The IRS issued a reminder that the deadline for 2018 status applications for all Qualified Intermediary (QI) entities (including Qualified Derivatives Dealer), Withholding Foreign Partnerships (WPs) and Withholding Foreign Trusts (WTs) is November 16, 2018. This will allow sufficient time for processing by year end.
All applicants that desire to have an agreement in effect in 2018 must submit their applications through the Qualified Intermediary, Withholding Foreign Partnership, and Withholding Foreign Trust Application and Account Management System. Applicants must have a Global Intermediary Identification Number (GIIN) before submitting their applications, if needed.
In general, nonresident aliens and foreign corporations are subject to a U.S. withholding tax on certain items of income that they receive from U.S. sources that are not effectively connected with a U.S. trade or business. The QI system was designed to simplify U.S. tax withholding and reporting obligations for payments of income made to an account holder through one or more foreign intermediaries. A QI is an eligible entity that enters into a QI agreement with the IRS to assume certain responsibilities related to compliance with the U.S. tax withholding and reporting regime.
WP and WT agreements are intended to simplify withholding and reporting obligations for certain payments made to partners of a WP and beneficiaries and owners of a WT. These agreements are tailored to meet the unique situations of WPs and WTs in their roles as foreign intermediaries.
In general, if a WP or WT submits its application for WP or WT status on or before March 31, its agreement will have an effective date as of January 1 of that year. If the application is submitted on or after April 1, the effective date of the agreement is January 1 of the calendar year following the year in which the application was submitted.
The effective dates for new applicants is provided in two separate Revenue Procedures:
- Rev. Proc. 2017-15, 2017 IRB 437, states that, if a prospective QI applies for QI status after March 31 of a calendar year and hasn’t received a “reportable payment” before the date it applies for QI status and is approved, it will have a QI agreement with an effective date of January 1 of that year. If a prospective QI applies after March 31 and has received a reportable payment before the date it applies and is approved, it will have a QI agreement with an effective date of the first of the month in which its QI application is approved and the prospective QI is issued a QI employer identification number (QI-EIN).
- Rev. Proc. 2017-15, 2017 IRB 437, states that, if an entity submits an application to be a WP (or WT) after March 31 and does not receive any “reportable amounts” between January 1 of the calendar year in which the WP application (or WT application) is submitted and the date of approval, the entity has a WP agreement (or WT agreement) with an effective date of the date it is issued a WP-EIN (or WT-EIN). (Other entities applying for WP status after March 31 that are approved during the calendar year will have an effective date of January 1 of the following year.)
Contact a B&V tax advisor, at 713-667-9147 or firstname.lastname@example.org, for more information or if you have any questions.