On December 13, 2022, the Internal Revenue Service (IRS) published Rev. Proc. 2022-43, the final Qualified Intermediary Agreement. While the agreement continues to adhere to many of the proposed amendments issued on May 3, 2022 (see our May 5th release: Notice 2022-23 Proposed Amendments to the QI Agreement!) there are a significant number of changes in the final version that will impact Qualified Intermediaries.
In general, the QI agreement was developed to allow a foreign intermediary to simplify their withholding and reporting requirements by entering into an agreement with the IRS. The current QI agreement, provided in Rev. Proc. 2017-15, will expire on December 31, 2022. The updated QI agreement, applicable beginning on January 1, 2023, will expand to allow a QI to assume withholding and reporting responsibilities to their account holders holding interests in publicly traded partnerships falling under Internal Revenue Code sections 1446(a) and 1446(f).
Some of the highlights of the Final QI agreement due to the inclusion of section 1446(a) and 1446(f) include:
- In the case of a QI making a payment of an amount realized on a sale of a PTP interest or a payment of a PTP distribution, a QI will not be considered in default of its agreement under the documentation rules if a number of its direct account holders have not provided a U.S. TIN as long as the QI agrees to make written solicitations for the account holder’s U.S. TIN in 2023 and in the following two calendar years if not received in the initial year.
- Where a QI is acting as a disclosing QI for a PTP distribution or amount realized to an account holder, the final regulations have removed an earlier requirement in section 1.6031(c)-1T(a) where the QI must provide to the QI’s nominee a statement (underlying account holder information) in the case where the nominee maintains fully segregated and disclosed accounts for the account holders.
- The sample process under a QI agreement has also been expanded to include accounts receiving payments that fall under section 1446(a) and 1446(f). This will require a stratum of the thirty top-dollar value accounts, “determined by the total of PTP distributions and amounts realized from sales of PTP interests paid to an account”. This is defined as a certainty stratum, in Appendix II.
- In addition, to the changes under sections 1446(a) and 1446(f), the final QI agreement also updated rules for Qualified Derivate Dealers (“QDD”) and various other topics including reporting.
With the rule changes coming out in December and due to take effect this upcoming January, there is a question as to whether there will be transitory relief as implementation by January 1, 2023 will be difficult for most companies.