter 3 withholdingthat is either not a withholdable paymentor a withholdable payment for which nochapter 4 withholding is required, the pre-sumption rules are the rules under§1.1441–1(b)(3) that a withholding agentmust follow to determine the status of abeneficial owner (i.e., as a U.S. person orforeign person and as an individual orentity (and the entity’s classification))when it cannot reliably associate a pay-ment with valid documentation. With re-spect to a reportable payment (including awithholdable payment made to an entity)that is not an amount subject to chapter 3withholding, the presumption rules are therules of §1.6049–5(d) that a payor mustfollow to determine the status of a payee(e.g., as a non-exempt recipient) when itcannot reliably associate a payment withvalid documentation. The presumptionrules are as follows:
(1) Certain Withholdable PaymentsMade with Respect to an Offshore Ob-ligation. A withholdable payment paidoutside of the United States as definedunder §1.6049 –5(e) with respect to anoffshore obligation (as defined in§1.1471–1(b)(88)) that is made to an en-tity is presumed made to a nonparticipat-ing FFI for purposes of chapter 4. A with-holdable payment that is not an amountsubject to chapter 3 withholding, that ispaid outside the U.S. with respect to anoffshore obligation, and that is treated asmade to a payee that is an individual ispresumed made to a U.S. person when thepayee has any of the indicia of U.S. statusthat are described in §1.1441–7(b)(5). IfQI is a participating FFI or registereddeemed-compliant FFI (other than a re-porting Model 1 FFI), see the rules underits FATCA requirements as a participatingFFI or registered deemed-compliant FFIfor classifying account holders as recalci-trant account holders. If QI is an FFI, seealso section 8.06 of this Agreement forwhether QI is required to report such pay-ments on Form 1099.
(2) Amounts Subject to Withholdingunder Chapter 3 that are Paid withRespect to an Offshore Obligation. Anamount that is subject to chapter 3 with-
holding that is not a withholdable pay-ment is presumed made to an undocu-mented foreign account holder if thepayment is made outside of the UnitedStates with respect to an offshore obliga-tion. If QI is an NFFE or an FFI that is notrequired to withhold on recalcitrant ac-count holders pursuant to the terms of anapplicable Model 1 or Model 2 IGA, anamount subject to chapter 3 withholdingthat is a withholdable payment and that istreated as made to a payee that is anindividual is also presumed made to anundocumented foreign account holder ifthe payment is made outside of the UnitedStates with respect to an offshore obliga-tion. QI must treat an amount described inthis section 5.13(C)(2) as subject to with-holding under chapter 3 at a rate of 30percent on the gross amount of the pay-ment and must report the payment asmade to an unknown recipient on Form1042-S.
(3) Payments on Certain Short-TermObligations and Bank Deposit Interest.An amount of U.S. source original issuediscount on the redemption of a short-term obligation or U.S. source bank de-posit interest not subject to chapter 4withholding is presumed made to an un-documented U.S. non-exempt recipientaccount holder regardless of whether paidto an individual or entity. QI must reportan amount described in this section5.13(C)(3) on Form 1099. QI must backupwithhold and report such amounts onForm 1099 unless it provides sufficientinformation to another payor from whichit receives such amounts to backup with-hold and report the payments and QI doesnot know that the other payor has failed tobackup withhold or report.
(4) Foreign Source Income, BrokerProceeds, and Certain Other AmountsMade with Respect to an Offshore Ob-ligation. A payment of an amount that isnot a withholdable payment and is not anamount subject to chapter 3 withholding(other than payments of short-term OIDand bank deposit interest described in sec-tion 5.13(C) of this Agreement) that ispaid outside the United States with respectto an offshore obligation and that is madeto a payee that is an individual is pre-sumed made to a U.S. non-exempt recip-ient when the payee has any of the indiciaof U.S. status that are described in section
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5.10(B) of this Agreement. If the paymentis made to a payee that is an entity, QImust apply the principles of §1.1441–1(b)(3)(ii), §1.1441–5(d)(2), or §1.1441–5(e)(6) (as applicable) without regard to§1.1441–1(b)(3)(ii)(D) for purposes ofthis paragraph 5.13(C)(4). For a paymentof gross proceeds for which QI is a brokerunder §1.6045–1, similar rules apply to apayment made with respect to a sale thatis effected at an office outside the UnitedStates under §1.6045–1(g)(1)(ii). QI mustreport an amount described in this section5.13(C)(3) as paid to a presumed U.S.non-exempt recipient on Form 1099 to theextent required under section 8.06 of thisAgreement. Backup withholding shall notbe required, however, if the exceptionprovided in §31.3406(g)–1(e) applies.
(5) Other Payments. For any paymentnot covered in sections 5.13(C)(1), (2),(3), or (4) of this Agreement, see the pre-sumption rules provided in §1.1441–1(b)(3) or §1.6049–5(d)(2) (as applica-ble).
SECTION 6. QUALIFIEDINTERMEDIARY WITHHOLDINGCERTIFICATE AND DISCLOSUREOF ACCOUNT HOLDERS TOWITHHOLDING AGENT
Sec. 6.01. Qualified IntermediaryWithholding Certificate. QI agrees tofurnish a qualified intermediary withhold-ing certificate to each withholding agentfrom which it receives a reportableamount as a QI. The qualified intermedi-ary withholding certificate is a FormW-8IMY (or acceptable substitute form)that certifies that QI is acting as a QI,contains QI’s QI-EIN, and provides allother information required by the form. IfQI receives a withholdable payment, QImust certify to its chapter 4 status andprovide its GIIN (if applicable). QI mustalso certify its chapter 4 status as a par-ticipating FFI or registered deemed-compliant FFI when QI provides a FormW-8IMY that certifies that it meets therequirements of §1.6049–4(c)(4)(iii) withrespect to any account holder of an ac-count it maintains that is included in achapter 4 withholding rate pool of U.S.payees on QI’s withholding statement.
If QI is acting as a QSL for a substitutedividend payment, QI must also certifythat it is acting as a qualified securities
lender and provide all other informationrequired by Form W-8IMY.
If QI is acting as a QDD for paymentswith respect to potential section 871(m)transactions or underlying securities, itmust certify that it is acting as a QDD forthose payments and assumes primarychapters 3 and 4 withholding responsibil-ity and primary Form 1099 reporting andbackup withholding responsibility for anypayments with respect to potential section871(m) transactions that it makes as re-quired by this Agreement, and it mustprovide all other information required byForm W-8IMY with respect to the certi-fication.
If QI is acting with respect to paymentsof substitute interest as described in sec-tion 3.03(A) of this Agreement, it mustcertify that it is assuming primary chap-ters 3 and 4 withholding responsibilityand primary Form 1099 reporting andbackup withholding responsibility for allsuch payments, in addition to the othercertifications it makes and information itprovides as a QI as required by thisAgreement.
Except as otherwise provided in sec-tion 6.02 of this Agreement, QI alsoagrees to furnish each withholding agentto whom it provides a Form W-8IMYwith the withholding statement describedin section 6.02 of this Agreement. QI isnot required to disclose, as part of itsForm W-8IMY or its withholding state-ment, any information regarding the iden-tity of a direct or indirect account holderthat is a foreign person or a U.S. exemptrecipient or a holder of a U.S. account. Tothe extent QI does not assume primaryForm 1099 reporting and backup with-holding responsibility under section 3.04of this Agreement or is not excepted fromreporting under section 8.06 of this Agree-ment, for each U.S. non-exempt recipientaccount holder on whose behalf QI re-ceives a reportable amount, QI must pro-vide to a withholding agent the Form W-9,or if any such account holder has notprovided a Form W-9, the name, address,and U.S. TIN (if available).
Sec. 6.02. Withholding Statement.
(A) In General. QI agrees to provideto each withholding agent from which QIreceives reportable amounts as a QI awithholding statement described in this
section 6.02 and §1.1441–1(e)(3)(iv). Awithholding statement shall not be pro-vided to a withholding agent if QI as-sumes both primary chapters 3 and 4 with-holding responsibility and primary Form1099 reporting and backup withholdingresponsibility for all of its accounts, un-less QI is acting as a QDD. The withhold-ing statement forms an integral part of theForm W-8IMY. The withholding state-ment shall be updated as often as neces-sary for the withholding agent to meet itsreporting and withholding obligations un-der chapters 3, 4, and 61 and section 3406.
(B) Content of Withholding State-ment. The withholding statement mustcontain sufficient information for a with-holding agent to apply the correct rate ofwithholding on payments allocable to theaccounts identified on the statement and toproperly report such payments on Forms1042-S and Forms 1099, as applicable.The withholding statement must—
(1) Designate those accounts for whichQI acts as a QI;
(2) Designate those accounts for whichQI assumes primary chapters 3 and 4withholding responsibility or primaryForm 1099 reporting and backup with-holding responsibility (including accountsfor which QI is acting with respect topayments of U.S. source substitute inter-est (as described in section 3.03(A) of thisAgreement));
(3) If QI is acting as a QDD, designatethe accounts (1) for which the QDD isreceiving payments with respect to poten-tial section 871(m) transactions or under-lying securities as a QDD, (2) for whichthe QDD is receiving payments with re-spect to potential section 871(m) transac-tions (and that are not underlying securi-ties) for which withholding is notrequired, and (3) for which QDD is re-ceiving payments with respect to underly-ing securities for which withholding isrequired, and, if applicable, identifyingthe home office or branch that is treated asthe owner for U.S. income tax purposes;
(4) If applicable, designate the ac-counts for which QI is acting as a QSLwith respect to any U.S. source substitutedividend payments received from thewithholding agent; and
(5) Provide information regardingwithholding rate pools, as described insection 6.03 of this Agreement.
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Sec. 6.03. Chapters 3 and 4Withholding Rate Pools.
(A) In General. QI shall provide aspart of its withholding statement with-holding rate pool information in a mannersufficient for the withholding agent tomeet its chapters 3 and 4 and backupwithholding responsibilities and its Form1042-S and Form 1099 reporting respon-sibilities.
(B) Chapter 4 Withholding RatePools. If QI receives a withholdable pay-ment on behalf of its account holders, QImay allocate the payment to a chapter 4withholding rate pool. A chapter 4 with-holding rate pool is a payment of a singletype of income (e.g., interest or dividends)that is allocated to payees that are nonpar-ticipating FFIs. If QI is a participating FFIor registered deemed-compliant FFI(other than reporting Model 1 FFI), it mayalso allocate a witholdable payment to achapter 4 withholding rate pool of recal-citrant account holders (if applicable). IfQI is a participating FFI or registereddeemed-compliant FFI receiving a report-able amount that is excepted from report-ing under section 8.06(A) of this Agree-ment (excluding sections 8.06(A)(2) and(A)(3) of this Agreement when the pay-ment is subject to chapter 4 withholdingand section 8.06(A)(4) of this Agree-ment), QI may allocate the payment to achapter 4 withholding rate pool of U.S.payees. See section 6.03(D) of this Agree-ment for the alternative procedures thatmay be used in this case. Except as oth-erwise provided in this section 6.03(B), ifQI receives a withholdable payment, QImust provide the information required un-der §1.1471–3(c)(3)(iii)(B)(2).
Further, if QI elects under its FATCArequirements as a participating FFI or reg-istered deemed-compliant FFI to backupwithhold instead of withholding underchapter 4 with respect to certain recalci-trant account holders, QI’s withholdingstatement must indicate the portion ofsuch payment subject to backup withhold-ing under section 3406 that is allocated tosuch account holders and must provide allother information relating to such accountholders that is required under chapter 61for the withholding agent to report withrespect to the payment.
If QI has an account holder that isanother intermediary (whether a QI, NQI,or PAI) or a flow-through entity, QI maycombine the account holder informationprovided by the intermediary or flow-through entity with QI’s direct accountholder information to determine theamounts allocable to each of QI’s chapter4 withholding rate pools described in thissection 6.03(B). If QI is an NFFE that hasan account holder that is another interme-diary or flow-through entity that is a par-ticipating FFI or registered deemed-compliant FFI, QI may provide theaccount holder’s chapter 4 withholdingrate pools of recalcitrant account holdersand U.S. payees to the extent applicable.
(C) Chapter 3 Withholding RatePools. With respect to any portion of thepayment that is attributable to payees forwhich no chapter 4 withholding is re-quired but is an amount subject to chapter3 withholding, a chapter 3 withholdingrate pool is a payment of a single type ofincome that is subject to a single rate ofwithholding (e.g., 0%, 10%, 15%, or30%) and that is reported under a singlechapter 4 exemption code on Form1042-S. QI shall determine chapter 3withholding rate pools based on valid doc-umentation obtained under section 5 ofthis Agreement or, if a payment cannot bereliably associated with valid documenta-tion, on the presumption rules of section5.13(C) of this Agreement. If QI has anaccount holder that is another intermedi-ary (whether a QI, NQI, or PAI) or aflow-through entity (other than a nonpar-ticipating FFI that is not acting on behalfof any exempt beneficial owners), QI maycombine the account holder informationprovided by the intermediary or flow-through entity with QI’s direct accountholder information to determine theamounts allocable to each of QI’s chapter3 withholding rate pools with respect tothe portion of the payment allocable to anaccount holder to which chapter 4 with-holding does not apply.
(D) U.S. Non-Exempt RecipientsSubject to Backup Withholding orForm 1099 Reporting and AlternativeProcedures for Allocating Payments onWithholding Statements. To the extentQI does not assume primary Form 1099reporting and backup withholding respon-sibility and is not excepted from reporting
on Form 1099 under section 8.04 of thisAgreement, QI’s withholding statementmust establish a separate withholding ratepool for each U.S. non-exempt recipientaccount holder that QI is required to re-port on Form 1099 and has disclosed tothe withholding agent. QI may, by mutualagreement with the withholding agent, es-tablish a single withholding rate pool(not subject to backup withholding) forall U.S. non-exempt recipient accountholders for whom QI is required to re-port on Form 1099 and has providedForms W-9 prior to the withholdingagent paying any reportable amounts or,if applicable, designated broker proceeds towhich backup withholding does not apply.QI must establish a separate withholdingrate pool for all U.S. non-exempt recipientaccount holders subject to backup withhold-ing prior to the withholding agent payingany reportable amounts or, if applicable,designated broker proceeds.
Alternatively, QI may include U.S.non-exempt recipients in a zero ratewithholding pool that includes U.S. ex-empt recipients and foreign persons forwhich no withholding is required underchapters 3 and 4 and section 3406 andmay include payments allocated to achapter 4 withholding rate pool of U.S.payees in this pool to the extent permit-ted to be provided by QI under section6.03(B) of this Agreement. If QIchooses the alternative procedure of thisparagraph, QI must provide sufficientinformation to the withholding agent nolater than January 15 of the year followingthe year in which the reportable amountsand designated broker proceeds, if applica-ble, are paid in order to allocate to each U.S.non-exempt recipient account holder or to achapter 4 withholding rate pool of U.S. pay-ees (when applicable). Failure to providesuch information will result in the applica-tion of penalties to QI under sections 6721and 6722 and shall constitute an event ofdefault under section 11.06 of this Agree-ment.
SECTION 7. TAX RETURNOBLIGATIONS
Sec. 7.01. Form 1042 (or Other TaxReturn) Filing Requirement.
(A) In general. QI shall file a return onForm 1042, whether or not QI withheld
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any amounts under chapter 3 or 4, on orbefore March 15 of the year following anycalendar year in which QI acts as a QI andmakes a payment of an amount subject tochapter 3 or 4 withholding. A separateForm 1042 must be filed by each legalentity that is a QI covered by this Agree-ment. Form 1042 shall be filed at theaddress indicated on the form, at the ad-dress at which the IRS notifies QI to filethe return, or in accordance with the in-structions to file Form 1042 electronically.In addition to the information specificallyrequested on Form 1042 and the accom-panying instructions, if QI made any over-withholding or underwithholding adjust-ments under §§1.1461–2 and 1.1474–2and sections 9.02 and 9.05 of this Agree-ment, QI must attach a statement settingforth the amounts of any overwithholdingor underwithholding adjustments and anexplanation of the circumstances that re-sulted in the over- or underwithholding.
(B) Extensions for Filing Returns. QImay request an extension of the time forfiling Form 1042, or any of the informa-tion required to be attached to the form, bysubmitting Form 7004, Application forAutomatic Extension of Time to File Cer-tain Business Income Tax, Information,and Other Returns, on or before the duedate of the return.
(C) QDD Tax Liability Require-ments for QDDs. In addition to its re-quirements under section 7.01(A) of thisAgreement, a QI that is acting as a QDD(other than a foreign branch of a U.S.financial institution) also must report itsQDD tax liability on the appropriate U.S.tax return (to be prescribed by the IRS),including separately identifying each partof the QDD tax liability described in sec-tion 3.09(A) through (C) of this Agree-ment separately for the home office andeach branch that is acting as a QDD (ifapplicable). A QDD must also report anyother information required by the appro-priate return with respect to its QDD taxliability (including any part thereof).
A QDD must also maintain, and makeavailable to the IRS upon request, a rec-onciliation schedule that tracks across cal-endar years the section 871(m) amount foreach dividend with respect to each under-lying security referenced by a potentialsection 871(m) transaction separately forthe home office and each branch that is a
QDD (if applicable). The reconciliationschedule must separately state totalamounts received as a QDD, as well as thedividends received in its equity deriva-tives dealer capacity and the section 881tax paid on those amounts, the amount ofdividends that were effectively connectedwith the conduct of a trade or business inthe United States, the amount of stockowned in its equity derivatives dealer ca-pacity that was not effectively connectedwith the conduct of a trade or business inthe United States, the amount of dividendequivalent payments it received in its eq-uity derivatives dealer capacity, its longpositions, its short positions, its net deltafor business purposes (if any), its adjust-ments to the net delta used for businesspurposes (if any, such as adjustments toexclude transactions that, for federal in-come tax purposes, are not treated astransactions of a QDD, do not exist, orthat are effectively connected with theconduct of a trade or business in theUnited States), the dividend amount pershare, its tax liability under section 881for its section 871(m) amount, its net deltaexposure, and the section 871(m) amountfor each dividend with respect to eachunderlying security referenced by a poten-tial section 871(m) transaction it receivedas a QDD, and any adjustments thereto,for transactions in its equity derivativesdealer capacity. The reconciliation sched-ule may be maintained in any manner orformat that permits the IRS to reconcilethe amount reported by the QDD for thecalendar year.
Sec. 7.02. Form 945 Filing Require-ment. QI shall file a return on Form 945on or before January 31 following thecalendar year in which QI backup with-held an amount under section 3406. Sep-arate Forms 945 must be filed by eachlegal entity that is a QI covered by thisAgreement. The form must be filed at theaddress specified in the instructions forForm 945, at the address at which the IRSnotifies QI to file the return under theprovisions of section 12.06 of this Agree-ment, or in accordance with the instruc-tions to file Form 945 electronically.
Sec. 7.03. Retention of Returns. QIshall retain Forms 945 and 1042 (includ-ing, with respect to a QI acting as a QDD,its reconciliation schedule) for the appli-
cable statute of limitations on assessmentunder section 6501.
SECTION 8. INFORMATIONREPORTING OBLIGATIONS
Sec. 8.01. Form 1042-S Reporting.Except as otherwise provided in section8.02 of this Agreement, QI is not requiredto file Forms 1042-S for amounts paid toeach separate account holder for whomsuch reporting would otherwise be re-quired. Instead, QI shall file a Form1042-S reporting the pools of income (re-porting pools) as determined in section8.03 of this Agreement. QI must file itsForms 1042-S in the manner required bythe regulations under chapters 3 and 4 (orin the case of a participating FFI, in themanner required under the FFI Agree-ment) and the instructions to the form,including any requirement to file theforms magnetically or electronically. Sep-arate Forms 1042-S must be filed by eachlegal entity that is a QI covered by thisAgreement. A QI acting as a QDD thatalso has QI activities must file separateForms 1042-S in its QDD capacity and itsQI capacity (i.e., other than when actingas a QDD). Each QI covered by thisAgreement may also allow its individualbranches not acting as QDDs to file Forms1042-S provided that all Forms 1042-Scontain the QI-EIN of the legal entity ofwhich the branch forms a part and, to theextent required for chapter 4 purposes, theGIIN of the branch. If QI is acting as aQDD, the home office and each branchacting as a QDD must file separate Forms1042-S for payments made as a QDD.Any Form 1042-S required by this section8 shall be filed on or before March 15following the calendar year in which thepayment reported on the form was made.QI may request an extension of time to fileForms 1042-S by submitting Form 8809,Application for Extension of Time to FileInformation Returns, by the due date ofForms 1042-S in the manner required by(and to the extent permitted on) Form8809.
Sec. 8.02. Recipient Specific Report-ing. QI (whether or not it assumes primarychapters 3 and 4 withholding responsibil-ity) is required to file separate Forms1042-S for amounts paid to each separateaccount holder as described in this section8.02. QI must file separate Forms 1042-S
January 17, 2017 Bulletin No. 2017–3474
by income code, exemption code, recipi-ent code, chapter 3 or 4 withholding ratepool, and withholding rate. In the case ofa payment to a QDD, separate Forms1042-S must be filed for each QDD, evenif a single legal entity.
(A) QI must file a separate Form1042-S for each account holder that is aQI (to the extent such payment is requiredto be reported under §1.1461–1) WP, WT,or QSL that receives from QI an amountsubject to withholding under chapter 3 or4 (or, in the case of a QSL, that receives aU.S. source substitute dividend payment),regardless of whether such account holderis a direct or indirect account holder of QI.
(B) QI must file a separate Form1042-S for each account holder that is anonqualified intermediary or flow-throughentity that is a participating FFI, registereddeemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI andthat receives an amount subject to chapter4 withholding from QI that is allocable toeach of such FFI’s chapter 4 withholdingrate pools of recalcitrant account holders,nonparticipating FFIs, and pool of U.S.payees, if applicable, regardless ofwhether such FFI is a direct or indirectaccount holder of QI.
(C) QI must file a separate Form1042-S for each account holder that is anonqualified intermediary or flow-throughentity that is not described in section8.02(B) of this Agreement (other than anonparticipating FFI) that receives from QIan amount subject to chapter 4 withholdingallocable to such entity’s chapter 4 with-holding rate pool of payees that are nonpar-ticipating FFIs, regardless of whether suchintermediary or flow-through entity is a di-rect or indirect account holder of QI.
(D) QI must file a separate Form1042-S for each account holder of QI thatis a PAI or a partnership or trust to whichQI applies the agency option that receivesfrom QI an amount subject to chapter 4withholding allocable to such entity’schapter 4 withholding rate pool of payeesthat are nonparticipating FFIs or anamount subject to chapter 3 withholdingthat is either not a withholdable paymentor a withholdable payment for which nochapter 4 withholding is required and thatis allocable to such entity’s chapter 3withholding rate pools.
(E) QI must file a separate Form1042-S for each unknown recipient withrespect to an account holder that is a non-qualified intermediary, flow-through en-tity, or QI that does not assume primarychapters 3 and 4 withholding responsibil-ity and that receives an amount subject tochapter 4 withholding from QI that QImust presume is allocable to such entity’schapter 4 withholding rate pool of payeesthat are nonparticipating FFIs under thepresumption rule of §1.1471–3(f)(5).
(F) QI must file a separate Form1042-S for each foreign account holder(or interest holder) of a nonqualified in-termediary or flow-through entity that is anonparticipating FFI that is receiving apayment on behalf of an exempt beneficialowner (regardless of whether the non-qualified intermediary or flow-through en-tity is a direct or indirect account holder ofQI) to the extent QI can reliably associatesuch amounts with valid documentationfrom such nonqualified intermediary orflow-through entity as to the payment al-locable to one or more exempt beneficialowners. In addition, QI must file separateForms 1042-S in the same manner foreach foreign account holder (or interestholder) of a nonqualified intermediary orflow-through entity that is described in thepreceding sentence and that is a direct orindirect account holder (or interest holder)of a PAI of QI or a partnership or trust towhich QI applies the agency option.
(G) QI must file separate Forms1042-S for each foreign account holder(or interest holder) of a nonqualified in-termediary or flow-through entity that isreceiving an amount subject to chapter 3withholding that is either not a withhold-able payment or a withholdable paymentfor which no chapter 4 withholding isrequired to the extent QI can reliably as-sociate such amounts with valid documen-tation from an account holder that is notitself a nonqualified intermediary or flow-through entity. In addition, QI must fileseparate Forms 1042-S in the same man-ner for each foreign account holder (orinterest holder) of a nonqualified interme-diary or flow-through entity that is de-scribed in the preceding sentence and thatis a direct or indirect account holder (orinterest holder) of a PAI of QI or a part-nership or trust to which QI applies theagency option.
(H) QI must file a separate Form1042-S for each direct account holder thatestablishes its status as a passive NFFEbut fails to provide the information re-garding its owners as required under§1.1471–3(d)(12)(iii) unless such infor-mation was reported by the withholdingagent.
(I) If QI is acting as a QDD, QI mustfile a separate Form 1042-S for anyamount subject to chapter 3 withholdingwith respect to a potential section 871(m)transaction made to another QDD.
Sec. 8.03. Reporting Pools for Form1042-S Reporting.
(A) Chapter 4 Reporting Pools. Ex-cept for amounts required to be reportedunder section 8.02 of this Agreement, ifQI is an FFI, QI shall report all amountssubject to chapter 4 withholding by re-porting pools on a Form 1042-S if thoseamounts are paid to direct account holdersof QI. A separate Form 1042-S shall befiled for each type of reporting pool. Achapter 4 reporting pool is a payment of asingle type of income, determined in ac-cordance with the categories of incomereported on Form 1042-S, that is allocableto a chapter 4 withholding rate pool con-sisting of either recalcitrant account hold-ers or payees that are nonparticipatingFFIs. QI must report recalcitrant accountholders in pools based upon a recalcitrantaccount holder’s particular status de-scribed in §1.1471–4(d)(6), with a sepa-rate Form 1042-S issued for each suchpool.
If QI is an FFI, it may report in achapter 4 withholding rate pool of U.S.payees an account holder that is (or ispresumed) a U.S. person and that QI re-ports as a U.S. account under its applica-ble FATCA requirements as a participat-ing FFI or registered deemed-compliantFFI provided that QI is excepted fromForm 1099 reporting with respect to thepayment under section 8.06(A)(1) of thisAgreement or section 8.06(A)(2) and(A)(3) of this Agreement if the payment isboth excepted from Form 1099 reportingand not subject to withholding underchapter 4.
If QI is an NFFE, QI shall report allamounts subject to chapter 4 withholdingby reporting pools on a Form 1042-S ifthose amounts are paid to direct account
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holders that are nonparticipating FFIs in achapter 4 reporting pool of nonparticipat-ing FFIs.
(B) Chapter 3 Reporting Pools. Ex-cept for amounts required to be reportedunder section 8.02 of this Agreement, QIshall report an amount subject to chapter 3withholding that is either not a withhold-able payment or a withholdable paymentfor which no chapter 4 withholding isrequired and that is paid to a foreign ac-count holder by reporting pools on a Form1042-S if those amounts are paid to directaccount holders of QI or to direct accountholders of a PAI of QI or a partnership ortrust described in section 4 of this Agree-ment. A separate Form 1042-S shall befiled for each type of reporting pool. Achapter 3 reporting pool is a payment of asingle type of income that falls within aparticular withholding rate, chapter 3 ex-emption code, and, if the payment is awithholdable payment, chapter 4 exemp-tion code as determined on Form 1042-S.QI may use a single chapter 3 pool report-ing code (e.g., QI- withholding rate pool-general) for all reporting pools except foramounts paid to foreign tax-exempt recip-ients, for which a separate chapter 3 poolreporting code (e.g., QI- withholding ratepool- exempt organization) must be used.For this purpose, a foreign tax-exemptrecipient includes any organization that isnot subject to chapter 3 withholding and isnot liable to tax in its jurisdiction of res-idence because it is a charitable organiza-tion, a pension fund, or a foreign govern-ment.
Sec. 8.04. FATCA U.S. AccountReporting.
(A) QI that is an FFI. If QI is an FFI,QI is required to report each U.S. account(or, in the case of an FFI that is a reportingModel 1 FFI or a registered deemed-compliant Model 1 IGA FFI, each U.S.reportable account) that it maintains andfor whom QI is acting consistent with itsFATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI. If QI is a participating FFI orregistered deemed-compliant FFI (otherthan a reporting Model 1 FFI or registereddeemed-compliant Model 1 IGA FFI), QImust report its U.S. accounts on Form8966 in the time and manner required
under its FATCA requirements as a par-ticipating FFI or registered deemed-compliant FFI except to the extent QI isreporting under §1.1471–4(d)(5) on Form1099 with respect to its U.S. accounts. IfQI is a reporting Model 1 FFI or regis-tered deemed-compliant Model 1 IGAFFI, QI must report each U.S. reportableaccount on Form 8966 as required underthe applicable Model 1 IGA. QI cannotdelegate to its withholding agent its re-quirements to report U.S. accounts (orU.S. reportable accounts) regardless ofwhether QI does or does not assume pri-mary Form 1099 reporting and backupwithholding responsibility under section 3of this Agreement. See section 8.06 of thisAgreement for when the reporting de-scribed in this section 8.04 satisfies QI’sForm 1099 reporting responsibilities withrespect to reportable payments underchapter 61.
(B) QI that is an NFFE. If QI is anNFFE acting as a QI on behalf of personsother than its shareholders, QI shall fileForm 8966 to report withholdable pay-ments made to an account holder that is anNFFE (other than an excepted NFFE)with one or more substantial U.S. ownersif the NFFE is the beneficial owner of thewithholdable payment received by QI. See§1.1471–1(b)(8) for the definition of ben-eficial owner. QI must report on Form8966 in accordance with the form and itsaccompanying instructions. Such reportmust include the name of the NFFE that isowned by a substantial U.S. owner; thename, address, and U.S. TIN of each sub-stantial U.S. owner; the total of all with-holdable payments made to the NFFE dur-ing the calendar year; and any otherinformation as required by the form andits accompanying instructions. If QI isacting as a sponsoring entity on behalf ofan NFFE for chapter 4 purposes, QI is notrequired to report as described in thisparagraph if QI reports the NFFE as partof QI’s requirements as a sponsoring en-tity. See §1.1472–1(c)(5)(ii) for the re-porting requirements of a sponsoring en-tity.
Sec. 8.05. Form 8966 Reporting forPayees that are NFFEs. QI shall fileForm 8966 to report withholdable pay-ments made to an intermediary or flow-through entity that provides informationregarding an account holder (or interest
holder) that is an NFFE other than anexcepted NFFE with one or more substan-tial U.S. owners (or one or more control-ling persons that is a specified U.S. personunder an applicable IGA). QI must reporton Form 8966 in the time and mannerprovided in §1.1474–1(i)(2). Such reportmust include the name of the NFFE that isowned by a substantial U.S. owner (orcontrolling person); the name, address,and U.S. TIN of each substantial U.S.owner; the total of all withholdable pay-ments made to the NFFE during the cal-endar year (or reportable period under theapplicable IGA); and any other informa-tion as required by the form and its ac-companying instructions. QI is not re-quired to report, however, to the extentpermitted under §1.1474–1(i)(2) on apayment made to a participating FFI orregistered deemed-compliant FFI if suchinformation is reported pursuant to section8.04 of this Agreement or if the interme-diary or flow-through entity certifies on itswithholding statement that it is reportingthe account holder (or interest holder) as aU.S. account pursuant to its FATCA re-quirements as a participating FFI, regis-tered deemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI.
Sec. 8.06. Form 1099 Reporting Re-sponsibility. QI shall file Forms 1099and, unless filing magnetically, Form1096, Annual Summary and Transmittalof U.S. Information Returns, for report-able payments made to persons describedin this section 8.06. Forms 1099 shall befiled on or before the date prescribed forthe particular Form 1099 under chapter 61and in the manner required by regulationsunder chapter 61 and the instructions tothe forms (including the requirements forfiling the forms magnetically or electron-ically). Extensions of the time to fileForms 1099 may be requested by submit-ting Form 8809 in the manner required bythe form. If QI is required to file Forms1099, it must file the appropriate form forthe type of income paid (e.g., Form 1099-DIV for dividends, Form 1099-INT forinterest, Form 1099-B for broker pro-ceeds). QI must file Forms 1099 to reporta reportable payment other than in thesituations listed in sections 8.06(A) and(B) of this Agreement.
(A) Reportable Amount. QI must filea Form 1099 in accordance with the in-
January 17, 2017 Bulletin No. 2017–3476
structions to the form for the aggregateamount of a particular type of reportableamount paid to an account holder that is(or is presumed) a U.S. non-exempt recip-ient (whether a direct or indirect accountholder). However, QI is not required tofile a Form 1099 on a reportable amountif—
(1) QI is a non-U.S. payor reporting theaccount holder of a U.S. account under itsFATCA requirements as a participatingFFI or registered deemed-compliant FFI(including a reporting Model 1 FFI) andthe other conditions of §1.6049–4(c)(4)(i) are satisfied;
(2) QI reports the account holder’s ac-count as held by a recalcitrant accountholder or, in the case of a QI that is areporting Model 2 FFI or nonreportingModel 2 FFI treated as registered deemed-compliant, as a non-consenting U.S. ac-count under its FATCA requirements as aparticipating FFI or registered deemed-compliant FFI and the other conditions of§1.6049–4(c)(4)(ii) are satisfied;
(3) QI is a non-U.S. payor that is areporting Model 1 FFI or registereddeemed-compliant Model 1 IGA FFI anddetermines that the account has U.S. indi-cia for which appropriate documentationsufficient to treat the account as held by aspecified U.S. person has not been pro-vided and reports the account as a U.S.reportable account and the other condi-tions of §1.6049–4(c)(4)(ii) are satisfied;
(4) QI has not assumed primary Form1099 reporting and backup withholdingresponsibility with respect to the accountholder’s account and has provided a FormW-9 to a withholding agent or has pro-vided withholding rate pool informationwith respect to such account holder to awithholding agent to apply backup with-holding and QI does not know that thewithholding agent has failed to report orbackup withhold as required;
(5) With respect to an account holderof an intermediary or flow-through entity(other than a QI) that is a direct or indirectaccount holder of QI, the intermediary orflow-through entity allocates the paymentto a chapter 4 withholding rate pool ofU.S. payees and provides a FormW-8IMY containing a certification thatthe entity meets the requirements of§1.6049–4(c)(4)(iii); or
(6) With respect to an account holderof another QI that is a direct or indirectaccount holder of QI, the QI allocates thepayment to a chapter 4 withholding ratepool of U.S. payees and provides the ap-plicable certification on a valid FormW-8IMY for allocating the payment tothis pool.
(B) Reportable Payments other thanReportable Amounts. QI must file aForm 1099 for a reportable payment(other than a reportable amount) paid toeach U.S. non-exempt recipient (whethera direct or indirect account holder), or toany account holder that is presumed to bea U.S. non-exempt recipient under section5.13(C) of this Agreement. Notwithstand-ing the previous sentence, QI is not re-quired to file a Form 1099 for a reportablepayment (other than a reportable amount)paid to a direct account holder that is (or ispresumed) a U.S. non-exempt recipientif—
(1) QI is a non-U.S. payor reporting theaccount holder of a U.S. account under itsFATCA requirements as a participatingFFI or registered deemed-compliant FFI(including a reporting Model 1 FFI) andthe other conditions of §1.6049–4(c)(4)(i) are satisfied;
(2) QI reports the account holder’s ac-count as held by a recalcitrant accountholder or, in the case of a QI that is areporting Model 2 FFI or nonreportingModel 2 FFI treated as registered deemed-compliant, as a non-consenting U.S. ac-count under its FATCA requirements as aparticipating FFI or registered deemed-compliant FFI and the other conditions of§1.6049–4(c)(4)(ii) are satisfied;
(3) QI is a non-U.S. payor that is areporting Model 1 FFI or registereddeemed-compliant Model 1 IGA FFI anddetermines that the account has U.S. indi-cia for which appropriate documentationsufficient to treat the account as held by aspecified U.S. person has not been pro-vided and reports the account as a U.S.reportable account and the other condi-tions of §1.6049–4(c)(4)(ii) are satisfied;or
(4) With respect to a reportable pay-ment that is broker proceeds paid to a U.S.non-exempt recipient, QI has applied theprocedures of section 3.05(C) of thisAgreement and QI does not know that the
other payor has failed to report or backupwithhold on the payment as required.
SECTION 9. ADJUSTMENTS FOROVER- AND UNDER-WITHHOLDING; REFUNDS
Sec. 9.01. Adjustments for Overwith-holding by Withholding Agent WhenQI Does not Assume Primary With-holding Responsibility. QI may requestthat a withholding agent make an adjust-ment for amounts paid to QI when thewithholding agent has overwithheld underchapter 3 or 4 by applying either the re-imbursement procedure described in sec-tion 9.01(A) of this Agreement or the set-off procedure described in section 9.01(B)of this Agreement within the time periodprescribed for those procedures. Nothingin this section shall be interpreted to re-quire a withholding agent to apply thereimbursement or set off procedures undersections 9.01(A) or (B) of this Agreement.See §1.1474–2(a)(2) for the definition ofoverwithholding that applies for purposesof this section 9 with respect to an amountwithheld under chapter 4.
(A) Reimbursement Procedure. QImay request a withholding agent to repayQI for any amount overwithheld and forthe withholding agent to reimburse itselfunder the reimbursement proceduresdescribed in §§1.1461–2(a)(2)(i) and1.1474–2(a)(3) by making the request be-fore the earlier of the due date (withoutregard to extensions) for the withholdingagent to file Form 1042 and Form 1042-Sfor the calendar year of overwithholdingor the date the Form 1042-S is actuallyfiled with the IRS.
(B) Set-off Procedure. QI may requesta withholding agent to repay QI by apply-ing the amount overwithheld against anyamount which otherwise would be re-quired to be withheld under chapter 3 or 4from income paid by the withholdingagent to QI under the set-off procedures of§§1.1461–2(a)(3) and 1.1474–2(a)(4). QImust make the request before the earlierof the due date (without regard to exten-sions) for the withholding agent to fileForm 1042-S for the calendar year ofoverwithholding or the date that the Form1042-S is actually filed with the IRS.
Sec. 9.02. Adjustments for Overwith-holding by QI Assuming Primary With-
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holding Responsibility. QI may make anadjustment for amounts paid to its accountholders when QI has overwithheld by ap-plying either the reimbursement or set-offprocedures described in this section 9.02within the time period prescribed for thoseprocedures.
(A) Reimbursement Procedure. QImay repay its account holders for anamount overwithheld under chapter 3 or 4and reimburse itself by reducing, by theamount of tax actually repaid to the ac-count holders, the amount of any subse-quent deposit of tax required to be madeby QI under section 3.08 of this Agree-ment. For purposes of this section9.02(A), an amount that is overwithheldshall be applied in order of time (i.e.,sequentially) to each of the QI’s subse-quent deposit periods in the same calendaryear to the extent that the withholdingtaxes required to be deposited for a sub-sequent deposit period exceed the amountactually deposited. An amount overwith-held in a calendar year may be applied todeposit periods in the calendar year fol-lowing the calendar year of overwithhold-ing only if:
(1) The repayment occurs before theearlier of the due date (without regard toextensions) for filing Form 1042-S for thecalendar year of overwithholding or thedate that the Form 1042-S is actually filedby QI with the IRS;
(2) QI states on a Form 1042-S (issued,if applicable, to the account holder or oth-erwise to a chapter 3 or 4 reporting pool),filed by March 15 of the calendar yearfollowing the calendar year of overwith-holding, the amount of tax withheld andthe amount of any actual repayments; and
(3) QI states on a Form 1042, filed byMarch 15 of the calendar year followingthe calendar year of overwithholding, thatthe filing of the Form 1042 constitutes aclaim for credit in accordance with§1.6414–1.
(B) Set-Off Procedure. QI may repayits account holders by applying theamount overwithheld against any amountwhich otherwise would be required underchapter 3 or 4 to be withheld from apayment made by QI to the account hold-ers before the earlier of March 15 of thecalendar year following the calendar yearof overwithholding or the date that theForm 1042-S is actually filed with the
IRS. For purposes of making a return onForm 1042 or 1042-S for the calendaryear of overwithholding, and for purposesof making a deposit of the amount with-held, the reduced amount shall be consid-ered the amount required to be withheldfrom such income under chapter 3 or 4.
Sec. 9.03. Repayment of BackupWithholding. If QI erroneously with-holds, as defined under §31.6413(a)–3, anamount under section 3406 from an ac-count holder, QI may refund the amounterroneously withheld as provided in§31.6413(a)–3.
Sec. 9.04. Collective Credit or Re-fund Procedures for Overwithholding.If there has been overwithholding onamounts subject to chapter 3 or 4 with-holding paid to QI’s account holders dur-ing a calendar year and the amount has notbeen recovered under the reimbursementor set-off procedures as described in sec-tion 9.01 or 9.02 of this Agreement, QImay request a credit or refund of the totalamount overwithheld by following theprocedures of this section 9.04. QI shallfollow the procedures set forth under sec-tions 6402 and 6414, and the regulationsthereunder, to claim the credit or refund.No credit or refund will be allowed afterthe expiration of the statutory period oflimitation for refunds under section 6511.If there has been an overwithholding andQI does not apply for a collective refund,it must provide a Form 1042-S for thepayment that was subject to the overwith-holding if requested by the account holderreceiving the payment.
(A) Payments for which a CollectiveRefund is Permitted. Except as other-wise provided in this section 9.04, QI mayuse the collective refund procedures withrespect to all amounts subject to chapters3 and 4 withholding. With respect toamounts withheld under chapter 3 or 4, QIshall not include in its collective refundclaim tax withheld on payments made toan indirect account holder or a direct ac-count holder of QI that is a nonqualifiedintermediary or flow-through entity, andwith respect to amounts withheld underchapter 4, if QI is a participating FFI orregistered deemed-compliant FFI, QIshall not include in its collective refundclaim tax withheld on payments made toany account holder described in the FFIagreement or in §1.1471–4(h)(2).
(B) Requirements for Collective Re-fund. QI may use the collective refundprocedures under this section 9.04 only ifthe following conditions are met:
(1) QI must not have issued (and willnot issue) Forms 1042-S to the accountholders that received the payment that wassubject to overwithholding;
(2) QI must submit together with itsamended Form 1042 on which it providesa reconciliation of amounts withheld andclaims a credit or refund, a copy of theForm 1042-S furnished to QI by its with-holding agent reporting the taxes withheldto which the claim relates (if applicable)and a statement that includes the follow-ing information and representations—
(i) The reason(s) for the overwithhold-ing;
(ii) QI deposited the tax for which arefund is being sought under section 6302or received a Form 1042-S from its with-holding agent showing the amount of taxwithheld, and neither QI nor its withhold-ing agent has applied the reimbursementor set-off procedure of §§1.1461–2 and1.1474–2 to adjust the tax withheld towhich the claim relates;
(iii) QI has repaid or will repay theamount for which refund is sought to theappropriate account holders;
(iv) QI retains a record showing thetotal amount of tax withheld, credits fromother withholding agents, tax assumed byQI, adjustments for underwithholding,and reimbursements for overwithholdingas its relates to each account holder andalso showing the repayment (if applica-ble) to such account holders for theamount of tax for which a refund is beingsought;
(v) QI retains valid documentation thatmeets the requirements of chapter 3 or 4(as applicable) to substantiate the amountof overwithholding with respect to eachaccount holder for which the refund isbeing sought; and
(vi) QI has not issued and will not issuea Form 1042-S (or such other form as theIRS may prescribe) to any account holderwith respect to the payments for which therefund is being sought.
Sec. 9.05. Adjustments for Under-withholding. If QI knows that an amountshould have been withheld under chapter3 or 4 from a previous payment made toan account holder but was not withheld,
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QI may either withhold from future pay-ments made pursuant to chapter 3 or chap-ter 4 to the same account holder or payeeor satisfy the tax from property that itholds in custody for such person or prop-erty over which it has control. The addi-tional withholding or satisfaction of thetax owed described in the previous sen-tence must be made before the due date(not including extensions) of the Form1042 for the calendar year in which theunderwithholding occurred. QI’s respon-sibilities under this section 9.05 will bemet if it informs a withholding agent fromwhich it received the payment of the un-derwithholding and the withholding agentsatisfies the underwithholding.
Sec. 9.06. Underwithholding AfterForm 1042 Filed. If, after a Form 1042has been filed for a calendar year, QI, QI’sreviewer, or the IRS determines that QIhas underwithheld tax for such year, QIshall file an amended Form 1042 to reportand pay the underwithheld tax. QI shallpay the underwithheld tax, the interest dueon the underwithheld tax, and any appli-cable penalties at the time of filing theamended Form 1042. If QI fails to file anamended return, the IRS shall make suchreturn under section 6020 and assess suchtax under the procedures set forth in theCode.
SECTION 10. COMPLIANCEPROCEDURES
Sec. 10.01. Compliance Program
(A) In General. QI is required to adopta compliance program under the authorityof a responsible officer or, if QI adopts aconsolidated compliance program, underthe authority of a responsible officer of aCompliance QI (as described in section10.02(B) of this Agreement). QI’s com-pliance program must include policies,procedures, and processes sufficient forQI to satisfy the documentation, reporting,and withholding requirements of thisAgreement and sufficient for a responsibleofficer of QI (or a Compliance QI) tomake the certifications required under sec-tion 10.03 of this Agreement. If QI isacting as a QDD, QI’s compliance pro-gram must also include policies, proce-dures, and processes sufficient for it tosatisfy and report its QDD tax liability andother reporting required as a condition of
its status as a QDD. QI must also performor arrange for the performance of a peri-odic review described in section 10.04 ofthis Agreement to the extent required bythat section. As part of the responsibleofficer’s certification, QI must provide tothe IRS the factual information as re-quired by and referenced in sections 10.04and 10.05 and in Appendix I to thisAgreement. QI must also satisfy the re-quirements of section 10.06 of this Agree-ment with respect to the report coveringthe periodic review and must comply withthe IRS review described in section 10.08of this Agreement. With respect to QIthat, prior to January 1, 2017, was a lim-ited FFI (as defined in §1.1471–1(b)(77) (or a limited branch, as defined in§1.1471–1(b)(76)), references in this sec-tion 10 (and in Appendix I to this Agree-ment) to QI’s FATCA Requirements as aparticipating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI include itsrequirements under §1.1471–4(e)(4) forpurposes of its initial certification period.
(B) Coordination with FATCA Re-quirements as a Participating FFI, Reg-istered Deemed-Compliant FFI, or Reg-istered Deemed-Compliant Model 1IGA FFI and, for a Direct ReportingNFFE, the Requirements of §1.1472–1(c)(3). As a condition for maintaining QIstatus, QI must maintain its chapter 4 sta-tus with respect to each branch of QIoperating under this Agreement. There-fore, QI must, as part of the complianceprocedures described in this section 10determine whether it is compliant with itsFATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI.
(C) Phase-in Year for QDD. For pur-poses of the IRS’s enforcement and ad-ministration of the QDD rules in the sec-tion 871(m) regulations and the relevantprovisions of this Agreement for calendaryear 2017, the IRS will take into accountthe extent to which the QDD made a goodfaith effort to comply with sections 871and 881, chapters 3 and 4 with respect tosection 871(m) transactions, and the rele-vant provisions of this Agreement. Forcalendar year 2017, a QDD is not requiredto perform a periodic review with respectto its QDD activities (as otherwise re-
quired by section 10.04 of this Agree-ment) or provide the factual informationspecified in Appendix I. In addition, theQDD is not required to make the certifi-cation of internal controls as applicable toits QDD activities for the certification pe-riod ending in calendar year 2017 butrather is required to certify for this periodthat it has made a good faith effort tocomply with the relevant provisions ofthis Agreement in accordance with Notice2016-76. A QDD is not required to file thecertification described in the precedingsentence with the IRS; however, a QDDmust retain a record of the certification(and information in support of the certifi-cation) until the end of the calendar year2022. As a result, the certification of in-ternal controls (and factual informationand other certifications) applicable to aQI’s QDD activities are not included inAppendix I and will be added to the QIagreement for purposes of certification pe-riods ending after December 31, 2017. For2017, a material failure relevant to a QDDhas not occurred unless the QDD failed tomake a good faith effort to comply withthe section 871(m) regulations and therelevant provisions of the QI agreement.
The QDD will be considered to satisfyits obligations for purposes of section 10that apply specifically to a QDD underthis Agreement for calendar year 2017provided that the QDD made a good faitheffort to comply with the relevant terms ofthis Agreement. Any QDD that has notmade a good faith effort to comply withits QDD obligations will not be given anyrelief from IRS administration or enforce-ment during calendar 2017, including pen-alties.
10.02. Responsible Officer. QI mustappoint an individual as a responsible of-ficer as defined in section 2.72 of thisAgreement. The responsible officer mustbe identified on the QI/WP/WT Applica-tion and Accounts Management System asQI’s responsible party, and such personmay, but is not required to, be the sameresponsible officer for purposes of com-pliance with QI’s FATCA requirements asa participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI. The respon-sible officer must establish a complianceprogram that meets the requirements ofthis section 10.02 and must make the pe-
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riodic certifications to the IRS describedin section 10.03 of this Agreement. Theresponsible officer of QI must be an offi-cer of QI with sufficient authority to fulfillthe duties of a responsible officer de-scribed in this section 10. The responsibleofficer (or a delegate appointed by theresponsible officer) must also serve as thepoint of contact for the IRS for all issuesrelated to this Agreement and for comply-ing with IRS requests for information oradditional review procedures under sec-tion 10.07 of this Agreement. Referencesin this section 10.02 to the responsibleofficer include a responsible officer’s des-ignee, where appropriate.
(A) Compliance Program. The re-sponsible officer must establish a programfor QI to comply with the requirements ofthis Agreement that includes the follow-ing—
(1) Written Policies and Procedures.The responsible officer must ensure thedrafting and updating, as necessary, ofwritten policies and procedures sufficientfor QI to satisfy the documentation, with-holding, reporting, and other obligationsof this Agreement, including, with respectto QI that is acting as a QDD, satisfyingits QDD tax liability. Such written poli-cies and procedures must include a pro-cess for employees of QI to raise issues tothe responsible officer (or the responsibleofficer’s designee) that concern QI’s com-pliance with this Agreement.
(2) Training. The responsible officermust communicate such policies and pro-cedures to any line of business of QI thatis responsible for obtaining, reviewing,and retaining a record of documentationunder the requirements of section 5 of thisAgreement; making payments subject towithholding under section 3 of this Agree-ment; reporting payments and accounts asrequired under sections 7 and 8 of thisAgreement; or entering into potential sec-tion 871(m) transactions, in the case of QIthat is acting as a QDD.
(3) Systems. The responsible officermust ensure that systems and processesare in place that will allow QI to fulfill itsobligations under this Agreement. For ex-ample, in order to fulfill QI’s obligationsto report on Forms 1042-S, 1099, and8966 under section 8 of this Agreement,QI must establish systems for document-ing account holders and for recording the
information with respect to each such ac-count that QI is required to report underthat section.
(4) Monitoring of Business Changes.The responsible officer must monitorbusiness practices and arrangements thataffect QI’s compliance with this Agree-ment, including, for example, QI’s acqui-sition of lines of businesses or accountsthat give rise to documentation, withhold-ing, or reporting obligations under thisAgreement.
(5) QDD Tax Liability Determina-tions. If QI is acting as a QDD, the re-sponsible officer must ensure that theQDD has appropriate systems in place tomake the necessary determinations andcalculations to identify section 871(m)transactions, potential section 871(m)transactions, the amount of dividends re-ceived in its QDD equity derivativesdealer capacity and the section 881 taxespaid thereon, its net delta exposure, thedividend amount per share, the stockowned by the QDD included in its netdelta exposure long position, its long po-sition, its short position, its section871(m) amount and the section 881 taxespaid thereon, its QDD tax liabilityamount, and the amount of dividendequivalent payments made by the QDD.In addition, the responsible officer mustensure that the QDD has appropriate sys-tems in place to determine whether atransaction is as a principal or non-principal, whether a transaction is in anequity derivatives dealer or non-equity de-rivatives dealer capacity, whether thetransaction exists for federal income taxpurposes, whether transaction is owned bythe QDD, and whether the transaction iseffectively connected with the conduct ofa trade or business in the United States.This includes appropriate systems to,where required, calculate the delta for apotential section 871(m) transaction, per-form the substantial equivalence test de-scribed in §1.871–15(h), calculate theamount of a dividend equivalent, deter-mine any QDD tax liability amount (andeach part thereof) and its timing, and de-termine what payments are received ormade with respect to potential section871(m) transactions and underlying secu-rities as a principal and whether in itsequity derivatives dealer capacity or non-equity derivatives dealer capacity and by
which home office or branch that is actingas a QDD. The systems must also takeinto account information received pursu-ant to §1.871–15(p).
(6) Periodic Review. Unless QI re-ceives a waiver (the requirements ofwhich are described in section 10.07(B) ofthis Agreement), the responsible officermust designate a reviewer that meetsthe qualifications described in section10.04(A) of this Agreement to perform theperiodic review as described in section10.05 of this Agreement, to the extentrequired.
(7) Certification of Internal Con-trols. The responsible officer must makethe periodic certification as described insection 10.03 of this Agreement, includ-ing ensuring that corrective actions aretaken in response to any material failures(as defined in section 10.03(B) of thisAgreement) of QI’s compliance with thisAgreement.
(B) Consolidated Compliance Pro-gram. The IRS, in its discretion, maypermit a consolidated compliance pro-gram that includes two or more QIs thatare members of a group of entities undercommon ownership when the QIs: (i) op-erate under a uniform compliance pro-gram for purposes of this Agreement; (ii)share practices, procedures, and systemssubject to uniform monitoring and con-trol; and (iii) are subject to a consolidatedperiodic review that includes a review ofinternal controls and testing of transac-tions relevant to this Agreement with re-spect to each QI in the consolidated com-pliance program. Each QI that is amember of a consolidated complianceprogram must designate a Compliance QIto act on its behalf, and the responsibleofficer of the Compliance QI must iden-tify itself as such when making its peri-odic certification and must comply withthe identification, certification of internalcontrols, and periodic review require-ments for the QI consolidated complianceprogram as the IRS may prescribe. TheCompliance QI must also agree to bejointly and severally liable for the obliga-tions and liabilities of any QI in its con-solidated compliance program relating tothe QI’s obligations under this Agree-ment. QIs that want to operate a consoli-dated compliance program must contact
January 17, 2017 Bulletin No. 2017–3480
the IRS Foreign Intermediaries Programfor approval.
10.03. Certification of Internal Con-trols by Responsible Officer. A QI’sresponsible officer must make the certifi-cation described in either Part II.A (Cer-tification of Effective Internal Controls) orPart II.B (Qualified Certification) of Ap-pendix I to this Agreement and must dis-close any material failures that occurredduring the certification period or duringany prior period if the material failure wasnot disclosed as part of a prior certifica-tion or written disclosure made by QI tothe IRS. If the responsible officer hasidentified an event of default or a materialfailure that has not been corrected as ofthe date of the certification, the responsi-ble officer cannot make the certification inPart II.A (Certification of Effective Inter-nal Controls) and must make the certifi-cation in Part II.B (Qualified Certifica-tion).
For a QI that uses the third year of thecertification period for its periodic review,the certification is due on or before De-cember 31 of the year following the cer-tification period. For a QI that uses thefirst or second year of the certificationperiod for its periodic review or a QI thatobtains a waiver of the periodic reviewrequirement, the certification is due on orbefore July 1 of the year following thecertification period. The initial certifica-tion period is the period ending on thethird full calendar year that this Agree-ment is in effect (including renewals ofthis Agreement). Subsequent certificationperiods will be every three calendar yearsfollowing the initial certification period(including renewals of this Agreement).
The certification of internal controlsrequired by this section 10.03 applies onlyto the internal controls related to QI’scompliance with this Agreement and itsFATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI and, in the case of a direct re-porting NFFE, its requirements under§1.1472–1(c)(3), with respect to accountsfor which it acts as a QI, and does notrelate to any other obligations or require-ments. The responsible officer may relyon any reasonable procedure, process, re-view, or certification that enables the re-sponsible officer to make the certification
described in this section 10.03. If the re-sponsible officer relies on an internal orexternal review for this purpose (i.e., forpurposes of determining whether QI haseffective internal controls), the internal orexternal reviewer must be independent, asdescribed in section 10.04 of this Agree-ment. The responsible officer must docu-ment the procedures, processes, reviews,or certifications relied upon in making thecertification. QI’s responsible officer (orthe responsible officer of its ComplianceQI) must make the certifications of com-pliance in such manner as the IRS mayprescribe.
(A) PAIs and Partnership or Trustto which QI Applies the Agency Option.Unless QI has received a waiver of theperiodic review requirement, any PAIwith which QI has an agreement and anypartnership or trust to which QI appliesthe agency option must provide its docu-mentation and other information to QI forinclusion in QI’s periodic review or con-duct an independent periodic review andprovide a written certification to QI re-garding its compliance with the require-ments of the PAI or agency agreement.Such certification must be available to theIRS upon a request made as part of thereview described in section 10.08 of thisAgreement (with a certified translationinto English if the certification is not inEnglish).
(B) Material Failures.
(1) Material Failures Defined. A ma-terial failure is generally a failure of QI tofulfill the requirements of this Agreementor its FATCA requirements as a partici-pating FFI, registered deemed-compliantFFI, or registered deemed-compliantModel 1 IGA FFI. For purposes of thecertifications described in Parts II.A and Bof Appendix I to this Agreement, a mate-rial failure is limited to the following:
(i) QI’s establishing of, for financialstatement purposes, a tax reserve or pro-vision for a potential future tax liabilityrelated to QI’s failure to comply with thisAgreement, including its FATCA require-ments as a participating FFI, registereddeemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI, andwith respect to QI that is acting as a QDD,failure to satisfy its QDD tax liability and
its obligations pursuant to section 871(m)and the regulations under that section.
(ii) QI’s failure to establish written pol-icies, procedures, or systems sufficient forthe relevant personnel of QI to take ac-tions consistent with QI’s obligations un-der this Agreement, or if QI is acting as aQDD, its obligations as a QDD under thisAgreement or pursuant to section 871(m)and the regulations under that section.
(iii) A criminal or civil penalty or sanc-tion imposed on QI (or any branch oroffice thereof) by a regulator or other gov-ernmental authority or agency with over-sight over QI’s compliance with AML/KYC procedures to which QI (or anybranch or office thereof) is subject andthat is imposed due to QI’s failure toproperly identify account holders underthe requirements of those procedures.
(iv) A finding (including a findingnoted in the periodic review report de-scribed in section 10.06 of this Agree-ment) for one or more years covered bythis Agreement that QI failed to—
(a) Withhold an amount that QI wasrequired to withhold under chapter 3 or 4or under section 3406 as required undersection 3 of this Agreement or, if QI isacting as a QDD, failing to timely pay itsQDD tax liability;
(b) Provide information sufficient for an-other withholding agent to perform with-holding and reporting to the extent requiredwhen QI does not assume primary chapters3 and 4 withholding responsibility or pri-mary Form 1099 reporting and backupwithholding responsibility;
(c) Provide allocation information asdescribed in section 6.03(D) of thisAgreement (regarding U.S. non-exemptrecipient account holders) by January 15as required by that section when QI ap-plies the alternative withholding rate poolprocedures;
(d) Make deposits in the time and man-ner required by section 3.08 of this Agree-ment or make adequate deposits to satisfyits withholding obligations, or, if QI isacting as a QDD, timely satisfy its QDDtax liability, taking into account the pro-cedures under section 9 of this Agree-ment;
(e) Report or report accurately onForms 1099 as required under section 8.06of this Agreement or provide informationto the payor to the extent QI does not
Bulletin No. 2017–3 January 17, 2017481
assume primary Form 1099 reporting andbackup withholding responsibilities;
(f) Report or report accurately onForms 1042 and 1042-S under sections 7and 8 of this Agreement;
(g) Report or report accurately onForm 8966 under sections 8.04 and 8.05of this Agreement; or
(h) Withhold an amount required to bewithheld or report accurately with respectto U.S. source substitute dividend pay-ments or make timely and adequate de-posits of tax due with respect to suchpayments for which QI is a QSL and actsas a dealer or intermediary.
(2) Limitations on Material Failures.A failure described in section 10.03(B)(1)(iv) of this Agreement is a materialfailure only if the failure was the result ofa deliberate action on the part of one ormore employees of QI to avoid the re-quirements of this Agreement with respectto one or more account holders of QI, orwas an error attributable to a failure of QIto establish or implement internal controlsnecessary for QI to meet the requirementsof this Agreement. Regardless of theselimitations for certification purposes, QI isrequired to correct a failure to withhold ordeposit tax under section 3 of this Agree-ment, or to report under section 7 or 8 ofthis Agreement, or, for a QI that is actingas a QDD, to timely pay its QDD taxliability and timely file the appropriatereturn (or amended return).
Sec. 10.04. Periodic Review AbsentWaiver. Unless the QI receives a waiver(the requirements of which are describedin section 10.07(B) of this Agreement), atthe time QI provides the certification de-scribed in section 10.03 of this Agree-ment, QI must also provide certain factualinformation regarding its accounts, with-holdable payments, amounts subject tochapter 3 withholding, and, if QI is actingas a QDD, section 871(m) transactions,potential section 871(m) transactions, andits QDD tax liability based on the resultsof a periodic review. The factual informa-tion requested is included in Appendix I tothis Agreement.
(A) Independent Reviewer. The peri-odic review may be performed by an in-ternal reviewer (such as an internal audi-tor) that is an employee of QI or anemployee of an affiliate of QI (includingan employee of a Compliance QI in the
case of a consolidated compliance pro-gram) (“internal reviewer”), or a certifiedpublic accountant, attorney, or third-partyconsultant (“external reviewer”), or anycombination thereof.
(1) Internal Reviewer. QI may desig-nate an internal reviewer to perform theperiodic review (or a portion of the peri-odic review) only when the internal re-viewer is competent with respect to therequirements of this Agreement. The in-ternal reviewer must also be able to reportfindings that reflect the independent judg-ment of the reviewer. The internal re-viewer must not be reviewing its ownwork, procedures, or results (e.g., the in-ternal reviewer, in reviewing QI’s docu-mentation cannot be part of the team pri-marily responsible for collecting andvalidating documentation). The results ofthe periodic review and the internal re-viewer’s reporting of such results to theresponsible officer cannot influence or af-fect the compensation, bonus, employ-ment status, or employee review of theinternal reviewer. The IRS has the right torequest the performance of the periodicreview by an alternative reviewer if theIRS, in its sole discretion, reasonably be-lieves that the reviewer selected by QIwas not independent, as described in thisAgreement, or did not perform an effec-tive periodic review under this Agree-ment.
In the case of a consolidated compli-ance program, the Compliance QI maydesignate an internal reviewer to performthe consolidated periodic review (or a por-tion of the consolidated periodic review).See section 10.02(B) of this Agreement.The internal reviewer of the ComplianceQI must meet the requirements of thissection with respect to both the Compli-ance QI and each QI that is a member ofthe consolidated compliance program.
If QI designates an internal reviewerthat is an employee of an affiliate of QIbut is not part of a consolidated compli-ance program, QI must ensure that theinternal reviewer has access to all neces-sary information in order to complete thereview. In addition, QI must permit theIRS to communicate directly with suchinternal reviewer.
(2) External Reviewer. QI may en-gage an external reviewer that is a certi-fied public accountant, attorney, or third-
party consultant that is regularly engagedin the practice of performing reviews ofclients’ policies, procedures, and pro-cesses for complying with accounting,tax, or regulatory requirements (includingassisting clients in determining such com-pliance). The external reviewer cannot bereviewing systems, policies, or proceduresor the results thereof that it (or the firmwith which it is affiliated) was involved indesigning, implementing, or maintaining.The external reviewer must be in goodstanding with and comply with any appli-cable professional standards for maintain-ing its license as an accountant or attorney(or other third-party consultant that hassimilar professional standards or require-ments). The external reviewer is not re-quired to make an attestation or render anopinion regarding QI’s compliance withthis Agreement or QI’s compliance withits FATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI, but the reviewer must be able toperform the periodic review as specifiedin section 10.05 of this Agreement. QImust permit the external reviewer to haveaccess to all relevant records of QI forpurposes of performing the review, in-cluding information regarding specific ac-count holders. Additionally, the engage-ment between the external reviewer andQI must impose no restrictions on QI’sability to provide the results of the reviewto the IRS. However, the external re-viewer is not required to divulge the iden-tity of QI’s account holders to the IRS,except as otherwise provided under QI’sFATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI. QI must permit the IRS to com-municate directly with the external re-viewer, and any legal prohibitions thatprevent the IRS from communicating di-rectly with the reviewer must be waived.
Sec. 10.05. Scope and Timing of Re-view. The responsible officer of QI (or ofthe Compliance QI) must require the re-viewer to test accounts related to QI’sdocumentation, withholding, reporting,and other obligations under this Agree-ment, including its QDD tax liability withrespect to QI that is acting as a QDD, andits FATCA requirements as a participatingFFI, registered deemed-compliant FFI, or
January 17, 2017 Bulletin No. 2017–3482
registered deemed-compliant Model 1IGA FFI for accounts for which it is act-ing as a QI, and to identify deficiencies inmeeting these obligations. Any PAI withwhich QI has an agreement and any part-nership or trust to which QI applies theagency option must provide the informa-tion necessary for QI to test accounts andtransactions of such entity as part of QI’speriodic review unless such entity con-ducts an its own periodic review and pro-vides QI with the report documenting theresults of such review as described in sec-tion 10.06 of this Agreement. Unless oth-erwise approved by the IRS, the reviewmust include the steps described in section10.05(A) of this Agreement.
QI is required to arrange for the per-formance of one review for the certifica-tion period to evaluate QI’s documenta-tion, withholding, and reporting practices.If QI is acting as a QDD, this should alsoinclude a review of its determination as towhether transactions are section 871(m)transactions, its computations and determi-nations of dividend equivalent amounts,dividends and taxes paid thereon, whethertransactions are in its equity derivativesdealer capacity, net delta exposure, its sec-tion 871(m) amount, and its calculation ofits QDD tax liability, as well as any otheramounts required to be included on the rec-onciliation schedule. The review may beconducted for any calendar year covered bythe certification period. However, all resultsof the review must relate to one calendaryear. QI may conduct a review for a partic-ular calendar year if, on the due date forreporting the factual information relating tothe periodic review (provided in section10.04 of this Agreement), there are 15 ormore months available on the period forassessment under section 6501(a) of the cal-endar year for which the review is to beconducted or the QI’s submits, upon re-quest, a Form 872, Consent to Extend theTime to Assess Tax, that will satisfy the15-month requirement. The Form 872 mustbe submitted to the IRS at the address pro-vided in section 12.06 of this Agreement.
QI may use a sample to test accounts ifthere are more than 60 accounts to review.If QI has fewer than 60 accounts, it mustreview all accounts and cannot use a sam-ple to test accounts. To the extent appli-cable, the reviewer must separately reviewits QI activities (when not acting in its
QDD capacity) and QDD activities. Thereviewer is required to record its samplingprocedures and to maintain the ability toreconstruct the sample. Further, the re-view is not required to include statisticalsampling procedures for testing transac-tions, but the reviewer must document itsmethodology for sampling determina-tions. A safe harbor methodology and ad-ditional information on the use of statisti-cal sampling is provided in Appendix II tothis Agreement.
If the reviewer determines that under-withholding has occurred, QI shall reportand pay any amount due. QI must alsonotify the IRS Foreign Intermediaries Pro-gram at the address provided in section12.06 of this Agreement of the underwith-holding discovered as a result of the re-view. See Appendix II to this Agreementfor information required to be providedwhen reporting underwithholding and in-formation regarding any projection of un-derwithholding determined using a sam-pling method.
(A) Documentation. The reviewermust—
(1) Review QI’s accounts, to ensurethat QI obtained documentation that meetsthe requirements described in sections5.01 through 5.09 of this Agreement;
(2) Review QI’s accounts for whichtreaty benefits are claimed, to ensure thatQI obtained the treaty statements and lim-itation on benefits information required bysection 5.03(B) of this Agreement;
(3) Review information contained inaccount holder files to determine if thedocumentation validity standards of sec-tion 5.10 of this Agreement have beenmet. For example, the reviewer must ver-ify that changes in account holder infor-mation (e.g., a change of address to a U.S.address or change of account holder statusfrom foreign to U.S. or a change in chap-ter 4 status from participating FFI to non-participating FFI) are being conveyed toQI’s withholding agents;
(4) Review the accounts for which QIis acting as a QI to ensure that QI isobtaining, reviewing, and maintainingdocumentation in accordance with itsFATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI;
(5) Review accounts held by U.S. non-exempt recipient account holders, to de-termine if QI obtained Forms W-9, and, ifQI does not assume primary Form 1099reporting and backup withholding respon-sibility, that QI transmitted those forms toa withholding agent consistent with thisAgreement;
(6) For a QI that is a QDD, reviewaccounts for which QI is acting as a QDDand that received a reportable payment todetermine whether QI has documented thestatus of account holders under the re-quirements described in sections 5.01through 5.09 of this Agreement;
(7) For a QI that makes payments ofU.S. source substitute interest and as-sumes primary chapters 3 and 4 withhold-ing responsibility for such amounts, re-view accounts of persons to which QIpays U.S. source substitute interest to de-termine whether QI has documented thestatus of such persons under the require-ments described in sections 5.01 through5.09 of this Agreement; and
(8) For QI that is a QSL, review asample of transactions for which QI actsas a QSL to determine whether QI hasdocumented the status of persons to whichQI pays U.S. source substitute dividends.
(B) Withholding Rate Pools. The re-viewer must—
(1) Perform checks using account hold-ers assigned to each withholding rate pool,and cross check that assignment againstthe documentation provided by, or thepresumption rules applied to, the accountholder, the type of income earned, and thewithholding rate applied;
(2) Verify, if QI is using the procedurefor U.S. non-exempt recipients describedin section 6.03(D) of this Agreement, thatQI is providing sufficient and timely in-formation to withholding agents that allo-cates reportable payments to U.S. non-exempt recipients; and
(3) With respect to a partnership ortrust described in section 4.05 of thisAgreement, if applicable, perform testchecks, using account holder documenta-tion for the selected partners, beneficia-ries, or owners and records of each type ofreportable amount paid by QI to the entity,to determine whether the highest rate ofwithholding applicable to each type ofreportable amount was applied.
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(C) Withholding Responsibilities.The reviewer must—
(1) To the extent QI has assumed pri-mary chapters 3 and 4 withholding re-sponsibilities, perform test checks, usingrecalcitrant account holders and nonpar-ticipating FFIs, to verify that QI withheldthe proper amounts under chapter 4;
(2) To the extent QI has assumed pri-mary chapters 3 and 4 withholding re-sponsibility, perform test checks, usingforeign account holders for which nowithholding is required under chapter 4based on the payees chapter 4 status, toverify that QI withheld the properamounts under chapter 3 and properly ap-plied the exemptions from chapter 4 with-holding;
(3) To the extent QI has not assumedprimary chapters 3 and 4 withholding re-sponsibility, verify that QI has fulfilled itsresponsibilities under section 3.02 of thisAgreement (including withholding if QIfailed to provide the required informationto a withholding agent to withhold onpayments);
(4) To the extent QI has assumedprimary Form 1099 reporting andbackup withholding responsibility, per-form checks using U.S. non-exempt re-cipient account holders to verify that QIbackup withheld when required;
(5) To the extent QI has not assumedprimary Form 1099 reporting and backupwithholding responsibility, perform testchecks using U.S. non-exempt accountholders to verify that QI fulfilled itsbackup withholding responsibilities undersections 3.04 through 3.06 of this Agree-ment;
(6) Verify that amounts withheld by QIwere timely deposited in accordance withsection 3.08 of this Agreement;
(7) To the extent that QI is acting as aQDD, determine that QI withheld whenrequired on payments that it made withrespect to potential section 871(m) trans-actions;
(8) To the extent that QI makes pay-ments of U.S. source substitute interestand assumes chapter 3 and 4 withholdingresponsibility for such amounts, deter-mine that QI withheld when required onsuch payments; and
(9) To the extent QI acts as a QSL,determine that QI withheld when required
on U.S. source payments of substitute div-idends.
(D) Return Filing and InformationReporting. The reviewer must—
(1) Obtain copies of original andamended Forms 1042 and 945, and anyschedules, statements, or attachments re-quired to be filed with those forms, verifythat the forms have been filed, and deter-mine whether the amounts of income,taxes, and other information reported onthose forms are accurate by—
(i) Reviewing copies of Forms 1042-Sthat withholding agents have provided QIto determine whether QI properly reportedthe amount of taxes withheld by otherwithholding agents on Form 1042;
(ii) Reviewing account statements andcorrespondence from withholding agents;
(iii) Determining that adjustments tothe amount of tax shown on Form 1042(and any claim by QI for refund or credit)properly reflect the adjustments to with-holding made by QI using the reimburse-ment or set off procedures under section9.02 of this Agreement and are supportedby sufficient documentation;
(iv) Reconciling amounts shown onForms 1042 with amounts shown on Form1042-S (including the amount of taxesreported as withheld);
(v) If QI is acting as a QDD, reviewingthe reconciliation schedule described insection 7.01(c) of this Agreement and anyinformation used to prepare such scheduleor compute its QDD tax liability, includ-ing information received pursuant to§1.871–15(p), reviewing the amounts re-quired to determine its section 871(m)amounts and its QDD tax liability over theapplicable period, and reviewing such in-formation to determine whether the sec-tion 871(m) amounts and QDD tax liabil-ity have been properly calculated;
(vi) If QI is acting as a QDD, review-ing amounts shown on Forms 1042 (in-cluding the reconciliation schedule) andForms 1042-S, as well as any informationreceived pursuant to §1.871–15(p), to de-termine whether the QDD properly tookthe information into account (e.g., to cal-culate its QDD tax liability);
(vii) To the extent QI acts as a QSL,determine that QI properly reported thegross amount of the U.S. source paymentsof substitute dividends to which the recip-ient would have otherwise been entitled
before consideration of any withholdingtax obligations; the amount of tax with-held by the withholding agent; and theamount of tax withheld by other withhold-ing agents in the series of securities lend-ing or sale-repurchase transaction;
(viii) In the case of collective creditsor refunds, reviewing the statements at-tached to amended Forms 1042 filed toclaim a collective refund, determinewhether those forms are accurate, and—
(a) Determine the causes of any over-withholding reported and ensure QI didnot issue Forms 1042-S to persons whomit included as part of its collective creditor refund;
(b) Determine that QI repaid the appro-priate account holders and that the amountof the claim is accurate and supported byadequate documentation; and
(c) Determine that QI did not includepayments made to a partnership or trustdescribed in section 4.05 of this Agree-ment.
(2) Obtain copies of original and cor-rected Forms 1042-S and Forms 1099filed by QI together with the work papersused to prepare those forms, and deter-mine whether the amounts reported onthose forms are accurate by—
(i) Reconciling payments and tax re-ported on Forms 1042-S received fromwithholding agents with amounts (includ-ing characterization of income) and taxesreported by QI as withheld on Forms1042-S and determining the reason(s) forany variance;
(ii) Reviewing the Forms W-8IMY,and the associated withholding state-ments, that QI has provided withholdingagents;
(iii) Reviewing account statements is-sued by QI to account holders;
(iv) Determining, in the case in whichQI utilized the reimbursement or set-offprocedure, that QI satisfied the require-ments of section 9.02 of this Agreementand that the adjusted amounts of tax with-held are properly reflected on Forms1042-S.
(3) Obtain copies of original andamended Forms 8966 (or, for QI that is areporting Model 1 FFI, any analogousforms used for reporting account informa-tion pursuant to the applicable Model 1IGA) of accounts for which QI is acting asa QI, and determine whether the amounts
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of income and other information reportedon Forms 8966 are accurate by—
(i) Reviewing U.S. accounts (or U.S.reportable accounts for which QI acts as aQI) to determine that such accounts werereported in accordance with QI’s FATCArequirements as a participating FFI, regis-tered deemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI;
(ii) If QI is an NFFE acting as a QI onbehalf of persons other than its sharehold-ers, confirming that if QI is acting onbehalf of a passive NFFE with substantialU.S. owners, withholdable paymentsmade to the passive NFFE and the infor-mation regarding its substantial U.S. own-ers were reported;
(iii) Confirming with respect to anynonqualified intermediary or flow-throughentity that provides information regardingan account holder (or interest holder) thatis an NFFE (other than an exceptedNFFE) with one or more substantial U.S.owners that such substantial U.S. ownerswere reported to the extent required undersection 8.04(B) of this Agreement;
(iv) Reviewing the documentation pro-vided by a PAI or a partnership or trust towhich QI applied the agency option todetermine that QI reported on Form 8966to the extent required under section 4 ofthis Agreement; and
(v) Reviewing work papers used toprepare these forms.
(4) If QI is acting as a QDD, the re-viewer must also review accounts desig-nated as accounts for which QI acted as aQDD to determine whether QI is acting asa QDD with respect to all potential section871(m) transactions and underlying secu-rities for which it is required to act as aQDD and not any other transactions andwhether the section 871(m) amount in-cludes the amounts in its equity deriva-tives dealer capacity and not amounts inits non-equity derivatives dealer capacity.
(E) Significant Change in Circum-stances. The reviewer must verify that inthe course of the review it has not discov-ered any significant change in circum-stances, as described in section 11.04(A),(D), (E), or (H) of this Agreement.
Sec. 10.06 Periodic Review Report.
(A) In General. The results of the pe-riodic review must be documented in awritten report addressed to the responsible
officer of QI and must be available to theIRS upon request (with a certified trans-lation into English if the report is not inEnglish). The report must describe thescope of the review and the actions per-formed to satisfy each requirement of sec-tion 10.05(A) through (E), including themethodology for sampling determina-tions. The report may include explanatoryfootnotes to clarify the results of the re-port. Recommendations may be includedbut are not required to be provided in thereport. The periodic review report shouldform the basis for the factual informationprovided by QI that is set forth in Appen-dix I.
In addition to the findings of section10.05 of this Agreement, the periodic re-view report should also include detailsregarding the documentation and tax de-posit and payment failures identified bythe reviewer but then cured before theperiodic review report is finalized. Whilethe curing of inadequate documentation ispermissible, the factual information re-ported (as set forth in Appendix I) shouldreport the results of the review as it wasperformed and should not reflect the re-sults after curing. Any curing processshould not delay certification of internalcontrols or factual information required inAppendix I to this Agreement. To theextent necessary, the periodic review re-port should include the dates on (or timeperiod during) which curative documenta-tion was received for accounts with re-spect to which the reviewer determinedthat underwithholding had occurred, thenumber of accounts for which curativedocumentation was obtained and a revisedcalculation of the underwithholding or ad-ditional backup withholding.
(B) Periodic Review Report forQDDs. If QI is acting as a QDD, theperiodic review report should also includethe number of accounts that were not cor-rectly treated as (i) principal accounts (ex-cept accounts that are effectively con-nected with the conduct or a trade orbusiness within the United States withinthe meaning of section 864), (ii) non-principal accounts, (iii) principal accountsthat are effectively connected with theconduct or a trade or business within theUnited States within the meaning of sec-tion 864, (iv) equity derivatives dealeraccounts, and (v) non-equity derivatives
dealer accounts. The report should alsoinclude any other issues related to theQDD tax liability (e.g., incorrect determi-nation of whether an account is a potentialsection 871(m) transaction or a section871(m) transaction, the dividends re-ceived in the QDD’s equity derivativesdealer capacity and the taxes paid on thosedividends, the net delta exposure, the sec-tion 871(m) amount and the taxes on thesection 871(m) amount, the amount ofdividend equivalent payments made, orany other amounts subject to tax (or re-quired to compute the tax liability) undersection 871(a) and 881 (including theQDD tax liability)) for each QDD.
(C) PAI Certification and Partner-ship or Trust to which QI Applies theAgency Option. Any PAI with which QIhas an agreement and any partnership ortrust to which QI applies the agency op-tion that does not provide its documenta-tion and other information to QI for inclu-sion in QI’s periodic review described insection 10.04 of this Agreement, mustconduct an independent periodic review inaccordance with the compliance proce-dures described in section 10.05 of thisAgreement. The performance results ofthe periodic review must be documentedin a written report addressed to the re-sponsible officer of QI and must be avail-able to the IRS upon request (with a cer-tified translation into English if the reportis not in English).
(D) Retention of Report and Certifi-cations. The report and certifications de-scribed in this section 10.06 must be re-tained by QI (or the Compliance QI) for aslong as this Agreement is in effect.
Sec. 10.07. Waiver of Periodic ReviewRequirement.
(A) In General. A QI that is not actingas a QDD and that is an FFI that meets therequirements of section 10.07(B) may ap-ply for a waiver of the periodic reviewrequirement. QI must request a waiver ofthe periodic review requirement under thissection 10.07 at the time the responsibleofficer makes the certification described insection 10.03 of this Agreement. QI’s ap-plication for such a waiver must be ap-proved by the IRS, and waiver applica-tions are not approved automatically. QImust apply for a waiver for each certifi-cation period for which a waiver is re-
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quested. If QI’s request for a waiver of theperiodic review requirement is granted,such approval is only to waive QI’s obli-gations under sections 10.04 and 10.05 ofthis Agreement, and QI is still required tomake the certification described in section10.03 of this Agreement. The waiver alsodoes not preclude the IRS from requestinginformation or conducting a correspon-dence review as described in section 10.07of this Agreement. QI must include theinformation of any PAI with which QI hasan agreement and any partnership or trustto which QI applies the agency option inits waiver application which is set forth inPart III of Appendix I to this Agreement.
(B) Eligibility. QI is eligible to applyfor a waiver of the periodic review re-quirement if it meets the following re-quirements—
(1) QI must be an FFI that is not alsoacting as a QDD;
(2) QI cannot be part of a consolidatedcompliance program;
(3) For each calendar year covered bythe certification period, the reportableamounts received by QI cannot exceed $5million;
(4) QI must have timely filed its Forms1042, 1042-S, 945, 1099, and 8966, asapplicable, for all calendar years coveredby the certification period;
(5) QI must have made all periodiccertifications and reviews required by sec-tions 10.02 and 10.03 of this Agreementas well as all certifications required pur-suant to QI’s FATCA requirements as aparticipating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI; and
(6) QI must have made the certificationof effective internal controls in section10.02(A).
(C) Documentation Required withWaiver Application. When applying fora waiver under this section 10.07, QI mustinclude the information described in Ap-pendix I to this Agreement using the mostrecent calendar year covered by the certi-fication period and reporting such resultswithout any curing or remediation.
(D) Approval. If QI’s request for awaiver of the periodic review requirementis approved, the IRS will notify QI. If QIrequests a waiver but such request is notapproved, QI will be granted a six monthextension from the date of denial of the
waiver to complete the periodic review.Such extension will not be granted if QIhas made the request for waiver in badfaith.
Sec. 10.08. Periodic Review.
(A) In General. Based upon the certi-fications made by the responsible officerand the disclosure of material failures, theinformation reported on Forms 945, 1042,1042-S, 1099, and 8966 filed with the IRSduring the certification period, or other-wise at the IRS’s discretion for compli-ance purposes, the IRS may initiate re-quests of QI under this section 10.08. TheIRS may preemptively request remedia-tion or the conduct of a limited periodicreview earlier than the time period pro-vided in this section 10 if, based on theinformation described above, the IRSidentifies, in its discretion, a presence offactors indicating systemic or significantcompliance failures by QI. The IRS mayalso request that QI designate a replace-ment responsible officer if QI’s responsi-ble officer has not complied with its re-sponsibilities (including responding torequests by the IRS for additional infor-mation) or the IRS has information thatindicates the responsible officer may notbe relied upon to comply with its respon-sibilities.
(B) Periodic Review Report. The IRSmay request, through written correspon-dence to the responsible officer of QI (orthe Compliance QI), a copy of the resultsof QI’s periodic review for any prior cer-tification period or the periodic reviewreport of any PAI or partnership or trust towhich QI applied the agency option thatQI has an agreement during the currentcertification period (with a certified trans-lation into English if the report is not inEnglish). QI is required to provide theresults within 30 calendar days of suchrequest.
(C) Correspondence Review. TheIRS may, in its discretion, conduct addi-tional fact finding through a correspon-dence review. In such a review, the IRSwill contact the responsible officer of QI(or the Compliance QI) in writing andrequest information about QI’s compli-ance with this Agreement or the compli-ance of a PAI or a partnership or trust towhich QI applied the agency option, in-cluding, for example, information about
documentation, withholding, or reportingprocesses, its periodic review, and infor-mation about any material failures thatwere disclosed to the IRS (including re-mediation plans). The IRS may requestphone or video interviews with employeesof QI (and the Compliance QI), a PAI, ora partnership or trust to which QI appliedthe agency option as part of the IRS’scorrespondence review. QI is required torespond in a reasonable time to any suchrequests.
(D) Additional Review Procedures.In limited circumstances, the IRS maydirect QI (or the Compliance QI) or anyPAI or partnership or trust to which QIapplies the agency option to perform ad-ditional, specified review procedures. TheIRS reserves the right to require QI (or theCompliance QI) or a PAI, or a partnershipor trust to which QI applied the agencyoption to engage an external reviewer toperform the additional review proceduresregardless of whether such reviewer per-formed the periodic review. The IRS willprovide the responsible officer of QI witha written plan describing the additionalreview procedures and will provide a duedate of not more than 120 days for the QIto provide to the IRS a report covering thereviewer’s findings.
SECTION 11. EXPIRATION,TERMINATION, MERGER ANDDEFAULT
Sec. 11.01. Term of Agreement. ThisAgreement begins on the effective dateand expires at the end of the sixth fullcalendar year the Agreement is in effect,unless terminated under section 11.02 ofthis Agreement. This Agreement may berenewed as provided in section 11.08 ofthis Agreement.
Sec. 11.02. Termination of Agreement.
(A) In General. This Agreement maybe terminated by either the IRS or QI priorto the end of its term by delivery of anotice, in accordance with section 12.06of this Agreement, of termination to theother party. The IRS, however, shall notterminate this Agreement unless there hasbeen a significant change in circum-stances, as defined in section 11.04 of thisAgreement, or an event of default hasoccurred, as defined in section 11.06 of
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this Agreement, and the IRS determines,in its sole discretion, that the significantchange in circumstances or the event ofdefault warrants termination of thisAgreement. The IRS shall not terminatethis Agreement if QI can establish to thesatisfaction of the IRS that all events ofdefault for which it has received noticehave been cured within the time periodagreed upon. The IRS shall notify QI thatan event of default has occurred and thatthe IRS intends to terminate the Agree-ment unless QI cures the default or estab-lishes that no event of default occurred. Anotice of termination sent by either partyshall take effect on the date specified inthe notice, and QI is required to notify itswithholding agent of the date that its sta-tus as a QI is terminated.
The termination of the Agreement shallnot affect any of QI’s reporting, tax filing,withholding, depositing, or payment re-sponsibilities arising in the calendar yearsfor which this Agreement was in effectand portion of the calendar year in whichtermination is requested. The IRS shallrevoke QI’s QI-EIN within a reasonabletime after the reporting, tax filing, anddepositing requirements for such years aresatisfied. The termination of this Agree-ment is not intended to affect any otherfederal income tax consequences.
(B) Final Certification after a Termi-nation of the Agreement. Upon a termi-nation of this Agreement, QI must provideto the IRS the certification described insection 10.03 of this Agreement coveringthe period from the end of the most recentcertification period (or, if the first certifi-cation period has not ended, the effectivedate of this Agreement) to the date oftermination within six months of the dateof termination, regardless of whether aperiodic review has been completed forsuch period.
Sec. 11.03. Loss of QDD Status. If QIis acting as a QDD and the home office orbranch, as applicable, fails to qualify as aneligible entity during the term of thisAgreement, the home office or branchshall lose its QDD status immediatelyupon the QDD failing to qualify as aneligible entity and as of that date can nolonger act as a QDD. QI is required tonotify its withholding agent of the datethat the QDD failed to qualify as an eli-gible entity and no longer was permitted
to act as a QDD. The QDD’s loss of QDDstatus shall not affect any of QI’s QDDreporting, tax filing, withholding, deposit-ing, or payment responsibilities for theperiod QI was acting as a QDD as pro-vided in this Agreement, including payingits QDD tax liability.
Sec. 11.04. Significant Change inCircumstances. For purposes of thisAgreement, a significant change in cir-cumstances includes, but is not limitedto—
(A) An acquisition of all, or substan-tially all, of QI’s assets in any transactionin which QI is not the surviving legalentity;
(B) A change in U.S. federal law, orapplicable foreign law, that affects thevalidity of any provision of this Agree-ment, materially affects the procedurescontained in this Agreement, or affectsQI’s ability to perform its obligations un-der this Agreement;
(C) A ruling of any court that affectsthe validity of any material provision ofthis Agreement;
(D) A material change in the applicableknow-your-customer rules and proce-dures;
(E) A significant change in QI’s busi-ness practices that affects QI’s ability tomeet its obligations under this Agreement;
(F) If QI is an FFI, QI’s failure tomaintain its status as a participating FFI,registered deemed-compliant FFI, or reg-istered deemed-compliant Model 1 IGAFFI;
(G) If QI is acting as a sponsoringentity on behalf of a sponsored FFI orsponsored direct reporting NFFE, if it failsto comply with the due diligence, with-holding, reporting, and compliance re-quirements of a sponsoring entity; or
(H) If QI is acting as a QDD, the homeoffice or branch, as applicable, ceases toqualify as an eligible entity, including as aresult of a change in its business or regu-latory status (see section 11.03).
Sec. 11.05. Merger. If QI merges withor is acquired by another QI and the suc-cessor QI assumes all the rights, debts,and obligations of the predecessor QI as itrelates to such QI’s QI agreement, thepredecessor or acquired QI must notifythe IRS that it intends to terminate thisAgreement prior to the end of its term bydelivery of a notice of termination and
merger, in accordance with section 12.06of this Agreement. A notice of terminationand merger shall take effect on the datespecified in the notice, and QI is requiredto notify its withholding agent of the datethat its status as a QI is terminated anddesignate the successor QI to receive pay-ments in its capacity as a QI for anyaccounts previously covered by predeces-sor QI’s QI Agreement.
The successor QI must ensure that allreporting and tax filing obligations arefulfilled and any withholding is deposited,in accordance with the procedures out-lined in Rev. Proc. 99-50, 1999-2 C.B.757, when applicable, that arose in thecalendar years and portion of the calendaryear in which termination is requested andfor which this Agreement was in effect(including for Form 1042-S filed to reportwithholding under chapter 4). To the ex-tent QI is acting as a QDD, it must use thestandard procedure outlined in Rev. Proc.99-50 and cannot use the alternative pro-cedures. See QI’s FATCA Requirementsas a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI for the pro-cedures, if any, for reporting on Form8966 in the case of a merger or acquisi-tion. In addition, the successor QI mustprovide the certification required by sec-tion 10.03 for the predecessor QI’s com-pliance period prior to the merger (andmust include the predecessor QI in itsreview following the merger).
The IRS shall revoke the predecessorQI’s QI-EIN within a reasonable time af-ter the reporting, tax filing, and depositingrequirements for such years are satisfied.The termination of this Agreement is notintended to affect any other federal in-come tax consequences
Sec. 11.06. Event of Default. For pur-poses of this Agreement, an event of de-fault occurs if QI fails to perform anymaterial duty or obligation required underthis Agreement and the responsible officerhad actual knowledge or should haveknown of the facts relevant to the failureto perform any material duty. An event ofdefault includes, but is not limited to, theoccurrence of any of the following:
(A) QI fails to implement adequateprocedures, accounting systems, and in-ternal controls to ensure compliance withthis Agreement;
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(B) QI underwithholds a materialamount of tax that QI is required to with-hold under chapter 3 or 4 or backup with-hold under section 3406 and fails to cor-rect the underwithholding or to file anamended Form 1042 or 945 reporting, andpaying, the appropriate tax;
(C) QI makes excessive refund claims;(D) Documentation described in sec-
tion 5 of this Agreement is lacking, incor-rect, or unreliable for a significant numberof direct account holders;
(E) QI files Forms 945, 1042, 1042-S,1099, or 8966 that are materially incorrector fraudulent;
(F) If QI is an FFI, QI fails to materi-ally comply with its FATCA requirementsas a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI;
(G) If QI is a sponsoring entity, QIfails to materially comply with the duediligence, withholding, reporting, andcompliance requirements of a sponsoringentity;
(H) QI fails to materially comply withthe requirements of a nonqualified inter-mediary under chapters 3 and 61, andsection 3406 with respect to any accountfor which QI does not act as a QI.
(I) QI fails to perform a periodic re-view when required or document the find-ings of such review in a written report;
(J) QI fails to cooperate with the IRSon its compliance review described in sec-tion 10.08 of this Agreement;
(K) QI fails to inform the IRS of anychange in the applicable know-your-customer rules within 90 days of thechange becoming effective;
(L) QI fails to inform the IRS within 90days of any significant change in its busi-ness practices to the extent that changeaffects QI’s obligations under this Agree-ment;
(M) QI fails to inform the IRS of anyPAI of QI, as described in section 4 of thisAgreement;
(N) QI fails to cure a material failureidentified in the qualified certification de-scribed in Part II.B of Appendix I to thisAgreement or identified by the IRS;
(O) QI makes any fraudulent statementor a misrepresentation of material factwith regard to this Agreement to the IRS,a withholding agent, or QI’s reviewer;
(P) The IRS determines that QI’s re-viewer is not sufficiently independent, asdescribed in this Agreement, to ade-quately perform its review function, andQI fails to arrange for a periodic reviewconducted by a reviewer approved by theIRS;
(Q) An intermediary with which QIhas a PAI agreement is in default with thatagreement and QI fails to terminate thatagreement within the time period speci-fied in section 4.04 of this Agreement;
(R) A partnership or trust to which QIapplies the agency option is in defaultwith that agreement and QI fails to termi-nate that agreement within the time periodspecified in section 4.06 of this Agree-ment; and
(S) If QI is acting as a QDD, aftercalendar year 2017, QI fails to timely paya material amount of its QDD tax liabilityand fails to correct the underpayment andpay the appropriate tax amount.
Sec. 11.07. Notice and Cure. Uponthe occurrence of an event of default, theIRS will deliver to QI a notice of defaultspecifying each event of default. QI mustrespond to the notice of default within 60days (60-day response) from the date ofthe notice of default. The 60-day responseshall contain an offer to cure the event ofdefault and the time period in which tocure or shall state why QI believes that noevent of default occurred. If QI does notprovide a 60-day response, the IRS willdeliver a notice of termination as providedin section 11.02 of this Agreement. If QIprovides a 60-day response, the IRS shalleither accept or reject QI’s statement thatno default has occurred or QI’s proposalto cure the event of default. If the IRSrejects QI’s contention that no default hasoccurred or rejects QI’s proposal to curethe event of default, the IRS may offer acounter-proposal to cure the event of de-fault with which QI will be required tocomply within 30 days. If QI fails to pro-vide a 30-day response, the IRS will senda notice of termination in accordance withsection 11.02 of this Agreement to QI,which QI may appeal within 30 days ofthe date of the notice by sending a writtenappeal to the address specified in section12.06 of this Agreement. If QI appeals thenotice of termination, this Agreementshall not terminate until the appeal hasbeen decided. If an event of default is
discovered in the course of a review, theQI may cure the default, without follow-ing the procedures of this section 11.07, ifthe external reviewer’s report describesthe default and the actions that QI took tocure the default and the IRS determinesthat the cure procedures followed by QIwere sufficient. If the IRS determines thatQI’s actions to cure the default were notsufficient, the IRS shall issue a notice ofdefault and the procedures described inthis section 11.07 shall be followed.
Sec. 11.08. Renewal. If QI intends torenew this Agreement, it must submit anapplication for renewal to the IRS on theQI/WP/WT Application and AccountsManagement System. This Agreementwill be renewed only upon the agreementof both QI and the IRS. A QI that seeks torenew its QI agreement and also seeks tobecome a QDD (that was not previouslyacting as a QDD) must supplement therenewal request by providing a statementcontaining all information required byForm 14345 relating to a QDD.
SECTION 12. MISCELLANEOUSPROVISIONS
Sec. 12.01. QI’s application to becomea QI, all Appendices to this Agreement,and, if QI is an FFI, its FATCA require-ments as a participating FFI, registereddeemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI, arehereby incorporated into and made an in-tegral part of this Agreement. This Agree-ment, QI’s application, and the Appendi-ces to this Agreement constitute thecomplete agreement between the parties.
Sec. 12.02. This Agreement may beamended by the IRS if the IRS determinesthat such amendment is needed for thesound administration of the internal reve-nue laws or internal revenue regulations.This Agreement will only be modifiedthrough published guidance issued by theIRS and U.S. Treasury Department. Anysuch modification imposing additional re-quirements will in no event become effec-tive until the later of 90 days after the IRSprovides notice of such modification orthe beginning of the next calendar yearfollowing the publication of such guid-ance.
Sec. 12.03. Any waiver of a provisionof this Agreement is a waiver solely ofthat provision. The waiver does not obli-
January 17, 2017 Bulletin No. 2017–3488
gate the IRS to waive other provisions ofthis Agreement or the same provision at alater date.
Sec. 12.04. This Agreement shall begoverned by the laws of the United States.Any legal action brought under thisAgreement shall be brought only in aUnited States court with jurisdiction tohear and resolve matters under the internalrevenue laws of the United States. For thispurpose, QI agrees to submit to the juris-diction of such United States court.
Sec. 12.05. QI’s rights and responsibil-ities under this Agreement cannot be as-signed to another person.
Sec. 12.06. Except as otherwise pro-vided in the QI/WP/WT Application andAccounts Management System, noticesprovided under this Agreement shall bemailed registered, first class airmail. All
notices sent to the IRS must include theQI’s name, QI-EIN, GIIN (if applicable),and the name of its responsible officer.Such notices shall be directed as follows:
To the IRS:Internal Revenue ServiceForeign Payments PracticeForeign Intermediaries Program290 Broadway, 12th Floor NWNew York, New York 10007-1867To the QI:The QI’s responsible officer. Such no-
tices shall be sent to the address indicatedin the QI’s registration or application (asmay be amended).
Sec. 12.07. QI, acting in its capacity asa QI or in any other capacity, does not actas an agent of the IRS, nor does it have theauthority to hold itself out as an agent ofthe IRS.
SECTION 7. EFFECTIVE DATE
The effective date of the QI agreementcontained in section 6 of this revenue pro-cedure (as modified and superseded byany future published guidance) is on orafter January 1, 2017.
SECTION 8. DRAFTINGINFORMATION
The principal author of this notice isLeni C. Perkins of the Office of Asso-ciate Chief Counsel (International). Forfurther information regarding this noticecontact Ms. Perkins at (202) 317-6942(not a toll free call) or, with respect toQDDs, Peter Merkel or Karen Walnyat (202) 317-6938 (not a toll freecall).
APPENDIX I
General Instructions: QIs must provide the information and certifications described in this Appendix as applicable to their QIstatus and activities. The following Parts must be completed by the specified QIs:
Part I: All QIs.
Part II: All QIs.
Part III: QIs eligible pursuant to section 10.07(A) and (B) of the QI Agreement to apply for a waiver of theperiodic review requirement (as described in section 10.07 of the QI Agreement) and who wish to ap-ply for such a waiver. Under section 10.07(A) and (B) of the QI Agreement, the following QIs are noteligible for a waiver: (a) QIs that are NFFEs, (b) QIs that are acting as QDDs, and (c) QIs that are partof a consolidated compliance program.
Part IV.A: All QIs that have not applied for or have not been approved for a waiver.
Part IV.B-F: All QIs, excluding QIs that are only acting as QDDs and have no other QI activities, that have not ap-plied for or have not been approved for a waiver.
Part V: All QIs that are acting as QDDs.
Part VI: All QIs that assume primary withholding responsibility for payments of substitute interest.A Compliance QI may complete Parts I and II for the QI members of its consolidated compliance group. However, the factual
information provided in Parts IV through VI must be completed separately for each QI member in the consolidated compliancegroup.
PART I. GENERAL INFORMATION
A. Did QI assume primary chapters 3 and 4 withholding responsibility for any calendar year covered by the certification period?Y/N
B. Did QI assume primary Form 1099 reporting and backup withholding responsibility for any calendar year covered by thecertification period? Y/N
C. Is QI the Compliance QI for a consolidated compliance program? Y/N1. If yes, provide the names and QI-EINs of the members of the consolidated compliance group.
D. PAIs and partnerships and trusts to which QI applied the joint account or agency option during any time within the certificationperiod:1. The number of PAIs with whom QI has a PAI Agreement (if none enter 0).
a. Provide the names and addresses of those PAIs.b. Each PAI has provided QI with a certification that it has maintained status as a certified deemed-compliant FFI (other than
a registered deemed-compliant Model 1 IGA FFI) for the certification period, as required under section 4.01 of the QIAgreement. Y/N
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c. Each PAI has provided QI with either (1) its information for inclusion in QI’s periodic review (as described in section4.01(F) of the QI Agreement) or (2) a certification as described in section 10.03 of the QI Agreement and a periodic reviewreport as described under section 10.06 of the QI Agreement for the certification period. Y/N
2. The number of partnerships or trusts to which QI applies the agency option (if none enter 0).a. Each partnership or trust to which QI applies the agency option has provided QI with a certification that it has maintained
status as a certified deemed-compliant FFI (other than a registered deemed-compliant Model 1 IGA FFI), an owner-documented FFI with respect to QI, an NFFE, or an exempt beneficial owner, or that it is covered as an account that isexcluded from the definition of financial account under Annex II of an applicable IGA or under Treas. Reg. § 1.1471–5(a),as required under section 4.06(A)(2) of the QI Agreement. Y/N
b. Each partnership or trust to which QI applies the agency option pursuant to section 4.06 of the QI Agreement has providedQI with either (1) its information for inclusion in QI’s periodic review (as described in section 4.06(A)(5) of the QIAgreement) or (2) a certification described in section 10.03 of the QI Agreement and a periodic review report as requiredunder section 10.06 of the QI Agreement for the certification period. Y/N
3. The number of partnerships or trusts to which QI applies the joint account option (if none enter 0).a. Each partnership or trust to which QI applies the joint account option has provided QI with a certification that it has
maintained status as a certified deemed-compliant FFI (other than a registered deemed-compliant Model 1 IGA FFI), anowner-documented FFI with respect to QI, an exempt beneficial owner, or an NFFE or that it is covered as an accountthat is excluded from the definition of financial account under Annex II of an applicable IGA or under Treas. Reg.§ 1.1471–5(a), as required under section 4.05(A)(1) of the QI Agreement. Y/N
PART II: CERTIFICATION OF INTERNAL CONTROLS AND GENERAL INFORMATION—To be Completed by All QIs.Complete Either A (Certification of Effective Internal Controls) or B (Qualified Certification).
A. Certification of Effective Internal Controls
If the responsible officer has identified an event of default or a material failure that QI has not corrected as of the date of thiscertification (or such an event of default or material failure has otherwise been identified), the responsible officer cannot make thecertification of effective internal controls under this Part A and must make the qualified certification under Part B, below.The responsible officer certifies to the following, check each statement to confirm:
1. QI has established a compliance program that meets the requirements described in section 10.02(A) or 10.02(B) (ifapplicable) of the QI Agreement that is in effect as of the date of the certification and during the certification period.
2. Based on the information known (or information that reasonably should have been known) to the responsible officer,including the findings of any procedure, process, review, or certification undertaken in preparation for the responsibleofficer’s certification of internal controls, QI maintains effective internal controls over its documentation, withholding, andreporting obligations under the QI Agreement and according to its applicable FATCA requirements, with respect to accountsfor which it acts as a QI.
3. Based on the information known (or information that reasonably should have been known) to the responsible officer,including the findings of any procedure, process, review, or certification undertaken in preparation for the responsibleofficer’s certification of internal controls, there are no material failures, as defined in section 10.03(B) of the QI Agreement,or, if there are any material failures, they have been corrected as of the date of this certification, and such failures areidentified as part of this certification as well as the actions taken to remediate them and to prevent their reoccurrence by thedate of this certification. See Part II.D.3.A.
4. With respect to any failure to withhold, deposit, or report to the extent required under the QI Agreement, QI has correctedsuch failure by paying any taxes due (including interest and penalties) and filing the appropriate return (or amended return).
5. All PAIs of QI and partnerships and trusts to which QI applies the agency option have either (a) provided (or will provide,to the extent QI does not obtain a waiver under section 10.07 of the QI Agreement) documentation and other necessaryinformation for inclusion in the QI’s periodic review or (b) provided the responsible officer of QI with a certification ofeffective internal controls described in Part II.A of Appendix I to the QI Agreement and have represented to QI that thereare no material failures, as defined in section 10.03(B) of the QI Agreement, or, if there are such failures, they have beencorrected as of the time of this certification, and the PAIs, partnerships, or trusts have disclosed any such failures to QItogether with the actions taken by the PAI, partnership, or trust to remediate such failures.
6. QI’s policies, procedures, and processes are applied consistently to all branches covered by the QI Agreement (except asotherwise required by a jurisdiction’s AML/KYC procedures, as applicable).
7. If QI is acting as a QI and has assumed primary withholding responsibility with respect to payments of substitute interest(as described in section 3.03(A) of the QI Agreement), QI has assumed primary withholding responsibility for all suchpayments covered by the QI Agreement.
8. A periodic review was conducted for the certification period in accordance with section 10.04 of the QI Agreement, and theresults of such review are reported to the extent required in sections 10.05 and 10.06 of the QI Agreement.
January 17, 2017 Bulletin No. 2017–3490
B. Qualified Certification
If the responsible officer has identified an event of default or a material failure that QI has not corrected as of the date of thiscertification, check the applicable statements to confirm:
1. The responsible officer (or designee) has identified an event of default, as defined in section 11.06 of the QI Agreement, orhas determined that, as of the date of the certification, there are one or more material failures as defined in section 10.03(B)of the QI Agreement with respect to QI’s compliance, its PAI’s compliance, or the compliance of a partnership or trust towhich QI applies the agency option and that appropriate actions will be taken to prevent such failures from reoccurring.
2. With respect to any failure to withhold, deposit, or report to the extent required under the QI Agreement, QI will correct suchfailure by paying any taxes due (including interest and penalties) and filing the appropriate return (or amended return).
3. The responsible officer (or an officer of the PAI or partnership or trust to which QI applies the agency option if the PAI orpartnership or trust performs its own periodic review) will respond to any notice of default (if applicable) or will provide(either directly or through QI) to the IRS, to the extent requested, a description of each material failure and a written planto correct each such failure
C. Amended Form 1042
1. QI filed an amended Form 1042 to report additional tax liability based on the results of the periodic review or the findingsof any other procedure, process, or review undertaken by the responsible officer in preparation for his or her certification ofinternal controls. Y/N
D. Material Failures or Event of Default
Check the applicable statements to confirm. If QI is a Compliance QI and identifies a material failure or event of default, it shouldalso indicate which QI in the consolidated compliance group is associated with the material failure or event of default. For 2017, amaterial failure relevant to a QDD has not occurred unless the QDD failed to make a good faith effort to comply with the section871(m) regulations and the relevant provisions of the QI agreement relating to its QDD obligations.
1. The responsible officer has determined that as of the date of the review, there are no material failures with respect to QI’scompliance with the QI Agreement.
2. The responsible officer has determined that as of the date of the review, there are one or more material failures with respectto QI’s compliance with the QI Agreement and that appropriate actions have been or will be taken to prevent such failuresfrom reoccurring.a. The following material failures were identified:
i. QI’s establishment of, for financial statement purposes, a tax reserve or provision for a potential future tax liabilityrelated to QI’s failure to comply with the QI Agreement, including its FATCA requirements as a participating FFI,registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI, and with respect to QI that isacting as a QDD, failure to satisfy its QDD tax liability and its obligations pursuant to section 871(m) and the regulationsunder that section.
ii. QI’s failure to establish written policies, procedures, or systems sufficient for the relevant personnel of QI to takeactions consistent with QI’s obligations under the QI Agreement, or if QI is acting as a QDD, its obligations as a QDDunder the QI Agreement and pursuant to section 871(m) and the regulations under that section.
iii. A criminal or civil penalty or sanction imposed on QI (or any branch or office thereof) by a regulator or othergovernmental authority or agency with oversight over QI’s compliance with AML/KYC procedures to which QI (orany branch or office thereof) is subject and that is imposed due to QI’s failure to properly identify account holdersunder the requirements of those procedures.
iv. A finding (including a finding noted in the periodic review report described in section 10.06 of the QI Agreement) that,for one or more years covered by the QI Agreement, QI failed to:1. Withhold an amount that QI was required to withhold under chapter 3 or 4 or under section 3406 as required under
section 3 of the QI Agreement or, if QI is acting as a QDD, failing to timely pay its QDD tax liability;2. Provide information sufficient for another withholding agent to perform withholding and reporting to the extent
required when QI does not assume primary chapters 3 and 4 withholding responsibility or primary Form 1099reporting and backup withholding responsibility;
3. Provide allocation information as described in section 6.03(D) of the QI Agreement (regarding U.S. non-exemptrecipient account holders) by January 15, as required by that section when QI applies the alternative withholding ratepool procedures;
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4. Make deposits in the time and manner required by section 3.08 of the QI Agreement or make adequate deposits tosatisfy its withholding obligations or, if QI is acting as a QDD, timely satisfy its QDD tax liability, taking intoaccount the procedures under section 9 of the QI Agreement
5. Report or report accurately on Forms 1099 as required under section 8.06 of the QI Agreement or provideinformation to the extent QI does not assume primary Form 1099 reporting and backup withholding responsibilities;
6. Report or report accurately on Forms 1042 and 1042-S under sections 7 and 8 of the QI Agreement;7. Report or report accurately on Form 8966 under sections 8.04 and 8.05 of the QI Agreement; or8. Withhold an amount required to be withheld or report accurately with respect to U.S. source substitute dividend
payments or make timely and adequate deposits of tax due with respect to such payments for which QI is a QSLand acts as a dealer or intermediary.
v. Other (include a detailed explanation).3. The material failure identified in the review has been corrected by the time of this certification. Y/N/NA
a. If yes, describe the steps taken to correct the material failure.b. If no, describe the proposed steps to be taken to correct the material failure and the time frame for completing such steps.
4. Did any PAI of QI inform QI that it has had a material failure with respect to its agreement with QI? Y/N/NAa. If yes, provide name of PAI and, based on the information provided by PAI, describe the steps taken to correct the material
failure or the proposed steps to be taken to correct the material failure and the timeframe for completing such steps.5. Did any partnerships or trusts to which QI applies the agency and/or joint account option inform QI that it has had a material
failure with respect to its obligations as described in the QI Agreement? Y/N/NAa. If yes, provide name of the partnership or trust and, based on the information provided by the partnership or trust, describe
the steps taken to correct the material failure or the proposed steps to be taken to correct the material failure and thetimeframe for completing such steps.
6. An event of default as defined in section 11.06 of the QI Agreement has been identified. Y/Na. If yes, identify the event of default:
i. QI failed to implement adequate procedures, accounting systems, and internal controls to ensure compliance with theQI Agreement;
ii. QI underwithheld a material amount of tax that QI was required to withhold under chapter 3 or 4 or backup withholdunder section 3406 and failed to correct the underwithholding or to file an amended Form 1042 or 945 reporting, andpaying, the appropriate tax;
iii. QI made excessive refund claims;iv. Documentation described in section 5 of the QI Agreement was lacking, incorrect, or unreliable for a significant
number of direct account holders;v. QI filed Forms 945, 1042, 1042-S, 1099, or 8966 that are materially incorrect or fraudulent;
vi. If QI is an FFI, QI failed to materially comply with its FATCA requirements as a participating FFI, registereddeemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI;
vii. If QI is a sponsoring entity, QI failed to materially comply with the due diligence, withholding, reporting, andcompliance requirements of a sponsoring entity;
viii. QI failed to materially comply with the requirements of a nonqualified intermediary under chapters 3 and 61, andsection 3406 with respect to any account for which QI does not act as a QI;
ix. QI failed to perform a periodic review when required or document the findings of such review in a written report;x. QI failed to cooperate with the IRS on its compliance review described in section 10.08 of the QI Agreement;xi. QI failed to inform the IRS of any change in the applicable know-your-customer rules within 90 days of the change
becoming effective;xii. QI failed to inform the IRS within 90 days of any significant change in its business practices to the extent that change
affects QI’s obligations under the QI Agreement;xiii. QI failed to inform the IRS of any PAI of QI, as described in section 4 of the QI Agreement;xiv. QI failed to cure a material failure identified in the qualified certification described in Part II.B of Appendix I to the
QI Agreement or identified by the IRS;xv. QI made any fraudulent statement or a misrepresentation of material fact with regard to the QI Agreement to the IRS,
a withholding agent, or QI’s reviewer;xvi. The IRS determined that QI’s reviewer is not sufficiently independent, as described in the QI Agreement, to
adequately perform its review function, and QI failed to arrange for a periodic review conducted by a reviewerapproved by the IRS;
xvii. An intermediary with which QI has a PAI agreement was in default with that agreement and QI failed to terminatethat agreement within the time period specified in section 4.04 of the QI Agreement;
xviii. A partnership or trust to which QI applied the agency option was in default with that agreement and QI failed toterminate that agreement within the time period specified in section 4.06 of the QI Agreement;
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xix. If QI is acting as a QDD, after calendar year 2017, QI failed to timely pay a material amount of its QDD tax liabilityand failed to correct the underpayment and pay the appropriate tax amount; or
xx. Other (please describe).
E. Significant Change in Circumstances
Check the applicable statements to confirm.1. For the most recent certification period, the periodic review has not identified any significant change in circumstances, as
described in section 11.04(A), (D), (E), or (H) of the QI Agreement.2. For the most recent certification period, the periodic review has identified the following significant change(s) in circum-
stances:a. An acquisition of all, or substantially all, of QI’s assets in any transaction in which QI is not the surviving legal entity.b. A material change in the applicable know-your-customer rules and procedures.c. A significant change in QI’s business practices that affects QI’s ability to meet its obligations under the QI Agreement.d. If QI is acting as a QDD, QI ceases to qualify as an eligible entity, including as a result of a change in its business or
regulatory status.e. Other.
3. Describe any significant changes in circumstances identified in Question 2 (and, if 2.d is selected, include the date on whichthe QI ceased to qualify as an eligible entity).
F. Chapter 4 Status
Complete the applicable section and check the applicable statement to confirm.
Participating FFIs
1. For the most recent certification period under the QI Agreement, QI (or a branch of QI) has obtained status as a participatingFFI and made the following certification of compliance with respect to its FFI agreement for the most recent certificationperiod under the FFI agreement (check one). Note: You may only check N/A if, during the certification period, your chapter4 status changed from one of the other applicable chapter 4 statuses to participating FFI or if your certification under the FFIagreement is not due as of the date of this certification.
a. Certification of Effective Internal Controlsb. Qualified Certificationc. N/A
Registered Deemed-Compliant FFIs
1. For the most recent certification period under the QI Agreement, QI certified as required under Treas. Reg. § 1.1471–5(f)(1)(ii)(B) or Annex II of an applicable Model 2 IGA that it has satisfied the requirements for the deemed-compliant FFIstatus claimed.
Registered Deemed-Compliant Model 1 IGA FFIs
1. For the most recent certification period under the QI Agreement, QI (or a branch of QI) has been resident in or organizedunder the laws of a jurisdiction that has in place a Model 1 IGA with the United States (or in the case of a branch of QI,the branch operates in the jurisdiction) and has met the requirements under the IGA to be treated as a deemed-compliant FFI.
PART III. WAIVER OF PERIODIC REVIEW
For Parts B.1 through 6, while the curing of inadequate documentation is permissible, the information reported in this sectionof the Appendix must not reflect any remediation or curing.Note: In order to be eligible for a waiver, QI must be able to confirm all of the eligibility requirements in Part A are met.For purposes of this Part, “account” means, unless otherwise specified, any account for which QI acts as a QI.
A. Eligibility for Waiver (check each statement to confirm)1. QI is an FFI that is not also acting as a QDD.2. QI is not part of a consolidated compliance program.3. For each calendar year covered by the certification period, the reportable amounts received by QI do not exceed $5 million.4. QI timely filed its Forms 1042, 1042-S, 945, 1099, and 8966 (as required for chapter 4 purposes or the reporting required under
an applicable IGA), as applicable, for all calendar years covered by the certification period.
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5. QI made all periodic certifications and reviews required by sections 10.02 and 10.03 of the QI Agreement as well as allcertifications required pursuant to QI’s FATCA requirements as a participating FFI or registered deemed-compliant FFI.
6. QI made the certification of internal controls in Part II.A.
B. Information required (provided for the most recent calendar year within the certification period)1. The total number of accounts
a. Total number of direct account holdersi. Foreign personsii. U.S. exempt recipientsiii. U.S. non-exempt recipientsiv. Intermediaries and flow-through entities
b. Total number of indirect account holdersi. Foreign personsii. U.S. exempt recipientsiii. U.S. non-exempt recipientsiv. Intermediaries and flow-through entities
2. The total number of U.S. account holders that received reportable payments.3. The total number of non-U.S. account holders that received reportable amounts.4. The total number of such accounts that have valid documentation.5. The total number of accounts that have no documentation or invalid documentation.6. The total number of Forms 1042-S filed by QI.7. Total of reportable amounts received for non-U.S. accounts.8. Total of reportable payments received for U.S. accounts.9. The aggregate amount of tax withheld under chapter 3 and chapter 4 (by QI or QI’s withholding agent(s)).10. The total number of Forms 1099 filed by QI.11. The aggregate amount of backup withholding under section 3406 by QI or QI’s payor(s).
PART IV. PERIODIC REVIEW: QI FACTUAL INFORMATION—To be Completed by All QIs that have not Applied for orObtained a Waiver. If QI acts solely as a QDD and has no other QI activities, QI is not required to complete Part IV.Bthrough F.
A. General Information1. Did QI use an external reviewer to conduct any portion of its periodic review? Y/N
a. If yes, provide name(s) of reviewer(s).2. Did QI use an internal reviewer to conduct any portion of its periodic review? Y/N
a. If yes, provide a brief description of the internal reviewer, such as their department and other roles and responsibilities withrespect to the QI’s QI activities.
3. Calendar year reviewed for periodic review.
Caution: On the due date for reporting the factual information relating to the periodic review (provided in section 10.04 of the QIAgreement), there must be 15 or more months available on the statutory period for assessment for taxes reportable on Form 1042of the calendar year for which the review was conducted or the QI must submit, upon request by the IRS, a Form 872, Consent toExtend the Time to Assess Tax, that will satisfy the 15-month requirement. The Form 872 must be submitted to the IRS at the addressprovided in section 12.06 of the QI Agreement.
B. General Information on Accounts and Review of Accounts
For Parts B through F, while the curing of inadequate documentation is permissible, unless otherwise indicated, the informationreported shall be based on the review and not results obtained after curing. For purposes of this Part, “account” means, unlessotherwise specified, any account for which QI acts as a QI. However, do not include accounts for which QI is acting as a QDDor accounts receiving substitute interest payments for which QI has assumed primary withholding responsibility.
1. Did QI assume primary chapters 3 and 4 withholding responsibility for any accounts for the calendar year provided in Question3 in Part A, above? Y/N
2. Did QI assume primary Form 1099 reporting and backup withholding responsibility for any accounts for the calendar yearprovided in Question 3 in Part A, above? Y/N
3. Total accounts reviewed for periodic review.4. Did QI use a statistical sampling method in conducting the review of its accounts? Y/N/NA
a. If yes, was it the safe harbor method under Appendix II to the QI Agreement?b. If no, describe the method used.
5. Total accounts reviewed that received reportable amounts.6. Total accounts reviewed that received withholdable payments that are not reportable amounts.
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C. Documentation1. Total accounts reviewed held by direct account holders.2. Total accounts reviewed held by indirect account holders.3. Total accounts reviewed with valid documentation.4. Total accounts reviewed with invalid documentation or no documentation.5. Total accounts reviewed with invalid documentation or no documentation for which valid documentation or additional valid
documentation was obtained after the review.6. Total accounts reviewed for which treaty benefits were claimed.7. Total accounts reviewed for which treaty benefits were claimed where QI did not obtain sufficient documentation to establish
the payee’s entitlement to treaty benefits (including, where applicable, the treaty statement and limitation on benefitsinformation required by section 5.03(B) of the QI Agreement).
8. Total accounts reviewed held by U.S. non-exempt recipient account holders.9. Total accounts held by U.S. non-exempt recipient account holders reviewed for which QI has obtained a valid Form W-9.10. If QI has not assumed primary Form 1099 reporting and backup withholding responsibility, total accounts held by U.S.
non-exempt recipient account holders reviewed for which QI has transmitted Forms W-9 to a withholding agent.11. Total accounts reviewed assigned to chapter 3 or chapter 4 withholding rate pools.12. Total accounts reviewed assigned to chapter 3 or chapter 4 withholding rate pools where QI did not correctly report
withholding rate pool information to a withholding agent.13. Total accounts reviewed that are U.S. accounts (or U.S. reportable accounts under an applicable IGA) (if applicable).14. Total accounts reviewed that are U.S. accounts (or U.S. reportable accounts under an applicable IGA) (if applicable) for which
QI has obtained a valid Form W-9 or, if applicable, self-certification.
D. Withholding1. The aggregate amount reported as withheld under chapter 3 by QI on Forms 1042-S.2. Number of accounts for which amounts were withheld under chapter 3.3. The aggregate amount reported as withheld under chapter 4 by QI on Forms 1042-S.4. Number of accounts for which amounts were withheld under chapter 4.5. The aggregate amount reported as withheld by QI on Forms 1099.6. Number of accounts for which amounts were backup withheld under section 3406.7. Additional withholding required under chapter 4 based on results of periodic review.8. Additional withholding required under chapter 3 based on results of periodic review.9. Additional backup withholding required under section 3406 based on results of periodic review.10. The aggregate amount of deposits made in accordance with section 3.08 of the QI Agreement.11. Number of partnerships or trusts to which the joint account treatment of section 4.05 of the QI Agreement was applied (if
applicable).a. Total accounts to which joint account treatment applied for which appropriate documentation was obtained and the
appropriate rate of withholding was applied.b. Total accounts to which joint account treatment applied for which ppropriate documentation was obtained and the
appropriate rate of withholding was not applied.c. Total accounts to which joint account treatment applied for which appropriate documentation was not obtained and the
appropriate rate of withholding was not applied.d. Aggregate amount of underwithholding resulting from the appropriate rate of withholding not being applied with respect
to an account to which the joint account treatment applied.
E. Reconciliation of Reporting on Payments of Reportable Amounts1. The aggregate amount reported paid to QI on all Forms 1042-S issued to QI.
2. The aggregate amount reported paid by QI on Forms 1042-S to QI’s chapter 4 reporting pools (other than the U.S. payee pool)(including a chapter 4 reporting pool of a PAI or a partnership or trust to which QI applies the agency option).
3. The aggregate amount reported paid by QI on Forms 1042-S to QI’s chapter 4 reporting pool- U.S. payee pool.4. The aggregate amount reported paid by QI on Forms 1042-S to QI’s chapter 3 reporting pools (including chapter 3 reporting
pools of a PAI or partnership or trust to which QI applies the joint account or agency option).5. The aggregate amount reported paid by QI on Forms 1042-S to other QIs (excluding QIs that are acting as QDDs), QSLs,
and WPs and WTs as a class.6. The aggregate amount reported paid by QI on Forms 1042-S to QIs that are acting as QDDs.7. The aggregate amount reported paid by QI on Forms 1042-S to participating FFIs, registered deemed-compliant FFIs, and
registered deemed-compliant Model 1 IGA FFIs that are intermediaries or flow-through entities as a class and with respectto their chapter 4 reporting pools (excluding amounts referenced in Questions 5 and 6 directly above).
8. The aggregate amount reported paid by QI on Forms 1042-S to indirect account holders (not included in Question 2 or 7above and including an account holder of an intermediary or flow through entity reported by QI as made to an unknownrecipient on Form 1042-S).
9. The aggregate amount subject to reporting on Form 1042-S paid by QI to U.S. non-exempt recipients as a class not includablein a chapter 4 withholding rate pool of QI.
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10. The aggregate amount subject to reporting on Form 1042-S paid by QI to U.S. exempt recipients as a class not includablein a chapter 4 withholding rate pool of QI.
11. The aggregate amount paid by QI to its direct account holders (including account holders of any PAI or partner, beneficiary,or owner of a partnership or trust to which QI applies the joint account or agency option) that requested individual Form(s)1042-S.
12. Total of questions 2 through 11.13. The amount of any unreconciled variances (if Question 1 minus Question 12 is other than 0).
F. Reconciliation of Withholding on Reportable Amounts1. The aggregate amount reported as withheld by another withholding agent on Forms 1042-S issued to QI.
2. The aggregate amount reported by QI as amounts it withheld on Forms 1042-S.3. The aggregate amount reported by QI as amounts it backup withheld on Forms 1099.4. If QI did not assume primary withholding responsibility and amounts are entered for questions 2 or 3, explain any
underwithholding that occurred by the withholding agent.5. If QI assumed primary withholding responsibility and an amount is entered for question 1, explain the amount withheld
by others.6. The aggregate amount of any collective claims for refund or credit made by QI.
Part V. Qualified Derivatives Dealers
[RESERVED]
Part VI. Substitute Interest
Complete only if a QI that has assumed primary withholding responsibility for payments of substitute interest (as described in section3.03(A) of the QI Agreement).
A. General Information1. Total number of accounts receiving substitute interest payments.2. Total number of accounts receiving substitute interest reviewed as part of the periodic review.
B. Documentation1. Total accounts reviewed with valid documentation.2. Total accounts reviewed with invalid documentation or no documentation for which documentation or additional documentation
was obtained after the initial review.3. Total accounts reviewed for which treaty benefits were claimed.4. Total accounts reviewed for which treaty benefits were claimed where QI did not obtain sufficient documentation to establish
the payee’s entitlement to treaty benefits (including, where applicable, the treaty statement and limitation on benefitsinformation required by section 5.03(B) of the QI Agreement).
5. Total accounts reviewed held by U.S. non-exempt recipient account holders.6. Total accounts held by U.S. non-exempt recipient account holders reviewed for which QI has obtained a valid Form W-9.
C. Withholding1. The aggregate amount reported as withheld under chapter 3 by QI on Forms 1042-S with respect to substitute interest payments.2. Number of accounts for which amounts were withheld under chapter 3 with respect to substitute interest payments.3. The aggregate amount reported as withheld under chapter 4 by QI on Forms 1042-S with respect to substitute interest payments.4. Number of accounts for which amounts were withheld under chapter 4 with respect to substitute interest payments.5. Additional withholding required under chapter 4 based on results of periodic review.6. Additional withholding required under chapter 3 based on results of periodic review.7. Aggregate amount reported as withheld on Forms 1099 on reportable payments (including reportable amounts) subject to
backup withholding.8. Additional backup withholding required based on results of periodic review.9. The aggregate amount of deposits made in accordance with section 3.08 of the QI Agreement with respect to substitute interest
payments.
D. Reporting1. Total amount of interest or substitute interest payments received for which QI represented itself as assuming primary
withholding responsibility.2. Aggregate amount of substitute interest payments made.3. Total amount of payments in Question 2 that were reported on Forms 1099.4. Total amount of payments in Question 2 that were amounts subject to chapter 4 reporting reported on Form 1042-S.5. Total amount of payments in Question 2 that were amounts subject to chapter 3 reporting reported on Form 1042-S.6. Aggregate amount of any claims for credit or refund made by QI with respect to payments of substitute interest.
January 17, 2017 Bulletin No. 2017–3496
APPENDIX II
Section I. Background.
To the extent provided in section 10.05 of the QI Agreement, the reviewer is permitted to use a sampling methodology to performthe periodic review. This Appendix includes safe harbor procedures covering basic sample design parameters and methodologies,including sample size, strata allocation, and projection. Generally, sampling should only be used whenever an examination of allaccounts within a particular class of accounts would be prohibitive in terms of time and expense. If it is reasonable to examine allaccounts in connection with a particular part of the periodic review, sampling techniques should not be used. Except as otherwiseprovided herein, the terms used in this Appendix are as defined in section 2 of the QI Agreement.
Sampling should only be used if there are more than 60 accounts to review. If any accounts of a QI held by PAIs (“PAI accounts”)or accounts of a QI held by partnerships or trusts utilizing the Agency Option (“Agency Accounts”) are also included in the QI’sreview (because the PAI or the partnership or trust did not perform its own compliance review), the PAI or Agency Accounts shouldbe included in the sample of accounts for which QI acts as a QI (“QI accounts”) by adding additional strata, replicating the strataprescribed in section II.A.3 of this Appendix, as applicable, that contain only PAI accounts or Agency Accounts. For purposes ofthe QI’s periodic review, a QI account is referred to as a “sample unit” (and collectively as the “sample”) with respect to each review.If a population contains 60 or fewer sample units, all sample units for that population must be reviewed.
The sampling methodology employed envisions a documentation review (as prescribed in section 10.05(A) of the QI Agreement)requiring review of all selected sample units, and a review of: (1) withholding rate pool classifications (as prescribed in section10.05(B) of the QI Agreement), (2) withholding responsibilities (as prescribed in section 10.05(C) of the QI Agreement), and (3)information reporting (as prescribed in section 10.05(D) of the QI Agreement) that requires review of a subset (a “spot check” undersection II.B.1 of this Appendix) of the sample units reviewed in the documentation review. See section 10.05 of the QI Agreement.
The statistical sampling methodologies used in this Appendix are not intended to be and cannot be used for any other tax purpose.A QI may use another sampling technique provided it documents its parameters and methodologies for the IRS to review, asdescribed in section 10.05 of the QI Agreement. The standards and principles of Rev. Proc. 2011-42, 2011-37 I.R.B. 318, should beapplied to any safe harbor sampling procedures. At the time it reviews the QI’s periodic certification, the IRS will determine if aprojection of underwithholding identified utilizing a statistical sampling method is required based on that review, along with a reviewof the QI’s compliance report and other relevant information.
A reviewer may request approval to modify the safe harbor methodology or approval of another sampling methodology in orderto select more than one sample or to use multistage, cluster, or other sampling methodologies including additional stratifications. Toobtain IRS approval, contact the Financial Intermediaries Program in accordance with section 12.06 of the QI Agreement.
The safe harbor in this Appendix applies to all QIs, irrespective of whether the QI also acts as a QDD or not, with a certificationperiod ending December 31, 2017. For a QI that also acts as a QDD, the safe harbor excludes a sample of QDD accounts, whichwill be added in 2017 and applicable to certifications ending after December 31, 2017.
Section II. Safe Harbor Methodology.
A. DOCUMENTATION REVIEW
1. Population.
Sample of QI Accounts. The reviewer selects a random sample of accounts from a portion of the population of all QI accounts.The portion of the population will consist of: (1) all accounts held by U.S. persons (or account holders presumed to be U.S. persons)that received a reportable payment and (2) all accounts held by non-U.S. persons (or account holders presumed to be non-U.S.persons) that received a reportable amount.
2. Sample Sizes for Documentation Review.
(a) Sample Size Calculations. If PAI accounts or Agency Accounts have been added to the sample of QI accounts because thePAI or Agency Partnership or Trust did not perform its own periodic review, a separate sample size calculation should also beperformed for the PAI accounts or the Agency Accounts as if they were part of a separate QI sample. If multiple samples are used,the sample size for the each sample (including for any additional PAI accounts or Agency Accounts) is calculated independently.The sample size for each sample is the lesser of (1) the number of sample units determined using the sample formula in sectionII.A.2(c) , or (2) 25 percent of the total number of sample units in the population. However, in determining the sample size, thereviewer must adhere to the guidelines for minimum stratum sample sizes in sections II.A.3 and II.A.4 of this Appendix. This mayresult in a sample size greater than the sample size resulting from using the formula in sections II.A.2(b) and II.A.2(c) of this section.The minimum sample size of any sample shall not be less than 60. A sample size larger than calculated under this section may beused without contacting the Financial Intermediaries Program.
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(b) Sample Size Adjustments. The variable P “error rate” should be set equal to 5 percent for the sample of QI accounts.(c) Sample Formula. The number of sample units to be reviewed is determined using the sample formula as follows:
where t� 1.645 (confidence coefficient at 95 percent one-sided)P� 5 percent (error rate) for the QI account sampleQ� 1-Pd � 2 percent (precision level)N� total population
3. Strata.
Sample of QI Accounts. The reviewer must segregate all of the QI accounts into the following strata. While segregating accounts,steps should be taken to ensure all partnerships and trusts for which the QI has utilized the joint account option are placed into theappropriate direct account stratum (stratum 1) while the underlying partners, beneficiaries, or owners of the partnerships or trusts areexcluded from the indirect stratum (stratum 3). Such underlying accounts will be selected for review in accordance with sectionII.A.7 of this Appendix.
Further substratification by dollar amounts may be used in accordance with section II.A.6 of this Appendix.(a) A stratum of all accounts held by direct account holders that are not U.S. non-exempt recipients.(b) A stratum of all accounts that are held by direct account holders that are U.S. non-exempt recipients.(c) A stratum of all accounts held by indirect account holders.
4. Allocation of Sample Size to Each Stratum.
The reviewer must allocate the number of sample units for each sample (including for any PAI accounts or Agency Accountsadded to the sample of QI accounts) independently of the other samples. The reviewer must allocate the number of sample units inthe sample determined under section II.A.2 of this Appendix to each stratum described in section II.A.3 by multiplying the numberof sample units in the sample, as determined under section II.A.2, by a fraction, the numerator of which is the total number of sampleunits in the stratum and the denominator of which is the total number of sample units in the population. If the allocation of sampleunits to a stratum using the above method results in a sample size of a stratum that is less than 60 and less than the actual numberof sample units in the stratum, the minimum allocation to that stratum is the lesser of (1) 60 sample units or (2) the total numberof sample units in the stratum. If there are fewer than 60 sample units in any stratum, all sample units in that stratum must beexamined, and the difference between 60 and the number of sample units in the stratum must be reallocated to the remaining strataon a pro rata basis. If there are 60 or more sample units in the stratum, but the allocation, as determined under the fraction above,is less than 60 sample units, the number of sample units to be used in the sample from that stratum is 60.
5. Random Number Generator.
The reviewer must select for the documentation review sample units from each stratum identified in section II.A.3 of thisAppendix by using a random number generator. Random numbers should be drawn separately for each sample (including for anyPAI or Agency Account added to the sample of QI accounts) including the use of separate seeds. Information regarding the randomnumber generator used must be included in the records as required in section III.D of this Appendix. This information must besufficient to allow the IRS to replicate the random numbers as well as to allow the reviewer to continue the sequences of randomlygenerated numbers if it is determined additional sample units need to be reviewed. This information must include the name andversion of the random number generator, the seed numbers used or generated, specification of any options selected, and the computerequipment on which it was run.
6. Optional Further Stratification by Dollar Amounts.
For each sample (including for any PAI or Agency Account added to the sample of QI accounts), the reviewer may further stratifyby dollar amounts for that sample without submitting a request for approval when the reviewer is otherwise selecting the sample inaccordance with this Appendix. Reportable amounts for foreign recipients and reportable payments for U.S. recipients are to be
January 17, 2017 Bulletin No. 2017–3498
considered in the substratification. If the reviewer chooses to substratify under this section, the reviewer must comply with thefollowing rules:(a) The strata consisting of sample units that have received payments of the highest dollar amounts during the audit year shall notconsist of more than 30 accounts. All items in these strata shall be reviewed.(b) The remaining strata shall be randomly selected to contain approximately equal amounts in each substratum.(c) The minimum strata size shall not be less than 30 sample units.
7. Determining Rate of Withholding for Partnerships and Trusts for Which the QI has Applied the Joint Account Option.
When reviewing documentation of partners, beneficiaries, or owners of a partnership or trust to which a QI has applied the jointaccount option to determine the rate of withholding the QI should have applied to the partnership or trust, the reviewer may limitthe review to the number of partners, beneficiaries, or owners by referring to the table below.
Number of partners, beneficiaries, or owners/Number to be reviewed
0 – 10 All
11 – 14 10
15 – 19 13
20 – 24 16
25 – 29 18
30 – 34 20
35 – 39 21
40 – 49 22
50 – 74 24
75 – 99 26
100 – 199 27
200 – 499 29
500 – 4,999 31
� 4,999 32
B. WITHHOLDING RATE POOL, WITHHOLDING RESPONSIBILITIES, AND RETURN FILING AND INFORMATIONREPORTING REVIEWS (SPOT CHECK)
1. Selection of Accounts for Review.
For purposes of further reviewing and testing accounts previously reviewed in the documentation review for compliance with thewithholding rate pool, withholding responsibilities, and return filing and information reporting subsections of sections 10.05(B)through 10.05(D) of the QI Agreement, the reviewer must review accounts from every stratum in the sample that has failed thedocumentation review specified under section 10.05(A) of the QI Agreement, taking into account the applicable presumption ruleswhere documentation is missing, invalid, or unreliable.
To the extent the number of sample units listed above from the sample (or in the population, if the reviewer has not used statisticalsampling) in any stratum is less than 30, the reviewer must also select for review (in the order selected by the random numbergenerator under section II.A.5 of this Appendix or, if the reviewer has not used statistical sampling, in the order used by the QI forits record keeping) an additional number of sample units drawn from that stratum that equal the difference between 30 and thenumber of sample units from the sample in that stratum.
When performing portions of the spot check review, if the reviewer determines underwithholding occurred on a payment to anaccount, all payments to that account must be considered when calculating total underwithholding for that account.
Section III. Additional Requirements Regarding the Use of Sampling
A. DOCUMENTATION OF SAMPLE PLAN
The reviewer should provide in its periodic report the information described in Rev. Proc. 2011-42, Appendix (A), Sampling PlanStandards, and Appendix (B), Sampling Documentation Standards, as applicable. Additionally, originally recorded payment andwithholding amounts as well as the amount that should have been withheld and the amount actually withheld as determined by thecompliance review should be retained for every sample unit, as well as any other additional information required by this Appendix.
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B. DETERMINATION OF UNDERWITHHOLDING
If the reviewer determines that underwithholding has occurred with respect to the sampled accounts, QI shall report and pay, inaccordance with the requirements of the QI Agreement, the actual underwithheld tax without regard to projection. The QI will alsonotify the Financial Intermediaries Program within 30 days of the completion of the review, at the address provided in section 12.06of the QI Agreement, of any underwithholding identified as a result of the review. The QI must report to the IRS the amount of anyunderwithholding without regard to any curing of any documentation required to support reduced withholding applied by the QI aswell as the amount of any underwithholding following any such curing. Curing for purposes of the preceding sentence is limited tocuring performed after the selection of the sample.
C. PROJECTION
At the time it reviews the QI’s periodic certification, the IRS will determine if a projection of underwithholding identified fromthe sample is required based on that review, along with a review of QI’s compliance report and other relevant information. Ifprojection is required, the QI or the QI’s reviewers will be directed to perform the projection. The IRS will instruct the QI or theQI’s reviewers on the use of the formulas in Rev. Proc. 2011-42 to perform the projection.
If the reviewer has determined that overwithholding has occurred with respect to a sample, and the IRS determines projection isappropriate, projection may not be used for the QI to claim a refund. A projection of overwithholding may offset any underwith-holding in the sample, provided that QI enters into a closing agreement (Form 906) that QI will not file a claim for refund for anyoverwithholding that the reviewer has discovered.
The IRS reserves the right to review and adjust any projection. If after reviewing all relevant information, the IRS determines thatfurther action is necessary with respect to determining the amount of underwithholding for the year of review or any other year, theIRS may request that QI have the reviewer review additional sample units or conduct a full review of the entire sample or maydetermine that it is not appropriate to project an amount of underwithholding.
D. REPORTING OF SAMPLE RESULTS IN THE PERIODIC REVIEW REPORT
At a minimum, the reviewer should describe in the report, the steps taken to construct the sample population and the steps takento ensure all accounts subject to review were included in the population and subject to sampling under the procedures outlined inthis Appendix.
The reviewer should also record the original population and sample statistics separately for each sample (including for any PAIor Agency Account added to the sample of QI accounts) by stratum as follows:
(1) Total number of sample units in the population;(2) Total number of sample units in the sample;(3) Total reportable amounts for foreign recipients for the population;(4) Total reportable payments for U.S. recipients for the population;(5) Total reportable amounts for foreign recipients for the sample;(6) Total reportable payments for U.S. recipients for the sample;(7) Total chapter 3 withholding for the population;(8) Total backup withholding for the population;(9) Total chapter 4 withholding for the population;(10) Total chapter 3 withholding for the sample;(11) Total backup withholding for the sample; and(12) Total chapter 4 withholding for the sample.Additionally, the reviewer should note a reconciliation of amounts included in the sample population to payments and withholding
of reportable amounts as detailed in Part IV, sections E (Reconciliations of Reporting on Payments of Reportable Amounts) and F(Reconciliation of Withholding on Reportable Amounts) of Appendix I to the QI Agreement.
January 17, 2017 Bulletin No. 2017–3500
Updated FFI Agreement
Rev. Proc. 2017–16
SECTION 1. PURPOSE
This revenue procedure sets forth theagreement entered into by a foreign finan-cial institution (FFI) with the InternalRevenue Service (IRS) to be treated as aparticipating FFI under section 1471(b) ofthe Internal Revenue Code (Code) and§1.1471–4 of the Income Tax Regulations(the FFI agreement). This revenue proce-dure also provides guidance to FFIs andbranches of FFIs treated as reporting fi-nancial institutions under an applicableModel 2 intergovernmental agreement(IGA) (reporting Model 2 FFIs) on com-plying with the terms of the FFI agree-ment, as modified by the Model 2 IGA.The FFI agreement provided in RevenueProcedure 2014-38 (2014-29 I.R.B. 131)(2014 FFI agreement) expires on Decem-ber 31, 2016. The FFI agreement in thisrevenue procedure will apply to FFIs withan FFI agreement effective on or afterJanuary 1, 2017.
Section 2 of this revenue procedureprovides background on the FFI agree-ment. Section 3 of this revenue procedureprovides information on registering as aparticipating FFI (including a reportingModel 2 FFI) to comply with the terms ofthe FFI agreement and renewing an FFIagreement on the IRS FATCA registrationwebsite. Section 4 of this revenue proce-dure provides information on the scope ofFFIs that are eligible to register to enterinto the FFI agreement to be treated as aparticipating FFI. Section 5 of this reve-nue procedure provides a highlight of thechanges to the 2014 FFI agreement. Sec-tion 6 of this revenue procedure providesthe FFI agreement. Section 7 of this rev-enue procedure provides the effectivedate; section 8 provides the effect on otherdocuments; section 9 describes the collec-tion of information burdens under the Pa-perwork Reduction Act; and section 10provides drafting information. This reve-nue procedure supersedes Revenue Proce-dure 2014-38 with respect to the require-ments of a participating FFI (including areporting Model 2 FFI) that apply on orafter January 1, 2017.
SECTION 2. BACKGROUND
On March 18, 2010, the Hiring Incen-tives to Restore Employment Act of 2010,Pub. L. 111-147, added chapter 4 of Sub-title A (chapter 4 or FATCA) of the Code,comprised of sections 1471 through 1474.On January 28, 2013, the Department ofthe Treasury (Treasury Department) andthe IRS published final regulations (TD9610) under chapter 4 in the Federal Reg-ister (78 FR 5874), and, on September 10,2013, published corrections to those finalregulations (collectively, the 2013 chapter4 regulations). The 2013 chapter 4 regu-lations provide comprehensive guidanceto withholding agents and FFIs, includingthe substantive requirements applicable toparticipating FFIs under the FFI agree-ment, which are contained in §1.1471–4. On January 13, 2014, the Treasury De-partment and the IRS issued RevenueProcedure 2014-13 (2014-3 I.R.B. 419),which provides the terms of the FFI agree-ment and substantially incorporates theprovisions of §1.1471–4 of the 2013chapter 4 regulations, as modified by No-tice 2013-43 (2013-31 I.R.B. 113) (forexample, to reflect revised timelines forFATCA implementation).
On March 6, 2014, temporary regu-lations (TD 9657) under chapter 4 werepublished in the Federal Register (79 FR12812) and corrections to the temporaryregulations were published in the Fed-eral Register on July 1, 2014, and No-vember 18, 2014 (79 FR 37175 and 78FR 68619, respectively). TD 9657 andthe corrections thereto are referred tocollectively as the 2014 chapter 4 regu-lations.
On July 14, 2014, the Treasury Depart-ment and the IRS issued Revenue Proce-dure 2014-38, which updated the FFIagreement published in Revenue Proce-dure 2014-13 consistent with the 2014chapter 4 regulations and temporary reg-ulations (TD 9658) under chapters 3 and61 and sections 3406 and 6402 (79 FR12726). The Treasury Department and theIRS are publishing regulations finalizingcertain temporary regulations under chap-ter 4 (final chapter 4 regulations) and tem-porary regulations providing additionalrules under chapter 4 (temporary chapter 4regulations) shortly after the publicationdate of the FFI agreement (T.D. 9809).
The Treasury Department and the IRS arealso publishing regulations finalizing cer-tain temporary regulations under chapters3 and 61 and sections 3406 and 6402 andtemporary regulations providing rules un-der chapter 3 shortly after the publicationdate of the FFI agreement (T.D. 9808).The FFI agreement references and incor-porates certain provisions of the afore-mentioned regulations.
SECTION 3. FATCAREGISTRATION FORPARTICIPATING FFI (INCLUDINGA REPORTING MODEL 2 FFI)STATUS AND RENEWAL OF THEFFI AGREEMENT
.01 New Applicants. An FFI may reg-ister on Form 8957, Foreign Account TaxCompliance Act (FATCA) Registration,via the FATCA registration website avail-able at https://www.irs.gov/fatca to enterinto an FFI agreement on behalf of allbranches (defined in section 2.07 of theFFI agreement as including a home of-fice), other than branches that are report-ing Model 1 FFIs or U.S. branches, so thateach of such branches may be treated as aparticipating FFI and receive a global in-termediary identification number (GIIN).An FFI that is eligible to be treated as areporting Model 2 FFI pursuant to an ap-plicable Model 2 IGA with respect to oneor more of its branches (including a homeoffice) may also register on the FATCAregistration website on behalf of suchbranches to obtain a GIIN and to agree tocomply with the terms of the FFI agree-ment, as modified by an applicable Model2 IGA, so that such branches may betreated as reporting Model 2 FFIs. Theeffective date of the FFI agreement withrespect to an FFI or a branch of an FFIthat is a participating FFI is the date onwhich the IRS issues a GIIN to the FFI orbranch.
.02 Renewals. A participating FFI (in-cluding a reporting Model 2 FFI) thatseeks to renew its FFI agreement must doso through the FATCA registration web-site. The IRS anticipates that the renewalfunction for 2017 FFI agreements will beavailable in May 2017. An FFI that seeksto renew its FFI agreement must renewprior to July 31, 2017, and the renewedFFI agreement shall apply beginning Jan-uary 1, 2017, provided that the FFI acts in
Bulletin No. 2017–3 January 17, 2017501
accordance with the FFI agreement pro-vided in section 6 of this revenue proce-dure beginning on January 1, 2017. AnFFI that does not renew its FFI agreementby July 31, 2017, will be treated as havingterminated its FFI agreement on January1, 2017.
SECTION 4. SCOPE OF THE FFIAGREEMENT
An FFI that registers as a participatingFFI (other than a reporting Model 2 FFI)must comply with the FFI agreement withrespect to all of its branches (including ahome office), other than branches that arereporting Model 1 FFIs or that are U.S.branches. In the case of an FFI that reg-isters as a reporting Model 2 FFI withrespect to a branch (including a homeoffice) to be treated as a reporting Model2 FFI, the FFI does not have to agree tocomply with the terms of the FFI agree-ment for its branches that are not reportingModel 2 FFIs. However, if any branchesof a reporting Model 2 FFI are not treatedas reporting Model 2 FFIs and need to betreated as participating FFIs, the FFI mustbe able to comply with the FFI agreementwith respect to all of its branches (otherthan branches that are reporting Model 1FFIs or that are U.S. branches). In general,the FFI agreement does not apply to areporting Model 1 FFI, unless the report-ing Model 1 FFI has registered a branchlocated outside of a Model 1 IGA juris-diction to agree to comply with the termsof the FFI agreement and to treat thebranch as a participating FFI or reportingModel 2 FFI. In such a case, the terms ofthe FFI agreement apply to the operationsof such branch.
With respect to an FFI that agrees thatone or more branches (other than a branchthat is a reporting Model 1 FFI or a U.S.branch) will be subject to the require-ments of the FFI agreement and that hasentered into a Qualified Intermediary (QI)agreement, Withholding Foreign Partner-ship (WP) agreement, or WithholdingForeign Trust (WT) agreement, the QI,WP, or WT agreement, as applicable, willapply in addition to the requirements ofthe FFI agreement, unless specificallymodified by the QI, WP, or WT agree-ment.
SECTION 5. HIGHLIGHTS OFAMENDMENTS TO THE FFIAGREEMENT
Section 6 of this revenue proceduresets forth the FFI agreement applicable toFFIs with agreements effective on or afterJanuary 1, 2017. The FFI agreement isupdated to be consistent with the final andtemporary chapter 4 regulations and toprovide further clarification of certain ofthe requirements in the 2014 FFI agree-ment. The following provides a highlightof the changes to the 2014 FFI agreement.
Under the final chapter 4 regulations, aU.S. branch of an FFI that is treated as aU.S. person (as defined in §1.1441–1(b)(2)) is not required to be part of anFFI that is a participating FFI or registereddeemed-compliant FFI when it is acting asan intermediary. Additionally, a U.S.branch that does not agree to be treated asa U.S. person is not required to be part ofan FFI that is a participating FFI or reg-istered deemed-compliant FFI if thebranch, when acting as an intermediary,applies the rules in §1.1471–4(d)(2)(iii)(C). Section 1.1471–4(d)(2)(iii)(C) ofthe final chapter 4 regulations providesthat such U.S. branches must report theirU.S. accounts and accounts held byowner-documented FFIs under §1.1471–4(d)(3), (d)(5), or (d)(6) and apply thewithholding and due diligence rules in§1.1471–4(b) and (c)(2) to all of its ac-counts as if the U.S. branch were a par-ticipating FFI. Although such U.S. branchapplies certain rules in §1.1471–4 as if itwere a participating FFI, it is unnecessaryfor the U.S. branch to be registered and toagree to the terms of the FFI agreement.Accordingly, the FFI agreement removesthe provisions on U.S. branches that werein the 2014 FFI agreement. See the pre-amble to the final chapter 4 regulations fora more detailed explanation of thechanges to the regulations that apply toU.S. branches.
Section 1.02 of the FFI agreement isrevised to clarify that a reporting Model 2FFI does not need to apply the FFI agree-ment to all branches of the reportingModel 2 FFI, unless the reporting Model 2FFI has other branches that need to becovered by the FFI agreement to betreated as participating FFIs (in whichcase all branches of the FFI other than
branches that are reporting Model 1FFIs or U.S. branches must be registeredto agree to the terms of the FFI agree-ment).
Allowances in the temporary chapter 4regulations for combined reporting onForms 1042-S and 8966 following amerger or bulk acquisition of an FFI’saccounts are incorporated by cross-reference to such regulations in sections6.02(B)(2) and 6.05(F) of the FFI agree-ment. Additionally, rules in the temporarychapter 4 regulations that clarify informa-tion reported by participating FFIs that arepartnerships on Form 8966 on financialaccounts held by their partners are addedby cross-reference to such regulations insection 6.02(B) of the FFI agreement. Insections 8.03 and 8.04 of the FFI agree-ment, the timing of certifications and thescope of IRS inquiries are updated consis-tent with the final chapter 4 regulations. Acoordination rule for reporting on owner-documented FFIs in the final chapter 4regulations is added in section 9.02(B)(5)of the FFI agreement, and section 9 of theFFI agreement is reorganized for clarity.
Several revisions are made to the FFIagreement to reflect the expiration of tran-sitional periods that were provided for inthe 2014 chapter 4 regulations. Sections1.02, 4.02(C), 6.05(E), 9.01, and 11.01(A)of the FFI agreement are revised, and sec-tions 7.04(A) and 11.01(C) of the FFIagreement are removed, to coordinatewith the expiration of limited FFI andlimited branch statuses on December 31,2016. Sections 4.02(C), 6.05(E), 7.04,11.01(B), and 11.02(B)(6) of the FFIagreement are modified to apply to relatedentities or branches (as defined in section2.67 of the FFI agreement) of reportingModel 2 FFIs due to the expiration of thetransitional period for limited FFI andlimited branch statuses. Section 6.02(B)(2) of the 2014 FFI agreement (relating toreporting of payments on U.S. accounts)is removed to coordinate with the expira-tion of the transitional reporting rules for2014 and 2015, and section 6.02(B)(3) ofthe FFI agreement is renumbered as sec-tion 6.02(B)(2) of the FFI agreement.
Section 4.01(A) of the FFI agreementis revised to clarify that a participatingFFI is required to withhold on a withhold-able payment to a payee that is (or ispresumed to be) a passive NFFE that has
January 17, 2017 Bulletin No. 2017–3502
not identified its substantial U.S. ownersor certified that it has no substantial U.S.owners, as required under §1.1471–3(d)(12)(iii), with respect to an offshoreobligation that is not an account. In ad-dition, section 6.02(A)(3) of the FFIagreement is revised to remove a refer-ence to a trustee-documented trust sub-ject to a Model 1 IGA because a partic-ipating FFI when acting as a trustee of atrustee-documented trust would reportsuch trustee-documented trust to the ap-plicable Model 1 jurisdiction, not theIRS.
Additional revisions are made to theFFI agreement to correct and clarify cer-tain provisions applicable to reportingModel 2 FFIs. In section 2.62 of the FFIagreement, the definition of a preexistingaccount is modified to include the defini-tion of the term from the Model 2 IGAthat is applied by a reporting Model 2 FFI.Under the 2014 FFI agreement, a report-ing Model 2 FFI may apply the due dili-gence procedures in the FFI agreement orthe procedures in Annex I of the applica-ble Model 2 IGA for the two year periodafter an applicable Model 2 IGA has beensigned without being bound to such pro-cedures. Section 3.01 of the FFI agree-ment is revised to extend such period totwo years from the date the applicableModel 2 IGA enters into force (rather thanthe date of signature), but only with re-spect to accounts for which the due dili-gence procedures commenced prior to en-try into force of the applicable Model 2IGA.
The presumption rules for reportingModel 2 FFIs for entity accounts are up-dated in section 3.04(C) of the FFI agree-ment. Section 3.04(C) of the 2014 FFIagreement provides that, to the extent areporting Model 2 FFI applies the duediligence procedures described in Annex Iof the applicable Model 2 IGA, such FFImust apply the procedures of Annex I ofthe applicable Model 2 IGA to treat theaccount as held by a nonparticipating FFIor as a non-consenting U.S. account. Sec-tion 3.04(C) of the 2014 FFI agreementalso provides that, with respect to a with-holdable payment made to an entitypayee, a reporting Model 2 FFI must ap-ply the presumption rules of §1.1471–3(f). A comment to the 2014 chapter 4regulations suggested that an undocu-
mented entity account should be treated asa non-consenting U.S. account and shouldnot be subject to withholding. The Trea-sury Department and the IRS do not agreewith this suggested treatment of undocu-mented accounts. Under Annex I of theModel 2 IGA, reporting Model 2 FFIsmust apply the due diligence proceduresdescribed in Annex I to document thestatus of their account holders under theIGA as U.S. accounts, non-consentingU.S. accounts, or nonparticipating FFIs,and if such procedures are applied, casesin which an entity account is undocu-mented should not arise. If a reportingModel 2 FFI does not have information inits possession or that is publicly availablebased on which it can reasonably deter-mine the status of an entity accountholder, the FFI must obtain a self-certification to establish the status of suchentity (or in some cases, a self-certification to establish the status of thecontrolling persons of a passive NFFE)consistent with Annex I of the applicableIGA. In cases where a reporting Model 2FFI acts as an intermediary for a with-holdable payment that is allocated to anentity account and is unable to documentthe account by obtaining such informationor self-certification consistent with theprocedures described in Annex I of theapplicable IGA, the chapter 4 regulationsand the FFI agreement provide presump-tion rules for withholdable paymentsmade to such account (and if an FFI hasmany such undocumented accounts, theU.S. Competent Authority may determinethat the FFI is significantly non-compliantwith the requirements of the IGA). In suchcases, the reporting Model 2 FFI mustapply the presumption rules in §1.1471–3(f) to treat such entity account as a non-participating FFI and provide sufficientinformation to the upstream withholdingagent to withhold on the payment (or, ifsuch reporting Model 2 FFI is a WP, WT,or a QI that assumes primary withholdingresponsibility on the payment for chapters3 and 4, the WP, WT, or QI must with-hold). Treating undocumented entity ac-counts as accounts of nonparticipatingFFIs, and withholding on them accord-ingly, is consistent with the approach ofthe IGAs, which contemplate that nonpar-ticipating FFIs remain subject to with-
holding on withholdable payments re-ceived through a reporting Model 2 FFI.
The 2014 FFI agreement provides thata reporting Model 2 FFI may documentaccount holders and payees with docu-mentation that meets the requirements un-der Annex I of an applicable Model 2IGA. However, the due diligence proce-dures in Annex I of the Model 2 IGApermits a reporting Model 2 FFI to rely oncertain publicly available information todocument certain account holders. Section3.03(B)(2) of the FFI agreement is revisedto cover publicly available informationused to document an account, and pro-vides that a reporting Model 2 FFI mayrely on such information, to the extentpermitted in Annex I of an applicableModel 2 IGA, until the date there is achange in circumstances that affects theaccount holder’s claim of chapter 4 status.
The FFI agreement includes new pro-cedures for final certifications of compli-ance upon a termination of the FFI agree-ment. An FFI must provide to the IRSwithin six months of the date of termina-tion a certification of compliance coveringthe period from the end of the most recentcertification period (or, if the first certifi-cation period has not ended, the effectivedate of the FFI agreement) to the date oftermination, irrespective of whether a pe-riodic review has been completed for suchperiod. The FFI agreement is also revisedto make clear that an FFI’s obligationsunder the FFI agreement with respect tothe period covered by the agreement whenit was applicable will survive terminationof the agreement. This revision is consis-tent with the QI, WP, and WT agreements,which provide that a termination of a QI,WP, or WT agreement does not affect theentity’s reporting, tax filing, withholding,depositing, or payment responsibilitiesarising in the calendar years for which theQI, WP, or WT agreement was in effect,including the pre-termination portion ofthe calendar year during which the termi-nation occurred.
If a jurisdiction that is not treated ashaving an IGA in effect is later treated ashaving a Model 1 IGA in effect, eachparticipating FFI (other than a participat-ing FFI that is a branch) in such jurisdic-tion should modify its registration on theFATCA registration website to reflect anupdated chapter 4 status consistent with
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the Model 1 IGA if it chooses to complywith such IGA, and will be treated ashaving terminated its FFI agreement onlywith respect to the home office of the FFIthat is treated as a reporting Model 1 FFI.A participating FFI that is a branch that isin a jurisdiction that is later treated ashaving a Model 1 IGA may terminate itsFFI agreement and be treated as a report-ing Model 1 FFI by applying the provi-sions of the applicable Model 1 IGA con-sistent with the terms of the applicableIGA. Section 12.03(C) of the FFI agree-ment (survival of obligations under theFFI agreement) will apply with respect tothe home office or branch. Within 30 daysof the change in chapter 4 status, the FFImust provide to each withholding agenteither a new withholding certificate or oralor written confirmation (including bye-mail) of the change in the FFI’s chapter4 status. The FFI agreement will continueto apply to any other branches of the re-porting Model 1 FFI that are covered bythe FFI agreement to be treated as partic-ipating FFIs.
SECTION 6. FFI AGREEMENT
The text of the FFI agreement is setforth below. The IRS will not providesigned copies of the FFI agreement.
Section 1. Purpose and Scope.Section 2. Definitions.Section 3. Due Diligence Require-
ments for Documentation and Identifica-tion of Account Holders and Nonpartici-pating FFI Payees.
Section 4. Withholding Requirements.Section 5. Deposit Requirements.Section 6. Information Reporting and
Tax Return Obligations.Section 7. Legal Prohibitions on Re-
porting U.S. Accounts and on Withhold-ing.
Section 8. Compliance Procedures.Section 9. Participating FFI Withhold-
ing Certificate.Section 10. Adjustments for Overwith-
holding and Underwithholding and Re-funds.
Section 11. FFI Group.Section 12. Expiration, Modification,
Termination, Default, and Renewal of thisAgreement.
Section 13. Miscellaneous Provisions.
Section 1. Purpose and Scope.
.01 Purpose. THIS AGREEMENT ismade under, and pursuant to, section1471(b) and §1.1471–4:
WHEREAS, an FFI has completedand submitted a Form 8957, Foreign Ac-count Tax Compliance Act (FATCA)Registration, in accordance with its in-structions, which registration indicatedthat one or more of its branches (as de-fined in section 2.07 of this agreement,which includes a home office) seeks to betreated as a participating FFI, and hasrepresented that such branches (other thana branch that is a reporting Model 1 FFI ora U.S. branch) are eligible to, and willcomply with, the terms of the FFI agree-ment;
WHEREAS, this agreement estab-lishes the FFI’s due diligence, withhold-ing, information reporting, tax returnfiling, and other obligations as a partici-pating FFI under sections 1471 through1474 and §§1.1471–1 through 1.1474-6;
NOW THEREFORE, the terms ofthis agreement are as follows:
.02 General Obligations. An FFI thatagrees to comply with the terms of thisagreement applicable to all of itsbranches, other than a branch that is areporting Model 1 FFI or a U.S. branch,will be treated as a participating FFI withrespect to such branches, and such partic-ipating FFI branches will not be subject towithholding under section 1471. An FFI(or branch of an FFI, other than a branchthat is a reporting Model 1 FFI or a U.S.branch) must act in its capacity as a par-ticipating FFI with respect to all of theaccounts that it maintains for purposes ofreporting such accounts and must act as awithholding agent to the extent requiredunder this agreement. Notwithstandingthe preceding sentences, an FFI thatagrees to comply with the terms of thisagreement applicable only to branchesthat are located in a jurisdiction that istreated as having a Model 2 IGA in effectwill be treated as a reporting Model 2 FFIwith respect to such branches, and suchbranches will not be subject to withhold-ing under section 1471, even if not allbranches of the FFI are able to complywith the terms of the FFI agreement. Areporting Model 2 FFI may comply withthe requirements of the FFI agreement,
including with respect to due diligence,reporting, and withholding, by applyingthe rules set forth in this agreement (ap-plied by substituting the term “reportingModel 2 FFI” for “participating FFI”throughout the FFI agreement, exceptwhere the provisions of the FFI agreementexplicitly refer to a reporting Model 2FFI).
Section 2. Definitions.
01. Scope of Definitions.
(A) In General. Unless specificallymodified in this agreement, all terms usedin this agreement have the same meaningas provided in sections 1471 through1474, including the regulations thereun-der. See § 1.1471–1(b) for a comprehen-sive list of chapter 4 terms and definitions.
(B) Reporting Model 2 FFIs. A re-porting Model 2 FFI must use the defini-tions set forth in the applicable Model 2IGA with respect to the accounts that itmaintains in the Model 2 IGA jurisdiction,unless the Model 2 IGA jurisdiction per-mits the use of a definition provided inthis agreement or §1.1471–1(b) in lieu ofa definition set forth in the applicableModel 2 IGA, and such application doesnot frustrate the purposes of the Model 2IGA.
.02 Account/Financial account. “Ac-count” or “financial account” means anaccount described in §1.1471–1(b)(1).
.03 Account holder. “Account holder”has the meaning set forth in §1.1471–1(b)(2).
.04 Account maintained by a partic-ipating FFI. “Account maintained by aparticipating FFI” means an account that aparticipating FFI is treated as maintainingunder §1.1471–5(b)(5).
.05 Active NFFE. In the case of areporting Model 2 FFI, “active NFFE”means an active NFFE as defined in theapplicable Model 2 IGA.
.06 Backup withholding. “Backupwithholding” has the meaning set forth in§1.1471–1(b)(7).
.07 Branch. “Branch” has the meaningset forth in §1.1471–1(b)(10).
.08 Branch that maintains the ac-count. A branch maintains an account ifthe rights and obligations of the partici-pating FFI and the account holder withregard to such account (including any as-
January 17, 2017 Bulletin No. 2017–3504
sets held in the account) are governed bythe laws of the jurisdiction in which thebranch is located. See §1.1471–5(b)(5) forwhen a participating FFI is treated asmaintaining an account.
.09 Certified deemed-compliant FFI.“Certified deemed-compliant FFI” has themeaning set forth in §1.1471–1(b)(14).
.10 Change in circumstances. For aparticipating FFI, a “change in circum-stances” has the meaning described in§1.1471–4(c)(2)(iii). In the case of a re-porting Model 2 FFI that applies the pro-cedures of Annex I of the applicableModel 2 IGA with respect to an account,a change of circumstances has the mean-ing that such term has under Annex I ofthe applicable Model 2 IGA.
.11 Chapter 4 reportable amount.“Chapter 4 reportable amount” has themeaning set forth in §1.1471–1(b)(18).
.12 Chapter 4 reporting pool. “Chap-ter 4 reporting pool” means a chapter 4withholding rate pool of account holdersand payees (as defined in section 2.14 ofthis Agreement) associated with a with-holdable payment that is within a partic-ular income code (as provided in the in-structions to Form 1042-S) reported onForm 1042-S and for which a separateForm 1042-S is required to be filed.
.13 Chapter 4 status. “Chapter 4 sta-tus” has the meaning set forth in §1.1471–1(b)(19).
.14 Chapter 4 withholding rate pool.“Chapter 4 withholding rate pool” meansa pool of payees that are nonparticipatingFFIs provided on a chapter 4 withholdingstatement (as described in §1.1471–3(c)(3)(iii)(B)(3)) to which a withholdablepayment is allocated. “Chapter 4 with-holding rate pool” also means a pool ofpayees that are described in paragraph(A) or (B) that is provided on an FFIwithholding statement (as described in§1.1471–3(c)(3)(iii)(B)(2)) to which awithholdable payment is allocated:
(A) A pool of payees consisting of eachclass of recalcitrant account hold-ers described in §1.1471–4(d)(6) (or with respect to an FFI thatis a QI, a single pool of recalcitrantaccount holders without the needto subdivide into each class of re-calcitrant account holders de-scribed in §1.1471–4(d)(6)), in-cluding a separate pool of account
holders to which the escrow pro-cedures for dormant accounts ap-ply; or
(B) A pool of payees that are U.S.persons as described in §1.1471–3(c)(3)(iii)(B)(2).
.15 Compliance FI. “Compliance FI”means a financial institution described in§1.1471–4(f)(2)(ii)(A).
.16 Custodial institution. “Custodialinstitution” has the meaning set forth in§1.1471–1(b)(25).
.17 Deemed-compliant FFI. “Deemed-compliant FFI” has the meaning set forth in§1.1471–1(b)(27).
.18 Depository institution. “Deposi-tory institution” has the meaning set forthin §1.1471–1(b)(30).
.19 Effective date of the FFI agree-ment. The effective date of the FFI agree-ment with respect to an FFI or a branch ofan FFI that is a participating FFI is thedate on which the IRS issues a GIIN to theFFI or branch. For a participating FFI thatreceives a GIIN prior to June 30, 2014, theeffective date of the FFI agreement is June30, 2014.
.20 Entity account. “Entity account”has the meaning set forth in §1.1471–1(b)(40).
.21 Entity payee. “Entity payee”means a payee that is an entity and that isnot an account holder.
.22 Excepted NFFE. “ExceptedNFFE” has the meaning set forth in§1.1471–1(b)(41).
.23 Exempt beneficial owner. “Ex-empt beneficial owner” has the meaningset forth in §1.1471–1(b)(42).
.24 Exempt recipient. “Exempt recip-ient” has the meaning set forth in§1.1471–1(b)(43).
.25 Financial institution (FI). “Finan-cial institution” or “FI” has the meaningset forth in §1.1471–1(b)(50).
.26 FFI group. “FFI group” means anexpanded affiliated group (as defined in§1.1471–5(i)) that includes one or moreparticipating FFIs or, in the case of areporting Model 2 FFI, a group of relatedentities as defined in an applicable Model2 IGA.
.27 FFI member. “FFI member”means an FFI that is a member of an FFIgroup.
.28 FFI withholding statement. “FFIwithholding statement” means a withhold-
ing statement provided by a participatingFFI or registered deemed-compliant FFIthat meets the requirements of section9.02 of this agreement.
.29 Foreign financial institution(FFI). “Foreign financial institution” or“FFI” has the meaning set forth in§1.1471–1(b)(47).
.30 Foreign reportable amount.“Foreign reportable amount” means apayment of foreign source amounts de-scribed in §1.1471–4(d)(2)(ii)(F).
.31 Form 945. “Form 945” means IRSForm 945, Annual Return of WithheldFederal Income Tax.
.32 Form 1042. “Form 1042” meansIRS Form 1042, Annual Withholding TaxReturn for U.S. Source Income of ForeignPersons.
.33 Form 1042-S. “Form 1042-S”means IRS Form 1042-S, Foreign Per-son’s U.S. Source Income Subject toWithholding.
.34 Form 1099. “Form 1099” meansIRS Form 1099-B, Proceeds From Brokerand Barter Exchange Transactions; IRSForm 1099-DIV, Dividends and Distribu-tions; IRS Form 1099-INT, Interest In-come; IRS Form 1099-MISC, Miscella-neous Income; IRS Form 1099-OID,Original Issue Discount, and any otherform in the IRS Form 1099 series appro-priate to the type of payment required tobe reported.
.35 Form 8957. “Form 8957” meansIRS Form 8957, Foreign Account TaxCompliance Act (FATCA) Registration,and includes the online version of theform on the FATCA registration websiteavailable at https://www.irs.gov/fatca.
.36 Form 8966. “Form 8966” meansIRS Form 8966, FATCA Report, and in-cludes the FATCA Report XML.
.37 GIIN. “GIIN” or “global interme-diary identification number” has themeaning set forth in §1.1471–1(b)(57).
.38 Grandfathered obligation.“Grandfathered obligation” has the mean-ing set forth in §1.1471–2(b)(2)(i).
.39 Individual account. “Individualaccount” has the meaning set forth in§1.1471–1(b)(64).
.40 Intergovernmental Agreement(IGA). “Intergovernmental Agreement”or “IGA” has the meaning set forth in§1.1471–1(b)(67).
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.41 IRS FFI List. “IRS FFI List” hasthe meaning set forth in §1.1471–1(b)(73).
.42 Lead FI. “Lead FI” means an FFIor U.S. financial institution that is desig-nated by one or more members of the FFIgroup to initiate and manage FATCA reg-istration via the FATCA registration web-site for such FFI members of the FFIgroup and that agrees to the responsibili-ties described in section 11.02 of thisagreement.
.43 Limited branch. “Limited branch”has the meaning set forth in §1.1471–1(b)(76).
.44 Limited FFI. “Limited FFI” hasthe meaning set forth in §1.1471–1(b)(77).
.45 Model 1 IGA. “Model 1 IGA” hasthe meaning set forth in §1.1471–1(b)(78).
.46 Model 2 IGA. “Model 2 IGA” hasthe meaning set forth in §1.1471–1(b)(79).
.47 New account. “New account”means an account other than a preexistingaccount.
.48 Non-consenting U.S. account. Forpurposes of a reporting Model 2 FFI,“non-consenting U.S. account” has themeaning that such term has under an ap-plicable Model 2 IGA.
.49 Non-exempt recipient. “Non-exempt recipient” has the meaning setforth in §1.1471–1(b)(81).
.50 Non-financial foreign entity(NFFE). “Non-financial foreign entity” or“NFFE” has the meaning set forth in§1.1471–1(b)(80).
.51 Nonparticipating FFI. “Nonpar-ticipating FFI” has the meaning set forthin §1.1471–1(b)(82).
.52 Nonqualified intermediary (NQI).“Nonqualified intermediary” or “NQI” hasthe meaning set forth in §1.1471–1(b)(85).
.53 Non-U.S. account. “Non-U.S. ac-count” has the meaning set forth in§1.1471–1(b)(84).
.54 Non-U.S. payor. “Non-U.S. payor”means a payor other than a U.S. payor.
.55 Nonwithholding foreign partner-ship (NWP). “Nonwithholding foreignpartnership” or “NWP” has the meaningset forth in §1.1471–1(b)(86).
.56 Nonwithholding foreign trust(NWT). “Nonwithholding foreign trust”
or “NWT” has the meaning set forth in§1.1471–1(b)(87).
.57 Offshore obligation. “Offshoreobligation” has the meaning set forth in§1.1471–1(b)(88).
.58 Owner-documented FFI. “Owner-documented FFI” has the meaning set forthin §1.1471–1(b)(90).
.59 Participating FFI. “ParticipatingFFI” means an FFI that has agreed tocomply with the requirements of an FFIagreement with respect to all branches ofthe FFI, other than a branch that is areporting Model 1 FFI or a U.S. branch. Aparticipating FFI also includes a reportingModel 2 FFI. See the definition of report-ing Model 2 FFI in section 2.69 of thisagreement.
.60 Passive NFFE. “Passive NFFE”means an NFFE other than an exceptedNFFE (or, in the case of a reporting Model2 FFI, other than an active NFFE).
.61 Payee. “Payee” has the meaningset forth in §1.1471–1(b)(96).
.62 Preexisting account. “Preexistingaccount” means an account described in§1.1471–1(b)(101). With respect to a re-porting Model 2 FFI, “preexisting ac-count” means a financial account main-tained by the reporting Model 2 FFI as ofthe determination date (as defined in theapplicable Model 2 IGA).
.63 Preexisting obligation. “Preexist-ing obligation” means an obligation de-scribed in §1.1471–1(b)(104).
.64 Qualified intermediary. “Quali-fied intermediary” or “QI” has the mean-ing set forth in §1.1471–1(b)(107).
.65 Recalcitrant account holder. “Re-calcitrant account holder” has the mean-ing set forth in §1.1471–1(b)(110).
.66 Registered deemed-compliantFFI. “Registered deemed-compliant FFI”means an FFI described in §1.1471–5(f)(1), and includes a reporting Model 1FFI, a QI branch of a U.S. financial insti-tution that is a reporting Model 1 FFI, andan FFI treated as a registered deemed-compliant FFI under a Model 2 IGA.
.67 Related entity or branch. “Re-lated entity or branch” means a relatedentity or branch of a reporting Model 1FFI or a reporting Model 2 FFI that istreated as a nonparticipating FFI underArticle 3(5) of the Model 2 IGA (or anyanalogous provision in an applicableModel 2 IGA) or Article 4(5) of the
Model 1 IGA (or any analogous provisionin an applicable Model 1 IGA) if the re-quirements in the applicable IGA withrespect to such related entity or branch aresatisfied.
.68 Reporting Model 1 FFI. “Report-ing Model 1 FFI” means an FFI or branchof an FFI that is treated as a reportingfinancial institution under an applicableModel 1 IGA and that has registered withthe IRS to obtain a GIIN.
.69 Reporting Model 2 FFI. “Report-ing Model 2 FFI” means an FFI or branchof an FFI that is treated as a reportingfinancial institution under an applicableModel 2 IGA and that has registered withthe IRS to comply with the terms of thisagreement, as modified by an applicableModel 2 IGA.
.70 Reportable payment. “Reportablepayment” has the meaning set forth in§1.1471–1(b)(113).
.71 Responsible officer. “Responsibleofficer” has the meaning set forth in§1.1471–1(b)(116).
.72 Specified insurance company.“Specified insurance company” has themeaning set forth in §1.1471–1(b)(119).
.73 Territory FI. “Territory FI” or“territory financial institution” has themeaning set forth in §1.1471–1(b)(130).
.74 U.S. account. “U.S. account” hasthe meaning set forth in §1.1471–1(b)(134).
.75 U.S. payor. “U.S. payor” has themeaning set forth in §1.1471–1(b)(140).
.76 U.S. source FDAP income. “U.S.source FDAP income” has the meaningset forth in §1.1471–1(b)(142).
.77 Withholdable payment. “With-holdable payment” has the meaning setforth in §1.1471–1(b)(145).
.78 Withholding agent. “Withholdingagent” has the meaning set forth in§1.1471–1(b)(147).
.79 Withholding certificate. “With-holding certificate” has the meaning setforth in §1.1471–1(b)(148).
.80 Withholding foreign partnership(WP). “Withholding foreign partnership”or “WP” has the meaning set forth in§1.1471–1(b)(149).
.81 Withholding foreign trust (WT).“Withholding foreign trust” or “WT” hasthe meaning set forth in §1.1471–1(b)(151).
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Section 3. Due Diligence Requirementsfor Documentation and Identificationof Account Holders andNonparticipating FFI Payees.
.01 In General. The due diligence pro-cedures described in this section 3 gener-ally apply to a participating FFI. The par-ticipating FFI must perform the duediligence procedures described in this sec-tion 3 to determine which of the accountsthat it maintains are (i) U.S. accounts, (ii)accounts held by recalcitrant accountholders, (iii) accounts held by nonpartici-pating FFIs, or (iv) non-U.S. accounts. Aparticipating FFI that makes a withhold-able payment to a payee other than anaccount holder must also perform due dil-igence procedures described in this sec-tion 3 to determine if withholding is re-quired under section 4 of this agreement.
A reporting Model 2 FFI must performthe due diligence procedures described inAnnex I of the applicable Model 2 IGAwith respect to all accounts that such re-porting Model 2 FFI maintains within theModel 2 IGA jurisdiction unless the re-porting Model 2 FFI elects to apply thedue diligence procedures of this agree-ment, as described in this section 3. Areporting Model 2 FFI may apply the duediligence procedures described in section3.02 of this agreement separately for eachsection of Annex I (for example, preexist-ing entity accounts) with respect to allaccounts or with respect to any clearlyidentified group of accounts (such as byline of business or the location where theaccount is maintained). Except as pro-vided for the two year period followingthe date that an applicable Model 2 IGAhas entered into force, a reporting Model 2FFI that applies the due diligence proce-dures of section 3.02 of this agreementwith respect to certain accounts must con-tinue to apply these procedures consis-tently to these accounts in all subsequentyears unless there has been a materialmodification to section 3.02 of this agree-ment or §1.1471–4(c). With respect to thetwo-year period beginning on the date thatan applicable Model 2 IGA has enteredinto force, a reporting Model 2 FFI mayapply either the due diligence proceduresdescribed in section 3.02 of this agree-ment or those described in Annex 1 of theapplicable Model 2 IGA with respect to
any clearly identified group of accounts,without being bound to a particular set ofdue diligence rules, so long as the appli-cation does not frustrate the purpose of theModel 2 IGA, and only to the extent duediligence procedures with respect to suchaccounts commenced prior to entry intoforce of the applicable Model 2 IGA. Not-withstanding the foregoing, a reportingModel 2 FFI must apply the due diligenceprocedures of section 3.02(B) of thisagreement with respect to an entity payeeother than an account holder that is receiv-ing a withholdable payment.
.02 Due Diligence Procedures.
(A) Identification and Documenta-tion of Account Holders. A participatingFFI is required to determine the chapter 4status of each holder of an account main-tained by the participating FFI and toidentify each account that is a U.S. ac-count, non-U.S. account, account held bya recalcitrant account holder, or accountheld by a nonparticipating FFI. For thispurpose, the participating FFI is requiredto apply the due diligence procedures foraccounts to the extent, and in the manner,required under §1.1471–4(c) within theapplicable time periods described in§1.1471–4(c)(3), (c)(4), and (c)(5). Asprovided in §1.1471–1(b)(104)(i), an ob-ligation held by an entity that is opened,issued, or executed on or after July 1,2014, and before January 1, 2015, may betreated as a preexisting obligation for pur-poses of implementing the applicable duediligence procedures. However, the time-frames provided in §1.1471–4(c)(3) applyto all preexisting obligations held by anentity, including those obligations de-scribed in the preceding sentence. A par-ticipating FFI that is unable to reliablyassociate valid documentation with an ac-count holder to determine the chapter 4status of such account holder under suchrequired procedures must apply the pre-sumption rules of section 3.04 of thisagreement. See also §1.1471–4(d)(2) forother account holders to which a partici-pating FFI’s due diligence requirementsapply (e.g., account holders of a territoryFI, sponsored FFI, or owner-documentedFFI).
(B) Identification and Documenta-tion of Certain Payees other than Ac-
count Holders. For determining whenwithholding is required under section 4 ofthis agreement, a participating FFI is,prior to payment, required to reliably as-sociate the payment with documentationthat meets the requirements of section3.03(B) of this agreement when making awithholdable payment to an entity payee.If an account holder receives a withhold-able payment and is not treated as thepayee of the payment, in addition to doc-umenting the chapter 4 status of the ac-count holder, the participating FFI is alsorequired to establish the chapter 4 statusof the payee or payees to determinewhether withholding is required undersection 4 of this agreement. See, however,§1.1471–3(e)(4)(vi) for when a participat-ing FFI may rely on the chapter 4 status ofa payee provided by another participatingFFI or registered deemed-compliant FFIthat is acting as an intermediary or that isa flow-through entity with respect to thepayee. Except as otherwise provided insection 4.02(A) of this agreement, a par-ticipating FFI must apply the presumptionrules of section 3.04 of this agreement todetermine the chapter 4 status of a payeeif, prior to the time of payment, it cannotreliably associate the payment with docu-mentation meeting the requirements ofsection 3.03(B) of this agreement. See,however, §1.1471–3(c)(7) for require-ments that apply for documentation re-ceived after the date of a payment. Withrespect to a preexisting account, a partic-ipating FFI must, to the extent requiredunder §1.1471–4(c), determine the chap-ter 4 status of the payee within the appli-cable time period described in §1.1471–4(c)(3) or, if unable to do so, must applythe presumption rules of section 3.04 ofthis agreement to determine the chapter 4status of a payee.
.03 Additional Requirements forIdentification and Documentation ofAccount Holders and Payees.
(A) In General. To the extent that theparticipating FFI is required to retain arecord of the documentation collected (orotherwise maintained) to establish thechapter 4 status of an account holder orpayee, the participating FFI must do so inaccordance with the requirements of§1.1471–4(c)(2). The participating FFI
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must also institute procedures that meetthe requirements of §1.1471–4(c)(2) toensure that any change in circumstances(defined in section 2.10 of this agreement)is identified with respect to an account.
(B) Requirements forDocumentation.
(1) In General. To the extent the par-ticipating FFI obtains withholding certifi-cates, substitute certification forms, writ-ten statements, or documentary evidenceto document an account holder or payee,such documentation must meet the re-quirements set forth in §1.1471–3(c). Sec-tions 1.1471–3(c)(3) through (5) providethe requirements of valid withholding cer-tificates, written statements, and docu-mentary evidence. Section 1.1471–3(c)(6)provides other applicable rules for with-holding certificates, written statements,and documentary evidence, includingtheir periods of validity and electronictransmission requirements. Sections1.1471–3(c)(8) and (9) provide require-ments related to the sharing of documen-tation and reliance by a participating FFIon documentation collected by anotherperson. A participating FFI must obtainthe documentation specified in §1.1471–3(d) to establish the chapter 4 status of anentity account holder or an entity payee. Aparticipating FFI may rely on documenta-tion that meets the requirements of§1.1471–3(c) until the earlier of the expi-ration date of such documentation or thedate there is a change in circumstancesthat affects the account holder or payee’sclaim of chapter 4 status. If the participat-ing FFI is unable to obtain the requireddocumentation within 90 days of a changein circumstances, the participating FFImust apply the presumption rules of sec-tion 3.04 of this agreement with respect tothe account or payee until valid documen-tation is obtained upon which the FFI ispermitted to rely.
(2) Requirements for ReportingModel 2 FFIs. To the extent a reportingModel 2 FFI applies the due diligenceprocedures described in Annex I of theapplicable Model 2 IGA with respect to anaccount, such documentation or publiclyavailable information used to documentthe account must meet the requirementsdescribed in the applicable Model 2 IGA.In the case of documentation, the report-
ing Model 2 FFI may rely on such docu-mentation until the earlier of the expira-tion date of such documentation or thedate there is a change in circumstancesthat affects the account holder or payee’sclaim of chapter 4 status. In the case ofpublicly available information, the report-ing Model 2 FFI may rely on such infor-mation until the date there is a change incircumstances that affects the accountholder or payee’s claim of chapter 4 sta-tus. Upon the expiration of the documen-tation or a change in circumstances, thereporting Model 2 FFI must obtain new oradditional documentation or must redeter-mine the status of the account in accor-dance with the due diligence proceduresdescribed in Annex I of the applicableModel 2 IGA. If an account holder of anew account (as defined in the applicableModel 2 IGA) has a change in circum-stances that would cause such account tobe treated as a U.S. account and the ac-count holder refuses to provide consentfor such account to be reported, the report-ing Model 2 FFI must report the accountas a non-consenting U.S. account as de-scribed in section 6.03(B) of this agree-ment.
.04 Presumption Rules in Absence ofValid Documentation. If the participat-ing FFI is required to, but is unable to,obtain documentation (or a record of doc-umentation) that meets the requirementsof this section 3 within the applicable timeperiod described in section 3.02 of thisagreement, or if the participating FFIknows or has reason to know that docu-mentation provided for an account holderor payee is unreliable or incorrect, as de-termined applying the standards of knowl-edge described in §1.1471–4(c)(2), or asdetermined under Annex I of the applica-ble Model 2 IGA in the case of a reportingModel 2 FFI that applies such procedureswith respect to an account, the FFI isrequired to apply the presumption rulesdescribed in this section 3.04 until validdocumentation is provided for the accountholder or payee upon which the FFI ispermitted to rely. However, following achange in circumstances, a participatingFFI may continue to treat otherwise validdocumentation previously provided by anaccount holder or payee as valid and relyon such documentation until the earlier of90 days following the change in circum-
stances or the date new documentation isobtained upon which the participating FFImay rely to document the chapter 4 statusof the account holder or payee. See, how-ever, §1.1441–1(e)(4)(ii)(D) for require-ments when a change in circumstancesoccurs for purposes of chapter 3 and therelated grace period allowed under§1.1441–1(b)(3)(iv), to the extent a with-holdable payment that is also a reportableamount (as defined in §1.1441–1(c)(22)) is made to the account holder orpayee.
(A) Entity Payee or Account Held byan Entity. With respect to a withholdablepayment made to an entity payee, a par-ticipating FFI must apply the presumptionrules of §1.1471–3(f). The presumptionrules of §1.1471–3(f) also apply to anaccount held by an entity. However, in thecase of an account held by a passiveNFFE that provides the documentationdescribed in §1.1471–3(d)(12) to establishits status as a passive NFFE but fails toprovide the information regarding its own-ers required under §1.1471–3(d)(12)(iii), theparticipating FFI must treat the account asheld by a recalcitrant account holder in ac-cordance with §1.1471–5(g)(2)(iv).
(B) Account Held by an Individual.With respect to an account held by anindividual, a participating FFI must treatthe account as held by a recalcitrant ac-count holder in accordance with §1.1471–5(g) and classify the type of recalcitrantaccount holder in accordance with thepools described in §1.1471–4(d)(6).
(C) Presumption Rules for an EntityAccount Holder of a Reporting Model 2FFI. To the extent a reporting Model 2FFI applies the due diligence proceduresdescribed in Annex I of the applicableModel 2 IGA, the FFI must determine thestatus of the account as a U.S. account,non-consenting account, or a nonpartici-pating FFI by applying such procedures.With respect to a withholdable paymentmade to an entity account holder of areporting Model 2 FFI, if the reportingModel 2 FFI is unable to document theentity account consistent with the proce-dures described in Annex I, the reportingModel 2 FFI must apply the presumptionrules described in §1.1471–3(f). With re-spect to a withholdable payment made toan entity payee that is not an accountholder, a reporting Model 2 FFI must ap-
January 17, 2017 Bulletin No. 2017–3508
ply the presumption rules of §1.1471–3(f). A reporting Model 2 FFI that hasundocumented accounts may be deter-mined to be significantly non-compliantwith the requirements of an applicableIGA.
Section 4. Withholding Requirements.
.01 Withholding Requirements.
(A) In General. A participating FFI isgenerally required to deduct and withholda tax equal to 30 percent of any withhold-able payment made to an account main-tained by such participating FFI that isheld by a recalcitrant account holder or anonparticipating FFI. A participating FFIis also generally required to deduct andwithhold a tax equal to 30 percent of anywithholdable payment made to a payeethat is (or is presumed to be) a nonpartic-ipating FFI or a passive NFFE that has notidentified its substantial U.S. owners orcertified that it has no substantial U.S.owners as required under §1.1471–3(d)(12)(iii) with respect to an offshoreobligation that is not an account. There isno requirement to withhold on foreignpassthru payments for payments made be-fore January 1, 2019 and therefore thisrequirement is not addressed in this agree-ment. See section 7.03 of this agreementfor the requirements of a participating FFIthat is prohibited by law from withholdingas required under this section 4.01.
(B) Modification of Withholding Re-quirements for a Reporting Model 2FFI. Notwithstanding the withholding re-quirements described in section 4.01(A)of this agreement, a reporting Model 2 FFIis not required to deduct and withhold taxon any withholdable payment made to itsnon-consenting U.S. accounts, providedthat the conditions under the applicableModel 2 IGA regarding the suspension ofwithholding relating to non-consentingU.S. accounts are met. If such conditionsare not met, the reporting Model 2 FFI isrequired to treat its non-consenting U.S.accounts as held by recalcitrant accountholders and is required to deduct andwithhold a tax equal to 30 percent of anywithholdable payment made to such ac-counts in accordance with section 4.02 ofthis agreement. In addition, a reportingModel 2 FFI is required to withhold inaccordance with section 4.02 of this
agreement on any withholdable paymentmade to an account holder or a payeeother than an account holder that is (or ispresumed to be under section 3.04(C) ofthis agreement) a nonparticipating FFI.
(C) Election to Withhold under Sec-tion 3406 on Recalcitrant AccountHolders. With respect to a recalcitrantaccount holder that receives a withhold-able payment and that is also subject tobackup withholding under section 3406, aparticipating FFI may elect to satisfy itswithholding obligation under this section4 and §1.1471–4(b) by applying backupwithholding under section 3406 to suchwithholdable payments. A participatingFFI may make the election described inthis paragraph only if it complies with theinformation reporting rules under chapter61 with respect to payments to whichbackup withholding applies. Nothing inthis section 4 or §1.1471–4(b) relieves aparticipating FFI of its requirement tobackup withhold under section 3406 withrespect to reportable payments that are notwithholdable payments (e.g., paymentswith respect to grandfathered obligations).See section 4.04(D) of this agreement forthe coordination of backup withholdingunder section 3406 for a participating FFIthat does not make the election describedin this section 4.01(C) and that withholdsunder section 1471(b) with respect to awithholdable payment made to a recalci-trant account holder that is subject tobackup withholding under section 3406.
.02 General Rules for Withholding.
(A) Withholding Determination inGeneral. A participating FFI that makes awithholdable payment is required to de-termine whether withholding under thissection 4 applies at the time the withhold-able payment is made by applying therequirements of §1.1471–4(b) to deter-mine the payee of the payment and toreliably associate the payment with validdocumentation to establish the payee’schapter 4 status. The exceptions to with-holding described in §1.1471–2, includingthe exceptions for payments made under agrandfathered obligation and paymentsmade to certain excepted accounts, applyfor purposes of determining whether with-holding is required under this section 4. Aparticipating FFI is not required to with-
hold under this section 4 on paymentsmade to an account holder of a preexistingaccount (including an entity account thatis opened on or after July 1, 2014, andbefore January 1, 2015, that the FFI treatsas a preexisting obligation under§1.1471–1(b)(104)(i)) prior to the expira-tion of the applicable time period de-scribed in section 3.02(A) of this agree-ment for identifying the account (orapplying the presumption rules), unlessthe account is documented as held by anonparticipating FFI.
(B) Withholding Requirements for aParticipating FFI that is an NQI, NWP,or NWT. A participating FFI that is anNQI, NWP, or NWT, or that is a QI thatelects under section 1471(b)(3) not to as-sume withholding responsibility for a pay-ment is generally not required to withholdwith respect to a withholdable payment ofU.S. source FDAP income that it receivesas an intermediary or as an NWP or NWTwhen it provides its withholding agentwith an FFI withholding statement thatincludes sufficient information for suchwithholding agent to establish the portionof the payment (if any) that is allocable torecalcitrant account holders (in each of thechapter 4 withholding rate pools describedin section 9.02(B) of this agreement), topayees that are nonparticipating FFIs, andto payees that are U.S. persons (U.S.payee pool) in accordance with §1.1471–4(b)(3). If a participating FFI elects tobackup withhold under section 3406 withrespect to recalcitrant account holders asdescribed in section 4.01(C) of this agree-ment, the participating FFI must provideits withholding agent with an FFI with-holding statement that includes sufficientinformation for such withholding agent toreport the payments made to the accountholders in accordance with chapter 61 andto apply backup withholding. See§1.1471–3(c)(3)(iii) and section 9 of thisagreement for the requirements applicableto a participating FFI’s withholding cer-tificate, withholding statement, and asso-ciated documentation. If the withholdablepayment is exempt from chapter 4 with-holding, the information provided by theparticipating FFI to the withholding agentmust also include the payee’s chapter 4status when specific payee information isrequired for purposes of chapter 3. A par-ticipating FFI must also provide the with-
Bulletin No. 2017–3 January 17, 2017509
holding agent with information regardingany account holders or payees of an inter-mediary or flow-through entity that holdsan account with the participating FFI,other than a QI, WP, or WT.
A participating FFI is required to with-hold under §1.1471–4(b)(3) when it failsto provide sufficient information to itswithholding agent or when it knows or hasreason to know that the withholding agenthas not withheld to the extent requiredunder §1.1471–2(a)(i) with respect to itsaccount holders. For example, if a partic-ipating FFI provides the documentationdescribed in §1.1471–3(c)(3)(iii) to itswithholding agent and, based on theamount of the payment that it receivesfrom the withholding agent, it knows orhas reason to know that the withholdingagent has underwithheld on the payment,it is required to deduct and withhold taxfrom the payment to the extent of theunderwithheld tax. A participating FFI isalso required to withhold when it appliesthe dormant account procedures describedin section 5.02 of this agreement.
(C) Withholding Requirements withRespect to Related Entities andBranches. A participating FFI is required towithhold on a withholdable payment itmakes to a related entity or branch of areporting Model 1 FFI or reporting Model 2FFI to the extent required under §1.1471–4(b)(5), including when a participating FFIhas reason to know that a withholdable pay-ment was made to a related entity or branchof a reporting Model 1 FFI or reportingModel 2 FFI. A participating FFI making awithholdable payment to a reporting Model1 FFI or reporting Model 2 FFI will havereason to know that a withholdable paymentis made to a related entity or branch of suchreporting Model 1 FFI or reporting Model 2FFI when the participating FFI has reason toknow under §1.1471–3(e)(3)(i). For thewithholding required by a reporting Model2 FFI making a withholdable payment to itsrelated branch, see section 7.04 of thisagreement.
.03 Liability for Failure to Withhold.A participating FFI that fails to withholdany tax under chapter 4 as required undersection 4.02 of this agreement is liable forthe amount of tax not withheld and anyinterest, additions to tax, and penaltiesthat may apply under a relevant provisionof the Code.
.04 Coordination with OtherWithholding Provisions.
(A) In General. A participating FFI isa withholding agent for purposes of chap-ter 4, a withholding agent under chapter 3with respect to a payment subject to with-holding under §1.1441–2(a) or under sec-tions 1445 or 1446, and a payor for pur-poses of withholding under section 3406.Except to the extent provided in this sec-tion 4.04, no provision of this agreementotherwise limits the requirement of a par-ticipating FFI to withhold as a withhold-ing agent for purposes of chapters 3 and 4or as a payor for purposes of backup with-holding under section 3406 to the extentrequired.
(B) Coordination of Withholding un-der Sections 1471(a) and 1472(a). A par-ticipating FFI that complies with the with-holding requirements of this agreement isdeemed to satisfy its chapter 4 withhold-ing obligations under sections 1471(a) and1472(a) with respect to its account holdersand entity payees.
(C) Coordination with Withholdingunder Chapter 3. In the case of a with-holdable payment that is also subject towithholding under section 1441, 1442, or1443, a participating FFI may credit thetax withheld under section 4.02 of thisagreement against its liability under sec-tion 1441, 1442, or 1443 as described in§1.1474–6(b). In the case of a withhold-able payment that is also subject to with-holding under section 1445, withholdingunder section 1445 applies to the paymentto the extent described under §1.1474–6(c), and withholding is not required un-der section 4.02 of this agreement. In thecase of a withholdable payment that isalso subject to withholding under section1446, withholding under section 1446 ap-plies to the extent described under§1.1474–6(d), and withholding is not re-quired under section 4.02 of this agree-ment.
(D) Coordination with Backup With-holding. In the case of a withholdablepayment that is also a reportable paymentmade by the participating FFI to a recal-citrant account holder, withholding undersection 3406 will not apply to the report-able payment if tax is withheld on thepayment under section 4.02 of this agree-ment, unless the participating FFI elects to
apply backup withholding under section3406 to a payment made to a recalcitrantaccount holder as described in section4.01(C) of this agreement.
Section 5. Deposit Requirements.
.01 In General. A participating FFIthat withholds tax as required under thisagreement must deposit amounts withheldwithin the time period provided in§1.1474–1(b)(1) or, for amounts withheldunder the election described in section4.01(C) of this agreement, §31.6302–4. See §1.1471–2(a)(5)(ii) for an optionalescrow procedure when a withholdingagent is unable to determine at the time ofpayment whether such payment is a with-holdable payment.
.02 Dormant Accounts. If a participat-ing FFI receives a withholdable paymentnot otherwise subject to backup withhold-ing under section 3406, or withholdingunder chapter 3, on behalf of a dormantaccount held by a recalcitrant accountholder, the participating FFI may, in lieuof depositing the tax withheld, set asidethe amount withheld in escrow until thedate that the account ceases to be a dor-mant account. The tax withheld in escrowbecomes due on the date that is 90 daysfollowing the date that the account ceasesto be a dormant account. A participatingFFI that maintains a dormant account of arecalcitrant account holder and that electsto escrow withheld tax pursuant to thissection 5.02 may not delegate the respon-sibility to escrow withheld tax to the with-holding agent from which it receives thepayment. See section 6.05(C) of thisagreement for the reporting requirementsand section 9 of this agreement for therequirements of an FFI withholding state-ment when the participating FFI appliesthe escrow rule for dormant accounts de-scribed in this section 5.02. Sections1.1471–4(d)(6)(ii) and (iii) provide therules for determining when the participat-ing FFI must treat an account as dormantand when an account will no longer betreated as a dormant account.
Section 6. Information Reporting andTax Return Obligations.
.01 In General. Under section 1471(c)and §1.1471–4(d), a participating FFI isrequired to report annually certain specific
January 17, 2017 Bulletin No. 2017–3510
payee information with respect to U.S.accounts that it maintains. A participatingFFI is also required to report certain ag-gregate account information described insection 6.03 of this agreement with re-spect to its recalcitrant account holdersclassified in accordance with the poolsdescribed in §1.1471–4(d)(6) and, in thecase of a reporting Model 2 FFI, its non-consenting U.S. accounts classified in ac-cordance with the pools described in§1.1471–4(d)(6). A participating FFI hasa transitional reporting obligation for pay-ments of foreign reportable amounts madeto account holders that are nonparticipat-ing FFIs as described in section 6.04 ofthis agreement. A participating FFI mayalso be required under section 6.05 of thisagreement to report certain aggregate in-formation with respect to chapter 4 report-able amounts paid to its recalcitrantaccount holders, payees that are nonpar-ticipating FFIs, and payees that are U.S.persons. If a participating FFI is requiredto file information returns under section6.05 of this agreement, the participatingFFI is also required under section 6.06 ofthis agreement to file Form 1042 to reportchapter 4 reportable amounts and any taxwithheld on such amounts. A participat-ing FFI must file information returnsabout its account holders or payees forpurposes of chapter 4 (Forms 8966,1099, 1042-S) on magnetic media (asdefined in §301.1474 –1(d)(1)). See alsosection 7 of this agreement for the re-quirements of a participating FFI that isprohibited by law from reporting itsU.S. accounts as required under this sec-tion 6. In the case of a reporting Model2 FFI, in applying this section with re-spect to a passive NFFE, the term “sub-stantial U.S. owner” means a “control-ling person” as defined in the applicableModel 2 IGA that is identified as a spec-ified U.S. person.
.02 U.S. Account Reporting.
(A) Accounts for which Reporting isRequired.
(1) In General. On a calendar-yearbasis, a participating FFI must report eachU.S. account that it maintains in the man-ner described in section 6.02(B) of thisagreement. The participating FFI is alsorequired to report accounts held by an FFI
that it has agreed to treat as an owner-documented FFI under §1.1471–3(d)(6) tothe extent required under this section 6.02.
(2) Special Reporting of AccountHolders of Territory FIs. If a participat-ing FFI maintains an account held by aterritory FI that is a flow-through entity orthat acts as an intermediary with respect toa withholdable payment, and the territoryFI does not agree to be treated as a U.S.person with respect to the payment, theparticipating FFI is required to report eachspecified U.S. person and each substantialU.S. owner of an entity treated as a pas-sive NFFE with respect to which the ter-ritory FI acts as an intermediary or is aflow-through entity to the extent that theterritory FI provides the participating FFIwith sufficient information to reportsuch account. See §1.1471–4(d)(2)(ii)(B)(2) for the information required to bereported for an account or payee of aterritory FI.
(3) Additional U.S. Account Report-ing Requirement for a Trustee of aTrustee-Documented Trust. In additionto the accounts required to be reportedunder section 6.02(A)(1) of this agree-ment, a participating FFI that is the trusteeof a trustee-documented trust (as definedin an applicable Model 2 IGA) must re-port each U.S. account maintained by thetrust as if the participating FFI maintainedthe account.
(B) General Reporting Require-ments of a Participating FFI. A partici-pating FFI may report its U.S. accounts onForm 8966 in the manner described in§1.1471–4(d)(3). If a participating FFI isa partnership, see §1.1471–4(d)(4)(iv)(C) for the payments requiredto be reported on Form 8966 with respectto an account that is a partner’s interest inthe partnership. Alternatively, to the ex-tent allowed under §1.1471–4(d)(5), aparticipating FFI may elect to performchapter 61 reporting as modified in sec-tion 6.02(B)(1) of this agreement, in lieuof reporting in the manner described in§1.1471–4(d)(3). A participating FFI mayelect to perform chapter 61 reporting withrespect to all its U.S. accounts or withrespect to any clearly identified group ofU.S. accounts (such as by line of businessor the location where the account is main-tained) in the manner described in section6.02(B)(1) of this agreement. With respect
to a cash value insurance contract or an-nuity contract held by a specified U.S.person, a participating FFI may also electto report under section 6047(d) in themanner described in §1.1471–4(d)(5)(i)(B) and section 6.07 of thisagreement.
(1) Modified Chapter 61 Reporting.A participating FFI that elects to performchapter 61 reporting must report the infor-mation otherwise required to be reportedunder sections 6041, 6042, 6045, and6049 and must report payments made toan account subject to reporting under theapplicable section. A participating FFIthat is a non-U.S. payor, however, mustdetermine the payments subject to report-ing under the applicable section as if itwere a U.S. payor.
A participating FFI that elects to per-form chapter 61 reporting must treateach account holder that is a specifiedU.S. person, passive NFFE that is aU.S.-owned foreign entity, or owner-documented FFI as if it were an accountholder who is an individual and citizenof the United States and must reporteach such account regardless of whetherthe account holder of such account qual-ifies as an exempt recipient. With re-spect to each account holder of a U.S.account that is a specified U.S. person,the participating FFI must report on theappropriate Form 1099 the informationdescribed in §1.1471– 4(d)(5)(ii) and theaccompanying instructions to the form.With respect to an account held by anentity treated as a passive NFFE withsubstantial U.S. owners or held by anowner-documented FFI with specifiedU.S. persons identified in §1.1471–3(d)(6)(iv)(A)(1) and (2), the participat-ing FFI must report on Form 8966 theU.S. owner information described in§1.1471– 4(d)(5)(ii) and (iii) and the ac-companying instructions to the form.
A participating FFI that reports an ac-count under this section 6.02(B)(1) mustreport such account for the calendar yearregardless of whether the participatingFFI makes a reportable payment to theaccount during the calendar year. In sucha case and with respect to a specified U.S.person, the appropriate form is Form1099-MISC, Miscellaneous Income. Forexample, with respect to a custodial ac-count, the participating FFI is required to
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file a Form 1099-MISC even if no report-able payments were paid or credited to theaccount with respect to any financial in-strument, investment, or contract held insuch account. A participating FFI thatreports accounts under this section6.02(B)(1) may decide at a later time toreport the accounts in the manner de-scribed in §1.1471–4(d)(3) beginning onthe first reporting date for the calendaryear following the calendar year for whichit last reports an account under this section6.02(B)(1).
(2) Time and Manner of Filing. Theparticipating FFI must file Form 8966 orForm 1099 on magnetic media with theIRS on or before March 31 of the yearfollowing the end of the calendar year towhich the form relates in accordance withthe requirements prescribed for such re-porting on the form and its accompanyinginstructions. If a participating FFI (succes-sor) acquires substantially all of the ac-counts maintained by another participat-ing FFI (predecessor), or substantially allof the accounts maintained at a branch ofthe predecessor, in a merger or bulk ac-quisition of accounts for value, the suc-cessor may assume the predecessor’s ob-ligations to report the acquired accountson Form 8966 for the calendar in whichthe merger or acquisition occurs, providedthe requirements in §1.1471–4(d)(2)(ii)(G)(1) through (6) are satisfied.
.03 Reporting With Respect toRecalcitrant Account Holders.
(A) In General. A participating FFI isrequired to report certain aggregate infor-mation regarding accounts held by recal-citrant account holders on Form 8966 andin the manner described in §1.1471–4(d)(6). Such reporting is required regard-less of whether the participating FFImakes a withholdable payment to the ac-count during the calendar year. The par-ticipating FFI must file Form 8966 onmagnetic media (i.e., the FATCA ReportXML) with the IRS on or before March 31of the year following the end of the cal-endar year to which the form relates inaccordance with the requirements pre-scribed for such reporting on the form andits accompanying instructions.
(B) Reporting Model 2 FFIs’ Report-ing of Non-Consenting U.S. Accounts.
Instead of the reporting described in sec-tion 6.03(A) of this agreement, a reportingModel 2 FFI is required to report on Form8966 certain aggregate information re-garding accounts treated as non-consenting U.S. accounts classified in ac-cordance with the pools described in§1.1471–4(d)(6) and the accompanyinginstructions to the form. Such reporting isrequired regardless of whether the report-ing Model 2 FFI makes a withholdablepayment to the account during the calen-dar year. A reporting Model 2 FFI mustfile Form 8966 on magnetic media (i.e.,the FATCA Report XML) with the IRS onor before March 31 of the year followingthe end of the calendar year to which theform relates (unless otherwise specified inthe applicable Model 2 IGA) in accor-dance with the requirements prescribedfor such reporting on the form and itsaccompanying instructions.
.04 Special Transitional Reporting ofPayments to Nonparticipating FFIs. Forcalendar years 2015 and 2016, the partic-ipating FFI must report on a specificpayee basis on Form 8966 the aggregateamount of foreign reportable amountspaid with respect to an account held by anonparticipating FFI (including a limitedbranch and limited FFI treated as a non-participating FFI) that the participatingFFI maintains. If, however, the participat-ing FFI is prohibited under domestic lawfrom reporting on a specific payee basiswithout consent from the account holderand the participating FFI has not obtainedsuch consent (i.e., the account holder is anon-consenting nonparticipating FFI), theparticipating FFI may instead report theaggregate number of accounts heldby such non-consenting nonparticipatingFFIs and the aggregate amount of foreignreportable amounts paid to such non-consenting nonparticipating FFIs. In ei-ther case, the participating FFI may reportall income, gross proceeds, and redemp-tions (regardless of source) paid to thenonparticipating FFI’s account (or allnon-consenting nonparticipating FFIs’ ac-counts, as applicable) by the participatingFFI during the calendar year insteadof reporting only foreign reportableamounts. With respect to calendar year2015, however, a participating FFI is notrequired to report gross proceeds de-scribed in §1.1471–4(d)(4)(iv)(B)(3) paid
to an account held by a nonparticipatingFFI. The participating FFI must file Form8966 on magnetic media (i.e., the FATCAReport XML) with the IRS on or beforeMarch 31 of the year following the end ofthe calendar year to which the form relatesin accordance with the requirements pre-scribed for such reporting on the form andits accompanying instructions.
.05 Withholdable Payment Reportingand Reporting of Tax Withheld.
(A) In General. Except as otherwiseprovided in this section 6.05(A) and sec-tion 6.05(B) of this agreement, a partici-pating FFI is required to report on Form1042-S chapter 4 reportable amountsmade during the year to payees that arerecalcitrant account holders, nonpartici-pating FFIs, and, with respect to a non-U.S. payor, U.S. persons that are includedin a U.S. payee pool (see section 9.02).Forms 1042-S must identify the foreignbranch of the FFI maintaining the payee’saccount using the GIIN assigned to suchbranch and the employer identificationnumber (EIN) of the legal entity coveredby this agreement.
(1) Allowance for Specific Payee orPooled Reporting. A participating FFImay report chapter 4 reportable amountsmade to a specific recipient or to a chapter4 reporting pool to the extent permitted orrequired under section 6.05(A)(1)(i) ofthis agreement. Section 1.1474–1(d) pro-vides additional reporting requirementsfor chapter 4 reportable amounts. A par-ticipating FFI that fails to file returns orfurnish statements required by this agree-ment may be subject to penalties in accor-dance with sections 6721 through 6724.
(i) Pooled Reporting. A participatingFFI may report on Form 1042-S chapter 4reportable amounts made to recalcitrantaccount holders and nonparticipating FFIsin a chapter 4 reporting pool. With respectto recalcitrant account holders, a separatechapter 4 reporting pool is required foreach class of recalcitrant account holdersdescribed in §1.1471–4(d)(6). Addition-ally, a participating FFI that is a non-U.S.payor may report payees of U.S. accountsthat it reports under section 6.02 of thisagreement in a chapter 4 reporting pool ofU.S. payees. Section 1.1474–1(d) pro-vides additional reporting requirements
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for chapter 4 reportable amounts. See alsoForm 1042-S and its accompanying in-structions for the chapter 4 reporting poolcodes for recipients and income codes.
(ii) Specific Recipient Reporting. Asan alternative to reporting chapter 4 re-portable amounts to a chapter 4 reportingpool of recalcitrant account holders andnonparticipating FFIs as described in sec-tion 6.05(A)(1)(i) of this agreement, a par-ticipating FFI may issue a Form 1042-S toa recalcitrant account holder or a nonpar-ticipating FFI on a specific payee basis.Section 1.1474–1(d)(1)(i) specifies the in-formation that is required to be includedon Form 1042-S. See also section 10.04 ofthis agreement for the limitation on filinga collective refund claim on behalf of ac-count holders or payees that are reportedon a specific payee basis.
(2) Reporting Required when Elect-ing to Withhold under Section 3406 onRecalcitrant Account Holders. A partic-ipating FFI that elects to satisfy its obli-gation to withhold on withholdable pay-ments with respect to recalcitrant accountholders by backup withholding under sec-tion 3406 with respect such payments asdescribed in section 4.01(C) of this agree-ment must report on the applicable Form1099 in the manner required under chapter61 with respect to payments to whichbackup withholding applies. Forms 1099must be filed by the legal entity coveredby this agreement and must exclude pay-ments made by its U.S. branch, if any.
(B) Special Reporting Rules whenWithholding Agent Reports on Behalfof Participating FFI. A participating FFIis not required to report on Form 1042-Sor Form 1099 as described in section6.05(A) of this agreement amounts thatthe participating FFI receives on behalf ofa recalcitrant account holder, nonpartici-pating FFI, or chapter 4 reporting pool ofpayees that are U.S. persons to the extentthat its withholding agent has correctlyreported on a Form 1042-S or Form 1099,as the context requires, and withheld thecorrect amount of tax on such amounts.The participating FFI is required to report,however, when the participating FFIknows, or has reason to know, that thepayment is not correctly reported on Form1042-S or Form 1099, that less than therequired amount has been withheld on thepayment, or that the amount of tax with-
held is not correctly reported on Form1042-S or Form 1099. In such a case, theparticipating FFI must report the paymenton Form 1042-S or Form 1099 to theextent required under section 6.05(A) ofthis agreement. See section 9 of thisagreement for the information that theparticipating FFI must include on its with-holding statement to enable its withhold-ing agent to report.
(C) Dormant Accounts. Notwith-standing section 6.05(B) of this agree-ment, a participating FFI is required toreport a chapter 4 reportable amount madeto a recalcitrant account holder that holdsa dormant account for which the partici-pating FFI sets aside the amount withheldin escrow, in lieu of depositing the taxwithheld. See section 5.02 of this agree-ment for the requirements of the escrowprocedure for dormant accounts. See alsosection 9 of this agreement for the with-holding statement requirements with re-spect to dormant accounts and the instruc-tions to Form 1042-S for reporting underthis procedure.
(D) U.S. Source FDAP Income Sub-ject to Reporting under Chapter 3. In acase in which a participating FFI reportsunder section 6.05(A) of this agreement awithholdable payment of U.S. sourceFDAP income subject to withholding un-der section 4 of this agreement, a separateForm 1042-S is not required to be filed forthe same payment for chapter 3 reportingpurposes under §1.1461–1(c)(2). A partic-ipating FFI that is reporting U.S. sourceFDAP income that is not subject to with-holding under section 4 of this agreementmust include in its reporting an exemptioncode for chapter 4 purposes to the extentthe participating FFI is required to reportthe amount under §1.1461–1(c)(2).
(E) Reporting of Withholdable Pay-ments to Related Entities and Branches.A participating FFI must report (or pro-vide sufficient information to its withhold-ing agent, as described in section 6.05(B)of this agreement, to report) withholdablepayments that it makes to, or receives asan intermediary on behalf of, a relatedentity or branch of a reporting Model 1FFI or reporting Model 2 FFI. See section4.02(C) of this agreement for the with-holding requirements of a participatingFFI with respect to payments made to arelated entity or branch of a reporting
Model 1 FFI or reporting Model 2 FFI.See Form 1042-S and its accompanyinginstructions for the other information thata participating FFI is required to report insuch a case.
(F) Time and Manner of Filing. Aparticipating FFI must file Forms 1042-Son magnetic media with the IRS on orbefore March 15 of the year following theend of the calendar year to which the formrelates in accordance with the require-ments prescribed for such reporting on theform and its accompanying instructions. Aparticipating FFI required to report onForms 1042-S under section 6.05(A) ofthis agreement may rely on the proceduresused for chapter 3 purposes for reportingon Forms 1042-S (even if the participatingFFI is not required to report under chapter3) for combined reporting following amerger or acquisition, provided that all ofthe requirements for such reporting pro-vided in the Instructions for Form 1042-Sare satisfied. A participating FFI must filethe relevant Forms 1099, if applicable, onmagnetic media with the IRS on or beforeMarch 31 of the year following the end ofthe calendar year to which the form relatesin accordance with the requirements pre-scribed for such reporting on the form andits accompanying instructions.
.06 Tax Return Filing Requirements.
If a participating FFI is required toreport on Form 1042-S chapter 4 report-able amounts, it must also file an incometax return on Form 1042 to report thechapter 4 reportable amounts paid to ac-count holders and payees that the partici-pating FFI is required to report on Form1042-S. A participating FFI will also berequired to report on Form 1042 theamount of tax withheld and the amount oftax deposited with respect to such pay-ments for the calendar year, in addition toany other information required by theform and its accompanying instructions. Ifa participating FFI applies backup with-holding, instead of withholding underchapter 4, with respect to recalcitrant ac-count holders as described in section4.01(C) of this agreement, the participat-ing FFI must also file an income tax returnon Form 945 to the extent the participat-ing FFI withheld tax on withholdable pay-ments that are reportable amounts paid to
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its account holders. See section 6.05(F) ofthis agreement for the rules on when Form1042-S and Form 1099 are required to befiled.
Form 1042 or Form 945 must be filedby the legal entity covered by this agree-ment, and it must exclude payments madeby any U.S. branch of such entity. With-holding certificates and other statementsor information provided to the participat-ing FFI should not be attached to thereturn. With respect to Form 1042, theinformation required for purposes ofchapter 4 is in addition to the informationrequired to be provided on Form 1042 forpurposes of chapter 3. A participating FFImust file Form 1042 with the IRS on orbefore March 15 of the year following thecalendar year to which the form relates. Aparticipating FFI must file Form 945 withthe IRS on or before January 31 of theyear following the calendar year to whichthe form relates.
.07 Coordination with Chapter 61Reporting. A non-U.S. payor that is aparticipating FFI will satisfy its reportingobligations under chapter 61 (Form 1099reporting) with respect to a reportablepayment made to a payee that is an ac-count holder of the participating FFI andthat is a U.S. non-exempt recipient if suchparticipating FFI reports with respect tosuch an account holder pursuant to section6.02 of this agreement (and must includethe reporting of the account holder’s TIN).See §1.6049–4(c)(4). A participating FFI(regardless of whether the FFI is a U.S.payor or non-U.S. payor) will satisfy itsForm 1099 reporting obligations with re-spect to a reportable payment made to apayee that is an account holder of theparticipating FFI and that is a treated as aU.S. non-exempt recipient under the pre-sumption rules of chapters 3 and 61 ifsuch participating FFI reports with respectto such an account holder pursuant to sec-tion 6.03 of this agreement. See §1.6049–4(c)(4). A participating FFI is required toreport a payment on Form 1099, however,to the extent that backup withholding isrequired under section 3406 with respectto the payment, or the participating FFIelects to apply backup withholding to thepayment under section 4.01(C) of thisagreement and another payor (as definedin §1.6049–5(c)(5)) has not performed
Form 1099 reporting with respect to thepayment.
.08 Retention Requirements.
(A) Account Statements. A participat-ing FFI is required to retain informationthat summarizes the account activity of itsU.S. accounts and accounts held by recal-citrant account holders and nonparticipat-ing FFIs to the extent required in§1.1471–4(d).
(B) Forms 1042-S. A participating FFImust retain a copy of each Form 1042-Sfor the period of limitations on assessmentand collection applicable to the tax report-able on the Form 1042 to which the Form1042-S relates.
Section 7. Legal Prohibitions onReporting U.S. Accounts and onWithholding.
.01 In General. If a participating FFI(or branch thereof) is prohibited by lawfrom reporting its U.S. accounts as re-quired under section 6.02 of this agree-ment or from withholding to the extentrequired under section 4 of this agree-ment, the participating FFI (or branchthereof) must comply with the require-ments of section 7.02 or 7.03 of thisagreement.
.02 Prohibitions on Reporting U.S.Accounts. A participating FFI that is pro-hibited under the laws of the jurisdictionin which it is resident, established, or lo-cated from reporting a U.S. account asrequired under section 6.02 of this agree-ment must satisfy the requirements of§1.1471–4(i)(2) to request a valid and ef-fective waiver of such law or otherwiseclose or transfer the account.
(A) Reporting Model 2 FFI. A report-ing Model 2 FFI that is prohibited underthe laws of the jurisdiction in which it isresident, established, or located from re-porting a preexisting U.S. account as re-quired under section 6.02 of this agree-ment must request consent to report suchaccount and, if consent is not provided,must report certain aggregate informationabout such account with other non-consenting U.S. accounts in accordancewith section 6.03 of this agreement. Withrespect to a new account (as defined in theapplicable Model 2 IGA), a reportingModel 2 FFI must obtain from each ac-
count holder of a U.S. account, as a con-dition of account opening, the consent re-quired under domestic law in order forsuch reporting Model 2 FFI to report theaccount as required under section 6.02 ofthis agreement. Additionally, a reportingModel 2 FFI must request the accountholder’s consent to report, if required bydomestic law, after account opening forany new account that is not identified as aU.S. account at account opening and thatmust subsequently be treated as a U.S.account due to a change in circumstances.If consent is not provided by the accountholder, the reporting Model 2 FFI musttreat the account as a non-consenting U.S.account and report the account as de-scribed in section 6.03(B) of this agree-ment.
.03 Legal Prohibitions PreventingWithholding with Respect to Recalci-trant Account Holders and Nonpartici-pating FFIs. To the extent a participatingFFI is prohibited under domestic law fromwithholding with respect to recalcitrantaccount holders and nonparticipating FFIsas required under section 4 of this agree-ment, the participating FFI is required tosatisfy the requirements of §1.1471–4(i)(3) to block or transfer each account oroffshore obligation held by such persons.
.04 Related Branch of a ReportingModel 2 FFI. If a reporting Model 2 FFImaintains one or more related branches,the reporting Model 2 FFI must complywith the requirements described in the ap-plicable Model 2 IGA with respect to eachrelated branch, which includes the re-quirements to withhold on payments madeor received on behalf of such branch asdescribed in section 4.03(C) of this agree-ment and to report such payments as de-scribed in section 6.05(E) of this agree-ment. If a branch maintained by the FFI isno longer prohibited from complying withthe requirements of this agreement or oth-erwise being treated as a deemed-compliant FFI, a reporting Model 2 FFImust notify the IRS on the FATCA regis-tration website by the beginning of thethird calendar quarter following such datethat the branch will cease to be a relatedbranch by registering such branch as aparticipating FFI or deemed-compliantFFI by that date. A reporting Model 2 FFIwith one or more branches that are treatedas nonparticipating FFIs solely due to the
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expiration of the transitional rule forlimited branches under §1.1471–4(e)(2)(v) will continue to be a reportingModel 2 FFI, provided that the reportingModel 2 FFI continues to comply with therequirements of the applicable Model 2IGA with respect to such branches.
Section 8. Compliance Procedures.
.01 In General. A participating FFI isrequired to adopt a compliance programunder the authority of the responsible of-ficer of the participating FFI or, in the caseof a participating FFI that adopts a con-solidated compliance program under therequirements of §1.1471–4(f)(2)(ii), un-der the authority of the responsible officerof a compliance FI. A participating FFI’scompliance program must include poli-cies, procedures, and processes sufficientfor the participating FFI to satisfy the duediligence, reporting, and withholding re-quirements of this agreement. A partici-pating FFI must also perform, or haveperformed on its behalf, a review of itscompliance with this agreement for thecertification period (described in§1.1471– 4(f)(3)). The results of suchreview must be considered by the re-sponsible officer in making the periodiccertifications described in section 8.03of this agreement. A participating FFImust also comply with the IRS reviewof compliance described in section 8.04of this agreement.
.02 Responsible Officer. A participat-ing FFI must appoint a responsible officerto establish, or to appoint one or moredesignees to establish, a compliance pro-gram that meets the requirements of sec-tion 8.01 of this agreement and to period-ically review the sufficiency of suchcompliance program. The responsible of-ficer must make the certifications de-scribed in section 8.03 of this agreementto the IRS regarding the FFI’s compliancewith this agreement.
.03 Certifications of Compliance byResponsible Officer.
(A) Certification Regarding the DueDiligence Procedures. No later than thedue date of the participating FFI’s firstcertification of compliance required undersection 8.03(B) of this agreement, the re-sponsible officer of the participating FFI
must make the certification described in§1.1471–4(c)(7) regarding the FFI’s com-pletion of the due diligence procedures forpreexisting accounts required under sec-tion 3 of this agreement and regarding theabsence of any formal or informal prac-tices or procedures to assist account hold-ers in the avoidance of chapter 4 as de-scribed in §1.1471–4(c)(7).
(B) Periodic Certification of Compli-ance. On or before July 1 of the calendaryear following the end of the certificationperiod defined in §1.1471–4(f)(3)(i), theresponsible officer of the participating FFImust make either the certification of ef-fective internal controls described in§1.1471–4(f)(3)(ii) or, when required,make the qualified certification under§1.1471–4(f)(3)(iii). The responsible offi-cer must consider the results of the partic-ipating FFI’s periodic review in makingthe periodic certification of compliance.
(C) Method of Making Certifica-tions. The participating FFI (or the com-pliance FI with respect to such FFI) mustmake the certifications of compliance onthe form and in such manner as the IRSmay prescribe in future guidance or otherinstructions.
.04 Review of Compliance.
(A) General Inquiries of FFI and Ac-count Holder Compliance. Based uponthe information reporting forms and taxreturns (Forms 945, 1042, 1042-S, 8966,and 1099) filed with the IRS (or the ab-sence of such reporting) for each calendaryear, the IRS may request additional in-formation with respect to the informationreported, or required to be reported, onsuch forms, or may request the accountstatements described in §1.1471–4(d)(4)(v), or confirmation that the FFI has noreporting requirements. The IRS may alsorequest any additional information to de-termine an FFI’s compliance with its FFIagreement and to assist the IRS with itsreview of account holder compliance withtax reporting requirements.
(B) Inquiries of Reporting Model 2FFIs. In the case of a reporting Model 2FFI, the IRS or the U.S. Competent Au-thority, as provided in the applicableModel 2 IGA, may make an inquiry di-rectly to a reporting Model 2 FFI regard-ing the information described in section
8.04(A) of this agreement. When the IRSor the U.S. Competent Authority has rea-son to believe that administrative errors orother minor errors may have led to incor-rect or incomplete information reporting,the IRS or the U.S. Competent Authoritymay make such an inquiry directly to areporting Model 2 FFI. Additionally, if areporting Model 2 FFI reports aggregateinformation regarding its non-consentingU.S. accounts and accounts held by non-participating FFIs as described in sections6.03 and 6.04 of this agreement, the U.S.Competent Authority, consistent with theterms of the applicable competent author-ity arrangement under the applicableModel 2 IGA, may request informationregarding the accounts underlying the ag-gregate information returns filed with re-spect to such accounts.
(C) Inquiries regarding SubstantialNon-Compliance. Based on the informa-tion reporting forms and tax returns(Forms 945, 1042, 1042-S, 8966, and1099) filed with the IRS for each calendaryear, the certifications made by the re-sponsible officer, or any other informationrelated to a participating FFI’s compliancewith this agreement, the IRS may deter-mine in its discretion that the participatingFFI may not have substantially compliedwith the requirements of this agreement.In such a case, the IRS may request fromthe responsible officer (or designee) infor-mation necessary to verify the participat-ing FFI’s compliance with this agreementor the performance of specified reviewprocedures as described in §1.1471–4(f)(4)(ii). If the IRS determines that aparticipating FFI has failed to substan-tially comply with the requirements of thisagreement, the IRS will notify the partic-ipating FFI in accordance with section12.06 of this agreement that an event ofdefault has occurred.
(D) Inquiries regarding SignificantNon-Compliance for Reporting Model2 FFIs. Consistent with the terms of theapplicable competent authority arrange-ment under the Model 2 IGA, the U.S.Competent Authority may request infor-mation necessary to verify a reportingModel 2 FFI’s compliance with thisagreement as described in §1.1471–4(f)(4)(ii). If the U.S. Competent Author-ity determines that a reporting Model 2FFI has failed to significantly comply with
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the requirements of this agreement, asmodified by the applicable Model 2 IGA,the U.S. Competent Authority will notifythe Competent Authority of the jurisdic-tion in which the reporting Model 2 FFI islocated, and will also notify the reportingModel 2 FFI in accordance with section12.06 of this agreement that an event ofdefault has occurred.
Section 9. Participating FFIWithholding Certificate.
.01 Participating FFI WithholdingCertificate.
A participating FFI agrees to furnish avalid withholding certificate to each with-holding agent from which it receives awithholdable payment and to each partic-ipating FFI or deemed-compliant FFI withwhom the participating FFI holds an ac-count.
(A) Beneficial Owner. When a partic-ipating FFI receives a withholdable pay-ment as a beneficial owner of the payment(as defined in §1.1471–1(b)(7)) or other-wise holds an obligation or account for itsown benefit, the withholding certificate tobe furnished is a Form W-8BEN-E(or acceptable substitute form under§1.1471–3(c)(6)(v)) that certifies that theparticipating FFI is the beneficial ownerand that includes the GIIN of the partici-pating FFI in its jurisdiction of residencefor tax purposes (or place of organizationif the FFI has no such residence) or oth-erwise identifies the branch of the partic-ipating FFI that is receiving the paymentand the branch’s GIIN if the branch re-ceiving the payment operates in a jurisdic-tion other than the participating FFI’s ju-risdiction of residence, and all of the otherinformation required by §1.1471–3(c)(3)(ii), the form, and its accompanyinginstructions. Alternatively, with respect toa payment made prior to January 1, 2017,or made with respect to an offshore obli-gation, the participating FFI may provideits GIIN and documentation to the extentrequired in §1.1471–3(d)(4)(ii) or (iii). Insuch a case, the participating FFI will notbe subject to withholding and will not bereported as a nonparticipating FFI withrespect to withholdable payments it re-ceives from a withholding agent to whomthe participating FFI provided such docu-mentation. If, however, in the case of a
reporting Model 2 FFI, the branch of thereporting Model 2 FFI receiving the with-holdable payment is a related branch, thereporting Model 2 FFI must identify thebranch as a nonparticipating FFI on theForm W-8BEN-E that it provides tothe withholding agent, and such paymentwill be subject to withholding and report-ing for purposes of chapter 4.
(B) Intermediary or Flow-ThroughEntity. When a participating FFI receivesa withholdable payment of U.S. sourceFDAP income as an intermediary, holdsan account with a participating or regis-tered deemed-compliant FFI as an inter-mediary, or is a flow-through entity, thewithholding certificate that the participat-ing FFI must furnish to the withholdingagent is a Form W-8IMY that meetsthe requirements in §1.1471–3(c)(3)(iii) (or acceptable substitute form under§1.1471–3(c)(6)(v)). In such a case, theparticipating FFI will not be subject towithholding (or reporting) as a nonpartic-ipating FFI for purposes of chapter 4 thatwould otherwise apply based on its statusas a participating FFI, though withholdingfor purposes of chapter 4 may apply to theextent that it receives a payment on behalfof recalcitrant account holders or nonpar-ticipating FFIs and fails to provide suffi-cient information for its withholding agentto withhold and report on Form 1042-Sunder chapter 4 with respect to such per-sons. Additionally, withholding for pur-poses of chapter 3 may apply with respectto payments of U.S. source FDAP incomebased on the status of persons for whomthe participating FFI receives the pay-ment. For the requirements of a withhold-ing certificate provided by a foreign part-nership or foreign trust receiving a chapter3 reportable amount, see §1.1441–5(c)(2) or §1.1441–5(e)(5), respectively. Forthe requirements of a withholding certifi-cate provided by a foreign intermediarythat receives a chapter 3 reportableamount, see §1.1441–1(e)(3).
.02 Withholding Statement.
(A) In General. A participating FFIagrees to provide an FFI withholdingstatement that includes the informationdescribed in section 9.02(B) of this agree-ment to each withholding agent fromwhich it receives a withholdable payment
of U.S. source FDAP income on behalf ofits account holders or other persons (in-cluding its partners, beneficiaries, orowners for a participating FFI that isa flow-through entity). See section§1.1471–3(c)(3)(iii)(B)(1) and (2) forthe requirements of an FFI withholdingstatement. The withholding statementmust be updated as often as necessaryfor the participating FFI to meet itswithholding and reporting obligationsunder sections 4 and 6 of this agree-ment.
(B) Allocation of Payment onWithholding Statement.
(1) In General. In general, unless aparticipating FFI is permitted to provideon its withholding statement pooled infor-mation for the payees described in section9.02(B)(2) or (3), a participating FFI mustallocate a withholdable payment of U.S.source FDAP income to each payee of thepayment on its withholding statement byproviding payee specific information. Inaddition, the withholding statement mustinclude the information necessary for thewithholding agent to fulfill its obligationsunder chapter 4, and chapters 3 and 61, ifapplicable.
(2) Chapter 4 Withholding RatePools. A participating FFI may include onthe withholding statement informationthat indicates the portion of such with-holdable payment that is allocated to eachof its chapter 4 withholding rate pools(consisting of separate pools for eachclass of recalcitrant account holders, fornonparticipating FFIs, and for U.S. pay-ees). If a participating FFI applies theescrow procedure for dormant accountsdescribed in section 5.02 of this agree-ment, the participating FFI must indicatethe portion of such payment allocated to achapter 4 withholding rate pool of recal-citrant account holders that hold dormantaccounts that the participating FFI (andnot the withholding agent) will hold inescrow. A participating FFI must identifyits pools of recalcitrant account holders inaccordance with the chapter 4 reportingpools provided on Form 1042-S and itsaccompanying instructions. If, however, aparticipating FFI elects to apply backupwithholding instead of withholding underchapter 4 with respect to a recalcitrant
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account holder that is described in section4.01(C) of this agreement, the withhold-ing statement provided to the withholdingagent must indicate the portion of suchpayment subject to backup withholdingunder section 3406 that is allocated to theaccount holder and include the other in-formation required under chapter 61 forthe withholding agent to report with re-spect to the payment. See Form 1042-Sand its accompanying instructions for in-formation on the chapter 4 withholdingrate pools applicable to recalcitrant ac-count holders, nonparticipating FFIs, andU.S. payees.
(3) Exempt Payee Pool. To the extenta withholdable payment is not subject toreporting by the withholding agent on anyof Forms 1042-S, 1099, and 8966, a par-ticipating FFI may allocate a portion of awithholdable payment to a group of doc-umented payees (other than nonqualifiedintermediaries or flow-through entities),provided that the participating FFI pro-vides to the withholding agent for eachaccount holder payee-specific information(including the payee’s chapter 4 status(using the applicable status code used forfiling Form 1042-S)) and any other infor-mation required for purposes of chapter 3or 61 on the withholding statement, andthe participating FFI provides documenta-tion for each account holder in the pool(an “exempt payee pool”). For example, aparticipating FFI can provide an exemptpayee pool for a payment of U.S. sourceinterest on a bank deposit not subject towithholding or reporting under chapter 4that is allocable to a group of documentedforeign account holders (that is, a with-holdable payment that is not reported onany of Forms 1042-S, 1099, and 8966)and provide to the withholding agent doc-umentation for each account holder in-cluded in the pool.
(4) Allocation of Payment to PayeesSubject to Withholding or Reportingunder Chapter 3 or 61 but not Chapter4. If any portion of a withholdable pay-ment is allocable to payees not subject towithholding or reporting under chapter 4,but the payment is subject to withholdingor reporting under chapter 3 or 61, see§§1.1441–1(e)(3)(iv) (nonqualified with-holding statement), 1.1441–5(c)(3)(iv)(withholding statement of a foreign sim-ple or grantor trust), 1.1441–5(e)(5)(iv)
(withholding statement of a nonwithhold-ing foreign partnership), and 1.6049–5(d)for the additional requirements for allocat-ing a payment to payees with regard tochapters 3 or 61 (including the require-ments applicable to the withholding state-ment and the appropriate documentationto be provided with respect to each suchpayee). In addition to allocating the por-tion of the payment to each such payee,the withholding statement must includethe information necessary for the with-holding agent to report the payment onForm 1042-S or Form 1099. See §1.1471–3(c)(3)(iii)(B)(2) for the circumstances inwhich a participating FFI may allocate awithholdable payment to a chapter 4 with-holding rate pool of U.S. payees on an FFIwithholding statement, and see §1.6049–4(c)(4)(iii) for when a participating FFImay also allocate reportable payments to achapter 4 withholding rate pool of U.S.payees on an FFI withholding statement.
(5) Coordination with Reporting onForm 8966. In a case in which a with-holdable payment is allocable to an ac-count holder of the participating FFI thatis a passive NFFE with one or more sub-stantial U.S. owners, the FFI may certifyon the withholding statement that it isreporting, for the year in which the pay-ment is made, the account holder as a U.S.account (excluding a non-consenting U.S.account or an account held by a recalci-trant account holder) as required underthis agreement. Further, an FFI withhold-ing statement provided by a participatingFFI may include a certification that theFFI is reporting to the IRS for the year ofthe payment all of the information de-scribed in §1.1471–4(d) or §1.1474–1(i)(1) (as applicable) with respect to allspecified U.S. persons described in§1.1471–3(d)(6)(iv)(A)(1) and (2) withrespect to an account holder or payee thatthe FFI has agreed to treat as an owner-documented FFI.
(6) Documentation from Intermedi-aries and Flow-Through Entities. If aparticipating FFI has an account holderthat is acting as an intermediary or is aflow-through entity with respect to a with-holdable payment and that has providedthe information described in §1.1471–3(c)(2) necessary for the withholdingagent to report the payment, the partici-pating FFI must provide to its withholding
agent the account holder information orpool reporting information provided to itby such other entity for determining theamount of withholding or the reportingrequired under chapter 4. See §1.1471–3(e)(4)(vi)(B) (providing that the partici-pating FFI may rely on the determinationof a payee’s chapter 4 status that is pro-vided by another participating FFI or reg-istered deemed-compliant FFI unless thefirst-mentioned participating FFI knowsor has reason to know that such informa-tion is incorrect or unreliable).
(C) Optional Procedure for SpecificRecipient Reporting for Payees that areRecalcitrant Account Holders or Non-participating FFIs. For payments that arereceived by a participating FFI that is act-ing as an intermediary or that is a flow-through entity and that are subject to with-holding under chapter 4, the participatingFFI may provide specific recipient infor-mation instead of chapter 4 withholdingrate pool information on the withholdingstatement regarding any (or all) recipientsthat are recalcitrant account holders ornonparticipating FFIs. In such a case, thewithholding statement must include theinformation necessary to enable the with-holding agent to report the payment inaccordance with the requirements de-scribed in §1.1474–1(d) and the require-ments of Form 1042-S or Form 1099 andits accompanying instructions. The partic-ipating FFI is not required to provide thewithholding agent with the withholdingcertificate or other documentation for eachrecipient.
Section 10. Adjustments forOverwithholding andUnderwithholding and Refunds.
.01 Adjustments for Overwithhold-ing by Withholding Agent. A participat-ing FFI may request a withholding agentto make an adjustment for amounts paid tothe participating FFI on which the with-holding agent has overwithheld (as de-fined in §1.1474–2(a)(2)) under chapter 4by applying either the reimbursement pro-cedure or the set-off procedure describedin this section 10.01. Nothing in this sec-tion 10 requires a withholding agent toapply these procedures.
(A) Reimbursement Procedure. Aparticipating FFI may request a withhold-ing agent to repay the participating FFI for
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any amount overwithheld under chapter 4,and for the withholding agent to reim-burse itself under the reimbursement pro-cedures under § 1.1474–2(a)(3), by mak-ing a request to the withholding agentprior to the earlier of the due date (withoutregard to extensions) for filing Form 1042and Form 1042-S, or the actual filing ofForm 1042-S, for the calendar year ofoverwithholding. In such a case, the par-ticipating FFI must provide the withhold-ing agent with sufficient information todetermine the correct amount of withhold-ing and to correctly report the payment asrequired under §1.1474–1(d)(4). See sec-tion 4.02 of this agreement for the circum-stances in which a withholding agent maywithhold on behalf of the participatingFFI with respect to its account holders orpayees.
(B) Set-off Procedure. A participatingFFI may request a withholding agent re-pay the participating FFI by applying theamount overwithheld under chapter 4against any amount which otherwisewould be required to be withheld underchapter 3 or 4 from income paid by thewithholding agent to the participating FFIunder the set-off procedures of §1.1474–2(a)(4). A participating FFI must make therequest before the earlier of the due date(without regard to extension) for filingForm 1042-S, or the actual filing of Form1042-S, for the calendar year of overwith-holding.
.02 Adjustments for Overwithhold-ing by Participating FFI. A participatingFFI may make an adjustment for amountspaid to its account holders and payees forwhich it has overwithheld tax under chap-ter 4 (as defined in §1.1474–2(a)) by ap-plying either the reimbursement proce-dures or the set-off procedures describedin §1.1474–2(a)(3) or (4), respectively.
.03 Repayment of Backup Withhold-ing. If a participating FFI erroneouslywithholds (as defined in §31.6413(a)–3) an amount under section 3406 from anaccount holder or payee, such participat-ing FFI may refund to such person theamount erroneously withheld as providedin §31.6413(a)–3.
.04 Collective Credit or Refund Pro-cedures for Overpayments. If there hasbeen an overpayment of tax with respectto an account holder or a payee of a par-ticipating FFI resulting from tax withheld
under chapter 4 on a payment made tosuch account holder or payee during acalendar year, and the amount withheldhas not been recovered under the reim-bursement or set-off procedures describedunder section 10.01 or 10.02 of this agree-ment, the participating FFI may request acredit or refund of the amount of tax over-withheld to the extent permitted under§1.1471–4(h). The participating FFI mustfollow the procedures set forth under§1.1471–4(h)(4) to request the credit orrefund on behalf of its account holders.No credit or refund will be allowed afterthe expiration of the statutory period oflimitations for refunds under section 6511with regard to the account holder or payeefor whom the refund or credit is sought.
.05 Adjustments for Underwithhold-ing. If a participating FFI knows that anamount should have been withheld underchapter 4 from a previous payment to anaccount holder or a payee but was notwithheld, the participating FFI may eitherwithhold from future payments made pur-suant to chapter 3 or chapter 4 to the sameaccount holder or payee or satisfy the taxfrom property that it holds in custody forsuch person or property of such personover which it has control. The additionalwithholding or satisfaction of the taxowed may only be made before the duedate (without regard to extensions) ofForm 1042 for the calendar year in whichthe underwithholding occurred. A partici-pating FFI’s responsibilities will be metunder this section 10.05 if it informs thewithholding agent from whom the partic-ipating FFI received the payment of theunderwithholding, and the withholdingagent satisfies the underwithholding.
.06 Underwithholding after Form1042 Filed. If, after Form 1042 has beenfiled for a calendar year (or the due datefor filing Form 1042 if no Form 1042 wasfiled), a participating FFI or the IRS de-termines that the participating FFI has un-derwithheld tax for such year, the partic-ipating FFI must file an amended Form1042 (or original Form 1042 if no Form1042 was filed) to report and pay theunderwithheld tax. A participating FFImust pay the underwithheld tax, the inter-est due on the underwithheld tax, and anyapplicable penalties at the time of filingsuch amended (or original) Form 1042. Ifa participating FFI fails to file a return (if
required under section 6.06 of this agree-ment or this section 10.06), the IRS willmake such return under section 6020 andassess such tax under the procedures setforth in the Code.
Section 11. FFI Group.
.01 FFI Group.
(A) In General. With respect to a par-ticipating FFI other than a reportingModel 2 FFI, each FFI that is a member ofan FFI group must have the chapter 4status of a participating FFI, deemed-compliant FFI, or exempt beneficialowner as a condition for any member ofsuch FFI group obtaining chapter 4 statusas a participating FFI or registereddeemed-compliant FFI. In addition, theparticipating FFI and each FFI (other thana certified deemed-compliant FFI or ex-empt beneficial owner) that is a memberof the participating FFI’s FFI group mustcomply with the requirements of a partic-ipating FFI or registered deemed-compliant FFI as a condition for the par-ticipating FFI maintaining its chapter 4status as a participating FFI. An FFI andits FFI group may register on the FATCAregistration website.
(B) Special Rule for a ReportingModel 2 FFI. A reporting Model 2 FFIthat has a related entity or branch will notcease to be a reporting Model 2 FFI, pro-vided that the reporting Model 2 FFI con-tinues to comply with the requirements ofthe applicable Model 2 IGA with respectto such related entities and branches.
.02 Lead FI.
(A) Designation of the Lead FI. If theparticipating FFI designates a lead FI toinitiate its FATCA registration, the partic-ipating FFI must authorize the lead FI tofulfill the responsibilities described in sec-tion 11.02(B) of this agreement. If an FFIgroup has in place a consolidated compli-ance program as described in §1.1471–4(f)(2)(ii), the FI that is designated as thecompliance FI for the FFI group must actas the lead FI for each member of the FFIgroup that participates in such consoli-dated compliance program.
(B) Responsibilities of the Lead FI. Aparticipating FFI or U.S. financial institu-tion that is designated as the lead FI by
January 17, 2017 Bulletin No. 2017–3518
one or more FFIs that are members of anFFI group agrees to meet the followingresponsibilities with respect to such FFIsin addition to its other obligations underthis agreement:
(1) Identify itself as the lead FI as partof the registration process and to delete itsstatus as lead FI upon termination of suchstatus;
(2) Identify all FFIs that have desig-nated the participating FFI as their lead FIas part of the participating FFI’s registra-tion process;
(3) Monitor the information regardingmembers of the FFI group for which it isacting as a lead FI by accessing theFATCA registration website every sixmonths to review the information pro-vided and, if needed, update the informa-tion provided with respect to any mem-bers of the FFI group for which it is actingas a lead FI;
(4) Inform the IRS within 90 days of anacquisition or sale of a member of the FFIgroup for which it is acting as a lead FI byupdating the information on the FATCAregistration website to add or delete (or in-struct the member to delete) such member;
(5) Inform the IRS within 90 days of achange affecting the chapter 4 status ofany member of the FFI group for which itis acting as a lead FI, including when anymember of the FFI group for which it isacting as a lead FI ceases to comply with(or that does not otherwise comply with) therequirements of either a participating FFI ora registered deemed-compliant FFI by up-dating such member FFI’s chapter 4 statuson the FATCA registration website; and
(6) With respect to a lead FI of an FFIgroup that is a group of related entities asdefined in an applicable Model 2 IGA,inform the IRS within the time periodprescribed under §1.1471–4(e)(3)(iv) thata member of the FFI group for which it isacting as a lead FI ceases to be a relatedentity, or a branch of a member of the FFIgroup ceases to be a related branch, anddesignate on the FATCA registrationwebsite the status for which such memberFFI or branch will register.
Section 12. Expiration, Modification,Termination, Default, and Renewal ofthis Agreement.
.01 Term of Agreement. This agree-ment begins on its effective date and ex-
pires on December 31, 2018 unless termi-nated under section 12.03 of thisagreement. This agreement may be re-newed as provided in section 12.08 of thisagreement.
.02 Modification. This agreement maybe modified by the IRS before the expira-tion date indicated in section 12.01 of thisagreement. This agreement will only bemodified through published guidance.Any modification imposing additional re-quirements on participating FFIs will inno event become effective until the laterof 120 days after the IRS issues publishedguidance of such modification or the be-ginning of the next calendar year follow-ing such published guidance.
.03 Termination of Agreement. Thisagreement may be terminated by eitherthe IRS or the participating FFI prior tothe end of its term by delivery of a noticeof termination to the other party in accor-dance with section 12.06 of this agree-ment.
(A) In General. The IRS will not ter-minate this agreement unless there hasbeen a significant change in circumstances(as defined in section 12.04 of this agree-ment) or an event of default (as defined insection 12.05 of this agreement), and theIRS determines, in its sole discretion, thatthe significant change in circumstances orthe event of default warrants terminationof this agreement. The IRS will not termi-nate this agreement in the event of defaultif the participating FFI can establish to thesatisfaction of the IRS that all events ofdefault for which it has received a notice(described in section 12.06 of this agree-ment) have been cured within the speci-fied time period agreed to with the IRS.
(B) Reporting Model 2 FFI. In thecase of a reporting Model 2 FFI, the re-porting Model 2 FFI will not be treated asa nonparticipating FFI unless the U.S.Competent Authority has provided theCompetent Authority of a Model 2 IGAjurisdiction in which the reporting Model2 FFI is located notice of significant non-compliance with the terms of this agree-ment, as modified by the applicable Model2 IGA, and the matter is not resolvedwithin the 12-month period following thenotice of significant non-compliance.
(C) Survival of Obligations. The ter-mination of this agreement shall not affectany of the participating FFI’s due dili-
gence, withholding, information report-ing, tax return filing, compliance obli-gations, or other obligations as aparticipating FFI arising in or with re-spect to a calendar year (or a portion ofa calendar year) for which this agree-ment was in effect.
.04 Significant Change in Circum-stances. For purposes of this agreement, asignificant change in circumstances in-cludes—
(A) An acquisition of all, or substan-tially all, of a participating FFI’s assets inany transaction in which the participatingFFI is not the surviving legal entity;
(B) A change in U.S. federal law thataffects the validity of any provision of thisagreement, materially affects the provi-sions contained in this agreement, or ma-terially affects the participating FFI’s abil-ity to perform its obligations under thisagreement;
(C) A ruling of any court that materi-ally affects the validity of any provision ofthis agreement;
(D) A case in which a participating FFI(other than a reporting Model 2 FFI)maintains a limited branch that cannot ful-fill the requirements for participating FFIor deemed-compliant FFI status after theexpiration of the transitional rule for lim-ited branches under §1.1471–4(e)(2)(v) ora participating FFI (other than a reportingModel 2 FFI) is a member of an expandedaffiliated group that includes a limited FFIafter the expiration of the transitional rulefor limited FFIs under §1.1471–4(e)(3)(iv); and
(E) A significant change in a partici-pating FFI’s business practices or applica-ble foreign law that materially affects theparticipating FFI’s ability to meet its ob-ligations under this agreement.
.05 Event of Default. For purposes ofthis agreement, an event of default occursif a participating FFI fails to perform anymaterial duty or obligation required underthis agreement or if the IRS determinesthat a participating FFI has failed to sub-stantially comply with the requirements ofthis agreement. In addition to the occur-rences enumerated in §1.1471–4(g)(1), anevent of default also includes the occur-rence of the following:
(A) The participating FFI fails to in-form the IRS within 90 days of any sig-nificant change in circumstances; or
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(B) If the participating FFI is desig-nated by one or more FFIs that are mem-bers of an FFI group as a lead FI, the FFIfails, without reasonable cause, to informthe IRS within 90 days of an acquisition,sale, or change affecting the chapter 4status of an FFI in the FFI group for whichit is acting as lead FI, including that suchFFI ceases to comply with (or does nototherwise comply with) the requirementsto maintain its status as a participating orregistered deemed-compliant FFI.
.06 Notice of Event of Default. Fol-lowing an event of default known by, ordisclosed to, the IRS, the IRS will deliverto the participating FFI a notice of defaultspecifying the event of default and re-questing that the participating FFIremediate the event of default as de-scribed in §1.1471–4(g)(2). See §1.1471–4(g)(3) for the remediation process for anevent of default.
.07 Termination Procedures.
(A) Procedure to Appeal Notice ofTermination. If a participating FFI re-ceives a notice of termination of thisagreement from the IRS, the participatingFFI may appeal the determination within90 days by sending to the address speci-fied in section 13.03 of this agreement awritten notice explaining why this agree-ment should not be terminated. If a par-ticipating FFI appeals the notice of termi-nation, this agreement will not terminateuntil the appeal is decided. If a participat-ing FFI does not provide a notice of ap-peal within 90 days, this agreement willterminate on the date specified in the no-tice of termination.
(B) Termination of Agreement. If theparticipating FFI seeks to terminate thisagreement, it is required to provide noticeto the IRS through the FATCA registra-tion website. After receipt of the notice oftermination, the IRS will remove the FFIfrom the IRS FFI List. If the FFI’s statusas a participating FFI is terminated(whether by the FFI or by the IRS), theFFI must send notice of the terminationwithin 30 days after the date of termina-tion to each withholding agent from whichit receives payments and each financialinstitution with which it holds an accountto which it has provided a withholding
certificate or other documentation pursu-ant to section 9.01 of this agreement.
(C) Termination of Status asCompliance FI or Lead FI.
(1) If a participating FFI seeks to ter-minate its status as a compliance FI orlead FI, it is required to provide notice oftermination on the FATCA registrationwebsite in accordance with its instructionsor as provided in later published guidance.A lead FFI’s notice of termination of itslead FI status will require designation of anew lead FI on the FATCA registrationwebsite in accordance with its instructionsor as provided in other guidance.
(2) A compliance FI that terminates itsstatus as a compliance FI will still berequired to serve as the point of contactfor the IRS with respect to the certificationperiods (as defined in §1.1471–4(f)(3)(i)) during which the FFI acted as acompliance FI unless the FFI designatesanother FI that has full access to the in-formation that relates to such periods thatwill act as the compliance FI for suchperiods.
.08 Renewal. If a participating FFI in-tends to renew this agreement, it may doso via the FATCA registration websiteavailable at www.irs.gov/fatca in accor-dance with its instructions or as otherwiseprovided other guidance. This agreementwill be renewed only upon the agreementof both the participating FFI and the IRSand is subject to modifications to thisagreement as the IRS prescribes pursuantto procedures described in section 12.02of this agreement.
.09 Treatment of Reporting Model 2FFIs.
Notwithstanding anything to the con-trary in this agreement, a reportingModel 2 FFI is not entering into a bind-ing agreement by agreeing to complywith the terms of this agreement, exceptto the extent that such an FFI is enteringinto an agreement on behalf of one ormore of its branches in order for eachsuch branch to be treated as a partici-pating FFI. For the avoidance of doubt,compliance with the terms of this agree-ment requires compliance with the re-quirement to recertify on the FATCA
registration website that the reportingModel 2 FFI shall comply with theterms of any renewed agreement, in-cluding any modified terms pursuant tosection 12.02 of this agreement.
.10 Final Certification after a Termi-nation of the FFI Agreement. Upon atermination of this agreement, a partici-pating FFI must provide to the IRS thecertification of compliance described insection 8.03(B) of this agreement cover-ing the period from the end of the mostrecent certification period (or, if the firstcertification period has not ended, the ef-fective date of the FFI agreement) to thedate of termination (the “short certifica-tion period”) within six months of the dateof termination, irrespective of whether aperiodic review has been completed forsuch period.
Section 13. Miscellaneous Provisions.
.01 Waiver. Any waiver of a provisionof this agreement is a waiver solely of thatprovision. The waiver does not obligatethe IRS to waive other provisions of thisagreement or the same provision at a laterdate.
.02 Governing Law. This agreement isgoverned by the laws of the United States.Any legal action brought under this agree-ment will be brought only in a UnitedStates court with jurisdiction to hear andresolve matters under the internal revenuelaws of the United States. For this pur-pose, the participating FFI agrees to sub-mit to the jurisdiction of such UnitedStates court.
.03 Notices. Except as otherwise pro-vided on the FATCA registration website,notices provided under this agreement areto be mailed via registered, first class air-mail. All notices sent to the IRS mustinclude the participating FFI’s name andGIIN and the name of the participatingFFI’s responsible officer. Such noticesshould be directed as follows:
To the IRS:Internal Revenue ServiceOffice of Foreign Payments290 BroadwayNew York, New York 10007To the participating FFI:The participating FFI’s responsible of-
ficer (or the responsible officer of thecompliance FI for issues related to theparticipating FFI’s compliance with this
January 17, 2017 Bulletin No. 2017–3520
agreement). Such notices should be sent tothe address indicated in the FFI’s registra-tion (as may be amended).
SECTION 7. EFFECTIVE DATE
The effective date of this revenue pro-cedure is January 1, 2017.
SECTION 8. EFFECT ON OTHERDOCUMENTS
Revenue Procedure 2014-38 is super-seded.
SECTION 9. PAPERWORKREDUCTION ACT
This revenue procedure refers to a col-lection of information in the followingsections of the FFI agreement (set forth insection 6 of this revenue procedure): sec-tion 3 regarding the due diligence require-ments for account holder and nonpartici-pating FFI payee identification anddocumentation; section 4 regarding with-holding requirements; section 5 regarding
deposit requirements; section 6 regardinginformation reporting and tax return obli-gations; section 7 regarding the legal pro-hibitions on reporting U.S. accounts andon withholding; section 8 regarding com-pliance procedures; section 9 regardingthe participating FFI withholding certifi-cate; and section 10 regarding adjustmentsfor overwithholding and underwithhold-ing and refunds. Responses to these col-lections of information are required for anFFI to comply with the terms of its FFIagreement and not be subject to withhold-ing under section 1471. The likely respon-dents are individuals, businesses, otherfor-profit institutions, and certain non-profit institutions.
The estimated information collectionburden referred to in this revenue pro-cedure will be reflected in the Forms8957, W-8BEN, W-8BEN-E, W-8ECI,W-8EXP, W-8IMY, W-9, 1040NR,1042, 1042-S, 1120-F, 1099, and 8966,as well as various income tax returnsfiled for purposes of claiming a refundof tax. The information collection bur-
den relating to the section 8 complianceprocedures will be reflected in futureguidance.
An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information un-less the collection of information displaysa valid control number assigned by theOffice of Management and Budget.
Books or records relating to a collec-tion of information must be retained aslong as their contents may become mate-rial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by section 6103.
SECTION 10. DRAFTINGINFORMATION
The principal author of this revenueprocedure is Kamela Nelan of the Officeof Associate Chief Counsel (Interna-tional). For further information regardingthis revenue procedure, contact Ms. Nelanat (202) 317-6942 (not a toll free number).
Bulletin No. 2017–3 January 17, 2017521
Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe theeffect:
Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds thatthe same principle also applies to B, theearlier ruling is amplified. (Compare withmodified, below).
Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling is being changed.
Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.
Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, andthe new ruling holds that it applies to
both A and B, the prior ruling is modi-fied because it corrects a published po-sition. (Compare with amplified andclarified, above).
Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.
Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.
Superseded describes a situation wherethe new ruling does nothing more thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the new
ruling does more than restate the sub-stance of a prior ruling, a combination ofterms is used. For example, modified andsuperseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that isself contained. In this case, the previouslypublished ruling is first modified and then,as modified, is superseded.
Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further namesin subsequent rulings. After the originalruling has been supplemented severaltimes, a new ruling may be published thatincludes the list in the original ruling andthe additions, and supersedes all prior rul-ings in the series.
Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome ofcases in litigation, or the outcome of aService study.
AbbreviationsThe following abbreviations in currentuse and formerly used will appear in ma-terial published in the Bulletin.
A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.ER—Employer.
ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.PRS—Partnership.
PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D.—Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z—Corporation.
Bulletin No. 2017–3 January 17, 2017i
Numerical Finding List1
Bulletin 2017–1 through 2017–3
Notices:
2017-1, 2017-2 I.R.B. 3672017-3, 2017-2 I.R.B. 3682017-6, 2017-3 I.R.B. 4222017-7, 2017-3 I.R.B. 4232017-8, 2017-3 I.R.B. 423
Proposed Regulations:
REG-128276-12, 2017-2 I.R.B. 369REG-134438-15, 2017-2 I.R.B. 373REG-133353-16, 2017-2 I.R.B. 372
Revenue Procedures:
2017-1, 2017-1 I.R.B. 12017-2, 2017-1 I.R.B. 1062017-3, 2017-1 I.R.B. 1302017-4, 2017-1 I.R.B. 1462017-5, 2017-1 I.R.B. 2302017-7, 2017-1 I.R.B. 2692017-12, 2017-3 I.R.B. 4242017-14, 2017-3 I.R.B. 4262017-15, 2017-3 I.R.B. 4372017-16, 2017-3 I.R.B. 501
Revenue Rulings:
2017-1, 2017-3 I.R.B. 3772017-2, 2017-2 I.R.B. 364
Treasury Decisions:
9794, 2017-2 I.R.B. 2739795, 2017-2 I.R.B. 3269796, 2017-3 I.R.B. 3809801, 2017-2 I.R.B. 3559802, 2017-2 I.R.B. 3619803, 2017-3 I.R.B. 3849804, 2017-3 I.R.B. 406
1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016–27 through 2016–52 is in Internal Revenue Bulletin2016–52, dated December 26, 2016.
January 17, 2017 Bulletin No. 2017–3ii
Finding List of Current Actions onPreviously Published Items1
Bulletin 2017–1 through 2017–3
Notices:
2002-1Amplified byNotice 2017-1, 2017-2 I.R.B. 367
2011-86Obsoleted byNotice 2017-1, 2017-2 I.R.B. 367
2016-29Modified byNotice 2017-6, 2017-3 I.R.B. xxx
Revenue Procedures:
2017-01 I.R.B. 1
1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016–27 through 2016–52 is in Internal Revenue Bulletin2016–52, dated December 26, 2016.
Bulletin No. 2017–3 January 17, 2017iii
INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available at www.irs.gov/irb/.
We Welcome Comments About the Internal Revenue BulletinIf you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page(www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave.NW, IR-6230 Washington, DC 20224.
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