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

Notice 2016–42, page 67.Notice 2016–42 sets out a proposed Qualified Intermediary(“QI”) agreement revising and updating the current agreement,Rev. Proc. 2014–39, published in July 2014. The revised QIagreement updates the current agreement by providing moredetailed procedures regarding how qualified intermediariessatisfy their compliance review obligations and sets out termsand requirements for qualified intermediaries that want to actas qualified derivatives dealers with respect to transactionssubject to section 871(m).

Notice 2016–43, page 132.This notice publishes the reference price under § 45K(d)(2)(C) ofthe Internal Revenue Code for calendar year 2015. The referenceprice applies in determining the amount of the enhanced oilrecovery credit under § 43, the marginal well production creditunder § 45I, and the percentage depletion in case of oil andnatural gas produced from marginal properties under § 613A.

Notice 2016–44, page 132.The notice announces the inflation adjustment factor andphase-out amount for the enhanced oil recovery credit fortaxable years beginning in the 2016 calendar year. The formatof the notice is identical to the format of previously publishednotices on this issue. The notice concludes that because thereference price for the 2015 calendar year ($44.39) does notexceed $28 multiplied by the inflation adjustment factor for the2015 calendar year ($28 multiplied by 1.6464 � $46.01), theenhanced oil recovery credit for qualified costs paid or incurredin 2016 is determined without regard to the phase-out forcrude oil price increases. The notice contains the previouslypublished figures for taxable years beginning in the 1991through 2015 calendar years. The enhanced oil recoverycredit for qualified costs has been phased out completely forcalendar years 2006 through 2015. The enhanced oil recoverycredit for qualified costs was last determined without regard to

the phase-out for crude oil price increases in the 2005 calen-dar year.

Notice 2016–45, page 135.The notice announces that under § 613A(c)(6)(C) of the InternalRevenue Code, the applicable percentage for purposes of deter-mining percentage depletion on marginal properties for calendaryear 2016 is 15 percent. The format of the notice is identical tothe format of notices previously published on this issue.

T.D. 9773, page 56.These final regulations provide guidance on the informationrequired to be reported for country-by-country (CbC) reporting.The final regulations generally require U.S. business entitiesthat are the ultimate parent of a U.S. multinational enterprise(MNE) group earning annual revenues of $850,000,000 ormore in the prior reporting period to report certain financialinformation on a tax jurisdiction-by-tax jurisdiction basis. Theregulations require the U.S. ultimate parent to list the U.S. MNEgroup’s business entities indicating each entity’s tax jurisdic-tion (if any), country of organization, tax identification number(if any), and main business activity, as well as CbC financialinformation for each tax jurisdiction in which the U.S. MNE doesbusiness. The CbC financial information includes income, prof-its, income taxes, stated capital, accumulated earnings, num-ber of employees, and tangible assets other than cash.

EMPLOYEE PLANS

Rev. Proc. 2016–37, page 136.Rev. Proc. 2016–37 sets forth the procedures for the deter-mination letter program for individually designed plans and thesix-year remedial amendment cycle system for pre-approvedplans. Rev. Proc. 2007–44 is clarified, modified, and super-seded. Sections 2.07 and 24.03 of Rev. Proc. 2015–36 aremodified. Sections I and III of Notice 2015–84 are modified.

Finding Lists begin on page ii.

Bulletin No. 2016–29July 18, 2016

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.

July 18, 2016 Bulletin No. 2016–29

Part I. Rulings and Decisions Under the Internal Revenue Codeof 198626 CFR 1.6038–4: Information returns required ofcertain United States persons with respect to suchperson’s U.S. multinational enterprise group.

T.D. 9773

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Country-by-Country Reporting

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final regulations.

SUMMARY: This document containsfinal regulations that require annualcountry-by-country reporting by certainUnited States persons that are the ultimateparent entity of a multinational enterprisegroup. The final regulations affect UnitedStates persons that are the ultimate parententity of a multinational enterprise groupthat has annual revenue for the precedingannual accounting period of $850,000,000or more.

DATES: Effective Date: These regula-tions are effective June 30, 2016.

Applicability Date: For dates of appli-cability, see § 1.6038–4(k).

FOR FURTHER INFORMATIONCONTACT: Melinda E. Harvey, (202)317-6934 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The IRS intends that the informationcollection requirements in these regula-tions will be satisfied by submitting a newreporting form, Form 8975, Country-by-Country Report, with an income tax return.For purposes of the Paperwork ReductionAct, the reporting burden associated withthe collection of information in these regu-lations will be reflected in the OMB Form83–1, Paperwork Reduction Act Submis-sion, associated with Form 8975.

Background

This document contains amendmentsto 26 CFR part 1. On December 23, 2015,a notice of proposed rulemaking (REG–109822–15) relating to the furnishing ofcountry-by-country (CbC) reports by cer-tain United States persons (U.S. persons)was published in the Federal Register(80 FR 79795). A public hearing was re-quested and was held on May 13, 2016.Comments responding to the notice ofproposed rulemaking were received. Af-ter consideration of the comments, theproposed regulations are adopted asamended by this Treasury decision. Thepublic comments and revisions are dis-cussed below.

Summary of Comments andExplanation of Revisions

1. United States Participation in CbCReporting

Multiple comments expressed supportfor the implementation of CbC reportingin the United States. However, one com-ment recommended that the Treasury De-partment and the IRS decline to imple-ment CbC reporting because, according tothe comment, U.S. multinational enter-prise (MNE) groups’ direct costs of com-pliance will exceed the United StatesTreasury’s revenue gains, and there willbe high, unanticipated costs from inadver-tent disclosures of sensitive information.This recommendation is not adopted. U.S.MNE groups will be subject to CbC filingobligations in other countries in whichthey do business if the United States doesnot implement CbC reporting. Thus, a de-cision by the Treasury Department and theIRS not to implement CbC reporting willresult in no compliance cost savings toU.S. MNE groups. In fact, failure to adoptCbC reporting requirements in the UnitedStates may increase compliance costs be-cause U.S. MNE groups may be subject toCbC filing obligations in multiple foreigntax jurisdictions. U.S. MNE groups mightalso be subject to varying CbC filing rulesand requirements in different foreign taxjurisdictions, such as requirements to pre-

pare the CbC report using the local cur-rency or language.

In addition, CbC reports filed with theIRS and exchanged pursuant to a compe-tent authority arrangement benefit fromthe confidentiality requirements, datasafeguards, and appropriate use restric-tions in the competent authority arrange-ment. If a foreign tax jurisdiction fails tomeet the confidentiality requirements,data safeguards, and appropriate use re-strictions set forth in the competent au-thority arrangement, the United States willpause exchanges of all reports with thattax jurisdiction. Moreover, if such tax ju-risdiction has adopted CbC reporting rulesthat are consistent with the 2015 FinalReport for Action 13 (Transfer PricingDocumentation and Country-by-CountryReporting) of the Organisation for Eco-nomic Co-operation and Development(OECD) and Group of Twenty (G20)Base Erosion and Profit Shifting (BEPS)Project (Final BEPS Report), the tax ju-risdiction will not be able to require anyconstituent entity of the U.S. MNE groupin the tax jurisdiction to file a CbC report.The ability of the United States to pauseexchange creates an additional incentivefor foreign tax jurisdictions to uphold theconfidentiality requirements, data safe-guards, and appropriate use restrictions inthe competent authority arrangement.

2. Form 8975, Country-by-CountryReport

At the time of publication of the pro-posed regulations, the country-by-countryreporting form described in the proposedregulations had not been officially num-bered and was referred to in the proposedregulations as Form XXXX, Country-by-Country Report. The country-by-countryreporting form remains under develop-ment but has been officially numbered.The final regulations amend the proposedregulations to reflect the official numberof the form, Form 8975, Country-by-Country Report, (Form 8975 or CbCR).

July 18, 2016 Bulletin No. 2016–2956

3. Constituent Entities and PersonsRequired to File Form 8975

In the preamble to the proposed regu-lations, the Treasury Department andthe IRS requested comments regardingwhether additional guidance was neededfor determining which U.S. persons mustfile Form 8975 or which entities are con-sidered constituent entities of the filer.Specifically, the Treasury Department andthe IRS requested comments on whetheradditional guidance on the definition of aU.S. MNE group was necessary to addresssituations where U.S. generally acceptedaccounting principles (GAAP) or U.S. se-curities regulations permit or require con-solidated financial accounting for reasonsother than majority ownership, as well assituations, if any, where U.S. GAAP orU.S. securities regulations permit separatefinancial accounting with respect tomajority-owned enterprises.

A. Variable interest entities

Multiple comments addressed the in-clusion of variable interest entities (VIEs)as constituent entities that are part of theU.S. MNE group. In general, a VIE maybe consolidated with another entity forfinancial accounting purposes, eventhough that other entity may not controlthe VIE within the meaning of section6038(e). Some comments recommendedagainst expanding the definition of a U.S.MNE group to include VIEs and furtherrecommended that, if those entities arenonetheless included, an exception shouldapply in cases in which the U.S. MNEgroup is unable to obtain the necessaryinformation from a VIE. Other commentsexpressed concern that entities like VIEswould be part of the MNE group for pur-poses of foreign law relating to CbC re-porting and, for consistency with suchlaw, recommended that U.S. MNE groupsbe permitted to include such entities. Stillother comments recommended that thedefinition of constituent entity should notbe limited to majority-owned entities andshould be expanded to include entities inwhich the ultimate parent entity owns,directly or indirectly, a 20-percent orgreater equity interest.

The final regulations do not modify thedefinition of constituent entity in the pro-

posed regulations. Because the final regu-lations are promulgated under the author-ity of section 6038, the definition ofcontrol in section 6038(e) limits the for-eign business entities for which U.S. per-sons can be required to furnish informa-tion. Thus, the information described in§ 1.6038–4(d)(1) and (2) is not requiredfor foreign corporations or foreign part-nerships for which the ultimate parent en-tity is not required to furnish informationunder section 6038(a) (determined with-out regard to §§ 1.6038–2(j) and 1.6038–3(c)) or any permanent establishment ofsuch foreign corporation or foreign part-nership.

B. Permanent establishments

Under proposed § 1.6038–4(b)(2), abusiness entity includes a business estab-lishment in a jurisdiction that is treated asa permanent establishment under an in-come tax convention to which that juris-diction is a party, or that would be treatedas a permanent establishment under theOECD Model Tax Convention on Incomeand on Capital 2014 (OECD Model TaxConvention), and that prepares financialstatements separate from those of itsowner for financial reporting, regulatory,tax reporting, or internal managementcontrol purposes. One comment recom-mended that the reference to the OECDModel Tax Convention be revised to ac-count for changes to the definition of per-manent establishment that will be incor-porated into the OECD Model TaxConvention as a result of work under Ac-tion 7 (Preventing the Artificial Avoid-ance of Permanent Establishment Status)of the BEPS Project.

Upon further consideration, and takinginto account the comment received, theTreasury Department and the IRS havedetermined it would be more appropriatefor the final regulations to modify the pro-posed regulations’ reference to a perma-nent establishment in the definition ofbusiness entity for greater clarity and con-sistency with the intended meaning of theFinal BEPS Report. Accordingly, the finalregulations provide that the term perma-nent establishment includes (i) a branch orbusiness establishment of a constituententity in a tax jurisdiction that is treated asa permanent establishment under an in-

come tax convention to which that taxjurisdiction is a party, (ii) a branch orbusiness establishment of a constituententity that is liable to tax in the tax juris-diction in which it is located pursuant tothe domestic law of such tax jurisdiction,or (iii) a branch or business establishmentof a constituent entity that is treated in thesame manner for tax purposes as an entityseparate from its owner by the owner’s taxjurisdiction of residence. This approach ismore consistent with the Final BEPS Re-port and generally would avoid the needfor a U.S. MNE group that has alreadydetermined under applicable law whetherit has a permanent establishment or a tax-able business presence in a particular ju-risdiction to make another determinationunder the OECD Model Tax Conventionsolely for purposes of completing theCbCR.

C. Grantor trusts and decedents’ estates

Proposed § 1.6038–4(b)(2) defines abusiness entity as a person, as defined insection 7701(a)(1), that is not an individ-ual. Under this definition, a grantor trustwith an individual owner or owners wouldbe a business entity that could be subjectto CbC reporting, notwithstanding that theindividual owner or owners are generallytreated as the owner of the grantor trust’sproperty for federal income tax purposesand would not be subject to CbC reportingif they owned the property directly. Sim-ilarly, under the proposed regulations, adecedent’s estate would be a business en-tity that could be subject to CbC reporting,notwithstanding that during the dece-dent’s lifetime, he or she was an individ-ual exempt from CbC reporting. Addition-ally, under the proposed regulations, anindividual’s bankruptcy estate would be abusiness entity that could be subject toCbC reporting, notwithstanding that be-fore entering bankruptcy, the individualdebtor would not be subject to CbC re-porting. In light of the nature of grantortrusts, decedents’ estates, and individuals’bankruptcy estates and their close connec-tion to individual grantors, decedents, andindividual debtors, the Treasury Depart-ment and the IRS have determined that itis not appropriate to include grantor trustswith only individual owners, decedents’estates, and individuals’ bankruptcy es-

Bulletin No. 2016–29 July 18, 201657

tates in the definition of business entity.Accordingly, the final regulations excludedecedents’ estates, individuals’ bankruptcyestates, and grantor trusts within the mean-ing of section 671, all the owners of whichare individuals, from the definition of busi-ness entity.

D. Deemed domestic corporations

The proposed regulations define a U.S.business entity as a business entity that isorganized, or has its tax jurisdiction ofresidence, in the United States. One com-ment requested that the final regulationsclarify whether companies that elect to betreated as domestic corporations undersection 953(d) will be treated as U.S. busi-ness entities resident in the United States.In response to this comment, the finalregulations expressly provide that foreigninsurance companies that elect to betreated as domestic corporations undersection 953(d) are U.S. business entitiesthat have their tax jurisdiction of resi-dence in the United States.

4. National Security Exception

The preamble to the proposed regula-tions requested comments on the need fora national security exception for reportingCbC information and on procedures for ataxpayer to demonstrate that such an ex-ception is warranted. Multiple commentsstated that the information provided on aCbCR does not present a national securityconcern. Other comments recommendedthat the final regulations include a nationalsecurity exception but did not recommendan appropriate scope of the exception orprocedures to demonstrate that an excep-tion is warranted in a particular case. Onecomment recommended that no informa-tion should appear on a CbCR with re-spect to activities performed by a constit-uent entity of a U.S. MNE group under aU.S. government contract with certainagencies. Other comments recommendeda bright-line test whereby U.S. MNEgroups that conduct a majority of theirbusiness with the U.S. Department of De-fense or U.S. government intelligence orsecurity agencies could claim an auto-matic exception from reporting any infor-mation other than identifying information,such as company names, jurisdictions of

incorporation, tax identification numbers,and addresses. These comments also rec-ommended that U.S. MNE groups thatconduct a significant amount (for exam-ple, more than 25 percent) of their busi-ness with the U.S. Department of Defenseor U.S. government intelligence or secu-rity agencies should be allowed, with theapproval of the IRS, to claim a similarexemption from reporting.

The Treasury Department and the IRShave consulted with the Department ofDefense regarding the information col-lected on the CbCR. The Department ofDefense concluded that such informationreporting generally does not pose a na-tional security concern. Accordingly, thefinal regulations do not provide a generalexception for information that may relateto national security. Nonetheless, the De-partment of Defense continues to considerthe national security implications of theCbCR in particular fact patterns, and fu-ture guidance may be issued to provideprocedures for taxpayers to consult withthe Department of Defense regarding theappropriate presentation of CbC informa-tion in such fact patterns.

5. Partnerships and Stateless Entities

A business entity that is treated as apartnership in the tax jurisdiction in whichit is organized and that does not own orcreate a permanent establishment in thator another tax jurisdiction generally willhave no tax jurisdiction of residence underthe definition in proposed § 1.6038–4(b)(6) other than for purposes of deter-mining the ultimate parent entity of a U.S.MNE group. Under the proposed regula-tions, tax jurisdiction information with re-spect to constituent entities that do nothave a tax jurisdiction of residence, or“stateless entities,” would be aggregatedand reported in a separate row of theCbCR. The preamble to the proposed reg-ulations indicates that partners of a part-nership that is a stateless entity wouldreport their respective shares of the part-nership’s items in their respective tax ju-risdiction(s) of residence.

A comment requested clarification asto whether the partnership or its partners,or both, should report the partnership’sCbC information. In response, the finalregulations provide that the tax jurisdic-

tion of residence information with respectto stateless entities is provided on an ag-gregate basis for all stateless entities in aU.S. MNE group and that each statelessentity-owner’s share of the revenue andprofit of its stateless entity is also includedin the information for the tax jurisdictionof residence of the stateless entity-owner.This rule applies irrespective of whetherthe stateless entity-owner is liable to taxon its share of the stateless entity’s in-come in the owner’s tax jurisdiction ofresidence. In other words, the statelessentity-owner reports its share of the state-less entity’s revenues and profits in theowner’s tax jurisdiction of residence evenif that jurisdiction treats the stateless en-tity as a separate entity for tax purposes.In the case in which a partnership createsa permanent establishment for itself or itspartners, the CbC information with re-spect to the permanent establishment isnot reported as stateless, but instead isreported as part of the information on theCbCR for the permanent establishment’stax jurisdiction of residence.

A comment requested clarification re-garding whether distributions from part-nerships and other fiscally transparent en-tities should be excluded from owners’/partners’ reported revenue. In response,the final regulations clarify that distribu-tions from a partnership to a partner arenot included in the partner’s revenue. Ad-ditionally, the final regulations providethat remittances from a permanent estab-lishment to its constituent entity-ownerare not included in the constituent entity-owner’s revenue.

6. Clarification of Terms

The preamble to the proposed regula-tions requested comments on the mannerin which the proposed regulations requirethe reporting of information on taxes paidor accrued by U.S. MNE groups and theirconstituent entities on taxable incomeearned in the relevant accounting period.One comment requested that “total ac-crued tax expense” in proposed § 1.6038–4(d)(2)(v) be revised to read “accrued cur-rent tax expense” in order to reflect onlyoperations in the current year and not de-ferred taxes or provisions for uncertain taxliabilities. The proposed regulationsclearly state that the relevant taxes to be

July 18, 2016 Bulletin No. 2016–2958

reported relate only to the annual account-ing period for which the CbCR is pro-vided and exclude deferred taxes and pro-visions for uncertain tax liabilities.Therefore, the comment is not adopted.

The preamble to the proposed regula-tions also requested comments on whetherthe descriptions of any of the other itemsin § 1.6038–4(d)(2)(i) through (ix) re-garding tax jurisdiction of residence infor-mation should be further refined orwhether additional guidance is neededwith respect to how to determine any ofthese items. One comment requested thatthe definition for tangible assets be re-vised to clarify that intangibles and finan-cial assets are excluded consistent withthe Final BEPS Report. In response, thefinal regulations expressly provide thattangible assets do not include intangiblesor financial assets.

A comment noted that the term reve-nue excludes dividends from other con-stituent entities and recommended thatthis exclusion be extended to all forms ofimputed earnings or deemed dividends.The Treasury Department and the IRSagree that imputed earnings and deemeddividends that are taken into accountsolely for tax purposes should be treatedthe same as dividends for purposes of theCbCR. Accordingly, the final regulationsincorporate this recommendation.

Multiple comments recommended thatthe wording “total income tax paid on acash basis to all jurisdictions” in proposed§ 1.6038–4(d)(2)(iv) should be modifiedto read “total income tax paid on a cashbasis to each tax jurisdiction” to avoidmisinterpretation of the “all tax jurisdic-tions” language to require taxes paid byentities that are tax residents of differenttax jurisdictions to be aggregated ratherthan reported on a country-by-country ba-sis as intended. The Treasury Departmentand the IRS interpret the language of theproposed regulation to require the totalincome tax paid on a cash basis to any taxjurisdiction by constituent entities thathave a tax residence in a particular taxjurisdiction to be reported on an aggre-gated basis for that particular tax jurisdic-tion of residence but not the aggregationof taxes paid by constituent entities thathave different tax residences. For in-stance, if a constituent entity pays incometax in its tax jurisdiction of residence on

its earnings from operations in that coun-try and is subject to withholding taxes onroyalties received from licensees in an-other country, taxes paid with respect tothe income and the taxes withheld withrespect to the royalties should be reflectedon an aggregated basis on the CbCR in therow for the constituent entity’s tax juris-diction of residence. The Treasury Depart-ment and the IRS are concerned that thealternative language proposed in the com-ments could be misinterpreted to requireamounts paid to different tax jurisdictionsby constituent entities resident in a singletax jurisdiction to be reported on a disag-gregated basis. Accordingly, this com-ment is not adopted.

Multiple comments also recommendedthe inclusion of two additional items, de-ferred taxes and provisions for uncertaintax positions, in the information requiredto be reported on a tax jurisdiction-by-taxjurisdiction basis. This recommendationhas not been adopted in the final regula-tions because it would impose an addi-tional reporting burden beyond the infor-mation described in the Final BEPSReport.

Multiple comments recommended thatthe final regulations clarify that the infor-mation listed in proposed § 1.6038–4(d)(2)(i) through (ix) is reported in theaggregate for all constituent entities resi-dent in each separate tax jurisdiction. Al-though the language in the proposed reg-ulations does indicate that the informationis to be provided with respect to each taxjurisdiction in which one or more constit-uent entities of the U.S. MNE group areresident and in the form and manner thatForm 8975 prescribes, the final regula-tions provide additional language to clar-ify that the information is to be presentedfor each tax jurisdiction as an aggregate ofthe information for all constituent entitiesresident in that tax jurisdiction. Multiplecomments requested that the final regula-tions clarify whether the information mustbe provided for only the constituent enti-ties in each tax jurisdiction or whether theinformation must also be provided forU.S. MNE group members that are notconstituent entities, for instance VIEs.The Treasury Department and the IRShave determined that additional languageis unnecessary because § 1.6038–4(d)(1)of the proposed regulations expressly re-

quires reporting of information only withrespect to constituent entities of the U.S.MNE group.

The final regulations provide that, for aconstituent entity that is an organizationexempt from taxation under section501(a) because it is an organization de-scribed in section 501(c), 501(d), or401(a), a state college or university de-scribed in section 511(a)(2)(B), a plan de-scribed in section 403(b) or 457(b), anindividual retirement plan or annuity asdefined in section 7701(a)(37), a qualifiedtuition program described in section 529,a qualified ABLE program described insection 529A, or a Coverdell educationsavings account described in section 530,the term revenue includes only revenuethat is included in unrelated business tax-able income as defined in section 512.

7. Other Form or InformationModifications

Multiple comments recommended thatadditional information be included on theCbCR, such as identification of constitu-ent entities as “pass-through” and a legalentity identifier for each constituent entityusing a standard international system foridentifying individual business entities.The final regulations do not adopt theserecommendations because they would im-pose an additional reporting burden be-yond the information described in the Fi-nal BEPS Report.

8. Voluntary Filing Before theApplicability Date

Other countries have adopted CbC re-porting requirements for annual account-ing periods beginning on or after January1, 2016, that would require reporting ofCbC information by constituent entities ofMNE groups with an ultimate parent en-tity resident in a tax jurisdiction that doesnot have a CbC reporting requirement forthe same annual accounting period. Theproposed regulations generally requireU.S. MNE groups to file a CbCR for tax-able years beginning on or after the datethe final regulations are published. Conse-quently, U.S. MNE groups that use a cal-endar year as their taxable year generallywill not be required to file a CbCR fortheir taxable year beginning January 1,

Bulletin No. 2016–29 July 18, 201659

2016, and constituent entities of such U.S.MNE groups may be subject to CbC re-porting requirements in foreign jurisdic-tions. Comments expressed concern aboutthis possibility and recommended variousapproaches for dealing with this issue.Most comments requested that the IRSaccept and exchange CbCRs voluntarilyfiled for taxable years beginning on orafter January 1, 2016.

Consistent with the proposed regula-tions, the final regulations are not appli-cable for taxable years of ultimate parententities beginning before June 30, 2016,the date of publication of the final regula-tions in the Federal Register. Specifi-cally, the final regulations apply to report-ing periods of ultimate parent entities ofU.S. MNE groups that begin on or afterthe first day of a taxable year of the ulti-mate parent entity that begins on or afterJune 30, 2016. The Treasury Departmentand the IRS intend to allow ultimate par-ent entities of U.S. MNE groups and U.S.business entities designated by a U.S. ter-ritory ultimate parent entity to file CbCRsfor reporting periods that begin on or afterJanuary 1, 2016, but before the applica-bility date of the final regulations, under aprocedure to be provided in separate,forthcoming guidance. The Treasury De-partment is working to ensure that foreignjurisdictions implementing CbC reportingrequirements will not require constituententities of U.S. MNE groups to file a CbCreport with the foreign jurisdiction ifthe U.S. MNE group files a CbCR withthe IRS pursuant to this procedure and theCbCR is exchanged with such foreign ju-risdiction pursuant to a competent author-ity arrangement.

9. Time and Manner of Filing

The proposed regulations provide thatthe CbCR for a taxable year must be filedwith the ultimate parent entity’s incometax return for the taxable year on or beforethe due date, including extensions, for fil-ing that person’s income tax return. Mul-tiple comments requested that taxpayersbe permitted to file a CbCR up to one yearfrom the end of the ultimate parent enti-ty’s taxable year or annual accounting pe-riod to facilitate the taxpayer’s ability touse statutory accounts or tax records ofconstituent entities to complete the CbCR.

After considering the flexibility allowedfor sources of information for completingthe CbCR, the IRS information technol-ogy resources necessary to facilitate a fil-ing separate from the income tax return,and the IRS’s concern that CbCRs belinked to an income tax return, the Trea-sury Department and the IRS have notadopted this recommendation. However,the final regulations do provide that Form8975 may prescribe an alternative timeand manner for filing.

10. Employees

The proposed regulations provide thatthe CbCR must reflect the number of em-ployees for each tax jurisdiction of resi-dence of the U.S. MNE group. The pro-posed regulations also provide thatindependent contractors participating inthe ordinary course of business of a con-stituent entity may be included in thenumber of full-time equivalent employ-ees. Multiple comments asked for furtherclarification with respect to the determi-nation of the number of full-time equiva-lent employees and the treatment of inde-pendent contractors, including somerecommending that independent contrac-tors not be included as employees. Thefinal regulations do not provide additionalguidance with respect to the meaning offull-time equivalent employee or with re-spect to independent contractor situationsand continue to allow for independentcontractors that participate in the ordinaryoperating activities of a constituent entityto be included in the number of full-timeequivalent employees. U.S. MNE groupsmay determine the number of employeesof constituent entities on a full-timeequivalent basis using any reasonable ap-proach that is consistently applied. TheTreasury Department and the IRS believepermitting this flexibility in determiningthe number of full-time equivalent em-ployees of each constituent entity appro-priately balances the burden of complet-ing the CbCR with the anticipated benefitsto tax administration and is consistentwith the Final BEPS Report.

The proposed regulations specify thatemployees should be reflected on theCbCR in the tax jurisdictions in which theemployees performed work for the U.S.MNE group. Comments indicated that this

methodology is inconsistent with the FinalBEPS Report, which provides that em-ployees of a constituent entity should bereflected in the tax jurisdiction of resi-dence of such constituent entity, and thatdetermining the work location of employ-ees would be burdensome for U.S. MNEgroups and would present issues regardingcertain employment situations with trav-eling employees. The comments recom-mended that the final regulations followthe approach of the Final BEPS Report. Inresponse to these comments, the final reg-ulations do not include the phrase “in therelevant tax jurisdiction” from proposed§ 1.6038–4(d)(2)(viii). Accordingly, un-der the final regulations, employees of aconstituent entity are reflected in the taxjurisdiction of residence of such constitu-ent entity.

A comment requested clarificationabout the tax jurisdiction in which em-ployees of partnerships should be re-flected on the CbCR. As discussed in sec-tion 5 of this preamble, a partnership maybe considered a stateless entity. If the part-nership creates a permanent establishmentfor itself or its partners, then the permanentestablishment itself may be a constituententity of the U.S. MNE group. Employeesof the permanent establishment-constituententity should be reflected in the tax jurisdic-tion of residence of the permanent establish-ment. Any other employees of the partner-ship should be reported on the statelessjurisdiction row under the tax jurisdictionof residence information portion of theCbCR.

11. Source of Data and Reconciliation

The proposed regulations provide thatthe amounts furnished in the CbCR shouldbe furnished for the annual accountingperiod with respect to which the ultimateparent entity prepares its applicable finan-cial statements ending with or within theultimate parent entity’s taxable year, or, ifthe ultimate parent entity does not prepareapplicable financial statements, then theinformation may be based on the applica-ble financial statements of constituent en-tities for their accounting period that endswith or within the ultimate parent entity’staxable year. Multiple comments ex-pressed concern that the description of theperiod covered by the CbCR in the pro-

July 18, 2016 Bulletin No. 2016–2960

posed regulations may limit the flexibilityof U.S. MNE groups to choose to useconsolidated financial statements or sepa-rate accounting, regulatory, or tax recordsprepared for the constituent entities. Tomitigate this concern, the final regulationsremove the restrictions imposed by theproposed regulations with respect to pro-viding information for the applicable ac-counting period of the ultimate parent en-tity or for the applicable accountingperiod of each constituent entity. The finalregulations provide that the reporting pe-riod covered by Form 8975 is the periodof the ultimate parent entity’s annual ap-plicable financial statement that ends withor within the ultimate parent entity’s tax-able year, or, if the ultimate parent entitydoes not prepare an annual applicable fi-nancial statement, then the ultimate parententity’s taxable year. The final regulationsdo not limit the constituent entity infor-mation to applicable financial statementsof the constituent entity but, rather, pro-vide that the source of the tax jurisdictionof residence information on the CbCRmust be based on applicable financialstatements, books and records, regulatoryfinancial statements, or records used fortax reporting or internal management con-trol purposes for an annual period of eachconstituent entity ending with or withinthe reporting period.

The proposed regulations provide thatthe amounts provided in the CbCR shouldbe based on applicable financial state-ments, books and records maintained withrespect to the constituent entity, or recordsused for tax reporting purposes. The term“books and records” was intended to bebroad enough to include all sources ofinformation that the Final BEPS Reportallows. In order to clarify this intent, thefinal regulations provide that the source ofdata may also include regulatory financialstatements and records used for internalmanagement control purposes.

The proposed regulations state that it isnot necessary to have or maintain recordsthat reconcile the amounts provided on theCbCR to the consolidated financial state-ments of the U.S. MNE group or to the taxreturns filed in any particular tax jurisdic-tion or to make adjustments for differ-ences in accounting principles appliedfrom tax jurisdiction to tax jurisdiction.Multiple comments recommended that

reconciliation to tax accounts be requiredand that ultimate parent entities maintainrecords of the reconciliation, while othercomments supported the approach in theproposed regulations, which does not re-quire reconciliation. The Treasury Depart-ment and the IRS considered these com-ments, and, consistent with the proposedregulations, the final regulations do notrequire the ultimate parent entity to createand maintain records to reconcile the in-formation reported in the CbCR to con-solidated financial statements or to taxreturns. This approach provides flexibilityfor U.S. MNE groups to use the availabledata for each constituent entity withoutimposing the potential burden of a need toreconcile information on the CbCR withaccounts that may not even be finalizedwhen the CbCR is compiled, and it isconsistent with the Final BEPS Report.The affirmative statement in the final reg-ulations that an ultimate parent entity isnot required to create and maintain infor-mation to support a reconciliation doesnot, however, affect the requirement tomaintain records to support the informa-tion provided in the CbCR.

12. Expanding Scope and SurrogateParent Entity Filing

The proposed regulations generally re-quire a U.S. business entity that is anultimate parent entity of a U.S. MNEgroup to file a CbCR with respect to busi-ness entities that are or would be consol-idated with the ultimate parent entity. ACbCR is not required for an MNE groupthat does not have a U.S. business entityas its ultimate parent entity. Multiple com-ments requested that reporting be requiredfor any U.S. entity that exercises the“mind and management function” of anMNE group, the foreign parent entity ofwhich is tax resident in a jurisdiction thatdoes not require a report similar to theCbCR, despite the fact that the foreignentities of such MNE group are not con-trolled foreign corporations. This recom-mendation, which is not adopted, is be-yond the scope of the Final BEPS Reportand could not be implemented under theauthority provided in section 6038 to col-lect information on foreign business enti-ties owned by U.S. persons.

One comment recommended that thefinal regulations allow a foreign-parentedMNE group with a U.S. business entity todesignate that U.S. business entity as asurrogate parent entity and allow that en-tity to file a CbCR with the IRS for pur-poses of satisfying the MNE group’scountry-by-country reporting obligationsin other tax jurisdictions. In light of theIRS resources that would be required toadopt this recommendation, the final reg-ulations do not permit surrogate parententity filing in the United States by for-eign corporations as a general matter.However, the final regulations providethat a U.S. territory ultimate parent entitymay designate a U.S. business entity thatit controls (as defined in section 6038(e))to file on the U.S. territory ultimate parententity’s behalf the CbCR that the U.S.territory ultimate parent entity would berequired to file if it were a U.S. businessentity. A U.S. territory ultimate parententity is a business entity organized in aU.S. territory or possession of the UnitedStates that controls (as defined in section6038(e)) a U.S. business entity and that isnot owned directly or indirectly by an-other business entity that consolidates theaccounts of the U.S. territory ultimate par-ent entity with its accounts under GAAPin the other business entity’s tax jurisdic-tion of residence, or would be so requiredif equity interests in the other businessentity were traded on a public securitiesexchange in its tax jurisdiction of resi-dence.

13. Tax Jurisdiction of Residence andFiscal Autonomy

The proposed regulations provide rulesfor determining the tax jurisdiction of res-idence of a constituent entity. Under thoserules, a business entity is considered aresident in a tax jurisdiction if, under thelaws of that tax jurisdiction, the businessentity is liable to tax therein based onplace of management, place of organiza-tion, or another similar criterion. The pro-posed regulations further provide that “abusiness entity will not be considered aresident in a tax jurisdiction if such busi-ness entity is liable to tax in such taxjurisdiction solely with respect to incomefrom sources in such tax jurisdiction, orcapital situated in such tax jurisdiction.”

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Multiple comments requested that the fi-nal regulations clarify that this languagein the proposed regulations is not intendedto exclude the possibility of a countrywith a purely territorial tax regime being atax jurisdiction of residence. The TreasuryDepartment and the IRS did not intend forthe proposed regulations to be interpretedto treat all entities in tax jurisdictions withterritorial tax regimes as stateless entities.The language in question was intended toindicate that a business entity will nothave a tax jurisdiction of residence in ajurisdiction solely by reason of being lia-ble to tax in the jurisdiction on fixed,determinable, annual or periodical incomefrom sources or capital situated in thejurisdiction. For greater clarity, the finalregulations provide that “[a] business en-tity will not be considered a resident in atax jurisdiction if the business entity isonly liable to tax in such tax jurisdictionby reason of a tax imposed by reference togross amounts of income without any re-duction for expenses, provided such taxapplies only with respect to income fromsources in such tax jurisdiction or capitalsituated in such tax jurisdiction.”

The proposed regulations provide thata tax jurisdiction is a country or a juris-diction that is not a country but that hasfiscal autonomy. Multiple comments re-quested that the final regulations addressthe meaning of fiscal autonomy. In light ofthe need for consistency of CbC reportingrequirements across tax jurisdictions, theTreasury Department and the IRS do notbelieve it would be helpful to provide ageneral definition of fiscal autonomy inthe final regulations absent internationalconsensus on the meaning of the term.However, the final regulations clarify thata U.S. territory or possession of theUnited States, defined as American Sa-moa, Guam, the Northern Mariana Is-lands, Puerto Rico, or the U.S. VirginIslands, is considered to have fiscal auton-omy for purposes of CbC reporting.

Under the proposed regulations, if abusiness entity is resident in more thanone tax jurisdiction and there is no appli-cable income tax treaty, the business en-tity’s tax jurisdiction of residence is thetax jurisdiction of the business entity’splace of effective management deter-mined in accordance with Article 4 of theOECD Model Tax Convention. One com-

ment noted that the “effective place ofmanagement” test under the OECD ModelTax Convention can be uncertain and“subject to second guessing.” The com-ment recommended that an alternative,bright-line tie-breaker rule be consideredto address such situations. The determina-tion of tax jurisdiction of residence in theproposed regulations is based on the FinalBEPS Report, and the final regulations donot create a new tie-breaker rule but addthat, in addition to the OECD Model TaxConvention, Form 8975 may provideguidance.

Although certain entities may not havea tax jurisdiction of residence, the Trea-sury Department and the IRS have deter-mined that an entity regarded as a corpo-ration should not be considered statelessmerely because it is organized or managedin a jurisdiction that does not impose anincome tax on corporations. Accordingly,the final regulations provide that in thecase of a tax jurisdiction that does notimpose an income tax on corporations, acorporation that is organized or managedin that tax jurisdiction will be treated asresident in that tax jurisdiction, unlesssuch corporation is treated as resident inanother tax jurisdiction under another pro-vision of the final regulations.

14. Reporting Threshold

The revenue threshold at or abovewhich a U.S. MNE group is required tofile the CbCR (reporting threshold) is ex-pressed in United States dollars (USD) inproposed § 1.6038–4(h). Foreign jurisdic-tions that are enacting CbC reporting re-quirements based on the Final BEPS Re-port may express the reporting thresholdin a foreign currency. Multiple comment-ers expressed concern that U.S. MNEgroups may be required to file a CbCreport in a foreign country, even if theUSD reporting threshold in § 1.6038–4(h) is not exceeded, because the U.S.MNE group’s revenues exceed the locallaw reporting threshold as expressed inthe foreign currency. The comments rec-ommended various approaches to addressthe possibility of a reporting threshold inthe final regulations that is inconsistentwith local law reporting thresholds. Thereporting threshold of $850,000,000 in theproposed regulation was determined by

reference to the USD equivalent of€750,000,000 on January 1, 2015, as pro-vided in the Final BEPS Report. The Trea-sury Department and the IRS anticipatethat other countries will acknowledge thatit would be inconsistent with the FinalBEPS Report for a country to require localfiling by a constituent entity of a U.S.MNE group that has revenue of less than$850,000,000.

Multiple comments requested that thereporting threshold be reduced to the USDequivalent of €40,000,000 in order to sub-ject a greater number of U.S. MNE groupsto CbC reporting requirements. Becausethe reporting threshold in the proposedregulations is based on the Final BEPSReport, it is consistent with the agreedinternational standard with respect to CbCreporting. The Treasury Department andIRS weighed the potential benefit of ob-taining CbC information on a larger num-ber of U.S. MNE groups against the addi-tional administrative burden that would beimposed on the IRS and the burden thatwould be imposed on U.S. MNE groupsthat would not otherwise be required to filethe CbCR. Based on these considerations,the final regulations maintain the reportingthreshold in the proposed regulations.

15. Confidentiality and Use of the CbCR

Multiple comments expressed con-cerns regarding the confidentiality of theCbCR. Some comments recommendedpublic disclosure of CbCRs. These com-ments requested that the CbCR be treatedas a Treasury report, referencing as anexample the Treasury Department’s Fi-nancial Crimes Enforcement Network Re-port of Foreign Bank and Financial As-sets, rather than tax return information, sothat the CbCR would not be subject to theconfidentiality protections under section6103. Other comments supported the deci-sion to treat CbCR as return information.

The Treasury Department and the IRShave determined that the information pro-vided on the CbCR is return informationsubject to the confidentiality protectionsof section 6103. This approach is consis-tent with the purpose of CbC reporting aswell as the confidentiality standards re-flected in the Final BEPS Report. CbCreporting was designed and established aspart of an international effort to standard-

July 18, 2016 Bulletin No. 2016–2962

ize transfer pricing documentation. Thisstandardized documentation is intended toprovide an efficient and effective means fortax administrations to conduct high-leveltransfer pricing risk assessment. Accord-ingly, the Treasury Department and the IRSare collecting the CbCR under the authorityof sections 6001, 6011, 6012, 6031, and6038 to assist in the better enforcement ofincome tax laws. The CbCR is a return, andthe information furnished to the TreasuryDepartment and the IRS on the CbCR isreturn information subject to the confidenti-ality protections provided under section6103. In addition, the Final BEPS Reportprovides that tax administrations shouldtake all reasonable steps to ensure that thereis no public disclosure of confidential infor-mation in CbC reports and that they be usedfor tax risk assessment purposes.

The preamble of the proposed regula-tions indicates that the information reportedon the CbCR will be used for high-leveltransfer pricing risk identification and as-sessment, and that transfer pricing adjust-ments will not be made solely on the basisof a CbCR, but that the CbCR may be thebasis for further inquiries into transfer pric-ing practices or other tax matters which maylead to adjustments. Some comments sup-ported the limitations on use of the CbCRinformation, while other comments ex-pressed concern that a prohibition on disclo-sure of the CbCR for non-tax law purposesis too restrictive. Consistent with the pro-posed regulations, the final regulations donot contain specific limitations on the use ofCbCR information. However, consistentwith the Final BEPS Report, the TreasuryDepartment and the IRS intend to limit theuse of the CbCR information and intend toincorporate this limitation into the compe-tent authority arrangements pursuant towhich CbCRs are exchanged.

One comment recommended that CbCRinformation not be provided to state or localjurisdictions and that a statement to thateffect be provided in the final regulations.Under section 6103(d), return informationmay be provided to state agencies, butonly for the purposes of, and only to theextent necessary in, the administration ofsuch state’s tax laws. The Treasury Depart-ment and the IRS believe the circumstancesunder which this standard would be met forthe CbCR are rare, but the final regulationsdo not preclude the disclosure of CbCRs to

state agencies, subject to the restrictions ofsection 6103 that apply to other returns andreturn information.

16. Exchange of Information withForeign Jurisdictions

The United States intends to enter intocompetent authority arrangements for theautomatic exchange of CbCRs with juris-dictions with which the United States hasan income tax treaty or tax informationexchange agreement. Multiple commentsexpressed concern that review of the con-fidentiality safeguards and framework ofthe other jurisdictions would prevent theTreasury Department and IRS from con-cluding such arrangements on a timelybasis. Comments also requested that theTreasury Department and IRS publish alist of jurisdictions with which the UnitedStates exchanges CbCRs. The TreasuryDepartment is committed to entering intobilateral competent authority arrange-ments with respect to CbCRs in a timelymanner, taking into consideration the needfor appropriate review of systems andconfidentiality safeguards in the other ju-risdictions. The Treasury Department andthe IRS anticipate that information aboutthe existence of competent authority ar-rangements for CbCRs will be made pub-licly available, but the manner in whichsuch information would be made publiclyavailable has not yet been determined.

A comment recommended that the finalregulations provide a mechanism for report-ing suspected violations of the limitationson the use of information by foreign juris-dictions. While the final regulations do notprovide procedures for reporting suspectedviolations, the Treasury Department and theIRS are aware of the concern and intend toestablish a procedure to report suspectedviolations of confidentiality and other mis-uses of CbCR information.

A comment requested that informationtransmitted under the competent authorityarrangements include the “Additional In-formation” table in the model CbC reporttemplate provided in the Final BEPS Re-port. It is expected that such informationwill be collected on Form 8975 and trans-mitted; however, there may be limits tothe amount of information that can betransmitted in any field. Such constraints,

if any, will be noted in the Instructions toForm 8975.

17. Penalties

One comment requested that penaltieswith respect to the CbCR be waived forreports filed for the 2016 tax year and thatthe Treasury Department should advocatethat other countries also waive penaltiesfor the 2016 tax year. The final regulationsapply to reporting periods of ultimate par-ent entities that begin on or after the firstday of a taxable year of the ultimate par-ent entity that begins on or after publica-tion of the final regulations in the FederalRegister. U.S. MNE groups whose ulti-mate parent entity’s taxable year beginsbefore the applicability date will not havea CbCR filing requirement for their taxyear beginning in 2016. The final regula-tions do not provide a specific waiver ofpenalties for U.S. MNE groups whose ul-timate parent entity’s taxable year beginson or after the applicability date. The pen-alty rules under section 6038 generallyapply, including reasonable cause relieffor failure to file.

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 also hasbeen determined that section 553(b) and(d) of the Administrative Procedure Act (5U.S.C. chapter 5) does not apply to theseregulations.

It is hereby certified that this regulationwill not have a significant economic im-pact on a substantial number of small en-tities within the meaning of section 601(6)of the Regulatory Flexibility Act (5U.S.C. chapter 6). Accordingly, a regula-tory flexibility analysis is not required.This certification is based on the fact thatthese regulations will only affect U.S. cor-porations, partnerships, and businesstrusts that have foreign operations withrespect to a taxable year when the com-bined annual revenue of the business en-tities owned by the U.S. person meets orexceeds $850,000,000 for the previous re-porting period. Pursuant to section 7805(f)of the Internal Revenue Code, the notice

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of proposed rulemaking preceding thisregulation was submitted to the ChiefCounsel for Advocacy of the Small Busi-ness Administration for comment on itsimpact on small business.

Drafting Information

The principal author of these regula-tions is Melinda E. Harvey of the Office ofAssociate Chief Counsel (International).However, other personnel from the IRSand the Treasury Department participatedin their development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 isamended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding the followingentry in numerical order to read in part asfollows:

Authority: 26 U.S.C. 7805 * * ******Section 1.6038–4 also issued under 26

U.S.C. 6001, 6011, 6012, 6031, and 6038.*****Par. 2. Section 1.6038–4 is added to

read as follows:

§ 1.6038–4 Information returnsrequired of certain United Statespersons with respect to such person’sU.S. multinational enterprise group.

(a) Requirement of return. Except asprovided in paragraph (h) of this section,every ultimate parent entity of a U.S. mul-tinational enterprise (MNE) group mustmake an annual return on Form 8975,Country-by-Country Report, setting forththe information described in paragraph (d)of this section, and any other informationrequired by Form 8975, with respect to thereporting period described in paragraph(c) of this section.

(b) Definitions—(1) Ultimate parententity of a U.S. MNE group. An ultimateparent entity of a U.S. MNE group is aU.S. business entity that:(i) Owns directly or indirectly a suffi-

cient interest in one or more otherbusiness entities, at least one of which

is organized or tax resident in a taxjurisdiction other than the UnitedStates, such that the U.S. business entityis required to consolidate the accountsof the other business entities with itsown accounts under U.S. generally ac-cepted accounting principles, or wouldbe so required if equity interests in theU.S. business entity were publicly tradedon a U.S. securities exchange; and

(ii) Is not owned directly or indirectly byanother business entity that consoli-dates the accounts of such U.S. busi-ness entity with its own accounts un-der generally accepted accountingprinciples in the other business enti-ty’s tax jurisdiction of residence, orwould be so required if equity inter-ests in the other business entity weretraded on a public securities exchangein its tax jurisdiction of residence.

(2) Business entity. For purposes of thissection, a business entity generally is anyentity recognized for federal tax purposesthat is not properly classified as a trust under§ 301.7701–4 of this chapter. However, anygrantor trust within the meaning of section671, all or a portion of which is owned by aperson other an individual, is a businessentity for purposes of this section. Addition-ally, the term business entity includes anyentity with a single owner that may be dis-regarded as an entity separate from itsowner under § 301.7701–3 of this chapterand a permanent establishment, as definedin paragraph (b)(3) of this section, that pre-pares financial statements separate fromthose of its owner for financial reporting,regulatory, tax reporting, or internal man-agement control purposes. A business entitydoes not include a decedent’s estate or abankruptcy estate described in section 1398.

(3) Permanent establishment. For pur-poses of this section, the term permanentestablishment includes:(i) A branch or business establishment of a

constituent entity in a tax jurisdictionthat is treated as a permanent establish-ment under an income tax conventionto which that tax jurisdiction is a party;

(ii) A branch or business establishment ofa constituent entity that is liable to taxin the tax jurisdiction in which it islocated pursuant to the domestic lawof such tax jurisdiction; or

(iii) A branch or business establishmentof a constituent entity that is treated in

the same manner for tax purposes as anentity separate from its owner by theowner’s tax jurisdiction of residence.

(4) U.S. business entity. A U.S. busi-ness entity is a business entity that isorganized or has its tax jurisdiction ofresidence in the United States. For purposesof this section, foreign insurance companiesthat elect to be treated as domestic corpora-tions under section 953(d) are U.S. businessentities that have their tax jurisdiction ofresidence in the United States.

(5) U.S. MNE group. A U.S. MNEgroup comprises the ultimate parent entityof a U.S. MNE group as defined in para-graph (b)(1) of this section and all of thebusiness entities required to consolidatetheir accounts with the ultimate parententity’s accounts under U.S. generally ac-cepted accounting principles, or thatwould be so required if equity interests inthe ultimate parent entity were publiclytraded on a U.S. securities exchange, re-gardless of whether any such business en-tities could be excluded from consolida-tion solely on size or materiality grounds.

(6) Constituent entity. With respect to aU.S. MNE group, a constituent entity isany separate business entity of such U.S.MNE group, except that the term constit-uent entity does not include a foreign cor-poration or foreign partnership for whichthe ultimate parent entity is not required tofurnish information under section 6038(a)(determined without regard to §§ 1.6038–2(j) and 1.6038–3(c)) or any permanentestablishment of such foreign corporationor foreign partnership.

(7) Tax jurisdiction. For purposes ofthis section, a tax jurisdiction is a countryor a jurisdiction that is not a country butthat has fiscal autonomy. For purposes ofthis section, a U.S. territory or possessionof the United States is considered to havefiscal autonomy.

(8) Tax jurisdiction of residence. Abusiness entity is considered a resident ina tax jurisdiction if, under the laws of thattax jurisdiction, the business entity is lia-ble to tax therein based on place of man-agement, place of organization, or anothersimilar criterion. A business entity willnot be considered a resident in a tax juris-diction if the business entity is liable totax in such tax jurisdiction only by reasonof a tax imposed by reference to grossamounts of income without any reduction

July 18, 2016 Bulletin No. 2016–2964

for expenses, provided such tax appliesonly with respect to income from sourcesin such tax jurisdiction or capital situatedin such tax jurisdiction. If a business entityis resident in more than one tax jurisdiction,then the applicable income tax conventionrules, if any, should be applied to determinethe business entity’s tax jurisdiction of res-idence. If a business entity is resident inmore than one tax jurisdiction and no appli-cable income tax convention exists betweenthose tax jurisdictions, or if the applicableincome tax convention provides that the de-termination of residence is based on a de-termination by the competent authorities ofthe relevant tax jurisdictions and no suchdetermination has been made, the businessentity’s tax jurisdiction of residence is thetax jurisdiction of the business entity’s placeof effective management determined in ac-cordance with Article 4 of the Organisationfor Economic Co-operation and Develop-ment Model Tax Convention on Income andon Capital 2014, or as provided by Form8975. A corporation that is organized ormanaged in a tax jurisdiction that does notimpose an income tax on corporations willbe treated as resident in that tax jurisdiction,unless such corporation is treated as residentin another tax jurisdiction under anotherprovision of this section. The tax jurisdic-tion of residence of a permanent establish-ment is the jurisdiction in which the perma-nent establishment is located. If a businessentity does not have a tax jurisdiction ofresidence, then solely for purposes of para-graph (b)(1) of this section, the tax jurisdic-tion of residence is the business entity’scountry of organization.

(9) Applicable financial statements. Anapplicable financial statement is a certifiedaudited financial statement that is accom-panied by a report of an independent cer-tified public accountant or similarly qual-ified independent professional that is usedfor purposes of reporting to shareholders,partners, or similar persons; for purposesof reporting to creditors in connectionwith securing or maintaining financing; orfor any other substantial non-tax purpose.

(10) U.S. territory or possession of theUnited States. The term U.S. territory orpossession of the United States meansAmerican Samoa, Guam, the NorthernMariana Islands, Puerto Rico, or the U.S.Virgin Islands.

(11) U.S. territory ultimate parent en-tity. A U.S. territory ultimate parent entityis a business entity organized in a U.S.territory or possession of the United Statesthat controls (as defined in section6038(e)) a U.S. business entity and that isnot owned directly or indirectly by an-other business entity that consolidates theaccounts of the U.S. territory ultimate par-ent entity with its accounts under gener-ally accepted accounting principles in theother business entity’s tax jurisdiction ofresidence, or would be so required if eq-uity interests in the other business entitywere traded on a public securities ex-change in its tax jurisdiction of residence.

(c) Reporting period. The reporting pe-riod covered by Form 8975 is the periodof the ultimate parent entity’s applicablefinancial statement prepared for the 12-month period (or a 52–53 week perioddescribed in section 441(f)) that ends withor within the ultimate parent entity’s tax-able year. If the ultimate parent entitydoes not prepare an annual applicable fi-nancial statement, then the reporting pe-riod covered by Form 8975 is the 12-month period (or a 52–53 week perioddescribed in section 441(f)) that ends onthe last day of the ultimate parent entity’staxable year.

(d) Contents of return—(1) Constituententity information. The return on Form8975 must contain so much of the follow-ing information with respect to each con-stituent entity of the U.S. MNE group, andin such form or manner, as Form 8975prescribes:(i) The complete legal name of the con-

stituent entity;(ii) The tax jurisdiction, if any, in which

the constituent entity is resident fortax purposes;

(iii) The tax jurisdiction in which the con-stituent entity is organized or incor-porated (if different from the tax ju-risdiction of residence);

(iv) The tax identification number, if any,used for the constituent entity by thetax administration of the constituent en-tity’s tax jurisdiction of residence; and

(v) The main business activity or activi-ties of the constituent entity.

(2) Tax jurisdiction of residence infor-mation. The return on Form 8975 mustcontain so much of the following informa-tion with respect to each tax jurisdiction in

which one or more constituent entities of aU.S. MNE group is resident, presented asan aggregate of the information for theconstituent entities resident in each taxjurisdiction, and in such form or manner,as Form 8975 prescribes:

(i) Revenues generated from transac-tions with other constituent entities;

(ii) Revenues not generated from trans-actions with other constituent entities;

(iii) Profit or loss before income tax;(iv) Total income tax paid on a cash

basis to all tax jurisdictions, andany taxes withheld on payments re-ceived by the constituent entities;

(v) Total accrued tax expense recordedon taxable profits or losses, reflectingonly operations in the relevant annualperiod and excluding deferred taxes orprovisions for uncertain tax liabilities;

(vi) Stated capital, except that the statedcapital of a permanent establish-ment must be reported in the taxjurisdiction of residence of the legalentity of which it is a permanentestablishment unless there is a de-fined capital requirement in the per-manent establishment tax jurisdic-tion for regulatory purposes;

(vii) Total accumulated earnings, exceptthat accumulated earnings of a per-manent establishment must be re-ported by the legal entity of which itis a permanent establishment;

(viii) Total number of employees on afull-time equivalent basis; and

(ix) Net book value of tangible assets,which, for purposes of this section,does not include cash or cash equiv-alents, intangibles, or financial assets.

(3) Special rules—(i) Constituent en-tity with no tax jurisdiction of residence.The information listed in paragraph (d)(2)of this section also must be provided, inthe aggregate, for any constituent entity orentities that have no tax jurisdiction ofresidence. In addition, if a constituent en-tity is an owner of a constituent entity thatdoes not have a jurisdiction of tax resi-dence, then the owner’s share of suchentity’s revenues and profits will be ag-gregated with the information for theowner’s tax jurisdiction of residence.

(ii) Definition of revenue. For purposesof this section, the term revenue includes allamounts of revenue, including revenue fromsales of inventory and property, services,

Bulletin No. 2016–29 July 18, 201665

royalties, interest, and premiums. The termrevenue does not include payments receivedfrom other constituent entities that aretreated as dividends in the payor’s tax juris-diction of residence. Distributions and re-mittances from partnerships and other fis-cally transparent entities and permanentestablishments that are constituent entitiesare not considered revenue of the recipient-owner. The term revenue also does not in-clude imputed earnings or deemed divi-dends received from other constituententities that are taken into account solely fortax purposes and that otherwise would beincluded as revenue by a constituent entity.With respect to a constituent entity that is anorganization exempt from taxation undersection 501(a) because it is an organizationdescribed in section 501(c), 501(d), or401(a), a state college or university de-scribed in section 511(a)(2)(B), a plan de-scribed in section 403(b) or 457(b), an indi-vidual retirement plan or annuity as definedin section 7701(a)(37), a qualified tuitionprogram described in section 529, a quali-fied ABLE program described in section529A, or a Coverdell education savings ac-count described in section 530, the termrevenue includes only revenue that is re-flected in unrelated business taxable incomeas defined in section 512.

(iii) Number of employees. For pur-poses of this section, the number of em-ployees on a full-time equivalent basis maybe reported as of the end of the accountingperiod, on the basis of average employmentlevels for the annual accounting period, oron any other reasonable basis consistentlyapplied across tax jurisdictions and fromyear to year. Independent contractors partic-ipating in the ordinary operating activities ofa constituent entity may be reported as em-ployees of such constituent entity. Reason-able rounding or approximation of the num-ber of employees is permissible, provided thatsuch rounding or approximation does not ma-terially distort the relative distribution of em-ployees across the various tax jurisdictions.Consistent approaches should be applied fromyear to year and across entities.

(iv) Income tax paid and accrued taxexpense of permanent establishment. Inthe case of a constituent entity that is apermanent establishment, the amount ofincome tax paid and the amount of ac-crued tax expense referred to in para-graphs (d)(2)(iv) and (v) of this section

should not include the income tax paid ortax expense accrued by the business entityof which the permanent establishmentwould be a part, but for the second sen-tence of paragraph (b)(2) of this section,in that business entity’s tax jurisdiction ofresidence on the income derived by thepermanent establishment.

(v) Certain transportation income. If aconstituent entity of a U.S. MNE groupderives income from international trans-portation or transportation in inland wa-terways that is covered by income taxconvention provisions that are specific tosuch income and under which the taxingrights on such income are allocated exclu-sively to one tax jurisdiction, then the U.S.MNE group should report the informationrequired under paragraph (d)(2) of thissection with respect to such income forthe tax jurisdiction to which the relevantincome tax convention provisions allocatethese taxing rights.

(e) Reporting of financial amounts—(1) Reporting in U.S. dollars required. Allamounts furnished under paragraph (d)(2)of this section, other than paragraph(d)(2)(viii) of this section, must be ex-pressed in U.S. dollars. If an exchangerate is used other than in accordance withU.S. generally accepted accounting prin-ciples for conversion to U.S. dollars, theexchange rate must be indicated.

(2) Sources of financial amounts. Allamounts furnished under paragraph (d)(2)of this section, other than paragraph(d)(2)(viii) of this section, should be basedon applicable financial statements, booksand records maintained with respect to theconstituent entity, regulatory financial state-ments, or records used for tax reporting orinternal management control purposes foran annual period of each constituent entityending with or within the period describedin paragraph (c) of this section.

(f) Time and manner for filing. Returnson Form 8975 required under paragraph (a)of this section for a reporting period must befiled with the ultimate parent entity’s in-come tax return for the taxable year, in orwith which the reporting period ends, on orbefore the due date (including extensions)for filing that person’s income tax return oras otherwise prescribed by Form 8975.

(g) Maintenance of records. The U.S.person filing Form 8975 as an ultimateparent entity of a U.S. MNE group must

maintain records to support the informa-tion provided on Form 8975. However,the U.S. person is not required to createand maintain records that reconcile theamounts provided on Form 8975 with thetax returns of any tax jurisdiction or ap-plicable financial statements.

(h) Exceptions to furnishing informa-tion. An ultimate parent entity of a U.S.MNE group is not required to report in-formation under this section for the re-porting period described in paragraph (c)of this section if the annual revenue of theU.S. MNE group for the immediately pre-ceding reporting period was less than$850,000,000.

(i) [Reserved](j) U.S. territories and possessions of

the United States. A U.S. territory ulti-mate parent entity may designate a U.S.business entity that it controls (as definedin section 6038(e)) to file Form 8975 onthe U.S. territory ultimate parent entity’sbehalf with respect to such U.S. territoryultimate parent entity and the businessentities that would be required to consol-idate their accounts with such U.S. terri-tory ultimate parent entity under U.S. gen-erally accepted accounting principles, orwould be so required if equity interests inthe U.S. territory ultimate parent entitywere publicly traded on a U.S. securitiesexchange.

(k) Applicability dates. The rules of thissection apply to reporting periods of ulti-mate parent entities of U.S. MNE groupsthat begin on or after the first day of ataxable year of the ultimate parent entity thatbegins on or after June 30, 2016.

John Dalrymple,Deputy Commissioner for

Services and Enforcement.

Approved: June 20, 2016.

Mark J. Mazur.Assistant Secretary of the

Treasury (Tax Policy).

(Filed by the Office of the Federal Register on June 29,2016, 8:45 a.m., and published in the issue of the FederalRegister for June 30, 2016, 81 F.R. 42482.)

July 18, 2016 Bulletin No. 2016–2966

Part III. Administrative, Procedural, and MiscellaneousProposed QualifiedIntermediary Agreement

Notice 2016–42

SECTION 1. PURPOSE

This Notice sets forth the proposedqualified intermediary (QI) withholdingagreement (QI agreement) entered intounder § 1.1441–1(e)(5).1 In general, theQI agreement allows foreign persons toenter into an agreement with the InternalRevenue Service (IRS) to simplify theirobligations as a withholding agent underchapters 3 and 4 and as a payor underchapter 61 and section 3406 for amountspaid to their account holders.

The QI agreement currently in effect,as provided in Rev. Proc. 2014–39,2014–29 I.R.B. 150, (the 2014 QI agree-ment), expires on December 31, 2016.The proposed changes to the QI agree-ment described in this Notice, subject toany modifications included in a revenueprocedure containing the final QI agree-ment (to be issued later in 2016), willapply to QI agreements that are in effecton or after January 1, 2017, as provided insection 5 of this Notice. Section 2 of thisNotice describes the highlights of the pro-posed changes to the 2014 QI agreementand provides a general description of cor-responding changes that will be made tothe withholding foreign partnership agree-ment (WP agreement) and withholdingforeign trust agreement (WT agreement),the current versions of which were pub-lished in Rev. Proc. 2014–47, 2014–35I.R.B 393. Section 3 of this Notice pro-vides the application procedures for be-coming a QI and renewing a QI agree-ment. Section 4 of this Notice provides theproposed QI agreement. Comments withrespect to the proposed QI agreement arerequested by August 31, 2016.

SECTION 2. HIGHLIGHTS OFCHANGES TO THE 2014 QIAGREEMENT

.01 Qualified Derivatives Dealers andSection 871(m). On September 18, 2015,

final and temporary regulations under sec-tion 871(m) and sections 1441, 1461, and1473 (collectively, the 871(m) regula-tions) were published in T.D. 9734 ad-dressing the treatment of dividend equiv-alents from U.S. sources. Section 871(m)treats “dividend equivalent” payments asU.S. source dividends for purposes ofchapters 3 and 4 and sections 871(a), 881,and 4948(a). As a result, dividend equiv-alent payments are amounts subject towithholding (as defined in § 1.1441–2(a))for purposes of sections 1441 through1443 and withholdable payments (as de-fined in § 1.1473–1(a)) for purposes ofsections 1471 and 1472. Accordingly, awithholding agent generally is required todeduct and withhold a tax equal to 30percent on any dividend equivalent pay-ment unless an exception from, or lowerrate of, withholding applies.

(A) In general. This Notice proposesnew provisions to the QI agreement thatwill permit a QI that is an eligible entity toact as a qualified derivatives dealer(QDD) and provides the requirements andobligations that will apply to a QDD.When a QDD provides a valid withhold-ing certificate to a withholding agent, thewithholding agent will not be required towithhold on certain payments made to theQDD when the QDD is acting as a prin-cipal (that is, not as an intermediary). Un-der the proposed QI agreement, these pay-ments are payments with respect topotential section 871(m) transactions (asdefined in § 1.871–15(a)(12)) and pay-ments with respect to underlying securi-ties (as defined in § 1.871–15(a)(15)). Therequirements and obligations applicable toQDDs will be effective for QDDs whenthey enter into QI agreements after theproposed QI agreement in this Notice isfinalized (with effective dates on or afterJanuary 1, 2017).

(B) Requirements and scope of QDDstatus. To be a QDD, an entity must enterinto a QI agreement and be an eligibleentity. Pursuant to § 1.1441–1T(e)(6)(ii),a QI is an “eligible entity” if it is one ofthe three following types of entities: (1) adealer in securities that is subject to reg-

ulatory supervision as a dealer by a gov-ernmental authority in the jurisdiction inwhich it is organized or operates; (2) abank subject to regulatory supervision as abank by a governmental authority in thejurisdiction in which it is organized oroperates and that issues potential section871(m) transactions to customers and re-ceives dividends or dividend equivalentpayments pursuant to potential section871(m) transactions to hedge those trans-actions issued to customers; or (3) an en-tity that is wholly-owned by a bank sub-ject to regulatory supervision as a bank bya governmental authority in the jurisdic-tion in which it is organized or operatesand that issues potential section 871(m)transactions to customers and receivesdividends or dividend equivalent pay-ments pursuant to potential section871(m) transactions to hedge those trans-actions issued to customers.

If a foreign branch of a U.S. financialinstitution meets the requirements of aneligible entity, the foreign branch mayenter into a QI agreement to act as a QDD.That foreign branch will be permitted todocument and report recipients of thosepayments in reporting pools consistentwith the provisions of sections 5 and 8 ofthe proposed QI agreement and to use thecollective refund procedure, if otherwisepermitted under section 9.04 of the pro-posed QI agreement.

Under the proposed QI agreement, a QImay only act as a QDD for payments withrespect to potential section 871(m) trans-actions or underlying securities that it re-ceives and payments with respect to po-tential section 871(m) transactions that itmakes as a principal, whether or not thepayments are received or made in itsdealer capacity. A QI that acts as a QDDgenerally will be required to act as a QDDfor (a) all payments with respect to poten-tial section 871(m) transactions and un-derlying securities that it receives as aprincipal, and (b) all payments with re-spect to potential section 871(m) transac-tions that it makes as a principal. How-ever, to the extent the payment receivedby a QI as a principal is treated as income

1Unless otherwise provided, all citations in this Notice and the QI agreement included in this Notice are to the Internal Revenue Code of 1986, as amended (Code) and to the Income TaxRegulations thereunder.

Bulletin No. 2016–29 July 18, 201667

effectively connected with QI’s trade orbusiness in the United States, then the QIis not allowed to act as a QDD for suchpayment. Similarly, when a QI makes apayment with respect to a potential sec-tion 871(m) transaction that is a deductionproperly allocated to the QI’s gross in-come that is effectively connected withthe conduct of such trade or businesswithin the United States, that paymentmay not be included in the QDD’s offset-ting payments (as described below) forpurposes of determining its “section871(m) amount” (as defined in section2.79 of the proposed QI Agreement anddescribed in section 2.01(D), below).

A QI, however, may not act as a QDDwhen it receives or makes a payment withrespect to a potential section 871(m)transaction as an intermediary as opposedto as a principal (for example, when theQI acts as a custodian of a structured notewith a payment referencing a dividend ofa domestic corporation). As a result, theQI may, but is not required to, act as a QIfor those payments. The QI may treat thepayments in the same manner as it wouldother withholdable payments or reportableamounts it receives, and thus it may eitheract as a QI (and choose whether or not toassume primary withholding responsibil-ity), or it may act as a nonqualified inter-mediary (NQI) for such payments.

(C) Reporting and withholding respon-sibilities of a QDD. When a QI acts as aQDD, it must assume primary chapters 3and 4 withholding responsibility and pri-mary Form 1099 reporting and section3406 backup withholding responsibilityfor all payments made with respect topotential section 871(m) transactions as aprincipal. A QDD will be required towithhold on the dividend payment date forthe applicable dividend. If a QDD makesany payment with respect to a potentialsection 871(m) transaction that is not adividend equivalent payment but is anamount subject to chapter 3 or 4 withhold-ing or a reportable payment, the QDDmust also assume primary chapters 3 and4 withholding responsibility and primaryForm 1099 reporting and section 3406backup withholding responsibility for allof those payments. Under the proposed QIagreement, a QDD’s reporting responsi-bilities also include specific payee (ratherthan pooled) reporting on Form 1042–S,

Foreign Person’s U.S. Source IncomeSubject to Withholding, for payments toother QDDs to which the QDD makes apayment of an amount subject to chapter 3withholding.

Among the other information reportingobligations described in sections 7 and 8of the proposed QI agreement, a QDD willbe required to report on separate Forms1042–S the amount of qualifying dividendequivalent offsetting payments (as definedin section 2.70 of the proposed QI agree-ment and described in section 2.01(D),below) that represent (a) the aggregateamount of payments made to a UnitedStates person that would be dividendequivalent payments if made to a personwho was not a United States person (asdescribed in section 2.70(A)(1) of the pro-posed QI agreement); and (b) the aggre-gate amount of payments of effectivelyconnected income (as described in section2.70(A)(2) of the proposed QI agree-ment). In addition, a QDD will be re-quired to provide specific information (forexample, name, address, and U.S. TIN)upon request of the IRS about U.S. non-exempt recipients that receive qualifyingdividend equivalent offsetting paymentsdescribed in section 2.70(A)(1) of the pro-posed QI agreement. To the extent neces-sary, a QDD must obtain a waiver fromeach U.S. non-exempt recipient describedin the preceding sentence of any limitationon providing such information to the IRS.If the QDD does not obtain a waiver orcollect and maintain such informationabout a U.S. non-exempt recipient, anypayment made to that U.S. non-exemptrecipient is not a qualifying dividendequivalent offsetting payment. A QI willbe required to report these payments in apool on a separate Form 1042–S. Themaintenance of such information byQDDs will assist the IRS in ensuring thecompliance of these U.S. non-exempt re-cipients with their reporting of incomeassociated with these transactions and ofQDDs with their obligations under the QIagreement.

(D) Tax liability of a QDD. A QDD(other than a foreign branch of a U.S.financial institution acting as a QDD)must determine and pay any “QDD taxliability.” A QDD tax liability is the sumof a QDD’s liability under sections 871(a)and 881 for (a) its “section 871(m)

amount” (as defined in section 2.79 of theproposed QI agreement); (b) its dividendsthat are not on underlying securities asso-ciated with potential section 871(m) trans-actions and its dividend equivalent pay-ments received as a QDD in its non-dealercapacity; and (c) any other U.S. sourceFDAP payments received as a QDD withrespect to potential section 871(m) trans-actions or underlying securities that arenot dividend or dividend equivalent pay-ments. For purposes of determining theQDD tax liability, payments received by aQDD acting as a proprietary trader aretreated as payments received in its non-dealer capacity, while transactions prop-erly reflected in a QDD’s dealer book arepresumed to be held by a dealer in itsdealer capacity. For purposes of determin-ing the QDD tax liability, dealer activity islimited to its activity as a derivativesdealer.

Even though a QDD may act as a QDDfor payments received in a non-dealer ca-pacity, only payments made and receivedin its dealer capacity may be used forpurposes of calculating its section 871(m)amount. In its dealer capacity, a QDDmay hold underlying securities that areassociated with potential section 871(m)transactions. An underlying security is as-sociated with a potential section 871(m)transaction when the QDD holds that un-derlying security to manage the risk ofprice changes with respect to a potentialsection 871(m) transaction that the QDDentered into in the normal course of itsbusiness as a dealer. If a QDD holds stockin its non-dealer capacity (for example, asa proprietary trader), the QDD cannottreat that stock as an underlying securityassociated with a potential section 871(m)transaction for purposes of calculating itssection 871(m) amount.

A QDD remains liable for tax on anydividends and dividend equivalents it re-ceives in its dealer capacity to the extentthe QDD is not contractually obligated tomake offsetting payments that referencethe same dividend or dividend equivalentthat it received as a dealer. To determineits tax liability on dividends and dividendequivalents that it receives, a QDD mayaggregate all dividends on underlying se-curities associated with potential section871(m) transactions and dividend equiva-lent payments that it receives that refer-

July 18, 2016 Bulletin No. 2016–2968

ence the same dividend and all dividendequivalent payments that it is contractu-ally obligated to make as a dealer thatreference the same dividend. Transactionsproperly reflected in a QDD’s dealer bookare presumed to be held by the QDD in itsdealer capacity for purposes of determin-ing the QDD’s tax liability. The netamount of the payments received and theoffsetting payments made is referred to asthe QDD’s “section 871(m) amount.” Seesection 2.79 of the proposed QI agree-ment. Under the proposed QI agreement,the amount of offsetting payments in-cludes any dividend equivalent paymentand any qualifying dividend equivalentoffsetting payment that the QDD makes oris contractually obligated to make withrespect to the same dividend. A “qualify-ing dividend equivalent offsetting pay-ment” is defined in section 2.70 of theproposed QI agreement as (a) any pay-ment made or contractually obligated tobe made to a United States person thatwould be a dividend equivalent paymentif made to a person who was not a UnitedStates person and (b) any payment madeto a foreign person that would be a divi-dend equivalent payment if the paymentwere not treated as income effectivelyconnected with the conduct of a U.S. tradeor business. As discussed in section2.01(C), above, to the extent a QDD doesnot obtain a waiver from a U.S. non-exempt recipient of a payment describedin (a) in the preceding sentence of anylimitation on providing its name, address,and TIN (if any) to the IRS and does notcollect and maintain such information,payments made to that U.S. non-exemptrecipient are not qualifying dividendequivalent offsetting payments.

A QDD will report its QDD tax liabil-ity on a Form 1042, Annual WithholdingTax Return for U.S. Source Income ofForeign Persons. The QDD’s paymentand deposit requirements with respect toany taxes due with respect to its QDD taxliability on Form 1042 are described insections 3.08 and 3.09(C) of the proposedQI agreement. When a foreign branch of aU.S. financial institution acts as a QDD,the branch is not required to report a QDDtax liability for income relating to poten-tial section 871(m) transactions and un-derlying securities on Form 1042. Instead,the U.S. financial institution must file the

appropriate U.S. income tax return (forexample, Form 1120, U.S. CorporationIncome Tax Return) for the tax year cov-ered by the QI agreement to report andpay its tax liability under chapter 1.

(E) Accounts for purposes of section871(m) transactions. Generally, an “ac-count” for purposes of the QI agreementmeans any account for which QI acts as aqualified intermediary. See section 2.01 ofthe proposed QI agreement. QIs and tax-payers, however, do not always hold sec-tion 871(m) transactions in an accountrelationship. Section 2.01 of the proposedQI agreement therefore defines “account,”when applied to a QI acting as a QDD, asany potential section 871(m) transactionor underlying security where the QI re-ceives payments as a principal and anypotential section 871(m) transactionwhere the QI makes payments as a prin-cipal. However, section 5 of the proposedQI agreement does not require a QI that isacting as a QDD to document each ac-count; rather it limits a QDD’s obligationto document only an account holder of anaccount to which the QDD makes a re-portable payment or qualifying dividendequivalent offsetting payment (or pay-ment that otherwise would have been aqualifying dividend equivalent offsettingpayment but for the QDD’s failure to ob-tain a waiver or collect and maintain in-formation about a U.S. non-exempt recip-ient account holder as required by section8.03(C) of the proposed QI agreement).

(F) Qualified securities lenders. Onceimplemented, the QDD regime is intendedto replace the qualified securities lender(QSL) regime described in Notice 2010–46, 2010–25 I.R.B. 757. The proposed QIagreement will require a QI to act as aQDD for all securities lending and sale-repurchase transactions the QDD entersinto that are section 871(m) transactions,in addition to acting as a QDD for pay-ments with respect to other potential sec-tion 871(m) transactions and underlyingsecurities as a principal. All securitieslending and sale-repurchase transactionsthe QI enters into that are section 871(m)transactions will be deemed to be enteredinto by the QI as a principal and thereforewithin the QDD regime. Until the QDDregime is implemented, the QSL rules (in-cluding the credit-forward rules describedin Notice 2010–46) will continue to apply

for substitute dividend payments madepursuant to a securities lending or a sale-repurchase transaction. For more informa-tion about the QSL regime, see Notice2010–46.

(G) Coordination with 871(m) regula-tions. The Treasury Department (Trea-sury) and the IRS intend to modify, to theextent necessary, the section 871(m) reg-ulations to coordinate with provisions ofthe QI agreement relevant to the require-ments of QDDs and withholding agentsmaking payments to QDDs (as those pro-visions are finalized).

.02 Periodic Review and Certificationsof Compliance.

(A) In general. The 2014 QI agreementreplaced the previous external audit re-quirement with an internal complianceand review program. As part of this com-pliance program, the responsible officer isrequired to make periodic compliance cer-tifications and provide certain factual in-formation to the IRS. After the 2014 QIagreement was issued, commentatorsraised concerns about the administrabilityof the compliance review procedures, in-cluding potential costs of implementingand conducting a compliance program,difficulties in allocating resources to con-duct the periodic review in the last year ofthe certification period, and the lack ofdetailed standards for performance of theQI’s periodic review similar to those pro-vided in Rev. Proc. 2002–55, 2002–2 C.B.435.

Under the proposed QI agreement, aQI’s responsible officer will still be re-quired to make a periodic certification ofinternal controls as described in section10.03 and Appendix I of the proposed QIagreement. In making this certification,the responsible officer may rely on, inaddition to the results of the periodic re-view, any other processes or reviews thatthe responsible officer has determined arenecessary in order to make the certifica-tion. This allows the responsible officer todecide, for example, whether to hire anexternal reviewer (for example, a law firmor accounting firm) and what the scope ofthe engagement should be (for example,whether the external reviewer will con-duct a review of the sufficiency of theQI’s internal controls or whether the re-

Bulletin No. 2016–29 July 18, 201669

view will be limited to the periodic reviewdiscussed below). The responsible officermust, however, document what he or shehas relied upon in making the certificationand retain such documentation for thesame period of time for which the com-pliance review report and certificationsare required to be retained pursuant tosection 10.06(D) of the proposed QIagreement. For example, if the responsi-ble officer relies on an internal or externalreviewer to conduct a review of the inter-nal controls and systems, the responsibleofficer must retain any report delivered bythe reviewer.

In addition to making the certificationof internal controls, the QI is required toreport certain factual information (de-scribed in Appendix I) regarding its doc-umentation, withholding, reporting, andother obligations under the QI agreement,and, in the case of a QI that is acting as aQDD, certain information related to thedetermination of its QDD tax liability (asdescribed in section 3.09 of the proposedQI agreement). This factual informationwill be gathered, in part, through the test-ing of accounts and transactions requiredas part of the periodic review, as describedin sections 10.04 and 10.05 of the pro-posed QI agreement. This review will befocused on the testing of accounts andtransactions rather than a substantive eval-uation of the sufficiency of a QI’s policiesand procedures. Section 10.05(A) through(E) of the proposed QI agreement pro-vides the objectives for performing thereview, and Appendix I to the proposedQI agreement describes the factual infor-mation that will be required to be reportedto the IRS upon completion of the review.In order to allow QIs to have some flexi-bility in determining how to satisfy theobjectives for the review, the IRS does notintend to publish a step-by-step audit planas was previously provided in Rev. Proc.2002–55, but the QI is expected to createa step–by-step plan to satisfy the objec-tives for the review contained in section10.05(A) through (E) of the proposed QIagreement and to provide the required fac-tual information. In response to commentsrequesting a safe harbor method for deter-mining a sample of accounts for the peri-odic review, this Notice provides a strati-fied statistical sampling methodology inAppendix II to the proposed QI agree-

ment. In addition, the proposed QI agree-ment requires that a QI that has 50 ac-counts or more review at least 50 accountsas part of the periodic review. If a QI hasfewer than 50 accounts, it must review allof its accounts and is not allowed to usethe sampling procedures in Appendix II tothe proposed QI agreement.

In addition, section 10 of the proposedQI agreement has been clarified to preventunintended inferences that the periodic re-view must satisfy the standards of a finan-cial audit or other attestation engagementof a certified public accountant. Refer-ences to an “auditor” (in all contexts,whether internal or external) have beenreplaced with “reviewer.” The descriptionof the standard of independence requiredof a reviewer has also been clarified. Theresponsible officer can arrange for the re-view to be conducted by either an externalor an internal reviewer to the extent pro-vided in the proposed QI agreement. Ineither case, the reviewer must have suffi-cient independence to objectively conductthe review. For example, a reviewer,whether internal or external, cannot bereviewing his or her own work (for exam-ple, systems he or she designed or docu-mentation he or she validated).

(B) Waiver. Under certain circum-stances, section 10.07 of the proposed QIagreement allows a QI that is a foreignfinancial institution (FFI) that is not actingas a QDD and that is not part of a consol-idated compliance group to apply for andobtain a waiver of the requirement to con-duct the periodic review and to providesome of the factual information specifiedin Appendix I to the proposed QI agree-ment. In cases where the QI applies for awaiver, it is still required to provide cer-tain factual information along with its pe-riodic certification. This information isprovided in Appendix I to the proposed QIagreement.

(C) Periodic review timing. The 2014QI agreement required that the periodicreview be conducted for the last year ofthe certification period. In response tocomments regarding potential difficultieswith this requirement, including resourceconstraints with all QIs needing to con-duct periodic reviews at the same time, theproposed QI agreement allows a QI tochoose which year in the certification pe-riod to select for its periodic review. How-

ever, if a QI is also acting as a QDD, itmust use 2017 for its periodic review forthe initial certification period becauseQDD status is not applicable for 2015 and2016.

(D) Compliance obligations and initialcertification date. A QI that had a QIagreement under Rev. Proc. 2000–12,2000–1 C.B. 387, (as amended) in effectprior to June 30, 2014, with an audit cyclethat would have extended past June 30,2014, is not required to complete an auditunder the previous QI agreement (Rev.Proc. 2000–12). A QI with a 2014 QIagreement in effect on or after June 30,2014, must comply with the complianceobligations under that agreement as re-vised in the QI agreement in effect afterDecember 31, 2016.

For purposes of determining the certi-fication period, the initial certification pe-riod is the period ending on the third fullcalendar year that the 2014 QI agreementand any superseding revenue procedure isin effect. Therefore, a QI with a QI agree-ment with an effective date of June 30,2014, must treat the initial certificationperiod as ending on December 31, 2017,and will be required to make the requiredcertification on or before July 1, 2018,pursuant to the requirements of the QIagreement in effect after December 31,2016.

(E) FATCA requirements. As part ofthe QI agreement, a QI that is an FFI isrequired to comply with the FATCA re-quirements applicable to its chapter 4 sta-tus as a participating FFI, registereddeemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI, anda QI that is a non-financial foreign entity(NFFE) acting on behalf of its sharehold-ers is required to comply with the require-ments of a direct reporting NFFE. In ad-dition the proposed QI agreement clarifiesthat the QI’s responsible officer can relyon other personnel with oversight or re-sponsibility for the QI’s FATCA require-ments as a participating FFI, registereddeemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI (asdefined in section 2.28 of the proposed QIagreement) or its requirements as a directreporting NFFE or sponsoring entity, asapplicable, in making its certifications re-lating to its FATCA obligations. In con-ducting the periodic review, a QI’s re-

July 18, 2016 Bulletin No. 2016–2970

quirements relating to its FATCAcompliance are limited to those accountsfor which it is acting as a QI.

(F) Consolidated compliance program.The compliance procedure described inthe 2014 QI agreement included an allow-ance for a QI to be a member of a con-solidated compliance program under thesupervision of a “compliance QI,” subjectto the approval of the IRS. In order toestablish a consolidated compliance pro-gram, the responsible officer of the com-pliance QI should consult the FinancialIntermediaries Team at the address in sec-tion 12.06 of the proposed QI agreementto determine if the proposed consolidatedcompliance program is acceptable. If sta-tistical sampling is to be utilized for theperiodic review and testing of accountsand transactions, a sample plan shouldalso be proposed. In evaluating the con-solidated compliance program request, thegoal of the Financial Intermediaries Teamis to have an open dialogue concerningany issues that may materially affect aQI’s ability to fulfill its responsibilitiesunder the QI agreement. If a QI is part ofa consolidated compliance program undersection 10.02(B) of the proposed QIagreement that is approved by the IRS, thecompliance QI will be required to providefactual information for each QI memberof the group separately but can make thecertification of internal controls for theentire consolidated compliance group.

.03 Limited FFIs and Limited Branches.Pursuant to the regulations under chapter 4,as modified by Notice 2015–66, 2015–41I.R.B. 541, limited FFI (and limited branch)status will no longer be available as of Jan-uary 1, 2017. Accordingly, to conform withthe regulations and Notice 2015–66, theproposed QI agreement removes limited FFIas a category of entity eligible to enter intothe QI agreement.

.04 Substitute Interest. Comments re-quested that, as the QSL regime is incor-porated into the QDD regime, consider-ation be given to covering payments ofsubstitute interest on debt securities underthe QI agreement in addition to substitutedividend payments. In response, the pro-posed QI agreement allows a QI to as-sume primary chapters 3 and 4 withhold-ing responsibility and primary Form 1099reporting and backup withholding 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, orcollateral that it holds in connection withits activities as a securities dealer. Thiswill allow a QI to provide a FormW–8IMY, Certificate of Foreign Interme-diary, Foreign Flow-Through Entity, orCertain U.S. Branches for United StatesTax Withholding and Reporting, to a with-holding agent certifying that the QI is a QIassuming primary withholding responsi-bility without requiring the QI to distin-guish between these payments of interestand substitute interest the QI receives as aprincipal and those that it receives as anintermediary. QIs that assume primarywithholding responsibility for paymentsof interest and substitute interest as de-scribed in this paragraph will be requiredto assume primary withholding responsi-bility for all such payments.

.05 Partnerships or Trusts Applyingthe Joint Account or Agency Options. Inresponse to comments received on the2014 QI agreement, sections 4.05(A)(1)and 4.06(A)(2) of the proposed QI agree-ment have been modified to allow a QI toapply the joint account or agency optionto partnerships or trusts that are coveredas accounts that are excluded from thedefinition of financial accounts under An-nex II of an applicable IGA or under§ 1.1471–5(a). In addition, consistent withthe WP and WT agreements, a QI canapply the joint account or agency optionto partnerships or trusts that are owner-documented FFIs with respect to the QI.

.06 Limitation on Benefits for TreatyClaims. In order to enhance and makemore robust claims for a reduced rate ofchapter 3 withholding under an incometax treaty, Treasury and the IRS intend tomodify the chapter 3 regulations to re-quire withholding agents to collect certaininformation and certifications regarding abeneficial owner’s claim for treaty bene-fits. Form W–8BEN-E, Certificate of Sta-tus of Beneficial Owner for United StatesTax Withholding and Reporting (Entities),was revised in April 2016 to includecheckboxes for a beneficial owner to pro-vide information regarding the limitationon benefits provision of an applicabletreaty that it satisfies, and Form 1042–Swas revised in 2016 to include a line for awithholding agent to report the corre-

sponding limitation on benefits provisioncode. The proposed QI agreement modi-fies the requirements for a QI using doc-umentary evidence to document an entityaccount holder claiming a reduced rate ofwithholding under an income tax treaty torequire the collection of information re-garding limitation on benefits on the treatystatement provided by the account holder.A QI opening an account or obtainingdocumentation for an entity accountholder on or after January 1, 2017, will berequired to collect this limitation on ben-efits information. For QIs with pre-existing entity accounts (as described insection 5.10(A) of the proposed QI agree-ment) that were documented with docu-mentary evidence, there will be a two-yeartransition period provided for the collec-tion of the appropriate limitation on ben-efits information (unless there is a changein circumstances that requires the QI toobtain corrected information). For QIsthat documented entity accounts withForms W–8, those forms may be relied upon until their normal expiration period(unless there is a change in circumstancesthat requires QI to obtain corrected infor-mation). Under the proposed QI agree-ment, a withholding agent will be subjectto an actual knowledge standard with re-spect to the limitation on benefits claims.The chapter 3 regulations also will besimilarly amended to apply an actualknowledge standard for limitation on ben-efits claims.

.07 Validation of Treaty Claims. In ad-dition to the standard of knowledge forlimitation on benefits claims discussed insection 2.06 of this Notice, the proposedQI agreement provides that a QI will beconsidered to have reason to know that aclaim for treaty benefits is unreliable orincorrect if the account holder claims ben-efits under a treaty that does not exist or isnot in force and thus is not included onthe list maintained at https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z.This reason to know rule will generallyapply to pre-existing accounts for whichthe QI already holds valid documentationonly upon a change in circumstances. Fora pre-existing entity account, this reasonto know rule will also apply when the QIobtains a written limitation on benefitsstatement. For purposes of applying this

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rule, 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, it meansan account maintained (and for which QIhas valid documentation) prior to the ef-fective date of its QI agreement. For allnew accounts, the reason-to-know rulewill apply upon account opening. Thechapter 3 regulations will be amended toinclude this reason to know rule for allwithholding agents.

.08 Conforming Changes and Correc-tion of Errors. In addition to the changesdescribed in this Notice, additionalchanges have been made in the proposedQI agreement that either correct minorerrors, further clarify the current rule, con-form to changes made in the WP and WTagreements, or make conforming changesconsistent with changes addressed in otherguidance or other IRS correspondence(for example, e-mails from the IRS tosubscribing QIs). An example of a correc-tion is the presumption rules described insection 5.13(C)(3) of the proposed QIagreement which have been modified toinclude U.S. source bank deposit interestnot subject to chapter 4 withholding (aswell as payments on certain short-termobligations) among those payments that aQI is required to treat as made to a U.S.non-exempt recipient account holder un-der the presumption rules. The applicationof this presumption rule to such bank de-posit interest was inadvertently omitted inthe 2014 QI agreement and is expected toapply only in limited cases. For the por-tion of calendar years 2014–2016 that aQI had in effect a 2014 QI agreement, theQI will not be treated as non-compliant ifit does not apply the corrected presump-tion rule from the proposed QI agreement.

In addition, consistent with the defini-tions provided in the chapter 3 regula-tions, the definition of U.S. person in sec-tion 2.91 of the proposed QI agreementhas been clarified for certain individualswho are dual-resident taxpayers.

.09 Effective Date. When the proposedQI agreement provided in section 4 of thisNotice is finalized, it will be effective onor after January 1, 2017. The effectivedate of the proposed QI agreement for an

applicant will depend on when the QIsubmits its application and whether the QIhas received any reportable paymentsprior to when it submits its application.Beginning on January 1, 2017, a prospec-tive QI that applies for QI status prior toMarch 31 of a calendar year, if approved,will have a QI agreement with an effectivedate of January 1 of that year. If a pro-spective QI applies for QI status afterMarch 31 of a calendar year and has notreceived a reportable payment prior to thedate it applies for QI status, if approved, itwill have 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, ifapproved, its QI agreement will have aneffective date of the first of the month inwhich its QI application is approved andthe prospective QI is issued a QI-EIN. AQI that seeks to renew its QI agreementmust renew prior to March 31, 2017, andthe renewed QI agreement shall have aneffective date of January 1, 2017.

.10 Term of the QI Agreement. Theproposed QI agreement would expire, un-less otherwise terminated, at the end of thethird full calendar year the agreement is ineffect.

.11 Changes to the WP and WT Agree-ments. The proposed changes to require-ments for the QI compliance review pre-viewed in this Notice are also intended,with appropriate modifications, to be in-corporated in a revised withholding for-eign partnership agreement (WP agree-ment) and withholding foreign trustagreement (WT agreement), revising theWP agreement and WT agreement pub-lished in Rev. Proc. 2014–47. Treasuryand the IRS will publish the revised WPagreement and WT agreement with theserevisions and a limited number of correc-tions to the WP agreement and WT agree-ment (as published in Rev. Proc. 2014–47), to be effective on or after January 1,2017. Beginning January 1, 2017, the WPagreement will also provide the require-ments for a reverse hybrid entity that de-sires to enter into a WP agreement withrespect to the requirements for document-ing and withholding on owners claimingtreaty benefits. These requirements in-clude that such entity meet all of its filingrequirements as a corporation for U.S. tax

purposes; prepare and provide for certaininterest holders that are U.S. persons aPassive Foreign Investment Company(PFIC) Annual Information Statement(described in § 1.1295–1(g)(1)) (if the WPis a PFIC for the year); and prepare andretain for IRS review a reconciliationstatement showing the amount of U.S.source FDAP income allocated to eachdirect or indirect owner of the WP thatclaims treaty benefits during the calendaryear. This is to eliminate the need for theriders that have been used previously forsuch entities to enter into WP agreements.

Treasury and the IRS request com-ments on an allowance for consolidatedperiodic reviews and certifications forWPs that are FFIs, similar to what is per-mitted for QIs. Treasury and the IRS willconsider, if adopted, whether this optionwould only be available to WPs that, forchapter 4 purposes, should be consideredsponsored FFIs under a sponsoring entitythat implements a compliance programthat includes uniform practices, proce-dures, and systems, subject to uniformmonitoring and control, with respect to allWPs for which it acts. If this consolidatedreview approach is adopted, it is antici-pated that the sponsoring entity for pur-poses of the WP agreement would bejointly liable (with the WP) for any liabil-ity of the WP for failing to withhold andreport as required under the WP agree-ment. In addition, if this approach is ad-opted, the chapter 4 regulations will beamended to allow a WP to be a sponsoredFFI to the extent provided in the revisedWP agreement and to register under thesponsoring entity.

SECTION 3. APPLICATION FOR QISTATUS

.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) (for example, FFIs,foreign clearing organizations, and for-eign branches of U.S. financial institutionsor U.S. clearing organizations). With re-spect to an FFI, as defined in § 1.1471–5(d), the 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 re-porting Model 2 FFI), (2) a registereddeemed-compliant FFI (including a re-

July 18, 2016 Bulletin No. 2016–2972

porting Model 1 FFI and a nonreportingModel 2 FFI treated as registered deemed-compliant), or (3) a registered deemed-compliant Model 1 IGA FFI (as defined insection 2.17(C) of the proposed QI agree-ment). See § 1.1471–1(b)(91) and (111).An FFI that is a certified deemed-compliant FFI (including a nonreportingIGA FFI (as defined in § 1.1471–1(b)(83))may enter into a QI agreement if the FFImeets and agrees to assume the obliga-tions of, and to be treated as, a participat-ing FFI (including a reporting Model 2FFI), a registered deemed-compliant FFI(including a reporting Model 1 FFI or anonreporting Model 2 FFI treated as reg-istered deemed-compliant), or a registereddeemed-compliant Model 1 IGA FFI withrespect to all accounts that it maintains(even if the FFI does not intend to desig-nate an account as one for which it will actas a QI). A central bank of issue may enterinto a QI agreement provided that it meetsand agrees to assume the obligations of,and to be treated as, a participating FFI(including a reporting Model 2 FFI) or aregistered deemed-compliant FFI (includ-ing a reporting Model 1 FFI) with respectto any account that it maintains and that isheld in connection with a commercial fi-nancial activity described in § 1.1471–6(h) and for which it receives a withhold-able payment (as defined in § 1.1471–1(b)(145)). A foreign branch of a U.S.financial institution may also apply to en-ter into a QI agreement provided that ei-ther it is a reporting Model 1 FFI or itagrees to assume the requirements andobligations of a participating FFI (includ-ing a reporting Model 2 FFI). See§ 1.1441–1(e)(5)(ii).

An entity that is a territory financialinstitution (territory FI) (as defined in§ 1.1471–1(b)(130)) or a nonparticipatingFFI (as defined in § 1.1471–1(b)(82)) maynot apply for a QI agreement.

The QI agreement may be entered intoby a foreign corporation that is an NFFE(as defined in § 1.1471–1(b)(80)) de-scribed in § 1.1441–1(e)(5)(ii)(C) or thatis an eligible entity seeking to become aQDD. For example, an entity may seek toobtain QI status to present claims of ben-efits under an income tax treaty on behalfof its shareholders or other persons (otherthan FFIs) for which the foreign corpora-tion acts as an intermediary. An NFFE

that enters into a QI agreement to act onbehalf of its shareholders must meet andagree to assume the obligations of, and tobe treated as, a direct reporting NFFEunder § 1.1472–1(c)(3). An NFFE thatenters into a QI agreement to act on behalfof persons other than its shareholders willbe required to satisfy the withholding andreporting requirements of §§ 1.1472–1(a)and 1.1474–1(i) with respect to any NFFEthat is a beneficial owner for whom the QIis acting with respect to a withholdablepayment. The QI agreement does not ap-ply to a foreign partnership or foreigntrust. A foreign partnership or foreigntrust may seek to qualify as a withholdingforeign partnership or withholding foreigntrust. See § § 1.1441–5(c)(2)(ii) and1.1441–5(e)(5)(v). In light of the changesthat will be made to the WP agreementdiscussed in section 2.11 of this Notice,Treasury and the IRS expect to eliminatethe allowance for NFFEs acting on behalfof their shareholders to be QIs. Commentsare requested regarding the types of enti-ties and situations where an NFFE wouldbe seeking to act as a QI on behalf of itsshareholders (other than a reverse hybridentity described in section 2.11 of thisNotice) and why the WP agreement doesnot provide a solution for those entities.

.02 Prospective QI (Including QI Act-ing as a QDD). Prior to submitting Form14345, Qualified Intermediary Applica-tion, a prospective QI (other than anNFFE that is not acting as an intermediaryon behalf of its shareholders and certainforeign central banks of issue) must havesubmitted the information specified inForm 8957, Foreign Account Tax Compli-ance Act (FATCA) Registration, throughthe FATCA registration website availableat www.irs.gov/FATCA, and obtained itschapter 4 status as a participating FFI (in-cluding a reporting Model 2 FFI), regis-tered deemed-compliant FFI (including areporting Model 1 FFI and a nonreportingModel 2 FFI treated as registered deemed-compliant), registered deemed-compliantModel 1 IGA FFI (as defined in section2.17(C) of the proposed QI agreement),direct reporting NFFE, or sponsoring en-tity of a direct reporting NFFE, as appli-cable, along with a global intermediaryidentification number (GIIN) to be used toidentify itself to withholding agents and to

tax administrators for FATCA reporting(the GIIN is separate from the QI-EIN).

To become a QI, a prospective QI mustsubmit Form 14345, Application forQualified Intermediary, Withholding For-eign Partnership, or Withholding ForeignTrust Status, in the manner provided bythe form or accompanying instructions.An application must also include any ad-ditional information and documentationrequested by the IRS. The Form 14345must establish, to the satisfaction of theIRS, that the applicant has adequate re-sources and procedures to comply withthe terms of the QI agreement. An entitythat would like to become a QI to act as aQDD must apply to enter into a QI agree-ment and include the information relatingto QDDs.

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 chapters 3, 4, and 61and sections 871, 881, and 3406, includ-ing making tax deposits and filing Forms945, 1042, 1042–S, 1099, and 8966.

The IRS will not enter into a QI agree-ment with an FFI if the IRS has not ap-proved the “know-your-customer” prac-tices and procedures for opening accountsof the jurisdiction where the FFI is locatedbecause the QI agreement as applicable toan FFI allows for the use of documentaryevidence obtained under a jurisdiction’s“know-your-customer” practices. A list ofjurisdictions for which the IRS has re-ceived know-your-customer informationand for which the know-your-customerrules are acceptable (approved KYC juris-diction) is available at: http://www.irs.gov/Businesses/International-Businesses/List-of-Approved-KYC-Rules. To request ap-proval of a jurisdiction’s know-your-customer rules, contact the KYCcoordinator in the Foreign Intermediar-ies Program at the address provided insection 3.03 of this Notice.

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–9and may not apply the KYC documenta-tion practices and procedures. See section5.01(A)(2) of the proposed QI agreement

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for the documentation requirements appli-cable to a QI that is an NFFE.

.03 Existing QI. An FFI that seeks torenew its QI agreement must do sothrough the FATCA registration websiteavailable at www.irs.gov/FATCA. AnNFFE that is a direct reporting NFFE or asponsoring entity of a direct reportingNFFE must also renew its QI agreementthrough the FATCA registration website.The QI will retain its QI-EIN to fulfill therequirements of a QI under chapters 3, 4,and 61 and sections 871, 881, and 3406,including making tax deposits and filingForms 945, 1042, 1042–S, 1099, and8966.

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 a statement containing all informa-tion required by Form 14345 relating to aQDD (but does not have to provide a newForm 14345).

A QI that is an NFFE and that is notacting as a QI on behalf of its sharehold-ers, and is not a sponsoring entity, mustrenew its QI agreement by submitting arequest for renewal to the Foreign Inter-mediaries Program at the following ad-dress:

Internal Revenue ServiceForeign Payments PracticeForeign Intermediaries Program290 Broadway, 12th Floor NWNew York, New York 10007–1867Attention: QI Applications

SECTION 4. PROPOSED QUALIFIEDINTERMEDIARY AGREEMENT

The text of the proposed QI agreementis set forth below. The IRS will no longerprovide signed copies of the QI agree-ment. A reporting Model 2 FFI shouldapply this Agreement by substituting theterm “reporting Model 2 FFI” for “partic-ipating FFI” throughout this Agreement,except in cases where this Agreement ex-plicitly refers to a reporting Model 2 FFI.A reporting Model 1 FFI and nonreportingModel 2 FFI treated as a registereddeemed-compliant FFI should apply thisAgreement by substituting the term “re-porting Model 1 FFI” or “nonreportingModel 2 FFI” (as applicable) for “registereddeemed-compliant FFI” throughout thisAgreement, except in cases where this

Agreement explicitly refers to a reportingModel 1 FFI or nonreporting Model 2 FFItreated as a registered deemed-compliant FFI.

THIS AGREEMENT is made underand in pursuance of sections 1441, 1442,1471, and 1472 and §§ 1.1441–1(e)(5)and 1.1441–1(e)(6):

WHEREAS, QI has submitted an ap-plication in accordance with this revenueprocedure to be a qualified intermediary;

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, and6414, and tax liability under sections 871(a)and 881 for a QI that is acting as a qualifiedderivatives dealer (QDD), with respect tocertain types of payments;

WHEREAS, QI represents that thereare no legal restrictions that prohibit itfrom complying with the requirements ofthis Agreement;

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 theapplicable 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; and

WHEREAS, if QI is an NFFE thatdesires to enter into this Agreement forpurposes of presenting claims of benefitsunder an income tax treaty on behalf of itsshareholders, QI represents that it willcomply with the requirements of a directreporting NFFE under § 1.1472–1(c)(3);

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 U.S. person to cover aforeign branch, that foreign person (orforeign branch) becomes a QI. QI is a

withholding agent under chapters 3 and 4,and a 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 con-tinue to apply in addition to the require-ments under this Agreement. If QI acts asa QI with respect to an account, thisAgreement will reference QI’s chapter 4obligations when necessary to facilitatecoordination with a QI’s obligations underchapters 3, 4, and 61, and section 3406,with respect to such account holders. Aparticipating FFI’s (including a reportingModel 2 FFI’s) obligations are providedin the FFI agreement, a registereddeemed-compliant FFI’s (other than a re-porting Model 1 FFI) obligations are pro-vided in § 1.1471–5(f)(1) or the applicableModel 2 IGA, and the obligations of areporting Model 1 FFI or a registereddeemed-compliant Model 1 IGA FFI areprovided in the applicable Model 1 IGA.For purposes of chapter 4, QI must com-ply with its FATCA requirements as aparticipating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI (as applica-ble) with respect to all financial accountsthat it maintains, irrespective of whetherQI acts as a QI with respect to an accountholder, as well as the requirements of awithholding agent for any payee that is anonparticipating FFI or NFFE that is notan account holder. If QI is an FFI, QI mustalso, pursuant to this Agreement, assumeprimary reporting responsibility for pur-poses of section 1472, for certain indirectaccount holders for which it acts as a QI.

If QI is an NFFE acting as a QI onbehalf of its shareholders, the require-ments QI has agreed to as a direct report-ing NFFE apply in addition to the require-ments under this Agreement, and, to theextent necessary to facilitate coordinationof its direct reporting NFFE obligationswith its obligations as a QI, the directreporting NFFE obligations are incorpo-rated into this Agreement. A direct report-ing NFFE’s obligations are provided in§ 1.1472–1(c)(3). For purposes of chapter4, if QI is an NFFE acting as a QI onbehalf of its shareholders, QI must complywith the requirements of a direct reporting

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NFFE with respect to any shareholder thatis a substantial U.S. owner as defined in§ 1.1473–1(b). If QI is an NFFE acting onbehalf of persons other than its sharehold-ers, QI must assume primary reportingresponsibility for purposes of section 1472for any person for which it acts as a QI.

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 designated 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 QIdesignates 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 withrespect to payments of substitute interest,as described in section 3.03(A) of thisAgreement, it must act as a QI and assumeprimary withholding responsibility for allsuch payments of substitute interest.

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.

If QI acts as a QDD, it 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 re-ceived by the QDD to the extent the pay-

ment is treated as income effectively con-nected with the conduct of a trade orbusiness within the United States withinthe meaning of section 864. In addition, aQI must act as a QDD for any securitieslending or sale-repurchase transactions (asdefined in § 1.871–15(a)(13)) QI entersinto that are section 871(m) transactions.For purposes of this Agreement, a QDD isdeemed to make and receive paymentspursuant to those securities lending andsale-repurchase transactions as a princi-pal. A QI may not act as a QDD when itreceives or makes payments as an inter-mediary. 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 reportboth its withholding tax liability underchapters 3 and 4 and its QDD tax liabilityon Form 1042. A U.S. financial institutionwith a foreign branch that acts as a QDDmust file the appropriate U.S. income taxreturn (e.g., Form 1120, U.S. CorporationIncome Tax Return) for the tax year cov-ered by the QI Agreement to report andpay its tax liability under chapter 1 andwould not have a separate QDD tax lia-bility.

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 designatean account that it holds as a QI designatedaccount if the branch of QI that holds theaccount operates in a KYC jurisdictionidentified under the QI Agreement. QImay add any jurisdiction in which it op-erates a branch that is not initially in-cluded in its QI application without priorIRS approval if the jurisdiction is one forwhich the IRS will enter into a qualifiedintermediary agreement (i.e., the jurisdic-

tion is identified on the IRS’s ApprovedKYC List) and QI updates its informationon the FATCA registration website withrespect to such branch prior to treatingsuch branch as a qualified intermediary. 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 qual-ified intermediary. With respect to a QIacting as a QDD, “account” means anypotential section 871(m) transaction orunderlying security where QDD receivespayments as a principal and any potentialsection 871(m) transaction where QDDmakes payments as 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 designated to its withholding agentas an account for which it is acting as aqualified intermediary. 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. “Account holder”also means any person that enters into orholds a potential section 871(m) transac-tion with a QI acting as a QDD. If QI is anNFFE acting on behalf of its shareholders,an “account holder” means each share-holder for whom QI is acting with respectto an amount subject to chapter 3 with-holding or with respect to a withholdablepayment. If QI is an NFFE acting as aqualified intermediary on behalf of per-sons other than its shareholders, an “ac-count holder” means any person for whomQI is acting with respect to a reportablepayment or withholdable payment.

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(A) Direct Account Holder. A directaccount holder is any person who holds anaccount directly with QI or holds an own-ership interest (i.e., a shareholder) directlyin QI if QI is an NFFE. In the case of anNFFE acting as a qualified intermediaryon behalf of persons other than its share-holders, a direct account holder is anyperson for whom QI is acting with respectto a reportable payment regardless ofwhether such person is the beneficialowner.

(B) Indirect Account Holder. An in-direct account holder is any person whoreceives amounts from QI but who doesnot have a direct relationship with QI. Forexample, a person that holds an accountwith a foreign intermediary or an interestin a foreign flow-through entity which, inturn, has a direct relationship with QI is anindirect account holder. A person is anindirect account holder even if there aremultiple tiers of intermediaries or flow-through entities between the person and QI.

Sec. 2.03. Agreement. “Agreement”means this Agreement, and the two Ap-pendices and any Attachments to thisAgreement, and QI’s application to be-come a qualified intermediary. All suchAppendices, Attachments, and QI’s appli-cation are incorporated into this Agree-ment 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.An amount subject to chapter 3 withhold-ing shall not include interest paid as partof the purchase price of an obligation soldbetween interest payment dates or originalissue discount paid as part of the purchaseprice of an obligation sold in a transactionother than the redemption of such obliga-tion, unless the sale is part of a plan theprincipal purpose of which is to avoid taxand QI has actual knowledge or reason toknow of such plan.

Sec. 2.05. Amount Subject to Chap-ter 4 Withholding. An “amount subjectto chapter 4 withholding” is a withhhold-able payment (as defined in section 2.98of this Agreement) for which withholdingis required under chapter 4 or an amountfor which withholding was otherwise ap-plied under chapter 4.

Sec. 2.06. Assumption of Withhold-ing Responsibility. An “assumption ofwithholding responsibility” refers to a QIthat assumes primary chapters 3 and 4withholding responsibility with respect topayments of U.S. source FDAP income,or assumes primary Form 1099 reportingand backup withholding responsibility. AQI that has an assumption of withholdingresponsibility assumes the primary re-sponsibility for deducting, withholding,and depositing the appropriate amountfrom a payment. Generally, QI’s assump-tion of primary chapters 3 and 4 withhold-ing responsibility or the assumption ofprimary backup withholding responsibil-ity relieves the person who makes a pay-ment to QI from the responsibility to with-hold. Under section 3.05 of thisAgreement, QI generally has primaryForm 1099 reporting and backup with-holding responsibility with respect to cer-tain payments even though it does notassume such responsibility for paymentsnot described in that section.

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.

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 territory

financial 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 securi-ties within the meaning of section475(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-CompliantFFI. “Certified deemed-compliant FFI”means an FFI described in § 1.1471–5(f)(2) and includes a nonreporting IGAFFI, but excludes a nonreporting Model 2FFI that is treated as a 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, areference to a registered deemed-compliant FFI that is providing a chapter4 withholding rate pool of U.S. payeesincludes a registered deemed-compliantModel 1 IGA FFI.

(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 and re-porting requirements with respect to U.S.accounts as those applicable to a regis-tered 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 (as describedin the Attachments to this Agreement),any documentary evidence described in

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§ 1.1441–6 sufficient to establish entitle-ment to a reduced rate of withholdingunder an income tax treaty, or any docu-mentary evidence described in § 1.6049–5(c) sufficient to establish an accountholder’s status as a foreign person forpurposes of chapter 61. Documentary ev-idence does not include a Form W–8 orForm W–9 (or an acceptable substituteForm W–8 or Form 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 documen-tary evidence as defined in section 2.20 ofthis Agreement, including all statementsor other information required to be asso-ciated with the form or documentary evi-dence.

Sec. 2.22. Documented AccountHolder. A “documented account holder”is an account holder for whom QI holdsvalid documentation.

Sec. 2.23. Effective Date of the QIAgreement. For a prospective QI that ap-plies to be a QI prior to March 31 of agiven calendar year, the effective date ofthe QI Agreement will be January 1 ofthat year. For a prospective QI that appliesafter March 31 of a given calendar yearand that has not received any reportablepayments prior to the date the applicationis submitted, the effective date of the QIAgreement will be January 1 of that year.For a prospective QI that applies afterMarch 31 of a given calendar year andthat has received a reportable payment inthe calendar year prior to the date theapplication is submitted, the effective dateof the QI Agreement will be the first of themonth in which the QI application is com-plete and the QI has received its QI-EIN.For a QI that is renewing its QI Agree-ment provided in Rev. Proc. 2014–39,2014–29 I.R.B. 150, the effective date ofthe QI Agreement when renewed byMarch 31, 2017, will be January 1, 2017.

Sec. 2.24. Eligible Entity. “Eligibleentity” for QDD status means a qualifiedintermediary that is—(A) A dealer in securities subject to reg-ulatory supervision as a dealer by a gov-ernmental authority in the jurisdiction inwhich it was organized or operates;(B) A bank subject to regulatory supervi-sion as a bank by a governmental author-ity in the jurisdiction in which it was

organized or operates and that (1) issuespotential section 871(m) transactions tocustomers, and (2) receives dividendswith respect to stock or dividend equiva-lent payments pursuant to potential sec-tion 871(m) transactions that hedge poten-tial section 871(m) transactions that itissued;(C) An entity that is wholly-owned (di-rectly or indirectly) by a bank subject toregulatory supervision as a bank by a gov-ernmental authority in the jurisdiction inwhich the bank was organized or operatesand that (1) issues potential section871(m) transactions to customers, and (2)receives dividends with respect to stock ordividend equivalent payments pursuant topotential section 871(m) transactions thathedge potential section 871(m) transac-tions that it issued; or(D) A foreign branch of a U.S. financialinstitution, if the foreign branch wouldmeet the requirements of paragraph (A),(B), or (C), if it were a separate entity.

Sec. 2.25. Excepted NFFE. “ExceptedNFFE” means a person described in§ 1.1471–1(b)(41).

Sec. 2.26. Exempt Beneficial Owner.“Exempt beneficial owner” means a per-son described in § 1.1471–1(b)(42) andincludes any person that is treated as anexempt beneficial owner under an appli-cable Model 1 or Model 2 IGA.

Sec. 2.27. 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), aperson described in § 1.6045–2(b)(2)(i)(for broker proceeds), and a person de-scribed 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. 2.28. 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 participating

FFI, 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. 2.29. Financial Institution (FI).“Financial institution” or “FI” means anentity described in § 1.1471–5(d) and in-cludes a financial institution as definedunder an applicable Model 1 or Model 2IGA.

Sec. 2.30. Foreign Financial Institu-tion (FFI). “Foreign Financial Institu-tion” or “FFI” means a foreign entity (asdefined in § 1.1473–1(e)) that is a finan-cial institution.

Sec. 2.31. FFI Agreement. “FFI Agree-ment” means an agreement described in§ 1.1471–4(a) and provided in Rev. Proc.2014–3, 2014–3 I.R.B. 419, as revised byRev. Proc. 2014–38, 2014–29 I.R.B. 131(and any superseding revenue procedure).

Sec. 2.32. FFI Withholding State-ment. An “FFI withholding statement”means a withholding statement providedby an FFI that meets the requirements of§ 1.1471–3(c)(3)(iii)(B)(1) and (2).

Sec. 2.33. 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 section651(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 entity isalso a flow-through entity to the extent it istreated as fiscally transparent under section894 and the regulations thereunder.

Sec. 2.34. 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 those

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terms are defined in section 7701. Forpurposes of chapters 3 and 4, the termforeign person also means, with respect toa payment by a withholding agent (includ-ing a qualified intermediary), a foreignbranch (including a foreign disregardedentity) of a U.S. person that provides avalid Form W–8IMY on which it repre-sents that it is a qualified intermediary. Aforeign branch of a U.S. person that is aqualified intermediary is, however, a U.S.payor for purposes of chapter 61 and sec-tion 3406.

Sec. 2.35. Foreign TIN. A “foreignTIN” is a taxpayer identification numberissued by a foreign person’s country ofresidence.

Sec. 2.36. 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. 2.37. 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. 2.38. Form 945. “Form 945”means IRS Form 945, Annual Return ofWithheld Federal Income Tax.

Sec. 2.39. Form 1042. “Form 1042”means IRS Form 1042, Annual Withhold-ing Tax Return for U.S. Source Income ofForeign Persons.

Sec. 2.40. Form 1042–S. “Form1042–S” means IRS Form 1042–S, For-eign Person’s U.S. Source Income Subjectto Withholding.

Sec. 2.41. Form 1096. “Form 1096”means IRS Form 1096, Annual Summary

and Transmittal of U.S. Information Re-turns.

Sec. 2.42. 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. 2.43. Form 8966. “Form 8966”means IRS Form 8966, FATCA Report.

Sec. 2.44. Form 1099 Reporting.“Form 1099 reporting” means the report-ing required on Form 1099.

Sec. 2.45. Global Intermediary Iden-tification Number (GIIN). “Global inter-mediary identification number” or “GIIN”means the identification number that is asassigned to a participating FFI, registereddeemed-compliant FFI, direct reportingNFFE, or sponsoring entity of a directreporting NFFE. The term also includesthe identification number assigned to areporting Model 1 FFI or registereddeemed-compliant Model 1 IGA FFI thatis a QI for the purpose of identifying itselfto withholding agents.

Sec. 2.46. Intermediary. An “interme-diary” means any person that acts on be-half of another person such as a custodian,broker, nominee, or other agent.

Sec. 2.47. Know-Your-CustomerRules. “Know-your-customer rules” re-fers to the applicable laws, regulations,rules, and administrative practices andprocedures, identified in the Attachmentsto this Agreement, governing the require-ments of QI to obtain documentation con-firming the identity of QI’s account holders.

Sec. 2.48. 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. 2.49. 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. 2.50. Non-Exempt Recipient. A“non-exempt recipient” means a personthat is not an exempt recipient under the

definition in section 2.27 of this Agree-ment.

Sec. 2.51. 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. 2.52. Nonparticipating FFI. A“nonparticipating FFI” means an FFIother than a participating FFI, a deemed-compliant FFI, or an exempt beneficialowner.

Sec. 2.53. Nonqualified Intermedi-ary. A “nonqualified intermediary” is anyintermediary that is not a qualified inter-mediary. A nonqualified intermediary in-cludes any intermediary that is a foreignperson unless such person enters an agree-ment to be a qualified intermediary andacts in such capacity. A nonqualified in-termediary also includes an intermediarythat is a territory FI (as defined section2.83 of this Agreement) unless such insti-tution agrees to be treated as a U.S. per-son.

Sec. 2.54. Non-U.S. Payor. A “non-U.S. payor” means a payor other than aU.S. payor as defined in this section 2.90of this Agreement.

Sec. 2.55. 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. 2.56. 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. 2.57. 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 withheldunder chapter 4 with respect to such itemof income or other payment, if applicable,and,

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(B) In the case of an amount subject tochapter 3 withholding, the actual tax lia-bility of the beneficial owner of the incomeor payment to which the withheld amount isattributable, regardless of whether suchoverwithholding was in error or appearedcorrect at the time it occurred.

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. 2.58. Participating FFI. A “par-ticipating FFI” means an FFI that hasagreed to comply with the requirements ofan FFI Agreement, including an FFI de-scribed in a Model 2 IGA that has agreedto comply with the requirements of an FFIAgreement (reporting Model 2 FFI). Theterm participating FFI also includes a QIbranch of a U.S. financial institution, unlesssuch branch is a reporting Model 1 FFI.

Sec. 2.59. 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. 2.60. 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 includes creditingan amount to an account. For any paymentof a dividend equivalent or qualifying div-idend equivalent offsetting payment, a“payment” has the meaning provided in§ 1.871–15(i). For any qualifying divi-dend equivalent offsetting payment (not-withstanding the limitation in section2.70(B) of this Agreement), the paymentdefinition in § 1.871–15(i) is applied as ifthe qualifying dividend equivalent offset-ting payment (notwithstanding the limita-tion in section 2.70(B) of this Agreement)is a dividend equivalent.

Sec. 2.61. Payor. A “payor” is definedin § 31.3406(a)–2 and § 1.6049–4(a)(2)and generally means any person requiredto make an information return under chap-ter 61. The term includes any person thatmakes a payment, directly or indirectly, toQI and to whom QI provides information,pursuant to this Agreement, so that suchperson can report a payment on Form

1099 and, if appropriate, backup withhold.See sections 3.05 and 3.06 of this Agree-ment. Also see sections 2.90 and 2.54 ofthis Agreement for the definition of U.S.payor and non-U.S. payor.

Sec. 2.62. Permanent Residence Ad-dress. A “permanent residence address”means an address described in § 1.1441–1(c)(38).

Sec. 2.63. 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§§ 1.871–15(a)(13), (7), (4), (11), and(15), respectively.

Sec. 2.64. Presume/Presumption. Theterms “presume” and “presumption” referto the presumption rules set forth in sec-tion 5.13(C) of this Agreement.

Sec. 2.65. Private Arrangement In-termediary (PAI). A “private arrange-ment intermediary” or “PAI” is an inter-mediary described in section 4 of thisAgreement.

Sec. 2.66. Qualified DerivativesDealer (QDD). A “qualified derivativesdealer” (“QDD”) is an eligible entity thatagrees to meet the requirements of§ 1.1441–1(e)(6)(i) and of this Agreementwith respect to payments on potential sec-tion 871(m) transactions and underlyingsecurities that it receives or makes as aprincipal. In order to act as a QDD, QImust apply and be approved for QDDstatus and must represent itself as a QDDon its Form W–8IMY.

Sec. 2.67. QDD Tax Liability. A“QDD tax liability” is the amount de-scribed in section 3.09 of this Agreement.

Sec. 2.68. Qualified Intermediary. A“qualified intermediary” is a person, de-scribed in § 1.1441–1(e)(5)(ii), that has ineffect an agreement with the IRS to betreated as a qualified intermediary andacts as a qualified intermediary.

Sec. 2.69. Qualified Intermediary(QI) EIN. A “qualified intermediary EIN”or “QI-EIN” means the employer identi-fication number assigned by the IRS to aqualified intermediary. QI’s QI-EIN is

only to be used when QI is acting as aqualified intermediary. For example, QImust give a withholding agent its EIN(other than its QI-EIN), if any, if it isreceiving income as a beneficial owner(excluding when it receives income as aprincipal when acting as a QDD or as aqualified intermediary assuming primarywithholding responsibility for a substituteinterest payment). QI must also use itsnon-QI EIN, if any, when acting as anonqualified intermediary. Each signatoryto this Agreement must have its own QI-EIN (to the extent referenced in this sec-tion 2.69).

Sec. 2.70. Qualifying DividendEquivalent Offsetting Payment.

(A) In General. For purposes of a QIthat is acting as a QDD, a “qualifyingdividend equivalent offsetting payment”means:

(1) Any payment made with respect toa potential section 871(m) transaction to aU.S. person that would be a dividendequivalent payment if the payment weremade to a foreign person or

(2) Any payment made with respect toa potential section 871(m) transaction to aforeign person that would be a dividendequivalent payment if the payment wasnot treated as income effectively con-nected with the conduct of a trade or busi-ness within the United States within themeaning of section 864.

(B) Exception. To the extent a QI act-ing as a QDD does not obtain a waiverand collect and maintain information, asrequired by section 8.03(C) of this Agree-ment, from a U.S. non-exempt recipientdescribed in section 2.70(A)(1), any pay-ment made to such person is not a quali-fying dividend equivalent offsetting pay-ment.

Sec. 2.71. Recalcitrant AccountHolder. A “recalcitrant account holder”means an account holder described in§ 1.1471–5(g).

Sec. 2.72. Reduced Rate of With-holding. A “reduced rate of withholding”means a rate of withholding under chapter3 that is less than 30 percent, including anexemption from withholding.

Sec. 2.73. Reliably Associating a Pay-ment With Documentation. See section5.13(B) of this Agreement to determine

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whether QI can reliably associate a pay-ment with documentation.

Sec. 2.74. Reportable Amount. A “re-portable amount” means U.S. sourceFDAP income that is an amount subject tochapter 3 withholding (as defined in sec-tion 2.04 of this Agreement), U.S. sourcedeposit interest (as defined in section 2.18of this Agreement), and U.S. source inter-est or original issue discount paid on theredemption of short-term obligations (asdefined in section 2.81 of this Agree-ment). The term does not include pay-ments on deposits with banks and otherfinancial institutions that remain on de-posit for two weeks or less. It also doesnot include amounts of original issue dis-count arising from a sale and repurchasetransaction completed within a period oftwo weeks or less, or amounts describedin § 1.6049–5(b)(7), (10), or (11) (relatingto certain foreign targeted registered obli-gations and certain obligations issued inbearer form).

Sec. 2.75. Reportable Payment. Forpurposes of this Agreement, a “reportablepayment” means an amount described insection 2.75(A) of this Agreement, in thecase of a U.S. payor, and an amount de-scribed in section 2.75(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 ef-fected at an office inside the United States,as defined in § 1.6045–1(g)(3)(iii); and(3) Any foreign source interest, dividends,rents, royalties, or other fixed and deter-minable income if such income is not paidoutside the United States as described un-der section 5.13(C)(1) of this Agreement.

Sec. 2.76. 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. 2.77. Reporting Pool. A “report-ing pool” is defined in section 8 of thisAgreement.

Sec. 2.78. 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 (or that of a PAI).

Sec. 2.79. Section 871(m) Amount. A“section 871(m) amount” means the sumof the amounts by which, for each divi-dend on each underlying security, (A) thedividends on underlying securities associ-ated with potential section 871(m) transac-tions and dividend equivalent payments thatQI acting as a QDD receives in its dealercapacity exceed (B) the dividend equivalentpayments and the qualifying dividendequivalent offsetting payments that QI act-ing as a QDD makes or is contractuallyobligated to make with respect to the samedividend in its dealer capacity.

For purposes of determining the QDDtax liability, a dividend or dividend equiv-alent is treated as received by a QDDacting in its non-dealer capacity if thedividend or dividend equivalent is re-ceived by a QDD acting as a proprietarytrader. Transactions properly reflected in aQDD’s dealer book are presumed to beheld by a dealer in its dealer capacity forpurposes of determining the QDD tax li-ability. In addition, for purposes of deter-mining whether a dealer is acting in itsdealer capacity, only the dealer’s activitiesas a derivatives dealer are taken into ac-count.

Sec. 2.80. 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. 2.81. Short-Term Obligation. A“short-term obligation” is any obligationdescribed in section 871(g)(1)(B)(i).

Sec. 2.82. Substitute Interest. “Sub-stitute interest” means a substitute interestpayment described in § 1.861–2(a)(7).

Sec. 2.83. Territory FI. A “territoryFI” means a financial institution that isincorporated or organized under the lawsof any U.S. territory, excluding a territoryentity that is an investment entity but isnot a depository institution, custodial in-stitution, or specified insurance company(as defined in § 1.1471–5(e)(1)(i), (ii), and(iv), respectively).

Sec. 2.84. 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. 2.85. Underlying Security Asso-ciated with Potential Section 871(m)Transactions. For purposes of a QI actingas a QDD, “underlying security associatedwith potential section 871(m) transac-tions” means any underlying security heldby a QDD to manage risk of price changeswith respect to a potential section 871(m)transactions that the QDD entered into inthe normal course of its business as adealer.

Sec. 2.86. Underwithholding. “Un-derwithholding” means the excess of theamount required to be withheld underchapter 3 or 4 or section 3406 over theamount actually withheld.

Sec. 2.87. Undocumented AccountHolder. An “undocumented accountholder” is an account holder for whom QIdoes not hold valid documentation.

Sec. 2.88. U.S. Account. A “U.S. ac-count” is any financial account maintainedby 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. 2.89. U.S. Branch Treated as aU.S. Person. A “U.S. branch treated as aU.S. person” means a U.S. branch of aparticipating FFI, registered deemed-compliant FFI, or NFFE that is treated as aU.S. person under § 1.1441–1(b)(2)(iv)(A).

Sec. 2.90. U.S. Payor. The term “U.S.payor” has the same meaning as in§ 1.6049–5(c)(5).

Sec. 2.91. 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 or

July 18, 2016 Bulletin No. 2016–2980

instrumentality 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 specified in-surance company (as described in§ 1.1471–5(e)(1)(iv)), or the foreign in-surance company is a specified insurancecompany and is licensed to do business inany State of the United States.

Sec. 2.92. 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. 2.93. 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. 2.94. U.S. TIN. A “U.S. TIN”means a U.S. taxpayer identification num-ber assigned under section 6109.

Sec. 2.95. 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 section2.61 of this Agreement). As used in thisAgreement, the term generally refers tothe person making a payment to a quali-fied intermediary.

Sec. 2.96. Withholding Foreign Part-nership. A “withholding foreign partner-ship” or “WP” means a partnership, de-scribed in § 1.1441–5(c)(2), that hasentered into a withholding agreement withthe IRS to be treated as a withholdingforeign partnership.

Sec. 2.97. Withholding ForeignTrust. A “withholding foreign trust” or“WT” means a trust, described in§ 1.1441–5(e)(5)(v), that has entered intoa withholding agreement with the IRS tobe treated as a withholding foreign trust.

Sec. 2.98. Withholdable Payment. A“withholdable payment” means anamount described in § 1.1473–1(a).

Sec. 2.99. 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. 2.100. Withholding Statement.The term “withholding statement” is de-fined in section 6.02 of this Agreement.

Sec. 2.101. Other Terms. Any termnot defined in this section has the samemeaning that it has under the Code, in-cluding the income tax regulations underthe Code, any applicable income taxtreaty, or any applicable Model 1 orModel 2 IGA with respect to a QI’sFATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI. Except as expressly provided inthis Agreement, any term relating to aQDD or section 871(m) has the samemeaning given to 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 exemptfrom withholding under § 1.1471–2(a)(4)or the payment is made under a grandfa-thered obligation described in § 1.1471–2(b). See § 1.1471–2(b)(2)(i)(A)(2) forthe definition of grandfathered obligationwith respect to an obligation giving rise to

a 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 withholdingunder § 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 accounts. If QIis a reporting Model 1 FFI or a registereddeemed-compliant Model 1 IGA FFI, QIwill satisfy its requirement to withholdunder section 1471(a) with respect to di-rect account holders by withholding onwithholdable payments made to nonpar-ticipating FFIs to the extent required un-der its FATCA requirements as a regis-tered deemed-compliant FFI or registereddeemed-compliant Model 1 IGA FFI. QImust, however, withhold in the mannerdescribed in sections 3.02 and 3.03 of thisAgreement for when QI assumes or doesnot assume primary withholding responsi-bility for purposes of chapters 3 and 4regardless of its chapter 4 status.

(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 canreliably 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-

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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 Not As-sumed. Notwithstanding sections 1.01and 3.01 of this Agreement, QI is not berequired 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 aqualified intermediary that assumes pri-mary withholding responsibility, with-holding foreign partnership, or withhold-ing foreign trust) as described in section6.02 of this Agreement. However, QI thatis acting as a QDD must assume primarywithholding responsibility to the extentrequired under section 3.03(B) of thisAgreement. Notwithstanding its electionnot to assume primary withholding re-sponsibility under chapters 3 and 4, QIshall, however, withhold the differencebetween the amount of withholding re-quired under chapter 3 or 4 and theamount actually withheld by another with-holding 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 to

provide 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. QI is not required to withhold on anamount that it pays to another qualifiedintermediary that has assumed primarywithholding responsibility with respect tothe payment or to a withholding foreignpartnership or withholding foreign trust.See section 8 of this Agreement regardingQI’s responsibility to report amounts sub-ject to withholding under chapter 3 or 4 onForm 1042–S.

Sec. 3.03. Assumption of PrimaryChapters 3 and 4 WithholdingResponsibility.

(A) In General. QI, upon notification toa withholding agent, may assume primarywithholding responsibility for purposes ofchapters 3 and 4 by providing a validwithholding certificate described in sec-tion 6 of this Agreement to a withholdingagent that makes a payment of U.S. sourceFDAP income to QI and by designatingon the withholding statement associatedwith such certificate the account(s) forwhich QI assumes primary withholdingresponsibility. QI may assume primarywithholding responsibility without in-forming the IRS. QI is not required toassume primary withholding responsibil-ity for all accounts it holds with the with-holding agent. If QI assumes primarywithholding responsibility for any ac-count, it must assume that responsibilityunder chapters 3 and 4 for all withhold-able payments and amounts subject tochapter 3 withholding made by the with-holding agent to that account. QI mayassume primary withholding responsibil-ity for U.S. source FDAP payments ofsubstitute interest as described in § 1.861–2(a)(7). If QI assumes primary withhold-ing responsibility for payments of substi-tute 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 this

Agreement 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, orcollateral that it holds in connection withits activities as a dealer in securities. As aresult, QI may represent its status as aqualified intermediary on the withholdingcertificate described in section 6.01 of thisAgreement with respect to payments itreceives of interest and substitute interestdescribed in the preceding sentence re-gardless of whether it acts as an interme-diary or as a principal with respect tothese 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 qualifiedintermediary that has assumed primarywithholding responsibility with respect tothe payment (including a qualified inter-mediary acting as a QDD) or to a with-holding foreign partnership or a withhold-ing foreign trust. See section 8 of thisAgreement regarding QI’s responsibilityto report amounts subject to withholdingon Form 1042–S.

(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)). AQDD must also assume primary chapter 3and chapter 4 withholding responsibilityfor payments made with respect to a po-tential section 871(m) transaction even ifthe payment is not a dividend equivalent ifthe amount paid is an amount subject tochapter 3 or 4 withholding. A QDD is notrequired to withhold under chapter 3 or 4on amounts it pays to another qualifiedintermediary that has assumed primarywithholding responsibility with respect tothe payment, or to a withholding foreignpartnership or a withholding foreign trust.See section 8 of this Agreement regardingQDD’s responsibility to report dividendequivalent payments and other amountssubject to withholding on Form 1042–S.

July 18, 2016 Bulletin No. 2016–2982

Sec. 3.04. Backup Withholding UnderSection 3406 and Form 1099Reporting Responsibility.

(A) Backup Withholding. QI is a payorunder section 3406 with respect to report-able payments. Under section 3406, un-less an exception to backup withholdingapplies, a payor is required to deduct andwithhold 282 percent from a reportablepayment to an account holder that is aU.S. non-exempt recipient if the U.S. non-exempt recipient has not provided its U.S.TIN in the manner required under thatsection; the IRS notifies the payor that theU.S. TIN furnished by the payee is incor-rect; 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 participating FFIor 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 Payments

Other Than Reportable Amounts. QI isresponsible for reporting on Form 1099and backup withholding on reportablepayments other than reportable amountsto the extent required under this section3.05 and 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, however, § 31.3406(g)–1(e) pro-viding that a payor (irrespective ofwhether the payor is a U.S. or non-U.S.payor) is not required to backup withholdunder section 3406 on a reportable pay-ment that is paid and received outside theUnited States with respect to an offshoreobligation or on gross proceeds from asale effected outside the United States,unless the payor has actual knowledgethat 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 2.75(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 2.75(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 qualifiedintermediary to report on Form 1099 and,if required, backup withhold with respectto broker proceeds from a sale that iseffected at an office outside the UnitedStates (as defined in § 1.6045–1(g)(3)(iii))that QI is otherwise required to reportunder section 3.05(A) and section 8.05 ofthis Agreement, provided the other payoractually receives the broker proceeds. Insuch a case, QI will not be responsible forprimary Form 1099 reporting and backupwithholding with respect to broker pro-ceeds, provided that the other payoragrees to do the reporting and backupwithholding and QI provides all of theinformation necessary for the other payorto properly report and backup withhold.QI, however, remains responsible for pri-mary Form 1099 reporting and backupwithholding if the other payor does notagree to report and backup withhold, or ifQI knows that the other payor failed to doso. If, however, QI is a participating FFIor registered deemed-compliant FFI(other than a reporting Model 1 FFI) thatreports an account on Form 1099 in orderto satisfy its U.S. account reporting re-quirement under chapter 4, as described insection 8.04 of this Agreement, QI is re-sponsible for reporting on Form 1099 withrespect to reportable payments made tosuch U.S. account and must report in themanner described in the FFI Agreement.

(D) Special Procedure for QDDs. QIacting as a QDD must assume primaryForm 1099 reporting and backup with-holding responsibility for any paymentsmade with respect to a potential section871(m) transaction that are reportablepayments. Thus, for example, if QI acts asa 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). See also section8.03(C) of this Agreement for a QDD’sForm 1042–S reporting requirements for aqualifying dividend equivalent offsettingpayment (notwithstanding the limitationin section 2.70(B) of this Agreement).

2See 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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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, if required, backup withhold withrespect to a reportable amount if QI doesnot assume primary Form 1099 reportingand backup withholding responsibilityand it provides a payor from which itreceives a reportable amount the FormsW–9 of its U.S. non-exempt recipient ac-count holders (or, if a U.S. non-exemptrecipient fails to provide a Form W–9,information regarding the account hold-er’s name, address, and U.S. TIN, if a U.S.TIN is available) together with the with-holding rate pools (as defined in section6.03(D) of this Agreement) attributable toU.S. non-exempt recipient account hold-ers so that such payor may report on Form1099 and, if required, backup withhold. IfQI elects to backup withhold on withhold-able payments that are also reportableamounts made to recalcitrant accountholders that are also U.S. non-exempt re-cipients, QI shall not be required to reporton Form 1099 and backup withhold withrespect to a reportable amount if it pro-vides a payor from which it receives areportable amount information regardingsuch recalcitrant account holders. See sec-tion 6.03 of this Agreement and section 4of the FFI Agreement. If QI reports itsU.S. accounts on Forms 1099 under itsFATCA requirements as a participatingFFI or registered deemed-compliant FFI,see section 8.04(A) of this Agreementproviding that QI cannot delegate to awithholding agent its requirement to re-port its U.S. accounts. See sections 3.04and 8.06 of this Agreement for QI’s obli-gations regarding Form 1099 reportingand backup withholding with respect toreportable amounts and see also section6.03 of this Agreement for when QI mayprovide a chapter 4 withholding rate poolof U.S. payees. If QI elects not to assumeprimary Form 1099 reporting and backupwithholding responsibility, QI must pro-vide the withholding agent with such in-formation regarding any account holdersor interest holders of an intermediary orflow-through entity that holds an accountwith QI. See also sections 3.05(D) and3.07 of this Agreement requiring a QI

acting as a QDD for payments with re-spect to potential section 871(m) transac-tions to assume primary Form 1099 andbackup withholding responsibility forsuch amounts. Notwithstanding its elec-tion not to assume primary Form 1099reporting and backup withholding respon-sibility, QI shall backup withhold and re-port a reportable amount to the extentrequired under sections 3.04 and 8.06 ofthis 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 applied backupwithholding to a reportable amount be-cause of an error made by QI (e.g., QIfailed to provide the other payor with in-formation regarding the name, address,U.S. TIN (if available), and withholdingrate pool for a U.S. non-exempt recipientaccount holder subject to backup with-holding, including a failure to provide in-formation regarding any account holdersor interest holders of an intermediary orflow-through entity that holds an accountwith QI to the extent required in section 6of this Agreement).

QI is not required to backup withhold,however, on a reportable amount that QImakes to a withholding foreign partner-ship, withholding foreign trust, or anotherqualified intermediary that has assumedprimary Form 1099 reporting and backupwithholding responsibility with respect tothe payment. QI is also not required tobackup withhold on a reportable amountthat QI makes to an intermediary or flow-through entity that is a participating FFI,registered deemed-compliant FFI, or an-other qualified intermediary that does notassume primary Form 1099 reporting andbackup withholding responsibility withrespect to the payment provided that suchintermediary or flow-through entity allo-cates the payment on its withholdingstatement to a chapter 4 withholding ratepool of U.S. payees and the withholdingstatement is associated with a valid FormW–8IMY that provides the applicablecertification(s) for allocating the paymentto this pool or allocates the payment on itswithholding statement to a chapter 4 with-holding rate pool of recalcitrant accountholders. See section 3.05 of this Agree-ment for backup withholding responsibil-

ity for reportable payments other than re-portable amounts. See section 8.06 of thisAgreement regarding QI’s responsibilityto report reportable payments on Form1099.

Sec. 3.07. Assumption of PrimaryForm 1099 Reporting and BackupWithholding Responsibility. QI may as-sume primary Form 1099 reporting re-sponsibility and primary backup with-holding responsibility with respect toreportable amounts without approval fromthe IRS. See sections 3.04 and 8.06 of thisAgreement for QI’s obligations regardingForm 1099 reporting and backup with-holding with respect to reportableamounts. QI that assumes such responsi-bility is subject to all of the obligationsimposed by chapter 61 and section 3406,as modified by this Agreement, and QIshall be subject to any applicable penaltiesfor failure to meet those obligations. QIshall inform a payor from which it re-ceives a reportable amount that it has as-sumed primary Form 1099 reporting andbackup withholding responsibility by pro-viding the payor with a valid withholdingcertificate described in section 6 of thisAgreement and by designating on thewithholding statement associated withsuch certificate the account(s) for whichQI assumes primary Form 1099 reportingand backup withholding responsibility. QImay assume primary Form 1099 reportingand backup withholding responsibilitywithout informing the IRS.

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 withrespect to any payment made with respectto a potential section 871(m) transaction,provided that the amount is a reportablepayment. In addition, if QI is assumingprimary withholding responsibility forpayments of substitute interest (as de-scribed in section 3.03(A) of this Agree-ment), it must assume primary Form 1099

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reporting and backup withholding respon-sibility with respect to all such payments.

QI shall not be required to backupwithhold on a reportable amount it makesto a withholding foreign partnership, with-holding foreign trust, or another qualifiedintermediary that has assumed primaryForm 1099 reporting and backup with-holding responsibility with respect to thereportable amount. QI is also not requiredto 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 qualified intermediary thatdoes not assume primary Form 1099 re-porting and backup withholding responsi-bility with respect to the payment pro-vided that such intermediary or flow-through entity allocates the payment on itswithholding statement to a chapter 4 with-holding rate pool of U.S. payees and thewithholding statement is associated with avalid Form W–8IMY that provides theapplicable certification(s) for allocatingthe payment to this pool or allocates thepayment on its withholding statement to achapter 4 withholding rate pool of recal-citrant account holders. See section 8 ofthis Agreement regarding QI’s responsi-bility to report reportable payments onForm 1099.

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 4 orsection 3406 at the time and in the mannerprovided under section 6302 (see§ 1.6302–2) by electronic funds transferas provided under § 31.6302–1(h). If QI isa non-U.S. payor that does not assumeprimary withholding responsibility underchapters 3 and 4 or primary Form 1099reporting and section 3406 backup with-holding responsibility, QI must depositamounts withheld by the 15th day follow-ing the month in which the withholdingoccurred.

If QI is acting as a QDD, it must alsomake deposits with respect to its QDD taxliability. At the time the QDD determinesthat it has a QDD tax liability (as de-scribed in section 3.09(D) of this Agree-ment), it must deposit any tax for which itis liable at the time and in the manner

provided under section 6302 (see§ 1.6302–2) (substituting the term “QDD”for “withholding agent” and “sections871(a) and 881” for “chapter 3” and “dueunder sections 871 and 881” for “withheldpursuant to chapter 3”) by electronicfunds transfer as provided in § 31.6302–1(h). See section 3.09(D) of this Agree-ment for the timing for determining theQDD tax liability. The deposit require-ments under section 6302 and § 1.6302–2apply separately to amounts due for aQDD’s QDD tax liability and anyamounts withheld under chapters 3 and 4.

Sec. 3.09. QDD Tax Liability. In ad-dition to satisfying its withholding tax li-ability as described in this Agreement, aQDD must satisfy its QDD tax liability.The QDD’s QDD tax liability is the sumof its tax liability under sections 871(a)and 881, if any, for:

(A) its section 871(m) amount (as de-fined in section 2.79 of this Agreement)for amounts received and made as a QDDin its dealer capacity;

(B) its dividends that are not on under-lying securities associated with potentialsection 871(m) transactions and its divi-dend equivalent payments received as aQDD in its non-dealer capacity; and

(C) any payments, such as interest, re-ceived as a QDD with respect to potentialsection 871(m) transactions or underlyingsecurities that are not dividend or divi-dend equivalent payments.

A QDD that is a foreign branch of aU.S. financial institution does not have aQDD tax liability and is not required toreport such liability on Form 1042. In-stead, such a QDD must determine andreport its tax liability in accordance withchapter 1 and the appropriate income taxreturn filing obligations for the U.S. cor-poration.

(D) Timing for Determining QDDTax Liability. A QDD must determine itsQDD tax liability due under sections3.09(A) and (B) for each underlying secu-rity and section 871(m) transaction on thedate that a dividend is paid on the under-lying security, as provided in § 1.1441–2(e)(4). A QDD must determine its QDDtax liability due under section 3.09(C) atthe time such payments are made, as pro-vided in § 1.1441–2(e).

See section 7.01(C) of this Agreementregarding QI that is acting as a QDD’s

responsibility to report on Form 1042 itsQDD tax liability and to maintain a rec-onciliation schedule for its section 871(m)amount and other amounts related to itsQDD 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 section4.03 of this Agreement. QI, however,when acting as a QDD may not enter intoa private arrangement under this section4.01 with any account holder for which itacts as a QDD. The agreement between QIand the other intermediary shall be be-tween QI and all the offices of the otherintermediary located in a specified juris-diction. The specified jurisdiction must beone for which this Agreement is available(i.e., IRS has approved the know-your-customer practices). Such an intermediaryis referred to in this Agreement as a pri-vate arrangement intermediary (PAI). Byentering into a PAI agreement, QI is notassigning its liability for the performanceof any of its obligations under this Agree-ment. Therefore, QI shall remain liable forany tax, penalties, interest, and any othersanctions that may result from the failureof the PAI to meet any of the obligationsimposed by its agreement with QI. QIagrees not to assert any defenses againstthe IRS for the failures of the PAI or anydefenses that the PAI may assert againstQI. For purposes of this Agreement, thePAI’s actual knowledge or reason to knowof facts relevant to withholding or report-ing shall be imputed to QI. QI’s liabilityfor the failures of the PAI shall apply eventhough the PAI is itself a withholdingagent under chapters 3 and 4 and a payorunder chapter 61 and section 3406 and isitself separately liable for its failure tomeet its obligations under the Code. Not-withstanding the foregoing, QI shall notbe liable for tax, interest, or penalties forfailure to withhold and report under chap-ters 3, 4, and 61 and section 3406 unlessthe underwithholding or the failure to re-

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port amounts correctly on Forms 945,1042, 1042–S, 1099, or 8966 is due toQI’s or its PAI’s failure to properly per-form its obligations under this Agreement.The PAI is not required to enter into anagreement with the IRS but must respond(either directly or through QI) to IRS in-quiries related to its compliance describedin section 10.08 of this Agreement. TheIRS may, however, in its sole discretion,refuse to permit an intermediary to oper-ate as a PAI by providing notice to QI atthe address provided in section 12.06 ofthis Agreement. QI may, however, appealthe IRS’s determination by following thenotice and cure provisions in section11.06 of this Agreement. For purposes ofthis Agreement, an intermediary shall beconsidered a PAI only if the followingconditions are met:

(A) The PAI is a certified deemed-compliant FFI (other than a registereddeemed-compliant Model 1 IGA FFI) thatacts as an intermediary with respect toreportable amounts and has provided QIwith a certification that it has maintainedsuch certified deemed-compliant FFI sta-tus during each certification period;

(B) The PAI does not act as an inter-mediary for a direct account holder that isa qualified intermediary, withholding for-eign trust, withholding foreign partner-ship, participating FFI, registereddeemed-compliant FFI, or a registereddeemed-compliant Model 1 IGA FFI;

(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 re-quirements applicable to its chapter 4 sta-tus as a certified deemed-compliant FFI,as modified by sections 4.02 and 4.03 ofthis Agreement, and is not required tofulfill QI’s FATCA requirements as a par-ticipating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI;

(E) QI identifies the PAI on theFATCA registration website before thefirst payment for which the PAI is oper-ating under the PAI agreement;

(F) PAI agrees, to the extent necessaryfor QI to satisfy its compliance obliga-

tions (e.g., if QI does not receive a waiverdescribed in section 10.07 of this Agree-ment), either to provide its documentationand other information to QI for inclusionin QI’s periodic review described in sec-tion 10.04 of this Agreement or to conductan independent periodic review in accor-dance with the procedures described insection 10.05 of this Agreement, and pro-vide QI with the certification required un-der section 10.03 of this Agreement foreach certification period in order to allowthe responsible officer of QI to make acertification to the IRS regarding PAI’scompliance, and agrees to respond (eitherdirectly or through QI) to IRS inquiriesregarding its periodic review described insection 10.08 of this Agreement, includ-ing providing the QI and the IRS with theperiodic review report described in sec-tion 10.06 of this 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 requirements forcertified deemed-compliant status, andupon such notification, the agreement be-tween the PAI and QI will terminate.

Sec. 4.02. Modification of Obligationsfor PAI Agreements.

(A) Payments Reportable under Chap-ters 3 and 4. The agreement between QIand a PAI must provide that QI shallreport all payments of amounts subject tochapter 3 or 4 withholding made by thePAI on QI’s Forms 1042 and 1042–S as ifQI had made the payments directly to thePAI’s account holders. Therefore, QI shallreport payments made to each of the fol-lowing types of a PAI’s account holdersas 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-

July 18, 2016 Bulletin No. 2016–2986

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 and1099 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 Agreement. QI shall require a PAI toprovide QI with all the information nec-essary for QI to meet its obligations underthis Agreement. No provisions shall becontained 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 assume

primary 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 hascured 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 FATCAregistration website.

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, however,when acting as a QDD, may not enter intoan agreement under this section 4.05 witha nonwithholding foreign partnership ornonwithholding foreign trust accountholder for which it acts as a QDD. QI anda partnership or trust that apply this sec-tion 4.05 to any calendar year must applythese rules to the calendar year in its en-tirety. QI and the partnership or trust maynot apply this section 4.05 to any calendaryear in which the partnership or trust hasfailed to make available to QI or QI’sreviewer the records described in this sec-tion 4.05(A) within 90 days after theserecords are requested, and the partnershipor trust must waive any legal prohibitionsagainst providing such records to QI. Ifthe partnership 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 require-ments of this section 4.05, QI must applythe provisions of §§ 1.1441–1(c) and1.1441–5(e) to the partnership or trust as anonwithholding foreign partnership ornonwithholding foreign trust, must correctits withholding for the period during

which the failure occurred in accordancewith section 9.05 of this Agreement, andcannot apply this section 4.05 to subse-quent calendar years. QI and a partnershipor trust 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), anowner-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 duringeach 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(which would include a nonparticipatingFFI and certain passive NFFEs); 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 provides

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information for all partners, beneficiaries,or owners together with valid Forms W–8or, in the case of a partnership or trust thatis a certified deemed-compliant FFI, doc-umentary evidence listed in the know-your-customer (KYC) attachment to thisAgreement from each partner, beneficiary,or owner, and, for a withholdable pay-ment, documentation that meets the re-quirements of § 1.1471–3(d) to establishthe partner’s, beneficiary’s, or owner’schapter 4 status. The withholding state-ment need not provide any allocation in-formation.

(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 QI’s chapter 3 reporting pool. IfQI has already filed a Form 1042–S andincluded 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 under section4.05(A)(5) of this Agreement to makeavailable to QI or QI’s reviewer the re-cords that substantiate the allocation in-formation included in its withholdingstatement.

(5) QI may not include any paymentsmade to a partnership or trust to which QI

is 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. QI may enteran agreement with a nonwithholding for-eign partnership or nonwithholding for-eign trust that is either a simple or grantortrust described 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 thepartners, beneficiaries, or owners. QI,however, when acting as a QDD may notenter an agreement under this section 4.06with any account holder for which it actsas a QDD. By entering into an agreementwith a partnership or trust as described inthis section 4.06, QI is not assigning itsliability for the performance of any of itsobligations under this Agreement. QI andthe partnership or trust to which QI ap-plies the rules of this section 4.06 arejointly and severally liable for any tax,penalties, and interest that may result fromthe failure of the partnership or trust tomeet any of the obligations imposed by itsagreement with QI. QI and a partnershipor trust that applies the agency option toany calendar year must apply these rulesto the calendar year in its entirety. Gener-ally, QI and a partnership or trust thatapplies the agency option to any calendaryear is not required to apply the agencyoption to subsequent calendar years. If,however, QI withholds and reports anyadjustments required by corrected infor-mation in a subsequent calendar year un-der section 4.06(B)(2) of this Agreement,QI must apply the agency option to thatcalendar year in its entirety. QI and apartnership or trust may not apply theagency option to any calendar year whenthe partnership or trust has failed to makeavailable to QI or QI’s reviewer the re-cords described in section 4.06 of thisAgreement within 90 days after these re-cords are requested, and the partnership ortrust must waive any legal prohibitionsagainst providing such records to QI. If,for any calendar year, the partnership ortrust has failed to make these recordsavailable within the 90-day period, or ifQI and the partnership or trust fail tocomply with any other requirement of this

section 4.06, QI must apply §§ 1.1441–1(c) and 1.1441–5(e) to the partnership ortrust as a nonwithholding foreign partner-ship or nonwithholding foreign trust, mustcorrect its withholding for the period inwhich the failure occurred in accordancewith section 9.05 of this Agreement, andcannot apply the agency option to subse-quent calendar years.

(A) A partnership or trust is describedin this section 4.06(A) of this Agreementif the following conditions are met:

(1) The partnership or trust is either adirect account holder of QI or an indirectaccount 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 awithholding foreign trust, withholdingforeign partnership, participating FFI, reg-istered deemed-compliant FFI, registereddeemed-compliant Model 1 IGA FFI, oranother qualified intermediary acting asan intermediary for a payment made by QIto the partnership or trust.

(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.

(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.

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The withholding statement may includechapter 3 withholding rate pools describedin section 6.03 of this Agreement 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 withhold-ing statement may be based on a reasonableestimate of the partner’s, beneficiary’s, orowner’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 otherwise

provided 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, bene-ficiary, or owner of the partnership or trustthat is a nonqualified intermediary or for-eign flow-through entity, QI shall reportpayments of amounts subject to chapter 4withholding in a chapter 4 withholdingrate pool of nonparticipating FFIs usingthe chapter 4 reporting pool for such part-ner, beneficiary, or owner with the non-qualified intermediary or foreign flow-through entity reported as the recipient,and QI shall report payments of amountssubject to chapter 3 withholding for whichno 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 1099

to 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, owners of the part-nership 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 require-ments under chapter 4 as a certified deemed-compliant FFI, owner-documented FFI,NFFE, or exempt beneficial owner. Further,nothing in the agreement between QI andthe partnership or trust shall permit the part-nership or trust to assume primary chapters3 and 4 withholding responsibility or pri-mary Form 1099 reporting and backupwithholding responsibility.

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SECTION 5. DOCUMENTATIONREQUIREMENTS

Sec. 5.01. DocumentationRequirements.

(A) Coordination of DocumentationRequirements with Chapter 4. (1) QIthat is an FFI. If QI is an FFI, QI isrequired to perform the due diligence pro-cedures for each account holder for whomQI is acting under its FATCA require-ments as a participating FFI, registereddeemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI todetermine if the account is a U.S. account(or U.S. reportable account) and each ac-count holder that is a nonparticipating FFIand, if applicable, recalcitrant accountholder (or non-consenting U.S. account).See QI’s FATCA requirements as a par-ticipating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI to performdue diligence with respect to each accountthat it maintains. If an account holder re-ceiving the payment is not the payee, QI isalso required to establish the chapter 4status of the payee or payees to determinewhether withholding applies under chap-ter 4. See section 5.13(B)(1) of thisAgreement for the requirements for QI toreliably associate a withholdable paymentwith a Form W–8IMY for chapter 4 pur-poses. To the extent an account holderreceives a payment with respect to whichQI has 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, which modifies the time inwhich QI is required to implement theapplicable due diligence procedures under

its FATCA 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 61.Thus, the allowance in this section 5 forQI to obtain documentary evidence doesnot apply if QI is an NFFE. QI may,however, obtain appropriate documentaryevidence as additional documentation toestablish the foreign status of an accountholder. See § 1.1471–3(e)(4) for when QIwill have reason to know that an entity’sclaim of chapter 4 status is unreliable orincorrect and § 1.1471–3(c)(6)(ii)(E) forQI’s requirements following a change incircumstances.

(B) 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. If QI is anFFI obtaining documentary evidence, QIalso agrees 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.Unless QI can reliably associate a report-able payment with valid documentationfrom the account holder under section5.13(B) of this Agreement, QI shall applythe presumption rules described in section5.13(C) of this Agreement to any accountholder that receives a reportable paymentto determine if withholding is requiredunder chapter 3 or 4 or if backup with-holding is required under section 3406. Asset forth in section 11.06 of this Agree-ment, failure to obtain documentationfrom a significant number of direct ac-count holders constitutes an event of de-

fault. QI agrees to review and maintaindocumentation in accordance with thissection 5 and, in the case of documentaryevidence obtained from direct accountholders, in accordance with the know-your-customer rules set forth in the At-tachments to this Agreement. QI alsoagrees, if the performance of an externalreview is requested by IRS as described insection 10.08(D) of this Agreement, tomake documentation (together with anyassociated withholding statements andother documents or information) availableupon request for inspection by QI’s exter-nal reviewer. QI represents that none ofthe laws to which it is subject prohibitsdisclosure of the identity of any accountholder or account information to QI’s ex-ternal reviewer. QI may rely on the doc-umentation it obtains under this section 5as the basis for the information it providesto another withholding agent under sec-tion 6 of this Agreement, as well as todetermine its own withholding, tax, andreporting obligations.

(C) QI that is a QDD. If QI is actingas a QDD, QI is required to apply the rulesof this section 5 to each account holder ofan account for which it is acting as a QDDand to which it makes a reportable pay-ment or a payment of a qualifying divi-dend equivalent offsetting payment (not-withstanding the limitation in section2.70(B) of this Agreement) in accordancewith the applicable requirements in sec-tion 5.01(A) and (B) of this Agreement.

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, as described in section2.20 of this Agreement, 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 not

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reduce 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 the indirect ac-count holder’s entitlement to a reducedrate of withholding under chapter 3 andestablishes that withholding does not ap-ply under chapter 4 in the case of a with-holdable payment made to the accountholder. See section 5.13(B) of this Agree-ment for rules regarding reliable associa-tion with documentation.

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 accompanying the treatystatement as described in section 5.03(B)of this Agreement. For accounts main-tained by QI prior to January 1, 2017 thatwere documented with documentary evi-dence and for which treaty benefits arebeing claimed, QI is required to obtain theappropriate limitation on benefits state-ment prior to January 1, 2019.

(A) Treaty Documentation. The doc-umentation 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 or

foreign 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-customer rules that apply to the accountholder and the account holder, if it is anentity, has made the treaty statement (ifapplicable) required by section 5.03(B) ofthis Agreement; 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.

The treaty statement must also includea written certification that the entity meetsthe appropriate limitation on benefits cer-tification as described on FormW–8BEN-E and its accompanying in-structions and that specifies the categoryof the limitation on benefits provision thatthe entity meets. QI is only required toobtain the treaty statement required bythis section 5.03(B) from an accountholder that is an entity. QI shall not berequired to obtain a treaty statement re-quired by this section 5.03(B) from anindividual who is a resident of an appli-cable treaty country or from the govern-ment, or its political subdivisions, of atreaty country.

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 as

an international organization entitled to anexemption from withholding under sec-tion 892 unless the name provided on thedocumentation (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 a

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reduced 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 theextent 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, as described in this section5.07, QI must apply the rules of this sec-tion 5 to determine the validity of suchdocumentation.

(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 re-liably associate the payment, within themeaning of section 5.13(B) of this Agree-ment, with a withholding statement thatmeets the requirements of § 1.1471–3(c)(iii)(B) that includes the account hold-ers or interest holders of the intermediaryor flow-through entity in chapter 4 with-holding rate pools to the extent permittedor with valid documentation described inthis section 5 provided by account holdersor interest holders of the intermediary orflow-through entity that are not themselvesnonqualified intermediaries or flow-throughentities and that QI can treat as not subject towithholding 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 a withholdablepayment made to a nonqualified intermedi-ary or flow-through entity (other than awithholding foreign partnership or with-holding foreign trust)—

(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, within the meaning of section5.13(B) of this Agreement, with a chapter4 withholding rate pool of U.S. payees orvalid documentation described in this sec-tion 5 provided by account holders or in-terest holders of the nonqualified interme-diary or flow-through entity that are notthemselves nonqualified intermediaries orflow-through entities.

(C) Reportable Payments Made toQualified Intermediaries and With-holding Foreign Partnerships andWithholding Foreign Trusts. With re-spect to a reportable payment made to aqualified intermediary, a withholding for-eign partnership, or a withholding foreigntrust, QI receives a valid Form W–8IMYprovided by the qualified intermediary,withholding foreign partnership, or with-holding foreign trust that includes the en-tity’s chapter 4 status for a payment that isa withholdable payment and, for thosepayments for which a qualified intermedi-ary has not assumed primary chapters 3and 4 withholding responsibility or pri-mary Form 1099 reporting and backupwithholding responsibility, QI can reli-ably associate the payment with withhold-ing rate pools, as described in section 6.03of this Agreement.

(D) Payments Made to Qualified In-termediaries Acting as QDDs. For pay-ments with respect to potential section871(m) transactions or underlying securi-ties made to a qualified intermediary act-ing as a QDD, if QI receives a valid FormW–8IMY provided by the qualified inter-mediary acting as a QDD that includes thequalified intermediary’s chapter 4 statusand the required certification that the qual-ified intermediary is acting as a QDD andassumes primary withholding responsibil-ity for such payments, then QI can reliablyassociate the payments as made to thequalified intermediary acting as a QDD.

(E) Private Arrangement Intermedi-aries. If QI has an agreement with a PAI

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(see section 4.01 of this Agreement), QIobtains 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) Partnership 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 (see section4.06 of this Agreement), QI obtains fromthe partnership or trust a Form W–8IMYcompleted as if the partnership or trustwere a QI (with the exception that thepartnership or trust must not provide aQI-EIN on the Form W–8IMY) and QIcan reliably associate the payment with awithholding statement, as described insection 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 recipientunless QI obtains from the account holder—

(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 from the account holder, QIknows an account holder is a U.S. non-exempt recipient, or QI must presume aperson is a U.S. non-exempt recipient tothe extent required under section 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 as described insection 5.10(B) or 5.10(C) of this Agree-ment, that there is a change in circum-stances with respect to the information orstatements contained in the documenta-tion or account information that affectsthe reliability of the account holder’sclaim. See § 1.1441–1(e)(4)(ii)(D) for thedefinition of change in circumstances forchapter 3 purposes. A change in circum-stances affecting withholding informa-tion, including allocation information orwithholding rate pools contained in awithholding statement, will also cause thedocumentation provided with respect tothat information to no longer be reliable.Once QI knows, or has reason to know, thatdocumentation provided by an accountholder is unreliable or incorrect to establishforeign status or residency for purposes ofclaiming benefits under an applicable in-come tax treaty, it can no longer reliablyassociate a payment with valid documenta-tion unless QI obtains the additional docu-mentation described in this section 5.10.With respect to a beneficial owner claimingbenefits under an applicable income taxtreaty, QI cannot rely on the account hold-er’s claim of which limitation on benefitsprovision it satisfies if QI has actual knowl-edge that such claim is incorrect. QI will beconsidered to have reason to know that aclaim for treaty benefits is unreliable orincorrect if the documentation providedby the account holder claims benefits un-der a treaty that does not exist or is not inforce (i.e., if the country is not included onthe list maintained at https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z). The rulein the preceding sentence will apply to

pre-existing accounts for which QI heldvalid documentation upon a change in cir-cumstances or, with respect to a pre-existing entity account, when it provides awritten limitation on benefits statement(as described in section 5.03(B) of thisAgreement). For all new accounts, thisrule will apply on account opening. Forpurposes of this section 5.10(A), a “pre-existing account” or “pre-existing entityaccount” is an account documented by QIprior to January 1, 2017, for a QI with aQI Agreement in effect prior to that date.For a QI that did not have a QI Agreementin effect prior to January 1, 2017, a “pre-existing account” or “pre-existing entityaccount” means an account maintained(and for which QI has valid documenta-tion) prior to the effective date of its QIAgreement.

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 3and 4, QI agrees that it will promptlyprovide a withholding agent with cor-rected information (e.g., corrected with-holding rate pools, corrected Forms W–9,or corrected U.S. TINs) within 30 daysafter QI knows or has reason to know thatthe documentation upon which it has re-lied is unreliable or incorrect. If QI re-ceives notification from the IRS that doc-umentation provided by an account holderis unreliable or incorrect (e.g., that theU.S. TIN provided by an account holder isincorrect), QI shall follow the proceduresset forth 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 if one or more of the circum-stances described in this section 5.10(B)

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applies. If an account holder has provideddocumentation that is unreliable or incor-rect under the rules of this section5.10(B), QI must request new documen-tation. Notwithstanding the precedingsentence, QI may rely on the documenta-tion originally provided if the rules of thissection 5.10(B) permit such reliance andQI obtains the additional statements anddocumentation described in this section5.10(B). If QI is an NFFE that is requiredto collect Forms W–8, see § 1.1441–7(b)(2) for when QI shall be considered tohave reason to know that a withholdingcertificate provided by a direct accountholder is unreliable or incorrect.

(1) General Rules.

(i) QI shall not rely on a Form W–9 ifit is not permitted to do so under the rulesof § 31.3406(h)–3(e) and shall not rely ona Form W–8 if it is not permitted to do sounder the rules of § 1.1441–7(b)(4)through (6) except as otherwise providedin this section 5.10(B).

(ii) QI shall not treat documentary ev-idence provided by an account holder asvalid if the documentary evidence doesnot reasonably establish the identity of theperson presenting the documentary evi-dence. For example, documentary evi-dence is not valid if it is provided inperson by an account holder that is a nat-ural person and the photograph on thedocumentary evidence, if any, does notmatch the appearance of the person pre-senting the document.

(iii) QI may not rely on documentationto reduce the withholding rate that wouldotherwise apply if—

(a) The account holder’s documenta-tion is incomplete or contains informationthat is inconsistent with the account hold-er’s claim;

(b) QI has other account informationthat is inconsistent with the account hold-er’s claim; or

(c) The documentation lacks the infor-mation necessary to establish entitlementto a reduced rate of withholding.

For example, if an account holder is anentity and provides documentary evidenceto claim treaty benefits and the documen-tary evidence establishes the accountholder’s status as a foreign person and aresident of a treaty country but fails toprovide the treaty statement in section

5.03 of this Agreement, the documentaryevidence does not establish the accountholder’s entitlement to a reduced rate ofwithholding. However, for purposes of es-tablishing an account holder’s status as aforeign person or residency under an in-come tax treaty, documentation shall beconsidered inconsistent only if it is unre-liable or incorrect under the rules of sec-tion 5.10(B)(2) or (3) of this Agreement.

(2) Rules Regarding Establishmentof Foreign Status.

(i) QI shall not treat documentary evi-dence provided by an account holder be-fore January 1, 2001, as valid for purposesof establishing an account holder’s statusas a foreign person if QI has actual knowl-edge that the account holder is a U.S.person or if it has a current mailing orcurrent residence address for the accountholder in the United States.

(ii) QI shall not treat documentationprovided by an account holder after De-cember 31, 2000, as valid for purposes ofestablishing the account holder’s foreignstatus if QI classified the account holderas a U.S. person in its account informa-tion, or if it does not have a permanentresidence address for the account holder.Further, QI shall not treat documentationprovided with respect to an account asvalid for purposes of establishing an ac-count holder’s status as a foreign person ifQI has a current mailing or permanentresidence address (whether or not on thedocumentation) for the account holder inthe United States, or if QI has a currenttelephone number for the person in theUnited States and has no telephone num-ber for the person outside of the UnitedStates (except with respect to a preexist-ing obligation (as defined in § 1.1441–1(c)(54)) to the extent the QI documentedthe foreign status of the account holder forpurposes of chapter 3 or 61 before July 1,2014). The limit on reason to know de-scribed in the preceding sentence with re-spect to a preexisting account documentedbefore July 1, 2014, shall not apply, how-ever, if QI is notified of a change in cir-cumstances and as of the date of suchnotification QI shall not treat such docu-mentation as valid for purposes of estab-lishing the account holder’s foreign status.

If QI has classified the account holderas a U.S. person or has an address or soletelephone number for the account holder

in the United States, QI may neverthelesstreat an account holder that is an individ-ual as a foreign person if QI—

(a) Has in its possession, or obtains,additional documentary evidence (whichdoes not contain a U.S. address) support-ing the claim of foreign status and a rea-sonable explanation in writing supportingthe account holder’s foreign status (as de-fined in § 1.1441–7(b)(12));

(b) Obtains a valid Form W–8, and theForm W–8 contains a permanent resi-dence address outside the United Statesand a mailing address, if any, outside theUnited States (or if a mailing address isinside the United States, the accountholder provides a reasonable explanationin writing supporting the account holder’sforeign status); or

(c) Has classified the account holder asa resident of the country in which theaccount is maintained; QI is required toreport a payment made to the accountholder annually on a tax information state-ment that is filed with the tax authority ofthe country in which the office that main-tains the account is located as part of thecountry’s resident reporting requirements;and that country has a tax informationexchange agreement or an income taxtreaty in effect with the United States.

If QI has classified the account holderas a U.S. person or has an address or soletelephone number for the account holderin the United States, QI may neverthelesstreat an account holder that is an entity(other than a flow-through entity) as aforeign person if QI—

(d) Has in its possession, or obtains,documentary evidence that substantiatesthat the entity is actually organized orcreated under the laws of a foreign country;

(e) Obtains a valid Form W–8, and theForm W–8 contains a permanent resi-dence outside the United States and amailing address, if any, outside the UnitedStates (or if a mailing address is inside theUnited States, the account holder providesadditional documentary evidence suffi-cient to establish the account holder’s for-eign status); or

(f) Has classified the entity as a resi-dent of the country where the account ismaintained; QI is required to report a pay-ment made to the account holder annuallyon a tax information statement filed withthe tax authority of the country in which

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the office that maintains the account islocated as part of the country’s residentreporting requirements; and that countryhas a tax information exchange agreementor an income tax treaty in effect with theUnited States.

(iii) With respect to an account otherthan a preexisting obligation (defined in§ 1.1441–1(c)(54)) that QI has docu-mented the foreign status of the accountholder for purposes of chapter 3 or 61before July 1, 2014, QI shall not treatdocumentation as valid for purposes ofestablishing an account holder’s status asa foreign person if it has, either on thedocumentary evidence or in its currentcustomer account files, an unambiguousindication of place of birth for the indi-vidual in the United States. The limit onreason to know described in the precedingsentence with respect to a preexisting ob-ligation documented before July 1, 2014,shall not apply, however, if QI either re-views documentation that contains a U.S.place of birth or is notified of a change incircumstances, and, as of the date of suchreview or notification, QI shall not treatsuch documentation as valid for purposesof establishing the account holder’s for-eign status.

QI may nevertheless treat the accountholder with a U.S. place of birth as aforeign person if QI—

(a) Has in its possession, or obtains,documentary evidence evidencing citizen-ship in a country other than the UnitedStates and obtains a copy of the individ-ual’s Certificate of Loss of Nationality ofthe United States; or

(b) Obtains a valid Form W–8BENthat establishes the account holder’s for-eign status, documentary evidence evi-dencing citizenship in a country other thanthe United States, and a reasonable writtenexplanation of the account holder’s renun-ciation of U.S. citizenship or the reasonthe account holder did not obtain U.S.citizenship at birth.

(iv) QI shall not treat documentation asvalid for purposes of establishing an ac-count holder’s status as a foreign person ifthe account holder has standing instruc-tions directing QI to pay amounts from itsaccount to an address or an account main-tained in the United States. QI may treatdocumentation as valid for establishingforeign status even though the account

holder has such standing instructions ifthe account holder provides a reasonableexplanation in writing supporting the ac-count holder’s foreign status (as defined in§ 1.1441–7(b)(12)) or has both a validForm W–8 establishing foreign status anddocumentary evidence establishing for-eign status.

(3) Rules for Establishing ResidencyUnder an Income Tax Treaty.

(i) QI shall not treat an account holderas a resident under an income tax treaty ifthe permanent residence address on aForm W–8 is not in the applicable treatycountry or if the account holder notifiesQI of a new permanent residence addressthat is not in the treaty country. QI may,however, rely on the Form W–8 if theaccount holder provides a reasonable ex-planation for the permanent residence ad-dress outside the treaty country or if QIhas in its possession, or obtains, documen-tary evidence that establishes the claim ofresidency in a treaty country.

(ii) QI shall not treat an account holderas a resident under an income tax treaty ifthe permanent residence address on aForm W–8 is in the applicable treatycountry but the Form W–8 contains amailing address outside the treaty countryor QI has a current mailing address for theaccount holder outside the applicabletreaty country in its account information.A mailing address that is a P.O. Box,in-care-of address, or address at a finan-cial institution (if the financial institutionis not a beneficial owner) shall not pre-clude QI from treating the account holderas a resident of an applicable treaty coun-try if such address is in the applicabletreaty country. If QI has a current mailingaddress for the account holder outside theapplicable treaty country (whether or notcontained on the Form W–8), QI may nev-ertheless treat the account holder as a resi-dent of the applicable treaty country if QI—

(a) Has in its possession, or obtains,additional documentary evidence support-ing the account holder’s claim of residencein the applicable treaty country (and theadditional documentation does not containan address outside the treaty country);

(b) Has in its possession, or obtains,documentary evidence that establishesthat the account holder is an entity orga-nized in a treaty country (or an entity

managed and controlled in a treaty coun-try, if the applicable treaty so requires);

(c) Knows that the address outside theapplicable treaty country (other than aP.O. Box, or in-care-of address) for anentity that is a resident of the applicabletreaty country is the address of a branch ofsuch entity; or

(d) Obtains a written statement fromthe account holder that reasonably estab-lishes entitlement to treaty benefits.

(iii) QI shall not treat documentary ev-idence as valid for purposes of establish-ing residency in a treaty country if QI hasa current mailing or current permanentresidence address for the account holder(whether or not on the documentary evi-dence) that is outside of the applicabletreaty country, or QI has no permanentresidence address for the account holder.If QI has a current mailing or currentpermanent residence address for the ac-count holder outside of the applicabletreaty country, QI may nevertheless relyon the documentary evidence if QI—

(a) Has in its possession, or obtains,additional documentary evidence support-ing the account holder’s claim of resi-dence in the applicable treaty country (andthe documentary evidence does not con-tain an address outside the applicabletreaty country, a P.O. Box, an in-care-ofaddress, or an address of a financial insti-tution);

(b) Has in its possession, or obtains,documentary evidence that establishesthat the account holder is an entity orga-nized in a treaty country (or an entitymanaged and controlled in a treaty coun-try, if the applicable treaty so requires); or

(c) Obtains a valid Form W–8 thatcontains a permanent residence addressand a mailing address in the applicabletreaty country.

(iv) QI shall not treat documentation asvalid for purposes of establishing an ac-count holder’s residence in an applicabletreaty country if the account holder hasstanding instructions for QI to payamounts from its account to an address oran account outside the treaty country un-less the account holder provides a reason-able explanation in writing establishingthe direct account holder’s residence inthe applicable treaty country or a validForm W–8 that contains a permanent res-idence address and a mailing address in

Bulletin No. 2016–29 July 18, 201695

the applicable treaty country, or, if theaccount holder initially provided a FormW–8, documentary evidence establishingthe account holder’s residence in the ap-plicable treaty country.

(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 is unreliable or incorrect if a rea-sonably prudent person in the position of aqualified intermediary would question theclaims made. QI shall have reason toknow that documentation provided by anonqualified intermediary or a flow-through entity is unreliable or incorrect ifthe nonqualified intermediary or flow-through entity does not provide QI with,to the extent required, the names of theindirect account holders, their addresses,allocation information allocating pay-ments to each indirect account holder, andsufficient information for QI to reportpayments on Forms 1042–S and 1099. Inaddition, QI shall have reason to believethat an indirect account holder is not en-titled to a reduced rate of withholdingunder an income tax treaty if the nonquali-fied intermediary or flow-through entityhas not provided sufficient information sothat QI can verify that the indirect accountholder has provided a U.S. TIN or foreignTIN, if required, and made the necessarystatements regarding limitations on bene-fits provisions and deriving the incomeunder section 894 and the regulationsthereunder. See § 1.1441–7(b)(10) andsection 5.03 of this 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. QI may rely on the representa-tions described in section 5.03 of thisAgreement obtained in connection withsuch documentation for the same periodof time as the documentation. For estab-lishing an account holder’s chapter 3 sta-

tus (as defined in § 1.1441–1(c)(45)) orforeign status for chapter 61 purposes, QImay rely on a Form W–8 until its validityexpires under § 1.1441–1(e)(4)(ii) andmay rely on documentary evidence (otherthan documentary evidence obtained pur-suant to applicable know-your-customerrules) 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) apply.

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 under therules of section 5.10(B) of this Agree-ment.

(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 onits actual knowledge regarding an accountholder’s chapter 4 status or status as aU.S. or foreign person to apply a reducedrate of withholding. Notwithstanding thepreceding sentence, QI must rely on itsactual knowledge regarding an accountholder rather than what is presumed undersection 5.13(C) of this Agreement if,based on such knowledge, it should with-hold an amount greater than the withhold-ing rate under the presumption rules or itshould report on Form 1042–S or Form1099 an amount that would otherwise notbe reported. Failure to follow the pre-sumption rules may result in liability forunderwithholding, penalties, and interest.

(B) Reliably Associating a Paymentwith Documentation. A payment can bereliably associated with documentation ifit is considered reliably associated withdocumentation under the rules of§ 1.1441–1(b)(2)(vii) and, for a withhold-able payment, § 1.1471–3(c). Generally,QI can reliably associate a payment withdocumentation if, for that payment, itholds valid documentation, as described inthis section 5, from the account holder; itcan reliably determine how much of thepayment relates to the valid documenta-tion provided by such account holder; andit has no actual knowledge or reason toknow, under the requirements of section5.10 of this Agreement, that any of theinformation, certifications, or statementsin or associated with the documentationare incorrect. Sections 5.13(B)(1) through(5) of this Agreement describe when a

July 18, 2016 Bulletin No. 2016–2996

payment is reliably associated with docu-mentation if the payment is made to anaccount holder that is an intermediary orflow-through entity (other than a nonpar-ticipating FFI that is not acting on behalfof exempt beneficial owners).

(1) Reliably Associating a Paymentwith Documentation Provided by aNonqualified Intermediary or Flow-Through Entity. Generally, QI can reli-ably associate a payment with documen-tation provided by a nonqualifiedintermediary or flow-through entity if itcan reliably associate the payment with avalid Form W–8IMY provided by thenonqualified intermediary or flow-throughentity, and it can determine the portion ofthe payment that relates to valid documen-tation associated with the Form W–8IMYfor 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 8966if reporting is required.

If the payment is a withholdable pay-ment, the Form W–8IMY must providethe nonqualified 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 Form

W–8IMY that it meets the requirementsof § 1.6049–4(c)(4)(iii) with respect toany account holder of an account it main-tains within the meaning of § 1.1471–5(d)(5) (i.e., a direct account holder) thatreceives a payment included in this poolor allocates a payment that is a withhold-able payment to a chapter 4 withholdingrate pool 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 documentedaccount holders (other than nonqualifiedintermediaries or flow-through entities)for whom withholding and reporting is notrequired. For example, QI can treat a pay-ment of short term OID allocable to agroup of documented foreign accountholders as reliably associated with validdocumentation. Further, if the documen-tation attached to a nonqualified interme-diary’s or flow-through entity’s FormW–8IMY is documentation from anothernonqualified intermediary or flow-throughentity, then QI must apply the rules of thisparagraph to that other nonqualified inter-mediary or flow-through entity.

(2) Reliably Associating a Paymentwith a Withholding Certificate Pro-vided by Another Qualified Intermedi-ary that Does Not Assume PrimaryChapters 3 and 4 Withholding or Pri-mary Form 1099 Reporting andBackup Withholding Responsibility.Generally, QI can reliably associate a pay-ment with documentation provided by an-other qualified intermediary that does notassume either primary chapters 3 and 4withholding responsibility or primaryForm 1099 reporting and backup with-holding responsibility if it can reliablyassociate the payment with a valid FormW–8IMY and, if the form is associatedwith a withholdable payment, it includesthe qualified intermediary’s chapter 4 sta-tus to the extent required for chapter 4purposes. Additionally, the FormW–8IMY must be associated with a with-holding statement that allocates the with-holdable payment among the chapter 4withholding rate pools (to the extent per-missible under § 1.1471–3(c)(3)(iii)(B)),

and with respect to a payment of anamount subject to chapter 3 withholdingthat is either not a withholdable paymentor a withholdable payment for which nochapter 4 withholding is required, that al-locates such payment among chapter 3withholding rate pools for foreign accountholders as described in section 6.03(C) ofthis Agreement.

If the payment is a reportable amount,QI can reliably associate the payment withdocumentation provided by another qual-ified intermediary if the withholding state-ment allocates the payment to withholdingrate pools attributable to U.S. non-exemptrecipients and the documentation includesa valid Form W–9 for each U.S. non-exempt recipient account holder for whichthe other qualified intermediary is re-quired to report on Form 1099 and, ifrequired, backup withhold. QI can alsoreliably associate a reportable amountwith valid documentation provided by an-other qualified intermediary that is a par-ticipating FFI or registered deemed-compliant FFI if, in lieu of providingdocumentation for each U.S. non-exemptrecipient account holder, the qualified in-termediary allocates the payment to achapter 4 withholding rate pool of U.S.payees and provides the applicable certi-fication(s) on a valid Form W–8IMY forallocating the payment to this pool or al-locates 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 aQualified Intermediary that AssumesPrimary Chapters 3 and 4 WithholdingResponsibility and Does Not AssumePrimary Form 1099 Reporting andBackup Withholding Responsibility.Generally, QI can reliably associate a pay-ment with valid documentation providedby another qualified intermediary that as-sumes primary chapters 3 and 4 withhold-ing responsibility, but not primary Form1099 reporting and backup withholding

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responsibility, if it can associate the pay-ment with a valid Form W–8IMY fromthe qualified intermediary and, if the formis associated with a withholdable pay-ment, it includes the qualified intermedi-ary’s chapter 4 status to the extent requiredfor chapter 4 purposes. Additionally, theForm W–8IMY must be associated with awithholding statement that allocates a pay-ment that is a withholdable payment or anamount subject to chapter 3 withholding thatis not a withholdable payment among a sin-gle withholding rate pool for all accountholders with respect to which the qualifiedintermediary assumes primary chapters 3and 4 withholding responsibility.

If the payment is a reportable amount,QI can reliably associate the payment withdocumentation provided by another qual-ified intermediary if the withholding state-ment allocates the payment to withholdingrate pools attributable to each U.S. non-exempt recipient, as described in section6.03(D), and the documentation includes avalid Form W–9 for each U.S. non-exempt recipient account holder for whichthe other qualified intermediary is re-quired to report on Form 1099 and, ifrequired, backup withhold. QI can alsoreliably associate such payment with validdocumentation provided by another qual-ified intermediary that is a participatingFFI or registered deemed-compliant FFIif, in lieu of providing documentation foreach U.S. non-exempt recipient accountholder, the qualified intermediary allo-cates the payment made to the U.S. non-exempt recipient to a chapter 4 withhold-ing rate pool of U.S. payees and providesthe applicable certifications on a validForm W–8IMY for allocating the pay-ment to this pool or allocates a paymentthat is a withholdable payment to a chap-ter 4 withholding rate pool of recalcitrantaccount holders. Notwithstanding the pre-ceding sentences in this section 5.13(B)(3),the presumption rules shall not apply if apayment cannot be allocated to each U.S.non-exempt recipient account holder or to achapter 4 withholding rate pool of U.S. pay-ees to the extent the alternative proceduresof section 6.03(D) of this Agreement apply.

(4) Reliably Associating a PaymentWith Documentation Provided by aQualified Intermediary that AssumesPrimary Form 1099 Reporting andBackup Withholding Responsibility.

Generally, QI can reliably associate a pay-ment with valid documentation providedby another qualified intermediary 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 qualified intermediary that, if thepayment is a withholdable payment, in-cludes the qualified intermediary’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 pay-ment that is an amount subject to chapter3 withholding 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-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 aQualified Intermediary that AssumesBoth Primary Chapters 3 and 4 With-holding Responsibility and PrimaryForm 1099 Reporting and BackupWithholding Responsibility. Generally,QI can reliably associate a payment withvalid documentation provided by anotherqualified intermediary that assumes bothprimary chapters 3 and 4 withholding re-sponsibility and primary Form 1099 re-porting and backup withholding responsi-bility if QI can associate the payment witha valid Form W–8IMY from the qualifiedintermediary that, if the payment is a with-holdable payment, includes the qualifiedintermediary’s chapter 4 status. Addition-ally, the Form W–8IMY must also desig-nate the accounts for which the other qual-ified intermediary is acting as a qualifiedintermediary and is assuming primarychapters 3 and 4 withholding and primaryForm 1099 reporting and backup with-holding responsibility. If the other quali-fied intermediary is acting as a QDD, the

Form W–8IMY (or withholding state-ment) must also designate those accountsfor which the QDD is receiving paymentswith respect to potential section 871(m)transactions or underlying securities as aQDD. If the qualified intermediary receiv-ing a payment assumes both primarychapters 3 and 4 withholding responsibil-ity and primary Form 1099 reporting andbackup withholding responsibility forsubstitute interest payments as describedin section 3.03(A), the Form W–8IMYmust indicate that the qualified intermedi-ary is assuming primary withholding re-sponsibility 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. If QI is an FFI, it must followits FATCA requirements as a participatingFFI, registered deemed-compliant FFI, orregistered deemed-compliant Model 1IGA FFI to determine the chapter 4 statusof an account holder when it cannot reli-ably associate a withholdable paymentwith valid documentation.

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 an

July 18, 2016 Bulletin No. 2016–2998

offshore 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 section 5.10(B)(2) ofthis Agreement. If QI is a participatingFFI or registered deemed-compliant FFI(other than a reporting Model 1 FFI), seethe rules under its FATCA requirementsas a participating FFI or registereddeemed-compliant FFI for classifying ac-count holders as recalcitrant account hold-ers. If QI is an FFI, see also section 8.06of this Agreement for whether QI is re-quired to report such payments on Form1099.

(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 4 with-holding is presumed made to anundocumented 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 at 28 percent3 and report suchamounts on Form 1099 unless it providessufficient information to another payorfrom which it receives such amounts tobackup withhold and report the paymentsand QI does not know that the other payorhas failed to backup 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 section5.10(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 applicable).

SECTION 6. QUALIFIEDINTERMEDIARY WITHHOLDINGCERTIFICATE AND DISCLOSUREOF ACCOUNT HOLDERS TOWITHHOLDING AGENT

Sec. 6.01. Qualified IntermediaryWithholding Certificate. QI agrees to fur-nish a qualified intermediary withholdingcertificate to each withholding agent fromwhich it receives a reportable amount as aqualified intermediary. The qualified in-termediary withholding certificate is aForm W–8IMY (or acceptable substituteform) that certifies that QI is acting as aqualified intermediary, contains QI’s QI-EIN, and provides all other informationrequired by the form. If QI is acting as aQDD for payments with respect to poten-tial section 871(m) transactions or under-lying securities, it must certify that it isacting as a QDD and assumes primarychapters 3 and 4 withholding responsibil-ity and primary Form 1099 reporting andbackup withholding responsibility forpayments with respect to potential section871(m) transactions that it makes as aprincipal, and it must provide all otherinformation required by Form W–8IMYwith respect to the certification, includingits QI-EIN. If QI is acting with respect topayments of substitute interest as de-scribed in section 3.03(A) of this Agree-ment, it must certify that it is assumingprimary chapters 3 and 4 withholding re-sponsibility and primary Form 1099 re-porting and backup withholding responsi-bility for all such payments, in addition tothe other certifications it makes and infor-mation it provides as a qualified interme-diary. If QI receives a withholdable pay-ment, QI must certify to its chapter 4status, provide its GIIN (if applicable),and provide the other information and cer-tifications required on the form. 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)with respect to any account holder of anaccount it maintains that is included in achapter 4 withholding rate pool of U.S.payees on QI’s withholding statement.

3See 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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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 FormW–9, or if any such account holder hasnot provided a Form W–9, the name, ad-dress, 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 qualifiedintermediary a written statement (with-holding statement) described in this sec-tion 6.02. A withholding statement shallnot be provided to a withholding agent ifQI assumes both primary chapters 3 and 4withholding responsibility and primaryForm 1099 reporting and backup with-holding responsibility for all of its ac-counts. For example, if QI is only actingas a QDD, it does not have to provide awithholding statement . QI may act as aQDD only with respect to payments madeand received as a principal with respect topotential section 871(m) transactions andunderlying securities. The withholdingstatement forms an integral part of theForm W–8IMY. The withholding state-ment may be provided in any manner, andin any form, to which QI and the with-holding agent mutually agree. For exam-ple, QI and the withholding agent mayagree to establish a procedure to furnishwithholding statement information elec-tronically provided that the proceduremeets the requirements of § 1.1441–1(e)(3)(iv). In addition, QI and the with-holding agent must be capable of provid-ing upon request a hard copy of all

withholding statements provided by QI.The withholding statement shall be up-dated as often as necessary for the with-holding agent to meet its reporting andwithholding obligations under 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 which QIacts as a qualified intermediary;(2) Designate those accounts for which QIassumes primary chapters 3 and 4 with-holding responsibility or primary Form1099 reporting and backup withholdingresponsibility (including accounts forwhich QI is acting with respect to pay-ments of U.S. source substitute interest (asdescribed in section 3.03(A) of thisAgreement));(3) If applicable, designate the accountsfor which QI is acting as a QDD; and(4) Provide information regarding with-holding rate pools, as described in section6.03 of this Agreement.

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 registered

deemed-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 qualifiedintermediary, a nonqualified intermediary,or a private arrangement intermediary) ora flow-through entity, QI may combinethe account holder information providedby the intermediary or flow-through entitywith QI’s direct account holder informa-tion to determine the amounts allocable toeach of QI’s chapter 4 withholding ratepools described in this section 6.03(B). IfQI is an NFFE that has an account holderthat is another intermediary or flow-through entity that is a participating FFI orregistered deemed-compliant FFI, QI mayprovide the account holder’s chapter 4withholding rate pools of recalcitrant ac-count holders and U.S. payees to the ex-tent 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 of

July 18, 2016 Bulletin No. 2016–29100

withholding (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 qualified intermediary, anonqualified intermediary, or a private ar-rangement intermediary) or a flow-through entity (other than a nonparticipat-ing FFI that is not acting on behalf of anyexempt beneficial owners), QI may com-bine the account holder information pro-vided by the intermediary or flow-throughentity with QI’s direct account holder in-formation to determine the amounts allo-cable to each of QI’s chapter 3 withhold-ing rate pools with respect to the portionof the payment allocable to an accountholder to which chapter 4 withholdingdoes 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 reportingon 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 (notsubject to backup withholding) for allU.S. non-exempt recipient account hold-ers for whom QI is required to report onForm 1099 and has provided Forms W–9prior to the withholding agent paying anyreportable amounts or, if applicable, des-ignated broker proceeds to which backupwithholding does not apply. QI must es-tablish a separate withholding rate poolfor all U.S. non-exempt recipient accountholders subject to backup withholdingprior to the withholding agent paying anyreportable amounts or, if applicable, des-ignated broker proceeds.

Alternatively, QI may include U.S.non-exempt recipients in a zero rate with-holding pool that includes U.S. exemptrecipients and foreign persons for whichno withholding is required under chapters3 and 4 and section 3406 and may includepayments allocated to a chapter 4 with-holding rate pool of U.S. payees in thispool to the extent permitted to be providedby QI under section 6.03(B) of this Agree-ment. If QI chooses the alternative proce-dure of this paragraph, QI must providesufficient information to the withholdingagent no later than January 15 of the yearfollowing the year in which the reportableamounts and designated broker proceeds,if applicable, are paid in order to allocateto each U.S. non-exempt recipient accountholder or to a chapter 4 withholding ratepool of U.S. payees (when applicable).Failure to provide such information willresult in the application of penalties to QIunder sections 6721 and 6722 and shallconstitute an event of default under sec-tion 11.06 of this Agreement.

SECTION 7. TAX RETURNOBLIGATIONS

Sec. 7.01. Form 1042 FilingRequirement.

(A) In general. QI shall file a return onForm 1042, whether or not QI withheldany amounts under chapter 3 or 4, on orbefore March 15 of the year following anycalendar year in which QI acts as a qual-ified intermediary and makes a paymentof an amount subject to chapter 3 or 4withholding when acting as a qualifiedintermediary under this Agreement. Aseparate Form 1042 must be filed by eachlegal entity that is a qualified intermediarycovered by this Agreement. Form 1042shall be filed at the address indicated onthe form, 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 1042 electronically. Inaddition to the information specifically re-quested on Form 1042 and the accompany-ing instructions, if QI made any overwith-holding or underwithholding adjustmentsunder §§ 1.1461–2 and 1.1474–2 and sec-tions 9.02 and 9.05 of this Agreement, QImust attach a statement setting forth theamounts of any overwithholding or under-

withholding adjustments and an explanationof the circumstances that resulted in theover- 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 onForm 1042 its QDD tax liability, includ-ing separately identifying each part of theQDD tax liability described in section3.09(A) through (C) of this Agreement.For its section 871(m) amount, a QDD isalso required to separately report theamount of dividends on underlying secu-rities associated with potential section871(m) amounts and dividend equivalentpayments it received in its dealer capacityand the amount of dividend equivalentpayments and qualifying dividend equiv-alent offsetting payments that it makes oris contractually obligated to make in itsdealer capacity. A QDD must also reportany other information required by Form1042 with respect to its QDD tax liability(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 associated with potentialsection 871(m) transactions or underlyingsecurity referenced by a potential section871(m) transaction. The reconciliationschedule must separately state totalamounts received as a QDD, as well as thedividends, dividend equivalents, and qual-ifying dividend equivalent offsetting pay-ments for each dividend with respect toeach underlying security associated withpotential section 871(m) transactions,each dividend that is not with respect to anunderlying security associated with poten-tial section 871(m) transactions, or eachdividend with respect to each underlyingsecurity referenced by a potential section

Bulletin No. 2016–29 July 18, 2016101

871(m) transaction received as a QDD orpayments that the QDD makes or is con-tractually obligated to make, and any ad-justments thereto, separated by paymentsmade as a dealer and as a non-dealer. Thereconciliation schedule may be main-tained in any manner or format that per-mits the IRS to reconcile the amount re-ported by the QDD for the calendar 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 qualified intermediarycovered by this Agreement. The formmust be filed at the address specified inthe instructions for Form 945, at the ad-dress at which the IRS notifies QI to filethe return under the provisions of section12.06 of this Agreement, or in accordancewith the instructions to file Form 945 elec-tronically.

Sec. 7.03. Retention of Returns. QIshall retain Forms 945 and 1042 (includ-ing, with respect to 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 qualified intermediarycovered by this Agreement. Each QI cov-ered by this Agreement may, however,allow its individual branches to file Forms1042–S provided that all Forms 1042–Scontain the QI-EIN of the legal entity of

which the branch forms a part and (to theextent required for chapter 4 purposes) theGIIN of the branch. Any Form 1042–Srequired by this section 8 shall be filed onor before March 15 following the calendaryear in which the payment reported on theform was made. QI may request an exten-sion of time to file Forms 1042–S bysubmitting Form 8809, Application forExtension of Time to File Information Re-turns, by the due date of Forms 1042–S inthe manner required by (and extent per-mitted on) Form 8809.

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–Sby income code, exemption code, recipi-ent code, chapter 3 or 4 withholding ratepool, and withholding rate.

(A) QI must file a separate Form1042–S for each account holder that is aqualified intermediary, to the extent suchpayment is required to be reported under§ 1.1461–1, withholding foreign partner-ship, or withholding foreign trust that re-ceives from QI an amount subject to with-holding under chapter 3 or 4, regardless ofwhether such account holder is a direct orindirect 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 fromQI an amount subject to chapter 4 with-holding allocable to such entity’s chapter4 withholding rate pool of payees that arenonparticipating FFIs, regardless of

whether such intermediary or flow-through entity is a direct or indirect ac-count 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 account holder of QI thatis a partnership or trust to which QI ap-plies the joint account option that receivesfrom QI an amount subject to chapter 3withholding and is allocable to such enti-ty’s chapter 3 withholding rate pools.

(F) 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 qualified intermediary that doesnot assume primary chapters 3 and 4 with-holding responsibility and that receives anamount subject to chapter 4 withholdingfrom QI that QI must presume is allocableto such entity’s chapter 4 withholding ratepool of payees that are nonparticipatingFFIs under the presumption rule of§ 1.1471–3(f)(5).

(G) 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 or

July 18, 2016 Bulletin No. 2016–29102

indirect account holder (or interest holder)of a PAI of QI or a partnership or trust towhich QI applies the agency option.

(H) 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.

(I) 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.

(J) 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. Exceptfor amounts required to be reported undersection 8.02 of this Agreement, if QI is anFFI, QI shall report all amounts subject tochapter 4 withholding by reporting poolson a Form 1042–S if those amounts arepaid to direct account holders of QI. Aseparate Form 1042–S shall be filed foreach type of reporting pool. A chapter 4reporting pool is a payment of a singletype of income (e.g., interest, dividends),determined in accordance with the catego-ries of income reported on Form 1042–S,that is allocable to a chapter 4 withholdingrate pool consisting of either recalcitrantaccount holders or payees that are nonpar-

ticipating FFIs. QI must report recalcitrantaccount holders in pools based upon arecalcitrant account holder’s particularstatus described in § 1.1471–4(d)(6), witha separate Form 1042–S issued for eachsuch pool.

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 accountholders 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-exempt

recipient 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.

(C) Qualifying Dividend EquivalentOffsetting Payment Reporting Pools. Inaddition to the reporting required undersections 8.02 and 8.03 of this Agreementfor dividend equivalents that are amountssubject to chapter 3 or 4 withholding, a QIacting as a QDD shall report on separateForms 1042–S (as required by the formand its accompanying instructions) theamount of the qualifying dividend equiv-alent offsetting payments that represent(a) payments made to U.S. persons thatwould be dividend equivalent payments ifmade to foreign persons and (b) the effec-tively connected income (described insection 2.70(A)(2) of this Agreement).For purposes of determining when a qual-ifying dividend equivalent offsetting pay-ment is made, apply the timing rule in§ 1.1441–2(e)(4) (substituting “qualifyingdividend equivalent offsetting payment”for “dividends” and “dividend paymentdate” for “payment date” in the first sen-tence).

A QI acting as a QDD must also pro-vide, upon request by the IRS, the name,address, and TIN of any U.S. non-exemptrecipient to whom the QI acting as a QDDmakes a qualifying dividend equivalentoffsetting payment described in section2.70(A)(1) and shall require such personto waive any prohibition on disclosure ofsuch information to the IRS. If a QI actingas a QDD does not obtain a waiver orcollect and maintain such information forany U.S. non-exempt recipient describedin the preceding sentence, any paymentmade to such person is not a qualifyingdividend equivalent offsetting payment. AQI acting as a QDD shall report thosepayments made to U.S. non-exempt recip-ients that are not qualifying dividendequivalent offsetting payments in a poolon a separate Form 1042–S (as requiredby the form and its accompanying instruc-tions).

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

Bulletin No. 2016–29 July 18, 2016103

(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. See QI’s FATCA requirementsas a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI to report eachaccount that is a U.S. account (or U.S.reportable account) that it maintains. If QIis a participating FFI or registereddeemed-compliant FFI (other than a re-porting Model 1 FFI or registereddeemed-compliant Model 1 IGA FFI), QImust report its U.S. accounts on Form8966, FATCA Report, in the time andmanner required under its FATCA re-quirements as a participating FFI or reg-istered deemed-compliant FFI except tothe extent QI is reporting under § 1.1471–4(d)(5) on Form 1099 with respect to itsU.S. accounts. If QI is a reporting Model1 FFI or registered deemed-compliantModel 1 IGA FFI, QI must report eachU.S. reportable account on Form 8966 asrequired under the applicable Model 1IGA. QI cannot delegate to its withhold-ing agent its requirements to report U.S.accounts (or U.S. reportable accounts) un-der its applicable FATCA requirements asa participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI (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 ofthis Agreement for when the reportingdescribed 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 qualified intermediaryon behalf of its shareholders, QI shall fileForms 8966 to report information aboutany substantial U.S. owners of QI. QImust report on Form 8966 to the extentrequired of a direct reporting NFFE in thetime and manner provided in the instruc-tions to the form. Such report must in-clude the name, address, and U.S. TIN ofeach substantial U.S. owner of QI; the

total of all payments made to each sub-stantial U.S. owner (including grossamounts paid or credited to the substantialU.S. owner with respect to such owner’sequity interest in the QI during the calen-dar year, which includes payments in re-demption or liquidation (in whole or inpart) of the substantial U.S. owner’s eq-uity interest in QI); and any other infor-mation as required by the form and itsaccompanying instructions.

If QI is an NFFE acting as a qualifiedintermediary on behalf of persons otherthan its shareholders, QI shall file Form8966 to report withholdable paymentsmade to an account holder that is an NFFE(other than an excepted NFFE) with oneor more substantial U.S. owners if theNFFE is the beneficial owner of the with-holdable 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 section 1.1472–1(c)(5)(ii) for thereporting requirements of a sponsoringentity.

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 interestholder) 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, 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-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) and

July 18, 2016 Bulletin No. 2016–29104

the 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 accountunder its FATCA requirements as a par-ticipating 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 qualified intermediary) thatis a direct or indirect account holder of QI,the intermediary or flow-through entityallocates the payment to a chapter 4 with-holding rate pool of U.S. payees and pro-vides a Form W–8IMY containing a cer-tification that the entity meets therequirements of § 1.6049–4(c)(4)(iii); or

(6) With respect to an account holderof another qualified intermediary that is adirect or indirect account holder of QI, thequalified intermediary allocates the pay-ment to a chapter 4 withholding rate poolof U.S. payees and provides the applicablecertification on a valid Form W–8IMY forallocating the payment to this 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 to

any 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 recipient if—

(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 accountunder its FATCA requirements as a par-ticipating 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 theother 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 procedures de-scribed 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-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.,

Bulletin No. 2016–29 July 18, 2016105

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 (is-sued, if applicable, to the account holderor otherwise to a chapter 3 or 4 reportingpool), filed by March 15 of the calendaryear following the calendar year of over-withholding, the amount of tax withheldand the 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 theIRS. 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 on

amounts 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 Forms1042–S to the account holders that re-ceived the payment that was subject tooverwithholding;

(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,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.

July 18, 2016 Bulletin No. 2016–29106

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.

(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 Compliance QI) to makethe certifications required under section10.03 of this Agreement. If QI is acting asa QDD, QI’s compliance program mustalso include policies, procedures, and pro-cesses sufficient for it to satisfy and reportits QDD tax liability and other reportingrequired as a condition of its status as aQDD. QI must also perform or arrange forthe performance of a periodic review de-scribed in section 10.04 of this Agreementto the extent required by that section. Aspart of the responsible officer’s certifica-tion, QI must provide to the IRS the fac-tual information referenced in sections10.04 and 10.05 of this Agreement and inAppendix I to this Agreement. QI mustalso satisfy the requirements of section10.06 of this Agreement with respect tothe report covering the periodic review,and must comply with the IRS reviewdescribed in section 10.08 of this Agree-ment. With respect to QI that, prior toJanuary 1, 2017, was a limited FFI (asdefined in § 1.1471–1(b)(77) (or a limited

branch, as defined in § 1.1471–1(b)(76)),references in this section 10 (and in Ap-pendix I to this Agreement) to QI’sFATCA Requirements as a ParticipatingFFI, Registered Deemed-Compliant FFI,or Registered Deemed-Compliant Model1 IGA FFI include its requirements under§ 1.1471–4(e)(4) for purposes of its initialcertification 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 comply with its FATCArequirements as applicable to its chapter 4status (including any applicable compli-ance procedure) with respect to eachbranch of QI operating under this Agree-ment. Therefore, QI must, as part of thecompliance procedures described in thissection 10 (including in conducting theperiodic review described in section 10.04of this Agreement and in making the pe-riodic certification described in section10.03 of this Agreement) determinewhether it is compliant with its FATCArequirements as a participating FFI, regis-tered deemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI and,in the case of a direct reporting NFFE, itsrequirements under § 1.1472–1(c)(3),with respect to accounts for which it actsas a qualified intermediary. See the com-pliance procedures, if any, applicable toQI’s FATCA requirements as a participat-ing FFI, registered deemed-compliantFFI, or registered deemed-compliantModel 1 IGA FFI and, in the case of adirect reporting NFFE with respect to allaccounts that it maintains or all of itsshareholders. If QI is a participating FFIor direct reporting NFFE, QI will be ableto make the certification described in sec-tion 10.03 of this Agreement, and the cer-tification described in the FFI Agreement,to the extent provided in future publishedguidance or other instructions.

10.02. Responsible Officer. QI mustappoint an individual as a responsible of-ficer as defined in section 2.78 of thisAgreement. The responsible officer mustbe identified on the FATCA registrationwebsite as QI’s responsible party, andsuch person may, but is not required to, be

the same responsible officer for purposesof compliance with QI’s FATCA require-ments as a participating FFI, registereddeemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI and,in the case of a direct reporting NFFE, itsrequirements under § 1.1472–1(c)(3). Theresponsible officer (or the responsible off-icer’s designee) must establish a compli-ance program that meets the requirementsof this section 10.02 and must make theperiodic certifications to the IRS de-scribed in section 10.03 of this Agree-ment. The responsible officer of QI mustbe an officer of QI with sufficient author-ity to fulfill the duties of a responsibleofficer described in this section 10. Theresponsible officer (or a delegate ap-pointed by the responsible officer) mustalso serve as the point of contact for theIRS for all issues related to this Agree-ment and for complying with IRS requestsfor information or additional review pro-cedures under section 10.07 of this Agree-ment.

(A) Compliance Program. The re-sponsible officer (or the responsible off-icer’s designee) 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 (or designee) mustensure the drafting and updating, as nec-essary, of written policies and proceduressufficient for QI to satisfy the documen-tation, withholding, reporting, and otherobligations of this Agreement, including,with respect to QI that is acting as a QDD,its 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 officer(or designee) must communicate such pol-icies and procedures to any line of busi-ness of QI that is responsible for obtain-ing, reviewing, and retaining a record ofdocumentation under the requirements ofsection 5 of this Agreement; making pay-ments subject to withholding under sec-tion 3 of this Agreement; reporting pay-ments and accounts as required undersections 7 and 8 of this Agreement; orentering into potential section 871(m)

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transactions in the case of QI that is actingas a QDD.

(3) Systems. The responsible officer(or designee) must ensure that systemsand processes are in place that will allowQI to fulfill its obligations under thisAgreement. For example, in order to ful-fill QI’s obligations to report on Forms1042–S, 1099, and 8966 under section 8of this Agreement, QI must establish sys-tems for documenting account holders andfor recording the information with respectto each such account that QI is required toreport under that section.

(4) Monitoring of Business Changes.The responsible officer (or designee) mustmonitor business practices and arrange-ments that affect QI’s compliance withthis Agreement, including, for example,QI’s acquisition of lines of businesses oraccounts that give rise to documentation,withholding, or reporting obligations un-der this Agreement.

(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, underlying securities associ-ated with potential section 871(m) trans-actions, the amount of dividend or divi-dend equivalent payments received, andthe amount of dividend equivalent orqualifying dividend equivalent offsettingpayments made and contractually obli-gated to be made by the QDD, as well aswhether a transaction is as a principal ornon-principal and in a dealer or non-dealer capacity. This includes appropriatesystems to, where required, calculate thedelta for a potential section 871(m) trans-action, perform the substantial equiva-lence test described in § 1.871–15(h), cal-culate the amount of a dividend equivalentor qualifying dividend equivalent offset-ting payment, determine any QDD taxliability amount (or part thereof) and itstiming, and determine what payments arereceived, made, or contractually obligatedto be made with respect to potential sec-tion 871(m) transactions, underlying secu-rities associated with potential section871(m) transactions, and other underlyingsecurities as a principal and whether in itsdealer capacity or non-dealer capacity.

The systems must also take into accountinformation received pursuant 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 officer(or designee) must designate a reviewerthat meets the qualifications described insection 10.04(A) of this Agreement to per-form the periodic review as described insection 10.05 of this Agreement, to theextent required by that section.

(7) Certification of Internal Con-trols. The responsible officer (or desig-nee) must make the periodic certificationas described in section 10.03 of thisAgreement, including ensuring that cor-rective actions are taken in response toany material failures (as defined in section10.03(D) of this Agreement) of QI’s com-pliance 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). The responsible officermay rely on any reasonable procedure,process, or review that enables the respon-sible officer to make the certification de-scribed in this section 10.03.

(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 compliance

program 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.

10.03. Certification of Internal Con-trols by Responsible Officer. On or be-fore July 1 of the calendar year followingthe certification period, QI must make thecertification described in either section10.03(A) or (B) of this Agreement. Theinitial certification period is the periodending on the third full calendar year thatthis Agreement is in effect (including re-newals of this Agreement). Subsequentcertification periods will be every threecalendar years following the initial certi-fication period (including renewals of thisAgreement). The certification of internalcontrols required by this section 10.03applies only to the internal controls re-lated to QI’s compliance with this Agree-ment and its FATCA requirements as aparticipating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI and, in thecase of a direct reporting NFFE, its re-quirements under § 1.1472–1(c)(3), withrespect to accounts for which it acts as aqualified intermediary, and does not relateto any other obligations or requirements.The responsible officer may rely on anyreasonable procedure, process, or reviewthat enables the responsible officer tomake the certification described in thissection 10.03. If the responsible officerrelies on an internal or external review forthis purpose, the internal or external re-viewer must be independent, as describedin section 10.04 of this Agreement. Theresponsible officer must document theprocedure, process, or review relied uponin making the certification. QI (or itsCompliance QI) must make the certifica-tions of compliance in such manner as theIRS may prescribe.

(A) Certification of Effective Inter-nal Controls. The responsible officermust certify to the following and discloseany material failures that occurred duringthe certification period or during any priorperiod if the material failure was not dis-closed as part of a prior certification orwritten disclosure made by QI to theIRS—

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(1) QI has established a complianceprogram that meets the requirements de-scribed in section 10.02(A) or (B) (if ap-plicable) of the QI Agreement that is ineffect as of the date of the certification andduring the certification period;

(2) Based on the information known(or information that reasonably shouldhave been known) to the responsible offi-cer, including the findings of any proce-dure, process, or review undertaken inpreparation for the responsible officer’scertification of internal controls, QI main-tains effective internal controls over itsdocumentation, withholding, and report-ing obligations under the QI Agreementand according to its applicable FATCArequirements, with respect to accounts forwhich it acts as a qualified intermediary,and, if QI is acting as a QDD, it maintainseffective internal controls over its compu-tation and tax obligations under the QIAgreement and the regulations under sec-tion 871(m);

(3) Based on the information known(or information that reasonably shouldhave been known) to the responsible offi-cer, including the findings of any proce-dure, process, or review undertaken inpreparation for the responsible officer’scertification of internal controls, there areno material failures, as defined in section10.03(D) of the QI Agreement, or, if thereare any material failures, they have beencorrected as of the date of this certifica-tion, and such failures are identified aspart of this certification as well as theactions taken to remediate such failuresand to prevent their reoccurrence by thedate of this certification;

(4) With respect to any failure to with-hold, deposit, or report to the extent re-quired under the QI Agreement, or, withrespect to QI that is acting as a QDD, anyfailure to pay its QDD tax liability, QI hascorrected such failure by paying any taxesdue (including interest and penalties) andfiling the appropriate return (or amendedreturn);

(5) All PAIs of QI and partnerships andtrusts to which QI applies the agency op-tion have either (a) provided (or will pro-vide, to the extent QI does not obtain awaiver under section 10.07 of the QIAgreement) documentation and other nec-essary information for inclusion in QI’speriodic review or (b) provided the re-

sponsible officer of QI with a certificationof effective internal controls meeting therequirements of this section 10.03(A) ofthe QI Agreement and have represented toQI that there are no material failures, asdefined in section 10.03(D) of the QIAgreement, or, if there are such failures,they have been corrected as of the time ofthis certification, and the PAIs, partner-ships, or trusts have disclosed any suchfailures to QI together with the actionstaken by the PAI, partnership, or trust toremediate such failures;

(6) QI’s policies, procedures, and pro-cesses are applied consistently to allbranches covered by the QI Agreement(except as otherwise required by a juris-diction’s AML/KYC procedures, as appli-cable);

(7) If QI is acting as a QDD, it hasacted as a QDD for all payments withrespect to potential section 871(m) trans-actions and underlying securities forwhich it is required to act as a QDD andno other transactions or underlying secu-rities;

(8) If QI is acting as a QI and hasassumed primary withholding responsibil-ity with respect to payments of substituteinterest (as described in section 3.03(A) ofthe QI Agreement), QI has assumed pri-mary withholding responsibility for allsuch payments covered by the QI Agree-ment;

(9) A periodic review was conductedfor the certification period in accordancewith section 10.04 of the QI Agreement,and the results of such review are reportedto the extent required in sections 10.05and 10.06 of the QI Agreement.

(B) Qualified Certification. If the re-sponsible officer has identified an event ofdefault or a material failure that QI has notcorrected as of the date of the certification,the responsible officer must certify to thefollowing statements—

(1) The responsible officer (or desig-nee) has identified an event of default asdefined in section 11.06 of the QI Agree-ment, or has determined that, as of thedate of the certification, there are one ormore material failures as defined in sec-tion 10.03(D) of the QI Agreement withrespect to QI’s compliance, its PAI’s com-pliance, or the compliance of a partnershipor trust to which QI applies the agencyoption and that appropriate actions will be

taken to prevent such failures from reoc-curring;

(2) With respect to any failure to with-hold, deposit, or report to the extent re-quired under the QI Agreement, or withrespect to QI that is acting as a QDD, afailure to pay its QDD tax liability, QI willcorrect such failure by paying any taxesdue (including interest and penalties) andfiling the appropriate return (or amendedreturn); and

(3) The responsible officer (or an offi-cer of the PAI or partnership or trust towhich QI applies the agency option if thePAI or partnership or trust performs itsown periodic review) will respond to anynotice of default (if applicable) or willprovide (either directly or through QI) tothe IRS, to the extent requested, a descrip-tion of each material failure and a writtenplan to correct each such failure.

(C) 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 asdescribed in section 10.03 of this Agree-ment regarding its compliance with therequirements of the PAI or agency agree-ment. Such certification must be availableto the IRS upon a request made as part ofthe review described in section 10.07 ofthis Agreement (with a certified transla-tion into English if the certification is notin English).

(D) 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 and, in the case of adirect reporting NFFE, its requirementsunder § 1.1472–1(c)(3). For purposes ofthe certifications described in section10.03(A) and (B) of this Agreement, amaterial failure is limited to the following:

(i) QI’s establishing of, for financialstatement purposes, a tax reserve or pro-

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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, or,in the case of a direct reporting NFFE, itsrequirements under § 1.1472–1(c)(3), andwith respect to QI that is acting as a QDD,failure to satisfy its QDD tax liability andits 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, including, its FATCArequirements as a participating FFI, regis-tered deemed-compliant FFI, registereddeemed-compliant Model 1 IGA FFI, or,in the case of a direct reporting NFFE, itsrequirements under § 1.1472–1(c)(3), or ifQI is acting as a QDD, its obligations as aQDD under this Agreement or pursuant tosection 871(m) and the regulations underthat 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 foranother withholding agent to performwithholding and reporting to the extentrequired when QI does not assume pri-mary chapters 3 and 4 withholding re-sponsibility or primary Form 1099 report-ing and backup withholding responsibility;

(c) Provide allocation information asdescribed in section 6.03(D) of thisAgreement (regarding U.S. non-exempt

recipient 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, satisfy its QDD taxliability, taking into account the proce-dures under section 9 of this Agreement;

(e) Report or report accurately onForms 1099 as required under section 8.06of this Agreement or provide informationto the extent QI does not assume primaryForm 1099 reporting and backup with-holding responsibilities;

(f) Report or report accurately onForms 1042 and 1042–S under sections 7and 8 of this Agreement, or, if QI is actingas a QDD, obtain any necessary waiverfrom reporting or maintain the name, ad-dress, and TIN of a significant number ofU.S. non-exempt recipients to whom theQDD makes a payment that otherwisewould be a qualifying dividend equivalentoffsetting payment but for the limitationin section 2.70(B) of this Agreement; or

(g) Report or report accurately onForm 8966 under sections 8.04 and 8.05of this Agreement.

(2) Limitations on Material Failures.A failure described in section10.03(D)(1)(iv) of this Agreement is amaterial failure only if the failure was theresult of a deliberate action on the part ofone or more employees of QI to avoid therequirements of this Agreement with re-spect to one or more account holders ofQI, or was an error attributable to a failureof QI to establish or implement internalcontrols sufficient for QI to meet the re-quirements of this Agreement. Regardlessof these limitations for certification pur-poses, QI is required to correct a failure towithhold or deposit tax under section 3 ofthis Agreement, or to report under section7 or 8 of this Agreement, or, for a QI thatis acting as a QDD, to pay its QDD taxliability, by depositing the amount of taxrequired to have been withheld and byfiling the appropriate return (or amendedreturn).

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), at

the time QI provides the certification ofinternal controls, provided in section10.03 of this Agreement, QI must alsoprovide certain factual information re-garding its accounts, withholdable pay-ments, amounts subject to chapter 3 with-holding, and, if QI is acting as a QDD,section 871(m) transactions, potential sec-tion 871(m) transactions, and its QDD taxliability based on the results of a periodicreview. The factual information requestedis included in Appendix I to this Agree-ment. The IRS will prescribe the mannerin which the information must be reportedin additional published guidance or otherinstructions.

(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 (“internalreviewer”), an internal reviewer that is anemployee of a Compliance QI in the caseof a consolidated compliance program, ora certified public accountant, attorney, orthird-party consultant (“external re-viewer”), or any combination 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 QI wasnot independent, as described in this Agree-ment, or did not perform an effective peri-odic review under this Agreement.

(2) Internal Reviewer of the Compli-ance QI. The Compliance QI may desig-nate an internal reviewer to perform the

July 18, 2016 Bulletin No. 2016–29110

consolidated periodic review (or a portionof the consolidated periodic review). Seesection 10.02(B) of this Agreement. Theinternal reviewer of the Compliance QImust meet the requirements of section10.04(A)(1) of this Agreement with re-spect to both the Compliance QI and eachQI that is a member of the consolidatedcompliance program.

(3) 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 was involvedin designing, implementing, or maintain-ing. The external reviewer must be ingood standing with and comply with anyapplicable professional standards formaintaining its license as an accountant orattorney (or other third-party consultant).The external reviewer is not required tomake an attestation or render an opinionregarding QI’s compliance with thisAgreement or QI’s compliance with 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), but the reviewer mustbe able to perform the periodic review asspecified in section 10.05 of this Agree-ment. QI must permit the external re-viewer to have access to all relevant re-cords of QI for purposes of performing thereview, including information regardingspecific account holders. Additionally, theengagement between the external re-viewer and QI must impose no restrictionson QI’s ability to provide the results of thereview to the IRS. However, the externalreviewer is not required to divulge theidentity of QI’s account holders to theIRS, except as otherwise provided underQI’s FATCA requirements as a participat-ing FFI, registered deemed-compliantFFI, or registered deemed-compliantModel 1 IGA FFI. QI must permit the IRSto communicate directly with the externalreviewer, and any legal prohibitions that

prevent 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, orregistered deemed-compliant Model 1IGA FFI and, in the case of a direct re-porting NFFE, its requirements under§ 1.1472–1(c)(3) for accounts for which itis acting as a qualified intermediary, andto identify deficiencies in meeting theseobligations. Any PAI with which QI hasan agreement and any partnership or trustto which QI applies the agency optionmust provide the information necessaryfor QI to test accounts and transactions ofsuch entity as part of QI’s periodic reviewunless such entity conducts an its ownperiodic review and provides QI with thereport documenting the results of suchreview as described in section 10.06 ofthis Agreement. Unless otherwise ap-proved by the IRS, the review must in-clude 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 deter-minations of dividend equivalent amountsand qualifying dividend equivalent offset-ting payments, and its calculation of itsQDD tax liability. The review may beconducted for any calendar year coveredby the certification period. However, allresults of the review must relate to onecalendar year. If QI is acting as a QDDand has an initial certification period end-ing December 31, 2017, it must use cal-endar year 2017 for its review of its QDDaccounts and activities for the initial cer-tification period. QI may conduct a reviewfor a particular calendar year if, on the duedate for reporting the factual informationrelating to the periodic review (providedin section 10.04 of this Agreement), there

are 15 or more months available on theperiod for assessment under section6501(a) of the calendar year for which thereview is to be conducted or the QI’ssubmits, upon request, a Form 872, Con-sent to Extend the Time to Assess Tax,that will satisfy the 15-month require-ment. The Form 872 must be submitted tothe IRS at the address provided in section12.06 of this Agreement.

QI may use a sample to test accounts ifthere are more than 50 accounts to review.If QI has fewer than 50 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 itsQDD capacity), QI acting as a QDD ac-tivities, and substitute interest paymentsfor which QI assumed primary withhold-ing responsibility (as described in section3.03(A) of this Agreement). The revieweris required to record its sampling proce-dures and to maintain the ability to recon-struct the sample. Further, the review isnot required to include statistical samplingprocedures for testing transactions, but thereviewer must document its methodologyfor sampling determinations. A safe har-bor methodology and additional informa-tion on the use of statistical sampling isprovided in Appendix II to this Agree-ment.

If the reviewer determines that under-withholding has occurred, QI shall reportand pay any amount due. QI must alsonotify the IRS Foreign IntermediariesTeam at the address provided in section12.06 of this Agreement of the underwith-holding discovered as a result of the re-view. If the reviewer used a samplingmethod for its review, see Appendix II tothis Agreement for an allowance in certaincases to use a projection method to deter-mine the amount of underwithholding.

(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;

Bulletin No. 2016–29 July 18, 2016111

(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 and, in the case of a direct re-porting NFFE, its requirements under§ 1.1472–1(c)(3);

(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 ora qualified dividend equivalent offsettingpayment (notwithstanding the limitationin section 2.70(B) of this Agreement) todetermine whether QI has documented thestatus of account holders under the re-quirements described in sections 5.01through 5.09 of this Agreement; and

(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.

(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 account

holder, 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.

(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 assumed pri-mary Form 1099 reporting and backupwithholding responsibility, performchecks using U.S. non-exempt recipientaccount holders to verify that QI backupwithheld 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 under

sections 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; and

(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.

(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-

July 18, 2016 Bulletin No. 2016–29112

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) In the case of collective credits orrefunds, reviewing the statements attachedto amended Forms 1042 filed to claim acollective refund, determine whetherthose 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 of accounts forwhich QI is acting as a qualified interme-

diary, and determine whether the amountsof 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 aqualified intermediary) to determine thatsuch accounts were reported in accor-dance with QI’s FATCA requirements asa participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI;

(ii) If QI is an NFFE acting as a qual-ified intermediary on behalf of its share-holders, confirming that any direct or in-direct shareholders that are substantialU.S. owners were reported in accordancewith § 1.1472–1(c)(3);

(iii) If QI is an NFFE acting as a qual-ified intermediary on behalf of personsother than its shareholders, confirmingthat if QI is acting on behalf of a passiveNFFE with substantial U.S. owners, with-holdable payments made to the passiveNFFE and the information regarding itssubstantial U.S. owners were reported;

(iv) 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;

(v) 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

(vi) 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 orunderlying securities and whether the sec-tion 871(m) amount includes the amountsin its dealer capacity and not amounts inits non-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 (J) 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 responsibleofficer 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 upon initial review (i.e.,not reflecting the results after curing) andthe curing process should not delay certi-fication of internal controls or factual in-formation required in Appendix I to thisAgreement. To the extent necessary, theperiodic review report should include thedates on (or time period during) whichcurative documentation was received foraccounts with respect to which the re-viewer determined that underwithholdinghad occurred, the number of accounts forwhich curative documentation was ob-tained and a revised calculation of theunderwithholding or additional backupwithholding.

(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 or

Bulletin No. 2016–29 July 18, 2016113

business 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) dealer accounts, and (v)non-dealer accounts. The report shouldalso include 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 dividend equiva-lent payment amount, the qualifying div-idend equivalent offsetting paymentamount, the amount of such paymentsmade or contractually obligated to bemade, or any other amounts subject to tax(or required to compute the tax liability)under section 871(a) and 881 (includingthe QDD tax liability)).

(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 periodic certification ofinternal controls described in section

10.03 of this Agreement. QI’s applicationfor such a waiver must be approved by theIRS, and the waiver does not apply auto-matically. QI must apply for a waiver foreach certification period for which awaiver is requested. If QI’s request for awaiver of the periodic review requirementis granted, such approval is only to waiveQI’s obligations under sections 10.04 and10.05 of this Agreement. The approvaldoes not relieve QI of making the certifi-cation of internal controls described insection 10.03 of this Agreement. The ap-proval also does not preclude the IRSfrom requesting information or conduct-ing a correspondence review as describedin section 10.07 of this Agreement. QImust include the information of any PAIwith which QI has an agreement and anypartnership or trust to which QI appliesthe agency option in its waiver applicationwhich is set forth in Part III of AppendixI 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 do not 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, including forthe year to which the periodic reviewwould be applied;

(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 most

recent calendar year covered by the certi-fication period and reporting such resultsas of QI’s initial review (not followingany subsequent 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 thewaiver 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 section 10.03 of this Agreementif, based upon the information describedabove, the IRS identifies, in its discretion,a presence of factors indicating systemicor significant compliance failures by QI.The IRS may also request that QI desig-nate a replacement responsible officer ifQI’s responsible officer has not compliedwith its responsibilities (including re-sponding to requests by the IRS for addi-tional information) or the IRS has infor-mation that indicates the responsibleofficer may not be relied upon to complywith its responsibilities.

(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.

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(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 aboutdocumentation, 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), PAI, or apartnership 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 FFI) or anyPAI, partnership, or trust described in sec-tion 4 of this Agreement with which QIhas an agreement to perform additional,specified review procedures. The IRS re-serves the right to require QI (or the Com-pliance QI) or a PAI, or a partnership ortrust to which QI applied the agency op-tion 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 the QIwith a written plan describing the addi-tional review procedures and will providea due date of not more than 120 days forthe QI to provide to the IRS a reportcovering the reviewer’s findings.

SECTION 11. EXPIRATION,TERMINATION, MERGER ANDDEFAULT

Sec. 11.01. Term of Agreement. ThisAgreement begins on the effective date ofthe QI Agreement and expires at the endof the third full calendar year the Agree-ment is in effect, unless terminated undersection 11.02 of this Agreement. ThisAgreement may be renewed as providedin section 11.08 of this Agreement.

Sec. 11.02. Termination of Agree-ment. This Agreement may be terminated

by either the IRS or QI prior to the end ofits term by delivery of a notice, in accor-dance with section 12.06 of this Agree-ment, of termination to the other party.The IRS, however, shall not terminate thisAgreement unless there has been a signif-icant change in circumstances, as definedin section 11.04 of this Agreement, or anevent of default has occurred, as definedin section 11.06 of this Agreement, andthe IRS determines, in its sole discretion,that the significant change in circum-stances or the event of default warrantstermination of this Agreement. The IRSshall not terminate this Agreement if QIcan establish to the satisfaction of the IRSthat all events of default for which it hasreceived notice have been cured withinthe time period agreed upon. The IRSshall notify QI, in accordance with section11.06 of this Agreement, that an event ofdefault has occurred and that the IRS in-tends to terminate the Agreement unlessQI cures the default or establishes that noevent of default occurred. A notice oftermination sent by either party shall takeeffect on the date specified in the notice,and QI is required to notify its withhold-ing agent of the date that its status as a QIis 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 yearsand portion of the calendar year in whichtermination is requested and for whichthis Agreement was in effect. The IRSshall revoke QI’s QI-EIN within a reason-able time after the reporting, tax filing,and depositing requirements for suchyears are satisfied. The termination of thisAgreement is not intended to affect anyother federal income tax consequences.

Sec. 11.03. Loss of QDD Status. If QIis acting as a QDD and fails to qualify asan eligible entity during the term of thisAgreement, QI shall lose its QDD statusimmediately upon QI failing to qualify asan eligible entity and as of that date can nolonger act as a QDD. QI is required tonotify its withholding agent of the datethat it failed to qualify as an eligible entityand no longer was permitted to act as aQDD. QI’s loss of QDD status shall notaffect any of QI’s QDD reporting, taxfiling, withholding, depositing, or pay-ment responsibilities for the period QI

was acting as a QDD as provided in thisAgreement, including paying its QDD taxliability.

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 orpolicy, or applicable foreign law or pol-icy, that affects the validity of any provi-sion of this Agreement, materially affectsthe procedures contained in this Agree-ment, or affects QI’s ability to perform itsobligations under this Agreement;

(C) A ruling of any court that affectsthe validity of any material provision ofthis Agreement;

(D) A material change in the know-your-customer rules and procedures setforth in any Attachment to this Agree-ment;

(E) A significant change in QI’s busi-ness practices that affects QI’s ability tomeet its obligations under this Agreement;

(G) If QI is an FFI, QI fails to maintainits status as a participating FFI, registereddeemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI;

(H) If QI is an NFFE acting as a QI onbehalf of its shareholders, if it fails tomeet its requirements as a direct reportingNFFE under § 1.1472–1(c)(3);

(I) If QI is acting as a sponsoring entityon behalf of a sponsored FFI or sponsoreddirect reporting NFFE, if it fails to complywith the due diligence, withholding, re-porting, and compliance requirements of asponsoring entity; or

(J) If QI is acting as a QDD, QI ceasesto qualify as an eligible entity, includingas a result of a change in its business orregulatory status (see section 11.02).

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 andmerger, in accordance with section 12.06

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of 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. The IRS shall revoke QI’s QI-EINwithin a reasonable time after once thereporting, tax filing, and depositing re-quirements 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;

(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 an NFFE acting as a QI onbehalf of its shareholders, QI fails to ma-terially comply with its requirements as adirect reporting NFFE under § 1.1472–1(c)(3); or 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 know-your-customer rulesdescribed in any Attachment to thisAgreement within 90 days of the changebecoming 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 section 10.03 of this Agreementor 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, QI fails totimely pay a material amount of its QDDtax liability and fails to correct the under-payment and pay the appropriate taxamount.

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 isdiscovered in the course of a review, theQI may cure the default, without follow-ing the procedures of this section 11.07, if

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the 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 (includinga QI that is renewing its QDD status) is anFFI, an NFFE acting on behalf of itsshareholders, or an NFFE that is a spon-soring entity and intends to renew thisAgreement, it must submit a registrationfor renewal to the IRS on the FATCAregistration website in accordance withthe instructions to Form 8957 or as other-wise provided in published guidance. ThisAgreement will be renewed only upon theagreement of both QI and the IRS. A QIthat seeks to renew its QI agreement andalso seeks to become a QDD must supple-ment the renewal request by providing astatement containing all information re-quired by Form 14345 relating to a QDD.

A QI not described in the precedingparagraph must renew its QI agreement bysubmitting a request for renewal to theForeign Intermediaries Program at the ad-dress provided in section 12.06 of thisAgreement.

SECTION 12. MISCELLANEOUSPROVISIONS

Sec. 12.01. QI’s application to becomea qualified intermediary, all Appendicesand Attachments to this Agreement, and,the following are hereby incorporated intoand made an integral part of this Agree-ment:(a) If QI is an FFI, its FATCA require-ments as a participating FFI, registered

deemed-compliant FFI, or registereddeemed-compliant Model 1 IGA FFI; or(b) If QI is an NFFE acting as a QI onbehalf of its shareholders, its requirementsas a direct reporting NFFE under§ 1.1472–1(c)(3).

This Agreement, QI’s application, andthe Appendices and Attachments to thisAgreement constitute the complete agree-ment 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-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 instructions to Form 8957,notices provided under this Agreementshall be mailed registered, first class air-mail. All notices sent to the IRS mustinclude the QI’s name, QI-EIN, GIIN (ifapplicable), and the name of its responsi-ble officer. Such notices shall be directedas follows:To the IRS:Internal Revenue ServiceForeign Payments PracticeForeign Intermediaries Program290 Broadway, 12th Floor NWNew York, New York 10007–1867

To 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 qualified intermediary or in any othercapacity, does not act as an agent of theIRS, nor does it have the authority to holditself out as an agent of the IRS.

SECTION 5. EFFECTIVE DATE

The effective date of the QI agreementcontained in section 4 of this notice (asmodified and superseded by any futurepublished guidance) is January 1, 2017.

SECTION 6. DRAFTINGINFORMATION

The principal author of this notice isLeni C. Perkins of the Office of AssociateChief Counsel (International). For furtherinformation regarding this notice contactMs. Perkins at (202) 317-6942 (not a tollfree call) or, with respect to QDDs, PeterMerkel or Karen Walny at (202) 317-6938(not a toll free call).

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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 10.071(A) and (B) of the QI Agreement, the following QIs arenot eligible for a waiver: (a) QIs that are NFFEs, (b) QIs that are acting as QDDs, and (c) QIs that arepart of 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 theQI Agreement. Y/N

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 periodic certification as described under section 10.03 of the QI Agreement anda periodic review report 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. Provide the names and addresses of those partnerships or trusts.b. 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

c. Each partnership or trust to which QI applies the agency option pursuant to section 4.06 of the QI Agreement hasprovided QI with either (1) its information for inclusion in QI’s periodic review (as described in section 4.06(A)(5) ofthe QI Agreement) or (2) a periodic certification required under section 10.03 of the QI Agreement and a periodic reviewreport as required under 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. Provide the names and addresses of those partnerships or trusts.b. 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

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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: (1) an event of default or (2) a material failure that QI has not corrected as of the dateof this certification (or such an event of default or material failure has otherwise been identified), QI cannot make the certificationof 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) (if applicable)

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, or review undertaken in preparation for the responsible officer’s certification of internalcontrols, QI maintains effective internal controls over its documentation, withholding, and reporting obligations under the QIAgreement and according to its applicable FATCA requirements, with respect to accounts for which it acts as a qualifiedintermediary, and, if QI is acting as a QDD, it maintains effective internal controls over its computation and tax obligationsunder the QI Agreement and the regulations under section 871(m).

3. Based on the information known (or information that reasonably should have been known) to the responsible officer, includingthe findings of any procedure, process, or review undertaken in preparation for the responsible officer’s certification of internalcontrols, there are no material failures, as defined in section 10.03(D) 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 are identified as part of this certification as wellas the actions taken to remediate them and to prevent their reoccurrence by the date 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, or, with respect toQI that is acting as a QDD, any failure to pay its QDD tax liability , QI has corrected such 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 meeting the requirements of section 10.03(A) of the QI Agreement and have represented to QI thatthere are no material failures, as defined in section 10.03(D) 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 QI togetherwith 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 QDD, it has acted as a QDD for all payments with respect to potential section 871(m) transactions andunderlying securities for which it is required to act as a QDD and no other transactions or underlying securities.

8. If QI is acting as a QI and has assumed primary withholding responsibility with respect to payments of substitute interest (asdescribed in section 3.03(A) of the QI Agreement), QI has assumed primary withholding responsibility for all such paymentscovered by the QI Agreement.

9. 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.

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(D)of the QI Agreement with respect to QI’s compliance, its PAI’s compliance, or the compliance of a partnership or trust to whichQI 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, or with respect toQI that is acting as a QDD, a failure to pay its QDD tax liability, QI will correct such failure by paying any taxes due (includinginterest 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 (eitherdirectly or through QI) to the IRS, to the extent requested, a description of each material failure and a written plan to correcteach such failure

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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 findings ofany other procedure, process, or review undertaken by the responsible officer in preparation for his or her certification ofinternal controls. Y/Na. If Yes, QI used a projection method in determining the amount of the additional tax liability. Y/N

Note: If QI is acting as a QDD, it may not use a projection method in determining the amount of any additional QDD tax liability.i. If Yes, QI used the safe harbor projection method under Appendix II to the QI Agreement. Y/Nii. If No, describe the projection method used.

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.

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 failures fromreoccurring.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, or, in the case of directreporting NFFE, its requirements under Treas. Reg. § 1.1472–1(c)(3), and with respect to QI that is acting as aQDD, 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 take actionsconsistent with QI’s obligations under the QI Agreement, including its FATCA requirements as a participating FFI,registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI, or, in the case of a direct reportingNFFE, its requirements under Treas. Reg. § 1.1472–1(c)(3), or if QI is acting as a QDD, its obligations as a QDD underthe 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 (or anybranch or office thereof) is subject and that is imposed due to QI’s failure to properly identify account holders underthe 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;

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, satisfy its QDD tax liability, taking into account theprocedures 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 provide informationto 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 or, if QIis acting as a QDD, obtain any necessary waiver from reporting or maintain the name, address, and TIN of asignificant number of U.S. non-exempt recipients to whom the QDD made a payment that otherwise would bea qualifying dividend equivalent offsetting payment but for the limitation in section 2.70(B) of the QIAgreement ; or

7. Report or report accurately on Form 8966 under sections 8.04 and 8.05 of the QI Agreement.v. Other (include a detailed explanation).

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3. The material failure identified in the review has been corrected by the time of this certification. Y/N/NAa. 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 withthe QI 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,and paying, 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 an NFFE acting as a QI on behalf of its shareholders, QI failed to materially comply with its requirementsas a direct reporting NFFE under § 1.1472–1(c)(3); or if QI is a sponsoring entity, QI failed to materially complywith the due diligence, withholding, reporting, and compliance 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 know-your-customer rules described in any Attachment to the QI

Agreement 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 section 10.03 of 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;

xix. If QI is acting as a QDD, QI failed to timely pay a material amount of its QDD tax liability and failed to correct theunderpayment 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 (J) of the QI Agreement.2. For the most recent certification period, the periodic review has identified the following significant change(s) in circumstances:

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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 know-your-customer rules and procedures set forth in any attachment to the QI Agreement.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 certification periodunder the FFI agreement (check one). Note: You may only check N/A if, during the certification period, your chapter 4 statuschanged from one of the other applicable chapter 4 statuses to participating FFI.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 organized underthe 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 branchoperates in the jurisdiction) and has met the requirements under the IGA to be treated as a deemed-compliant FFI.

Direct Reporting NFFEs

1. For the most recent certification period under the QI Agreement, QI has been a direct reporting NFFE and has met therequirements of Treas. Reg. § 1.1472–1(c)(3).

PART III. WAIVER OF PERIODIC REVIEW

For Parts B.1 through 6, while the curing of inadequate documentation is permissible, the information reported in thissection of the Appendix must be based on the initial review and not the results obtained after 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.5. QI made all periodic certifications and reviews required by sections 10.02 and 10.03 of the QI Agreement as well as all

certifications 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.

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B. Information required (provided for the most recent calendar year within the certification period)

1. The total number of accountsa. Total number of direct account holders

i. Foreign personsii. U.S. exempt recipients

iii. U.S. non-exempt recipientsiv. Intermediaries and flow-through entities

b. Total number of indirect account holdersi. Foreign persons

ii. U.S. exempt recipientsiii. U.S. non-exempt recipientsiv. Intermediaries and flow-through entities

2. The total number of account holders that received reportable payments.3. The total number of 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. The aggregate amount of tax withheld under chapter 3 and chapter 4 (by QI or QI’s withholding agent(s)).8. The total number of Forms 1099 filed by QI.9. 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 Information

1. Did QI use an external reviewer to conduct any portion of its periodic review? Y/Na. If yes, provide name(s) of reviewer(s).

2. Did QI use an internal reviewer to conduct any portion of its periodic review? Y/Na. If yes, provide a brief description of the internal reviewer, such as their department and other roles and responsibilities with

respect 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, theinformation reported shall be based on the initial review and not the results obtained after curing. For purposes of this Part,“account” means, unless otherwise specified, any account for which QI acts as a QI. However, do not include accounts for whichQI is acting as a QDD or accounts receiving substitute interest payments for which QI has assumed primary withholdingresponsibility.

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. Documentation

1. 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 initial 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) or, in

the case of an NFFE acting on behalf of its shareholders, held by substantial U.S. owners.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.15. If QI is an NFFE acting as a qualified intermediary on behalf of persons other that its shareholders, total accounts reviewed

held by passive NFFEs with substantial U.S. owners.

D. Withholding

1. 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 appropriate 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 Amounts

1. The aggregate amount reported paid to QI on all Forms 1042–S issued to QI.2. The aggregate amount reported paid to QI on the Forms 1099 issued to QI (unknown recipient).3. Total of Questions 1 and 2.4. 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).5. The aggregate amount reported paid by QI on Forms 1042–S to QI’s chapter 4 reporting pool- U.S. payee pool.

July 18, 2016 Bulletin No. 2016–29124

6. The aggregate amount reported paid by QI on Forms 1042–S to QI’s chapter 3 reporting pools (including chapter 3 reportingpools of a PAI or partnership or trust to which QI applies the joint account or agency option).

7. The aggregate amount reported paid by QI on Forms 1042–S to other QIs (excluding QIs that are acting as QDDs) and WPsand WTs as a class.

8. The aggregate amount reported paid by QI on Forms 1042–S to QIs that are acting as QDDs.9. 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.

10. The aggregate amount reported paid by QI on Forms 1042–S to indirect account holders (not included in Question 9 aboveand including an account holder of an intermediary or flow through entity reported by QI as made to an unknown recipienton Form 1042–S).

11. The aggregate amount paid by QI to U.S. non-exempt recipients as a class not includable in a chapter 4 withholding rate poolof QI.

12. The aggregate amount paid by QI to U.S. exempt recipients as a class not includable in a chapter 4 withholding rate pool ofQI.

13. Total of questions 4 through 1214. The amount of any unreconciled variances (if Question 3 minus Question 13 is other than 0)15. 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.

F. Reconciliation of Withholding on Reportable Amounts

1. The aggregate amount reported as withheld by another withholding agent on Forms 1042–S issued to QI.2. The aggregate amount reported as backup withheld by another withholding agent on Forms 1099 issued to QI (unknown

recipient).3. The aggregate amount reported by QI as amounts it withheld on Forms 1042–S.4. The aggregate amount reported by QI as amounts it backup withheld on Forms 1099.5. If QI did not assume primary withholding responsibility and amounts are entered for questions 3 or 4, explain any

underwithholding that occurred by the withholding agent.6. If QI assumed primary withholding responsibility and amounts are entered for questions 1 or 2, explain the amount withheld

by others.7. The aggregate amount of any collective claims for refund or credit made by QI.

Part V. Qualified Derivatives Dealers

Complete only if QI is acting as a QDD and only for accounts for which QI is acting in its QDD capacity. See section 2.01 ofthe QI Agreement for the definition of “account” with respect to QI acting as a QDD. If QI is acting as a QDD and is a foreign branchof a U.S. financial institution, it is not required to complete questions in this Part relating to the QDD tax liability (Parts A.3, A.5,and D).

A. General Information-Check to Confirm

1. QI has established procedures to ensure that it is acting as a QDD for all payments received by QI with respect to potentialsection 871(m) transactions and underlying securities when acting as a principal and for all payments made by QI with respectto potential section 871(m) transactions when acting as a principal, except payments specifically excluded from QDD activitiesin the QI Agreement, and that it is not acting as a QDD for any other payments.

2. QI has established procedures to determine whether a payment is a dividend equivalent payment and the amount of the dividendequivalent, including taking into account information received pursuant to Treas. Reg. § 1.871–15(p), where appropriate.

3. QI has established procedures to determine its QDD tax liability, including whether a transaction is a dealer or non-dealertransaction.

4. QI has properly filed Form 1042 (including all information required to be reported by a QDD).5. QI has satisfied its QDD tax liability.6. Did QI use a statistical sampling method in conducting the review of its accounts for which QI acted as a QDD? 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.

7. Total number of accounts for which QI acted as a QDD.8. Total number of accounts for which QI acted as a QDD reviewed as part of the periodic review.

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B. Documentation

1. Total accounts reviewed with valid documentation.2. Total accounts reviewed with invalid documentation or no documentation.3. Total accounts reviewed with invalid documentation or no documentation for which valid documentation or additional valid

documentation was obtained after the initial review.4. Total accounts reviewed for which treaty benefits were claimed.5. 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).

6. Total accounts reviewed held by U.S. non-exempt recipient account holders.7. Total accounts held by U.S. non-exempt recipient account holders reviewed for which QI has obtained a valid Form W–9.

C. Withholding

1. The aggregate amount reported as withheld under chapter 3 by QI on Forms 1042–S for payments with respect to potentialsection 871(m) transactions it made when acting as a QDD.

2. Number of accounts for which amounts were withheld under chapter 3 for payments with respect to potential section 871(m)transactions it made when acting as a QDD.

3. The aggregate amount reported as withheld under chapter 4 by QI on Forms 1042–S for payments with respect to potentialsection 871(m) transactions it made when acting as a QDD.

4. Number of accounts for which amounts were withheld under chapter 4 for payments with respect to potential section 871(m)transactions it made when acting as a QDD.

5. Aggregate amount reported as withheld on Forms 1099 for payments with respect to potential section 871(m) transactions madeto U.S. persons.

6. Number of accounts for which amounts were backup withheld under section 3406 for payments with respect to potential section871(m) transaction made to U.S. persons.

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 based on results of periodic review.10. The aggregate amount of deposits made in accordance with section 3.08 of the QI Agreement with respect to payments made

when acting as a QDD.

D. Reconciliation of QDD Tax Liability

1. Total amount of dividend and dividend equivalent payments received in a dealer capacity.2. Total amount of dividend equivalent payments made by QI acting as a QDD in its dealer capacity.3. Total amount of qualifying dividend equivalent offsetting payments made by QI acting as a QDD in its dealer capacity.4. Total amount of dividend equivalent payments or qualifying dividend equivalent offsetting payments made or contractually

obligated to be made by QI acting as a QDD in its dealer capacity.5. Total amount of dividend and dividend equivalent payments received by QI acting as a QDD in its non-dealer capacity.6. Total amount of dividend equivalent payments made by QI acting as a QDD in its non-dealer capacity.7. Total section 871(m) amount (difference between line 1 and the sum of lines 2–4).8. Total amount of payments with respect to potential 871(m) transactions and underlying securities received as a principal.9. Total amount of other payments received with respect to potential section 871(m) transactions and underlying securities as a

principal that are not dividend or dividend equivalent payments received in a dealer capacity (difference between line 8 andline 1)

E. Reporting

1. Total amount of dividend equivalent payments reported on Form 1042–S.2. Total amount of payments that are not dividend equivalent payments reported on Form 1042–S.3. Total amount of payments of qualifying dividend equivalent offsetting payments made to U.S. persons, as described in section

2.70(A)(1) of the QI Agreement, reported in a pool on Form 1042–S.4. Total amount of payments of qualifying dividend equivalent offsetting payments that are effectively connected with the conduct

of a trade or business in the United States, as described in section 2.70(A)(2) of the QI Agreement, reported in a pool on Form1042–S.

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5. Total amount of payments of amounts that otherwise would be qualifying dividend equivalent offsetting payments but for thelimitation in section 2.70(B) of the QI Agreement.

6. Total amount of payments reported on Form 1099.7. Aggregate amount of any claims for credit or refund made by QI acting as a QDD with respect to payments with respect to

potential section 871(m) transactions.

Part VI. Substitute Interest

Complete only if a qualified intermediary that has assumed primary withholding responsibility for payments of substitute interest(as described in section 3.03(A) of the QI Agreement).

A. General Information

1. Total number of accounts receiving substitute interest payments.2. Total number of accounts receiving substitute interest reviewed as part of the periodic review.3. Did QI use a statistical sampling method in conducting the review of substitute interest transactions for which QI assume

primary withholding responsibility? Y/N/NAa. If yes, was it the safe harbor method under Appendix II to the QI Agreement?b. If no, describe the method used.

B. Documentation

1. Total accounts reviewed with valid documentation.2. Total accounts reviewed with invalid documentation or no documentation for which documentation or additional documen-

tation 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. Withholding

1. 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. Reporting

1. Total amount of interest or substitute interest payments received for which QI represented itself as assuming primarywithholding 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.

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APPENDIX II

Section 1. Background. As provided in section 10.05 of the QI Agreement, the reviewer is permitted to use a samplingmethodology to perform the periodic review. This Appendix includes safe harbor procedures covering basic sample designparameters and methodologies, including sample size, strata allocation, and projection. QI may use another sampling techniqueprovided it documents its parameters and methodologies for the IRS to review, as described in section 10.05 of the QI Agreement.Sampling should only be used whenever an examination of all accounts within a particular class of accounts would be prohibitivein terms of time and expense. If it is reasonable to examine all accounts in connection with a particular part of the periodic review,sampling techniques should not be used. Except as otherwise provided herein, the terms used in this Appendix are as defined insection 2 of the QI Agreement.

Generally, sampling should only be used if there are more than 50 accounts to review. To the extent applicable, the reviewer mustseparately review accounts for which QI acts as a qualified intermediary (excluding accounts for which QI is acting as a QDD andaccounts to which QI made substitute interest payments for which QI assumed primary withholding responsibility) (“QI accounts”),accounts for which QI is acting as a QDD, and accounts receiving substitute interest payments for which QI assumed primarywithholding responsibility. If PAI accounts are also included in the QI’s review (because the PAI did not perform its own compliancereview), the PAI accounts should be included in the sample of QI accounts by adding additional strata, replicating the strataprescribed in section 2.C of this Appendix as applicable, that contain only PAI accounts. For purposes of the QI’s periodic review,a QI account, an account for which QI is acting as a QDD, or an account receiving substitute interest payments for which QI assumedprimary withholding responsibility is referred to as a “sample unit” (and collectively as the “sample”) with respect to each review.For any of the three reviews with populations containing 50 or fewer sample units, all sample units for that population must bereviewed.

The statistical sampling methodologies used in this Appendix are not intended to be and cannot be used for any other tax purpose.A reviewer may request approval to modify the safe harbor or approval of another sampling methodology in order to select morethan the three sample units 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.

Section 2. Safe Harbor Methodology.

A. Populations.

The population of the first sample must consist of QI accounts, taking into account each of the strata described in section 2.C(a)of this Appendix. If QI acts as a QDD, the population of the second sample must consist of accounts for which QI is acting as a QDD,taking into account each of the strata described in section 2.C(b) of this Appendix. If QI assumes primary withholding responsibilityfor substitute interest payments, the population of the third sample must consist of accounts receiving such substitute interestpayments, taking into account each of the strata described in section 2.C(c) of this Appendix.

(a) 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. If QI is acting as a QDD, accounts for which QI is acting as a QDD are not to beconsidered in determining the population for this sample. If QI assumes primary withholding responsibility for substitute interestpayments, accounts receiving such substitute interest payments are also not are to be considered in determining the population forthis sample.

(b) Sample of QDD Accounts. The reviewer selects a random sample of accounts from the population consisting of accounts forwhich QI is acting as a QDD.

(c) Sample of Accounts Receiving Substitute Interest Payments. The reviewer selects a random sample of accounts from thepopulation consisting of accounts receiving substitute interest payments for which QI assumes primary withholding responsibility.

B. Sample Sizes.

(a) The sample sizes for each of the three samples are calculated independently. If PAI accounts have been added to the sampleof QI accounts because the PAI did not perform its own periodic review, a separate sample size calculation should also be performedfor the PAI accounts as if they were part of a separate sample. The sample size for each of the three samples, and for any additionalPAI accounts, is the lesser of (i) the number of sample units determined using the sample formula in paragraph (c) of this section,or (ii) 25 percent of the total number of sample units in the population. However, in determining the sample size, the reviewer mustadhere to the guidelines for minimum stratum sample sizes in sections 2.C and 2.D of this Appendix. This may result in a samplesize greater than the maximum sample size resulting from using the formula in paragraphs (b) and (c) of this section. The minimumsample size of any sample shall not be less than 50.

July 18, 2016 Bulletin No. 2016–29128

(b) Sample Size Adjustments. The variable P “error rate” should be set equal to (1) 5 percent for the sample of QI accounts, resultingin a maximum sample size of 321; (2) 4 percent for the sample of QDD accounts, resulting in a maximum sample size of 259; and (3) 1.5percent for the sample of accounts receiving substitute interest payments, resulting in a maximum sample size of 100.

(c) Sample Formula. The number of sample units to be reviewed is determined using the sample formula is as follows:

t2 PQd2

Sample Size = ___________________________

1 + 1 ( t2 PQ _ 1) N d2

where t� 1.645 (confidence coefficient at 95 percent one-sided)P� 5 percent (error rate) for the QI account sample, 4 percent for the QDD sample, and 1.5 percent for the substitute interest

sample.Q� 1-Pd � 2 percent (precision level)N� total population

C. Strata.

(a) Sample of QI Accounts. The reviewer must segregate all of the QI accounts into the following strata. If QI makes paymentsto a single account that result in the account meeting the qualifications for more than one stratum, the account should be treated asmultiple accounts, with each newly redefined account consisting of the payments received for each relevant stratum. Furthersubstratification by dollar amounts may be used in accordance with section 2.H of this Appendix.

(1) A stratum of accounts held by recalcitrant account holders and non-participating FFI account holders.(2) A stratum of accounts not included in the previously defined stratum of nonwithholding foreign partnerships and nonwith-

holding foreign trusts to which the QI applied the joint account option or the agency option.(3) A stratum of all accounts held by direct account holders that are not U.S. non-exempt recipients and are not included in any

previously defined strata.(4) A stratum of all accounts that are held by direct account holders that are U.S. non-exempt recipients that are not included in

any of the previously defined strata.(5) A stratum of all accounts held by indirect account holders not included in any previously defined strata.(b) Sample of QDD Accounts. The reviewer must segregate all of the accounts for which QI is acting as a QDD into the following strata:(1) A stratum of all accounts where the QDD makes or is contractually obligated to make a dividend equivalent payment to

recalcitrant account holders and non-participating FFIs.(2) A stratum of all accounts where the QDD makes or is contractually obligated to make a dividend equivalent payment to foreign

recipients that are not included in the previously defined stratum.(3) A stratum of all accounts where the QDD makes or is contractually obligated to make a payment of a qualifying dividend

equivalent offsetting payment that are not included in any of the previously defined strata.(4) A stratum of all accounts where the QDD makes reportable payments with respect to potential section 871(m) transactions

that are not dividend equivalents to foreign recipients that are recalcitrant account holders and non-participating FFIs.(5) A stratum of all accounts where the QDD makes reportable payments to foreign recipients with respect to potential section

871(m) transactions that are not dividend equivalents that are not included in any of the previously defined strata.(6) A stratum of all accounts where the QDD makes payments to U.S. persons with respect to potential section 871(m) transactions that

are not qualifying dividend equivalent offsetting payments and that are not included not included in any of the previously defined strata.(7) A stratum of all accounts not included in any of the previously defined strata.(c) Sample of Accounts Receiving Payments of Substitute Interest. The reviewer must segregate all of the accounts receiving

payments of substitute interest for which QI has assumed primary withholding responsibility into the following strata:(1) A stratum of accounts held by recalcitrant account holders and non-participating FFI account holders.(2) A stratum of all accounts held by account holders that are not U.S. non-exempt recipients and are not included in the previously

defined stratum.(3) A stratum of all accounts held by account holders that are U.S. non-exempt recipients and are not included in any of the

previously defined strata.

D. Allocation of Sample Size to Each Stratum.

The reviewer must allocate the number of sample units for each sample, and for any PAI accounts added to the sample of QIaccounts, independently of the other samples. For example, the reviewer must allocate the number of sample units in the sample

Bulletin No. 2016–29 July 18, 2016129

determined under section 2.B of this Appendix to each stratum described in section 2.C(a) by multiplying the number of sample unitsin the sample, as determined under section 2.B, by a fraction, the numerator of which is the total number of sample units in thestratum and the denominator of which is the total number of sample units in the population. The same allocation should also be madefor each stratum described in sections 2.C(b) and (c) of this Appendix, respectively. The minimum allocation to each stratum is the lesserof (1) 50 sample units or (2) the total number of sample units in the stratum. If there are fewer than 50 sample units in any stratum, allsample units in that stratum must be examined, and the difference between 50 and the number of sample units in the stratum must bereallocated to the remaining strata on a pro rata basis. If there are 50 or more sample units in the stratum, but the allocation, as determinedunder the fraction above, is less than 50 sample units, the number of sample units to be used in the sample from that stratum is 50.

E. Number Generator. The reviewer must select for review sample units from each stratum identified in section 2.C for each ofthe (a) sample of QI accounts; (b) sample of accounts for which QI is acting as a QDD; and (c) sample of accounts receivingsubstitute interest payments for which QI assumes primary withholding responsibility by using a random number generator. Randomnumbers should be drawn separately for each sample including the use of separate seeds. Information regarding the random numbergenerator used must be included in the records required in section 3.E of this Appendix. This information must be sufficient to allowthe IRS to replicate the random numbers. This information must include the name and version of the random number generator, theseed numbers used or generated, specification of any options selected, and the computer equipment on which it was run.

G. Selection of Accounts for Review. For purposes of reviewing and testing accounts in accordance with section 10.05 of the QIAgreement, the reviewer must review accounts from every stratum in all three applicable samples that meet the requirements for thereview, taking into account the applicable presumption rules where documentation is missing, invalid, or cannot be relied upon (andany reclassification after applying the presumption rules).

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 20, the reviewer must also select for review (in the order selected by the random numbergenerator under section 2.E of this Appendix or, if the reviewer has not used statistical sampling, in the order used by the QI for itsrecord keeping) an additional number of sample units drawn from that stratum that equal the difference between 20 and the numberof sample units from the sample in that stratum.

H. Optional Further Stratification by Dollar Amounts. For any of the three samples, the reviewer may further stratify by dollaramounts for that sample without submitting a request for approval when the reviewer is otherwise selecting the sample in accordance withthis Appendix. For the QI account sample, reportable amounts for foreign recipients and reportable payments for U.S. recipients are to beconsidered in the substratification. If the reviewer chooses to substratify under this section, the reviewer must comply with the following 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 25 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 25 sample units.

I. Determining Rate of Withholding for Partnerships and Trusts for Which the QI has Utilized Joint Account Treatment

When reviewing documentation of partners, beneficiaries, or owners to determine the rate of withholding QI should have applied to apartnership or trust, the reviewer may limit the 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

July 18, 2016 Bulletin No. 2016–29130

Section 3. Additional Requirements Regarding the Use of Sampling

A. Reporting of Sample Plan for Samples not Utilizing the Safe Harbor.

When not utilizing the safe harbor statistical sampling plan in this Appendix, the reviewer should provide in its periodic reviewreport a description of the sampling methodology used. If the reviewer used a statistical sampling plan other than the safe harborstatistical sampling plan described in this Appendix, the reviewer should provide the information described in Rev. Proc 2011–42Appendix A) Sampling Plan Standards and Appendix B) Sampling Documentation Standards for Sample Execution Documentation,in addition to any information required by this Appendix.

B. Determination of Underwithholding. If the reviewer determines that underwithholding has occurred with respect to the sampledaccounts, QI shall report and pay, in accordance with the requirements of the QI Agreement, the underwithheld tax determined underthe IRS projection method described in section 3.D. The QI will also notify the IRS Financial Intermediaries Program at the addressprovided in section 12.06 of the QI Agreement of any underwithholding discovered as a result of the review. Alternatively, the QIcan propose to the IRS another amount of underwithholding based on section 3.B of this Appendix. For this purpose, QI agrees toprovide the IRS with the information (e.g., number of accounts, associated amounts, stratum locations of adjusted items, etc.)required to project the underwithholding. If the IRS does not agree with the amount proposed by QI, the IRS shall assess a tax underthe procedures set forth in the Code.

C. QDD Tax Liability. If the reviewer determines that QI acting as a QDD has not fully satisfied its QDD tax liability (as describedin section 3.09 of the QI Agreement),QI must report and pay the amount owed in accordance with the requirements of the QIAgreement. A QI acting as a QDD may not use a projection method to determine the amount of underpayment of its QDD taxliability.

D. Projection. If the reviewer has determined that underwithholding has occurred with respect to the sample, based on the originalassessment of the reviewer without regard to any remediation or curing after the selection of the sample units for review, then thereviewer will determine the total amount of underwithheld tax by utilizing a projection method, except as provided in section 3.Cof this Appendix. If the reviewer is using a method other than the safe harbor statistical sampling plan described in this Appendix,QI shall contact the Financial Intermediaries Team to agree to a projection method. If the review is using the safe harbor statisticalsampling plan, then the reviewer may determine the amount of underwithheld tax by projecting the underwithholding over the entirestratum of similar sampling units using the following method:

(a) Divide the amount of underwithholding for the stratum (as originally determined by the reviewer without regard to anyremediation or curing after the reviewer selected the sample units to be reviewed) by the number of sampling units in the sample;

(b) Multiply the result in (a) by the total number of sampling units in the stratum; and(c) Subtract from (b) the actual amount of any cured underwithholding.(d) Total all amounts for (c) for all strata.If the reviewer has determined that overwithholding has occurred with respect to the sample, the reviewer may not project the

amount of overwithholding in order to claim a refund. The reviewer may offset any underwithholding against any overwithholdingin 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.

If after reviewing the periodic review report, the IRS determines that further action is necessary with respect to underwithholding,the IRS may request that QI have the reviewer conduct a full review of the entire sample or may determine that it is not appropriateto project an amount of underwithholding. In making such determination, the IRS will consider whether: (1) the amount is theconsequence of an identified error; (2) the error was not repeated throughout the population over which it would be projected; (3)QI has corrected the error; (4) QI has established safeguards to prevent reoccurrence of the error; and (5) facts as corrected showthat there was actually no underwithholding during the compliance period.

The QI may also propose an alternative projected underwithholding tax adjustment based on facts and circumstances.E. Reporting of Sample Results. At a minimum, the reviewer should note the following separately for each sample by stratum in

its periodic review report:(1) The steps taken to construct the sample population and the steps taken to ensure all accounts subject to review were included

in the populations of accounts and subject to sampling under the procedures outlined in this Appendix;(2) Original population and sample statistics 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;

Bulletin No. 2016–29 July 18, 2016131

(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

withholdings of reportable amounts as detailed in Part IV sections E (Reconciliations of Reporting on Payments of ReportableAmounts) and F (Reconciliation of Withholding on Reportable Amounts) of Appendix I to the QI Agreement.

2015 Section 45K(d)(2)(C)Reference PriceNotice 2016–43

SECTION 1. PURPOSE

This notice publishes the referenceprice under § 45K(d)(2)(C) of the InternalRevenue Code for calendar year 2015.The credit period for the nonconventionalsource production credit under § 45Kended on December 31, 2013, for facili-ties producing coke or coke gas (otherthan from petroleum based products).However, the reference price continues toapply in determining the amount of theenhanced oil recovery credit under § 43,the marginal well production credit under§ 45I, and the percentage depletion in caseof oil and natural gas produced from mar-ginal properties under § 613A.

SECTION 2. BACKGROUND

Section 45K(d)(2)(C) provides that theterm “reference price” means, with re-spect to a calendar year, the Secretary’sestimate of the annual average wellheadprice per barrel for all domestic crude oilthe price of which is not subject to regu-lation by the United States.

Section 43(a) provides that, for pur-poses of § 38, the enhanced oil recoverycredit for any taxable year is an amountequal to 15 percent of the taxpayer’s qual-ified enhanced oil recovery costs for suchtaxable year.

Section 43(b)(1) provides that theamount of enhanced oil recovery creditfor any taxable year shall be reduced byan amount which bears the same ratio tothe amount of such credit (determinedwithout regard to this paragraph) as - (A)the amount by which the reference pricefor the calendar year preceding the calen-dar year in which the taxable year beginsexceeds $28, bears to (B) $6. Section

43(b)(2) provides that the term “referenceprice” means, with respect to any calendaryear, the reference price determined forsuch calendar year under § 45K(d)(2)(C).

Section 45I(a) provides that, for pur-poses of § 38, the marginal well produc-tion credit for any taxable year is anamount equal to the product of the creditamount and the qualified crude oil produc-tion and the qualified natural gas produc-tion which is attributable to the taxpayer.

Section 45I(b)(1) provides that theamount of the marginal well productioncredit is $3 per barrel of qualified crudeoil production, and 50 cents per 1,000cubic feet of qualified natural gas produc-tion.

Section 45I(b)(2) provides that the $3and 50 cents amounts under § 45I(b)(1)shall each be reduced (but not below zero)by an amount which bears the same ratioto such amount (determined without re-gard to this paragraph) as – (i) the excess(if any) of the applicable reference priceover $15 ($1.67 for qualified natural gasproduction), bears to (ii) $3 ($0.33 forqualified natural gas production). The ap-plicable reference price for a taxable yearis the reference price of the calendar yearpreceding the calendar year in which thetaxable year begins.

Section 45I(c) provides that the termreference price means, with respect to anycalendar year – (i) in the case of qualifiedcrude oil production, the reference pricedetermined under § 45K(d)(2)(C).

Section 613A(c)(6)(A) provides, ingeneral, the allowance for depletion under§ 611 shall be computed in accordancewith § 613 with respect to - (i) so much ofthe taxpayer’s average daily marginal pro-duction of domestic crude oil as does notexceed the taxpayer’s depletable oil quan-tity (determined without regard to para-graph (3)(A)(ii)), and (ii) so much of thetaxpayer’s average daily marginal produc-tion of domestic natural gas as does not

exceed the taxpayer’s depletable naturalgas quantity (determined without regardto paragraph (3)(A)(ii)), and the applica-ble percentage shall be deemed to be spec-ified in subsection (b) of § 613 for pur-poses of subsection (a) of that section.

Section 613A(c)(6)(C) provides thatthe term “applicable percentage” meansthe percentage (not greater than 25 per-cent) equal to the sum of - (i) 15 percent,plus (ii) 1 percentage point for each wholedollar by which $20 exceeds the referenceprice for crude oil for the calendar yearpreceding the calendar year in which thetaxable year begins. For purposes of thisparagraph, the term “reference price”means, with respect to any calendar year,the reference price determined for suchcalendar year under § 45K(d)(2)(C).

SECTION 3. REFERENCE PRICE

The reference price under § 45K(d)(2)(C)for calendar year 2015 is $44.39.

SECTION 4. DRAFTINGINFORMATION

The principal author of this notice isMartha M. Garcia of the Office of Asso-ciate Chief Counsel (Passthroughs & Spe-cial Industries). For further information re-garding this notice, contact Ms. Garcia on(202) 317-6853 (not a toll-free number).

2016 Section 43 InflationAdjustment

Notice 2016–44Section 43(b)(3)(B) of the Internal

Revenue Code requires the Secretary topublish an inflation adjustment factor. Theenhanced oil recovery credit under § 43for any taxable year is reduced if the“reference price,” determined under§ 45K(d)(2)(C), for the calendar year pre-ceding the calendar year in which the tax-

July 18, 2016 Bulletin No. 2016–29132

able year begins is greater than $28 mul-tiplied by the inflation adjustment factorfor that year.

The term “inflation adjustment factor”means, with respect to any calendar year,a fraction the numerator of which is theGNP implicit price deflator for the preced-ing calendar year and the denominator of

which is the GNP implicit price deflatorfor 1990.

Because the reference price for the2015 calendar year ($44.39) does not ex-ceed $28 multiplied by the inflation ad-justment factor for the 2015 calendar year($28 multiplied by 1.6464 � $46.01), theenhanced oil recovery credit for qualified

costs paid or incurred in 2016 is deter-mined without regard to the phase-out forcrude oil price increases.

Table 1 contains the GNP implicitprice deflator used for the 2016 calendaryear, as well as the previously publishedGNP implicit price deflators used for the1991 through 2015 calendar years.

Notice 2016–44 TABLE 1

GNP IMPLICIT PRICE DEFLATORS

Calendar Year GNP Implicit Price Deflator

1990 112.9 (used for 1991)

1991 117.0 (used for 1992)

1992 120.9 (used for 1993)

1993 124.1 (used for 1994)

1994 126.0 (used for 1995)*

1995 107.5 (used for 1996)

1996 109.7 (used for 1997)**

1997 112.35 (used for 1998)

1998 112.64 (used for 1999)***

1999 104.59 (used for 2000)

2000 106.89 (used for 2001)

2001 109.31 (used for 2002)

2002 110.63 (used for 2003)

2003 105.67 (used for 2004)****

2004 108.23 (used for 2005)

2005 112.129 (used for 2006)

2006 116.036 (used for 2007)

2007 119.656 (used for 2008)

2008 122.407 (used for 2009)

2009 109.764 (used for 2010)*****

2010 110.654 (used for 2011)

2011 113.347 (used for 2012)******

2012 115.387 (used for 2013)

2013 106.710 (used for 2014)*******

2014 108.407 (used for 2015)********

2015 109.868 (used for 2016)

* Beginning in 1995, the GNP implicit price deflator was rebased relative to 1992. The 1990 GNP implicit price deflatorused to compute the 1996 § 43 inflation adjustment factor is 93.6.

** Beginning in 1997, two digits follow the decimal point in the GNP implicit price deflator. The 1990 GNP price deflatorused to compute the 1998 § 43 inflation adjustment factor is 93.63.

*** Beginning in 1999, the GNP implicit price deflator was rebased relative to 1996. The 1990 GNP implicit price defla-tor used to compute the 2000 § 43 inflation adjustment factor is 86.53.

**** Beginning in 2003, the GNP implicit price deflator was rebased, and the 1990 GNP implicit price deflator used tocompute the 2004 § 43 inflation adjustment factor is 81.589.

***** Beginning in 2009, the GNP implicit price deflator was rebased, and the 1990 GNP implicit price deflator used tocompute the 2010 § 43 inflation adjustment factor is 72.199.

Bulletin No. 2016–29 July 18, 2016133

****** Beginning in 2011, the 1990 GNP implicit price deflator used to compute the 2012 § 43 inflation adjustment fac-tor is 72.260.

******* Beginning in 2013, the GNP implicit price deflator was rebased, and the 1990 GNP implicit price deflator usedto compute the 2014 § 43 inflation adjustment factor is 66.803.

******** Beginning in 2014, the 1990 GNP implicit price deflator used to compute the 2015 § 43 inflation adjustmentfactor is 66.732.Table 2 contains the inflation adjustment factor and the phase-out amount for taxable years beginning in the 2016 calendar year

as well as the previously published inflation adjustment factors and phase-out amounts for taxable years beginning in the 1991through 2015 calendar years.

Notice 2016–44 TABLE 2INFLATION ADJUSTMENT FACTORS AND PHASE-OUT AMOUNTS

Calendar Year Inflation Adjustment Factor Phase-out Amount

1991 1.0000 0

1992 1.0363 0

1993 1.0708 0

1994 1.0992 0

1995 1.1160 0

1996 1.1485 0

1997 1.1720 0

1998 1.1999 0

1999 1.2030 0

2000 1.2087 0

2001 1.2353 0

2002 1.2633 0

2003 1.2785 0

2004 1.2952 0

2005 1.3266 0

2006 1.3743 100 percent

2007 1.4222 100 percent

2008 1.4666 100 percent

2009 1.5003 100 percent

2010 1.5203 100 percent

2011 1.5326 100 percent

2012 1.5686 100 percent

2013 1.5968 100 percent

2014 1.5974 100 percent

2015 1.6245 100 percent

2016 1.6464 0

DRAFTING INFORMATION

The principal author of this notice is Martha M. Garcia of the Office of Associate Chief Counsel (Passthroughs and SpecialIndustries). For further information regarding this notice, contact Ms. Garcia at (202) 317-6853 (not a toll-free number).

July 18, 2016 Bulletin No. 2016–29134

2016 Marginal ProductionRates

Notice 2016–45This notice announces the applicable

percentage under § 613A of the InternalRevenue Code to be used in determiningpercentage depletion for marginal proper-ties for the 2016 calendar year.

Section 613A(c)(6)(C) defines the term“applicable percentage” for purposes ofdetermining percentage depletion for oiland gas produced from marginal proper-ties. The applicable percentage is the per-centage (not greater than 25 percent)equal to the sum of 15 percent, plus onepercentage point for each whole dollar bywhich $20 exceeds the reference price(determined under § 45K(d)(2)(C)) for

crude oil for the calendar year precedingthe calendar year in which the taxableyear begins. The reference price deter-mined under § 45K(d)(2)(C) for the 2015calendar year is $44.39.

The following table contains the appli-cable percentages for marginal productionfor taxable years beginning in calendaryears 1991 through 2016.

Notice 2016–45APPLICABLE PERCENTAGE FOR MARGINAL PRODUCTION

Calendar Year Applicable Percentage

1991 15 percent

1992 18 percent

1993 19 percent

1994 20 percent

1995 21 percent

1996 20 percent

1997 16 percent

1998 17 percent

1999 24 percent

2000 19 percent

2001 15 percent

2002 15 percent

2003 15 percent

2004 15 percent

2005 15 percent

2006 15 percent

2007 15 percent

2008 15 percent

2009 15 percent

2010 15 percent

2011 15 percent

2012 15 percent

2013 15 percent

2014 15 percent

2015 15 percent

2016 15 percent

The principal author of this notice is Martha M. Garcia of the Office of Associate Chief Counsel (Passthroughs and SpecialIndustries). For further information regarding this notice contact Ms. Garcia at (202) 317-6853 (not a toll-free number).

Bulletin No. 2016–29 July 18, 2016135

26 CFR § 601.201: Rulings and determination letters.(Also Part I, §§ 401; 1.401(b)–1.)

Rev. Proc. 2016–37Table of Contents

PART I – OVERVIEW ..................................................................................................................................................................136SECTION 1. PURPOSE.................................................................................................................................................................136SECTION 2. BACKGROUND ......................................................................................................................................................137SECTION 3. SUMMARY OF SIGNIFICANT MODIFICATIONS ............................................................................................139PART II – INDIVIDUALLY DESIGNED PLANS......................................................................................................................139SECTION 4. ELIMINATION OF FIVE-YEAR REMEDIAL AMENDMENT CYCLE SYSTEM;

OTHER MODIFICATIONS ....................................................................................................................................139SECTION 5. EXTENSION OF REMEDIAL AMENDMENT PERIOD FOR INDIVIDUALLY DESIGNED PLANS..........140SECTION 6. EXTENDED REMEDIAL AMENDMENT PERIOD TRANSITION RULE FOR

INDIVIDUALLY DESIGNED PLANS ..................................................................................................................141SECTION 7. TERMINATING PLANS.........................................................................................................................................141SECTION 8. PLAN AMENDMENT DEADLINE .......................................................................................................................141SECTION 9. REQUIRED AMENDMENTS LIST .......................................................................................................................142SECTION 10. OPERATIONAL COMPLIANCE LIST ...............................................................................................................142SECTION 11. EXAMPLES ...........................................................................................................................................................142SECTION 12. SCOPE OF PLAN REVIEW .................................................................................................................................143SECTION 13. RELIANCE ON DETERMINATION LETTERS.................................................................................................143PART III – PRE-APPROVED PLANS .........................................................................................................................................143SECTION 14. SIX-YEAR REMEDIAL AMENDMENT CYCLE SYSTEM FOR PRE-APPROVED PLANS.......................143SECTION 15. EXTENSION OF THE REMEDIAL AMENDMENT PERIOD AND DEADLINES

FOR THE ADOPTION OF INTERIM AND DISCRETIONARY PLAN AMENDMENTS FORPRE-APPROVED PLANS.....................................................................................................................................144

SECTION 16. SCHEDULES FOR THE SECOND AND THIRD SIX-YEAR REMEDIAL AMENDMENT CYCLES ........145SECTION 17. CUMULATIVE LISTS OF CHANGES IN PLAN QUALIFICATION REQUIREMENTS;

OPERATIONAL COMPLIANCE LIST ...............................................................................................................146SECTION 18. EXTENSION OF DEADLINE FOR AN EMPLOYER TO ADOPT A NEWLY

APPROVED PRE-APPROVED DEFINED CONTRIBUTION PLAN AND TO APPLY FOR ADETERMINATION LETTER (IF APPLICABLE) ..............................................................................................146

SECTION 19. ELIGIBILITY FOR SIX-YEAR REMEDIAL AMENDMENT CYCLE SYSTEM ...........................................147SECTION 20. EFFECT OF EMPLOYER AMENDMENTS ON SIX-YEAR REMEDIAL AMENDMENT CYCLE ............148SECTION 21. OFF-CYCLE FILING ............................................................................................................................................149PART IV – EFFECT ON OTHER DOCUMENTS, EFFECTIVE DATE, DRAFTING INFORMATION...............................150SECTION 22. EFFECT ON OTHER DOCUMENTS ..................................................................................................................150SECTION 23. EFFECTIVE DATE ...............................................................................................................................................150

PART I – OVERVIEW

SECTION 1. PURPOSE

.01 This revenue procedure modifiesthe Internal Revenue Service (IRS) deter-mination letter program for qualified plansto eliminate, as of January 1, 2017, thefive-year remedial amendment cycle sys-tem for individually designed plans, cur-rently set forth in Rev. Proc. 2007–44,2007–2 C.B. 54. Effective January 1,2017, a sponsor of an individually de-signed plan will be permitted to submit adetermination letter application only forinitial plan qualification, for qualificationupon plan termination, and in certain other

circumstances, as described in section4.03(3) of this revenue procedure.

.02 This revenue procedure provides anextended remedial amendment period un-der § 401(b) of the Internal Revenue Code(Code) for individually designed plans.

.03 This revenue procedure describesand makes clarifying changes to the six-year remedial amendment cycle systemfor pre-approved qualified plans and mod-ifies the six-year remedial amendment cy-cle system, as applicable, to reflectchanges that have been made to the deter-mination letter program for individuallydesigned plans. In addition, this revenueprocedure delays until August 1, 2017, thebeginning of the 12-month submission pe-

riod for master and prototype (M&P) plansponsors and volume submitter (VS) prac-titioners to submit pre-approved definedcontribution plans for opinion or advisoryletters during the third six-year remedialamendment cycle.

.04 The extended remedial amendmentperiod for individually designed plans andthe six-year remedial amendment cyclesystem for pre-approved plans are estab-lished pursuant to the authority under§ 401(b) and its underlying regulations toextend the remedial amendment periodand pursuant to the authority under§ 7805(b) to establish the effective date ofany rule or regulation.

July 18, 2016 Bulletin No. 2016–29136

.05 This revenue procedure is effectiveJanuary 1, 2017. This revenue procedureclarifies, modifies, and supersedes Rev.Proc. 2007–44, modifies sections 2.07and 24.03 of Rev. Proc. 2015–36,2015–27 I.R.B. 20, and modifies sectionsI and III of Notice 2015–84, 2015–52I.R.B. 880.

SECTION 2. BACKGROUND

.01 Section 401(b) provides a remedialamendment period during which a planmay be amended retroactively to complywith the Code’s qualification require-ments. Section 1.401(b)–1 of the IncomeTax Regulations describes the disqualify-ing provisions that may be amended ret-roactively and the remedial amendmentperiod during which retroactive amend-ments may be adopted. The regulationsalso grant the Commissioner the discre-tion to designate certain plan provisions asdisqualifying provisions and to extend theremedial amendment period.

.02 Section 7805(b)(1) provides that,except as otherwise provided, no tempo-rary, proposed, or final regulation relatingto the internal revenue laws shall apply toany taxable period ending before the ear-liest of the following dates: (i) the date onwhich such regulation is filed with theFederal Register; (ii) in the case of anyfinal regulation, the date on which anyproposed or temporary regulation towhich such final regulation relates wasfiled with the Federal Register; or (iii) thedate on which any notice substantially de-scribing the expected contents of any tem-porary, proposed, or final regulation isissued to the public.

.03 Section 7805(b)(8) provides thatthe Secretary may prescribe the extent, ifany, to which any ruling (including anyjudicial decision or any administrative de-termination other than by regulation) re-lating to the internal revenue laws shall beapplied without retroactive effect.

.04 Section 1.401(b)–1 provides that aplan that fails to satisfy the requirements of§ 401(a) solely as a result of a disqualifyingprovision defined under § 1.401(b)–1(b)need not be amended to comply with thoserequirements until the last day of the reme-dial amendment period with respect to thedisqualifying provision, provided theamendment is made retroactively effectiveto the beginning of the remedial amendment

period. Under § 1.401(b)–1(b)(1), a disqual-ifying provision includes a provision of anew plan, the absence of a provision from anew plan, or an amendment to an existingplan that causes the plan to fail to satisfy therequirements of the Code applicable tothe qualification of the plan as of the datethe plan or amendment is first made effec-tive. Under § 1.401(b)–1(b)(3), a disquali-fying provision includes a plan provisiondesignated, at the Commissioner’s discre-tion, as a disqualifying provision that either(i) results in the failure of the plan to satisfythe qualification requirements of the Codeby reason of a change in those requirements,or (ii) is integral to a qualification require-ment of the Code that has been changed. Forthis purpose, § 1.401(b)–1(c)(1) providesthat a disqualifying provision includes theabsence from a plan of a provision requiredby or, if applicable, integral to the applicablechange in the qualification requirements ofthe Code, if the plan was in effect on thedate the change in those requirements be-came effective with respect to the plan. Un-der § 1.401(b)–1(c)(3), the Commissionermay impose limits and provide additionalrules regarding the amendments that may bemade with respect to disqualifying provi-sions described in § 1.401(b)–1(b)(3).

.05 For a disqualifying provision of anew plan described in § 1.401(b)–1(b)(1),the remedial amendment period begins onthe date the plan is put into effect and, inthe case of a plan maintained by one em-ployer, ends on the later of (i) the due date(including extensions) for filing the em-ployer’s tax return for the taxable year inwhich the plan is put into effect; or (ii) thelast day of the plan year in which the planis put into effect. In the case of a new planmaintained by more than one employer,the remedial amendment period endson the last day of the tenth month follow-ing the last day of the plan year that in-cludes the date the plan is put into effect.

.06 For a disqualifying provision that isan amendment to an existing plan de-scribed in § 1.401(b)–1(b)(1), the reme-dial amendment period begins on the ear-lier of the date the plan amendment isadopted or put into effect and, in the caseof a plan maintained by one employer,ends on the later of (i) the due date (in-cluding extensions) for filing the employ-er’s tax return for the taxable year inwhich the amendment is adopted or effec-

tive (whichever is later); or (ii) the lastday of the plan year in which the amend-ment is adopted or effective (whichever islater). In the case of an amendment to anexisting plan maintained by more than oneemployer, the remedial amendment periodends on the last day of the tenth monthfollowing the last day of the plan year inwhich the amendment is adopted or effec-tive (whichever is later).

.07 For a disqualifying provision de-scribed in § 1.401(b)–1(b)(3), the reme-dial amendment period begins on the dateon which the change becomes effectivewith respect to the plan or, in the case ofa provision that is integral to a qualifica-tion requirement that has been changed,the first day on which the plan is operatedin accordance with the provision asamended. In the case of a plan maintainedby one employer, the remedial amend-ment period for a disqualifying provisiondescribed in § 1.401(b)–1(b)(3) ends onthe later of: (i) the due date (includingextensions) for filing the income tax re-turn for the employer’s taxable year thatincludes the date on which the remedialamendment period begins; or (ii) the lastday of the plan year that includes the dateon which the remedial amendment periodbegins. In the case of a plan maintained bymore than one employer the remedialamendment period ends on the last day ofthe tenth month following the last day ofthe plan year in which the remedialamendment period begins.

.08 Section 1.401(b)–1(f) provides thatthe Commissioner has discretion to extendthe remedial amendment period.

.09 Rev. Proc. 2007–44 sets forth rulesand procedures for a system of cyclicalremedial amendment periods under§ 401(b) for individually designed plansand for a system of cyclical remedialamendment periods under § 401(b) forpre-approved qualified plans, includingthe following:

(1) Section 4.01 provides that the IRSintends to publish annually CumulativeLists of Changes in Plan Qualification Re-quirements (Cumulative Lists). The Cu-mulative Lists are intended to identify, ona year-by-year basis, all changes in qual-ification requirements resulting fromchanges in statutes, or from regulations orother guidance published in the InternalRevenue Bulletin, that are required to be

Bulletin No. 2016–29 July 18, 2016137

taken into account in the written plan doc-ument that is submitted to the IRS for anopinion, advisory, or determination letter,as applicable.

(2) Section 5.04 provides that whenthere are statutory or regulatory changeswith respect to plan qualification require-ments that will impact provisions of thewritten plan document, the adoption of aninterim amendment generally will be re-quired.

(3) Section 9 generally provides that anindividually designed plan’s five-year re-medial amendment cycle (Cycle A, B, C,D, or E) is determined by reference to thelast digit of the employer identificationnumber (EIN) of the employer that spon-sors the plan. However, Section 10.06provides that, if more than one plan ismaintained by members of a controlledgroup under § 414(b) or (c) or an affiliatedservice group under § 414(m), the em-ployers may elect that the five-year reme-dial amendment cycle for all plans main-tained by any members of the group (otherthan multiemployer plans under § 414(f),multiple employer plans, governmentalplans under § 414(d), or certain jointlytrusteed single employer collectively bar-gained plans) will be Cycle A. In general,the Cycle A election must be made jointlyby all members of the controlled group oraffiliated service group. However, in thecase of a parent-subsidiary controlledgroup, this election may be made on be-half of all of the members by the parent.

(4) Section 10.08(1) provides that, inthe case of a Cycle A election under sec-tion 10.06 that does not involve a parent-subsidiary controlled group, if a newmember joins the controlled group, thatmember must make an election no laterthan one year from the date the new mem-ber joins the controlled group in order forother members to maintain the existingelection.

(5) Section 13.02 provides that deter-mination letters issued for individually de-signed plans will include a statement thatthe letter may not be relied on after theend of the plan’s first five-year remedialamendment cycle that ends more than 12months after the application was received,and will include a specific “expirationdate.”

.10 Notice 2010–90, 2010–52 I.R.B.909, included the 2010 Cumulative List of

Changes in Plan Qualification Require-ments, which contains qualification re-quirements for pre-approved defined con-tribution plans to be used for the secondsubmission period under the six-year re-medial amendment cycle and for certainsingle employer individually designedplans.

.11 Announcement 2012–3, 2012–4I.R.B. 335, extended to April 2, 2012, thedeadline to submit on-cycle applicationsfor opinion and advisory letters for pre-approved defined contribution plans forthe plans’ second six-year remedialamendment cycle.

.12 In Announcement 2014–16,2014–17 I.R.B. 983, the IRS announced itwould issue opinion and advisory lettersfor pre-approved defined contributionplans that were restated for changes inplan qualification requirements listed inthe 2010 Cumulative List and that werefiled with the IRS during the plans’ sec-ond submission period under the remedialamendment cycle under Rev. Proc. 2007–44. The announcement provided that em-ployers using these pre-approved plandocuments to restate a plan for the planqualification requirements on the 2010Cumulative List would be required toadopt the plan document by April 30,2016, and that the IRS would accept ap-plications for individual determinationletters from employers under the secondsix-year remedial amendment cycle forpre-approved defined contribution plansstarting May 1, 2014, and ending April 30,2016.

.13 Announcement 2014–41, 2014–52I.R.B. 979, extended to June 30, 2015, thedeadline for submitting on-cycle applica-tions for opinion and advisory letters forpre-approved defined benefit plans for theplans’ second six-year remedial amend-ment cycle, as previously extended in An-nouncement 2014–4, 2014–7 I.R.B. 523.

.14 Rev. Proc. 2015–36 provided rulesfor issuing opinion and advisory letters forpre-approved plans. This revenue proce-dure also extended to October 30, 2015,the deadline for submitting on-cycle ap-plications for opinion and advisory lettersfor pre-approved defined benefit plans forthe plans’ second six-year remedialamendment cycle.

.15 Announcement 2015–19, 2015–32I.R.B. 157, announced the elimination of

the five-year remedial amendment cyclesystem for individually designed plansand provided that the scope of the deter-mination letter program for individuallydesigned plans would be limited to deter-mination letter applications for initial planqualification, for qualification upon termi-nation, and in certain other circumstances.This announcement also provided a tran-sition rule with respect to the remedialamendment period for certain plans cur-rently operating under the five-year reme-dial amendment cycle system, and an-nounced that the IRS, as of July 21, 2015,would cease accepting off-cycle determi-nation letter applications (as defined insection 14 of Rev. Proc. 2007–44), exceptwith respect to new and terminating plans.

.16 Notice 2015–84 included the 2015Cumulative List of Changes in Plan Qual-ification Requirements, which containsqualification requirements for single em-ployer individually designed defined con-tribution plans and defined benefit plans,to be used primarily by plan sponsors ofsuch plans that fall in Cycle A.

.17 Rev. Proc. 2016–6, 2016–1 I.R.B.200, set forth the annual update of proce-dures for issuing determination letters onthe qualified status of plans. Rev. Proc.2016–6 provided that, effective as of Jan-uary 4, 2016, determination letters issuedto sponsors of individually designed planswould no longer contain an expirationdate.

.18 Notice 2016–03, 2016–3 I.R.B.278, announced that guidance will be is-sued to provide that: (i) controlled groupsand affiliated service groups that have pre-viously made a Cycle A election are per-mitted to submit determination letter ap-plications during the Cycle A submissionperiod beginning February 1, 2016, andending January 31, 2017; (ii) expirationdates on determination letters issued priorto January 4, 2016, are no longer opera-tive; and (iii) the period during whichcertain employers may, on or after Janu-ary 1, 2016, establish or adopt a pre-approved defined contribution plan and, ifpermissible, apply for a determination let-ter, is extended from April 30, 2016, toApril 30, 2017.

July 18, 2016 Bulletin No. 2016–29138

SECTION 3. SUMMARY OFSIGNIFICANT MODIFICATIONS

.01 Consistent with Announcement2015–19, this revenue procedure elimi-nates, as of January 1, 2017, the staggeredfive-year remedial amendment cycle sys-tem for individually designed plans, cur-rently set forth in Rev. Proc. 2007–44.This revenue procedure also provides newrules, as described in paragraphs (1)through (5) of this section 3.01, for indi-vidually designed plans. A sponsor of anindividually designed plan will be permit-ted to submit a determination letter appli-cation for initial plan qualification, forqualification upon termination, and inother circumstances. See section 4.03 ofthis revenue procedure.

(1) Effective January 1, 2017, the in-terim amendment requirement set forth insection 5.04 of Rev. Proc. 2007–44 willno longer apply to individually designedplans. See section 4.02 of this revenueprocedure.

(2) With respect to individually de-signed plans, for disqualifying provisionsthat arise as a result of a change in qual-ification requirements, the Department ofthe Treasury (Treasury) and the IRS in-tend to publish annually a RequiredAmendments List, which will establishthe deadline for a plan to be amended tocomply with requirements described insection 5.03 of this revenue procedure thatare identified on the list. The deadline(that is, the end of the remedial amend-ment period for a change to a qualificationrequirement included on a particular Re-quired Amendments List) will be, unlessotherwise provided, the end of the secondcalendar year following the year in whichthe list is issued. In general, a change tothe qualification requirements will not ap-pear on a Required Amendments List untilguidance with respect to such change (in-cluding model amendments, if any) hasbeen provided in regulations or in otherguidance published in the Internal Reve-nue Bulletin. The first Required Amend-ments List generally will apply to changesin qualification requirements first effec-tive during the 2016 calendar year. Seesections 4, 5, and 9 of this revenue proce-dure.

(3) This revenue procedure extends theremedial amendment period for individu-

ally designed plans to correct disqualify-ing provisions (i) that are in new plans, (ii)that arise as a result of amendments madeto existing plans, and (iii) that arise as aresult of a change in qualification require-ments. See section 5 of this revenue pro-cedure.

(4) For individually designed plans, atransition rule extends the remedialamendment period for certain disqualify-ing provisions to December 31, 2017. Seesection 6 of this revenue procedure.

(5) The scope of review of an individ-ually designed plan submitted for a deter-mination letter is described in section 12of this revenue procedure.

(6) The effect of subsequent changes inlaw and plan amendments on the relianceby the sponsor of an individually designedplan on a prior determination letter is de-scribed in section 13 of this revenue pro-cedure.

.02 A description of, and clarifyingchanges to, the six-year remedial amend-ment cycle system for pre-approved plans,and modifications of the six-year remedialamendment cycle system to reflectchanges that have been made to the deter-mination letter program for individuallydesigned plans, are provided in Part III ofthis revenue procedure. In addition, thetime to adopt a newly approved pre-approved defined contribution plan and tofile for a determination letter for certainadopters of pre-approved defined contri-bution plans for the second six-year reme-dial amendment cycle is extended to April30, 2017.

.03 The beginning of the 12-monthsubmission period for M&P sponsors andVS practitioners to submit pre-approveddefined contribution plans for opinion oradvisory letters during the third six-yearremedial amendment cycle is delayed un-til August 1, 2017. See section 16 of thisrevenue procedure.

.04 To assist sponsors in achieving op-erational compliance with the Code’squalification requirements, the IRS in-tends to provide annually an OperationalCompliance List that identifies changes inqualification requirements that are effec-tive during a calendar year. See sections10 and 17.05 of this revenue procedure.

PART II – INDIVIDUALLYDESIGNED PLANS

SECTION 4. ELIMINATION OFFIVE-YEAR REMEDIALAMENDMENT CYCLE SYSTEM;OTHER MODIFICATIONS

.01 Effective January 1, 2017, the stag-gered five-year remedial amendment cy-cle system for individually designed plansis eliminated. As of that date, the IRS willno longer accept determination letter ap-plications based on the five-year remedialamendment cycle system. However, spon-sors of Cycle A plans (that is, generally,plan sponsors with employer identifica-tion numbers ending in 1 or 6) will con-tinue to be permitted to submit determi-nation letter applications during the periodbeginning February 1, 2016, and endingJanuary 31, 2017. For this purpose, con-trolled groups and affiliated servicegroups that maintain more than one planare permitted to submit determination let-ter applications during the Cycle A sub-mission period beginning February 1,2016, and ending January 31, 2017, pro-vided that a prior Cycle A election withrespect to the controlled group or affili-ated service group had been made by Jan-uary 31, 2012 (the last day of the previousCycle A submission period) and any newmember of the controlled group or affili-ated service group made a timely electionto join the group in accordance with sec-tion 10.08(1) of Rev. Proc. 2007–44, ifapplicable. See section 10.06 of Rev.Proc. 2007–44.

.02 Effective January 1, 2017, plansponsors of individually designed planswill no longer be required to adopt interimamendments, as required by section 5.04of Rev. Proc. 2007–44. This change ap-plies with respect to interim amendmentsthat would have had an adoption deadlineon or after January 1, 2017, had the in-terim amendment requirement remainedin effect. The interim amendment require-ment continues to apply to individuallydesigned plans with respect to interimamendments with an adoption deadlineprior to January 1, 2017.

.03 Effective January 1, 2017, a spon-sor of an individually designed plan willbe permitted to submit a determinationletter application for initial plan qualifica-tion, for qualification upon termination,

Bulletin No. 2016–29 July 18, 2016139

and in other circumstances, as describedin section 4.03(1), (2), and (3) of thisrevenue procedure.

(1) Initial plan qualification. An em-ployer may submit a plan for initial planqualification on a Form 5300 (Applicationfor Determination for Employee BenefitPlan) as long as a favorable determinationletter has never been issued with respectto the plan. Thus, for example, an em-ployer that maintains a plan for which adetermination letter has been issued as aresult of filing a Form 5300 or Form 5307(Application for Determination for Adopt-ers of Modified Volume Submitter Plans)is not eligible to submit that plan for adetermination letter for initial qualifica-tion.

(2) Qualification upon plan termina-tion. An application is filed in connectionwith plan termination only if it is filed nolater than the later of (i) one year from theeffective date of the termination, or (ii)one year from the date on which the actionterminating the plan is taken. However, inno event may the application be filed laterthan 12 months from the date of distribu-tion of substantially all plan assets in con-nection with the plan termination.

(3) Other circumstances. Consider-ation will be given annually to whetherdetermination letter applications will beaccepted for individually designed plansin specified circumstances other than forinitial qualification and qualification uponplan termination. Circumstances that willbe considered when evaluating whether toaccept determination letter applicationsfor certain amended plans or types ofamendments in plans in certain futureyears, include, for example, significantlaw changes, new approaches to plan de-sign, and the inability of certain types ofplans to convert to pre-approved (that is,M&P and VS) plan documents. In addi-tion, the IRS’s current case load and re-sources available to process determinationletter applications will be significant fac-tors in deciding if and when to considercertain amended plans or types of amend-ments in plans under the determinationletter program. Additional situations inwhich plan sponsors will be permitted torequest determination letters will be an-

nounced in guidance published in the In-ternal Revenue Bulletin. Treasury and theIRS intend to request, on a periodic basis,comments on the additional situations inwhich the submission of a determinationletter application may be appropriate.Based on an analysis of the factors listedin this section 4.03(3), including the IRS’scurrent resources and case load, the onlydetermination letter applications for indi-vidually designed plans that will be ac-cepted during calendar year 2017 (otherthan for Cycle A plans as described insection 4.01) are applications for initialplan qualification and qualification uponplan termination.

SECTION 5. EXTENSION OFREMEDIAL AMENDMENT PERIODFOR INDIVIDUALLY DESIGNEDPLANS

.01 The provisions of this section 5apply to disqualifying provisions (as de-fined in section 5.02 and 5.03 of this rev-enue procedure) that are first effective onor after January 1, 2016.

.02 Pursuant to § 1.401(b)–1(b)(1), adisqualifying provision includes a provi-sion of a new plan, the absence of a pro-vision from a new plan, or an amendmentto an existing plan that causes the plan tofail to satisfy the requirements of the Codeapplicable to the qualification of the planas of the date the plan or amendment isfirst made effective. In addition, pursuantto § 1.401(b)–1(b)(3), a disqualifying pro-vision includes a plan provision that hasbeen designated by the Commissioner, insection 5.03 of this revenue procedure orsubsequent guidance published in the In-ternal Revenue Bulletin, as a disqualifyingprovision by reason of a change in thoserequirements.

.03 Pursuant to § 1.401(b)–1(b)(3), theIRS designates a plan provision as a dis-qualifying provision if it:

(1) results in the failure of the plan tosatisfy the qualification requirements ofthe Code by reason of a change in thoserequirements that is effective after De-cember 31, 2001;1 or

(2) is integral to such disqualifyingprovision.

.04 A change in qualification require-ments includes a statutory change or achange in the requirements provided inregulations or other guidance published inthe Internal Revenue Bulletin. In addition,a disqualifying provision, as described insection 5.03 of this revenue procedure,includes the absence from a plan of aprovision required by (or, if applicable,integral to) the change in the qualificationrequirements of the Code.

.05 Except as otherwise provided bystatute, or regulations or other guidancepublished in the Internal Revenue Bulle-tin, the remedial amendment period thatwould otherwise apply under § 1.401(b)–1for the disqualifying provisions describedin this section 5.05 is extended as followsfor plans that are not governmental planswithin the meaning of § 414(d):

(1) New plan. The remedial amend-ment period for a disqualifying provisionwith respect to a provision of a new planor the absence of a provision from a newplan is extended to the later of (i) the 15thday of the 10th calendar month after theend of the plan’s initial plan year or (ii)the “modified § 401(b) expiration date.”The modified § 401(b) expiration date isdefined in this section 5.05(1)(a) and (b):

(a) The modified § 401(b) expirationdate for a plan that is not maintained by atax exempt employer is the last day of theremedial amendment period determinedunder § 1.401(b)–1(d)(2), applied asthough the employer has an extension tofile its income tax return (or partnershipreturn of income).

(b) The modified § 401(b) expirationdate for a plan maintained by a tax exemptemployer is the last day of the remedialamendment period determined under§ 1.401(b)–1(d)(2) applied as though thedue date (including extensions) for filingthe income tax return for the employer’staxable year is the date determined underthe following rules. The due date for filingthe employer’s tax return in the case of atax exempt employer that files Form990–T (or Form 990 or Form 990–EZ ifno Form 990–T is filed) is the later of (i)the 15th day of the 10th month after theend of the employer’s tax year (treatingthe calendar year as the tax year if the

1As provided in section 5.01 of Rev. Proc. 2007–44, December 31, 2001, was the date after which all changes in qualification requirements were designated as disqualifying provisions bythe Commissioner in order for those changes to be eligible for the remedial amendment period available with respect to disqualifying provisions.

July 18, 2016 Bulletin No. 2016–29140

employer does not have a tax year) or (ii)the due date for filing the Form 990 series(plus extensions). For the purpose of thissection 5.05(1), an employer is treated ashaving obtained an extension of time forfiling the Form 990 series. The due date forfiling the employer’s tax return in the caseof a tax exempt employer that is not re-quired to file a Form 990 series return is the15th day of the 10th month after the end ofthe employer’s tax year (treating the calen-dar year as the tax year if the employer doesnot have a tax year).

(2) Amendment to existing plan. Theremedial amendment period for a disqual-ifying provision with respect to an amend-ment to an existing plan (other than anamendment described in section 5.05(3) ofthis revenue procedure) is extended to theend of the second calendar year followingthe calendar year in which the amendment isadopted or effective, whichever is later.

(3) Change in qualification require-ments. The remedial amendment periodfor a disqualifying provision with respectto a change in qualification requirements(as described in section 5.04 of this reve-nue procedure) is extended to the end ofthe second calendar year that begins afterthe issuance of the Required AmendmentsList (described in section 9 of this revenueprocedure) in which the change in quali-fication requirements appears.

.06 Except as otherwise provided bystatute, or by regulations or other guid-ance published in the Internal RevenueBulletin, the remedial amendment periodthat would otherwise apply under§ 1.401(b)–1 for the disqualifying provi-sions described in this section 5.06 is ex-tended as follows for plans that are gov-ernmental plans within the meaning of§ 414(d):

(1) New plan. The remedial amend-ment period for a disqualifying provisionwith respect to a provision of a new gov-ernmental plan or the absence of a provi-sion from a new governmental plan isextended to the later of: (i) the date deter-mined in section 5.05(1) of this revenueprocedure; or (ii) 90 days after the close ofthe second regular legislative session ofthe legislative body with the authority toamend the plan that begins after the end ofthe plan’s initial plan year.

(2) Amendment to existing plan. Theremedial amendment period for a disqual-

ifying provision with respect to an amend-ment to an existing governmental plan(other than an amendment described inparagraph (3) of this section 5.06) is ex-tended to the later of: (i) the date deter-mined in section 5.05(2) of this revenueprocedure; and (ii) 90 days after the closeof the third regular legislative session ofthe legislative body with the authority toamend the plan that begins after the cal-endar year in which the amendment isadopted or effective (whichever is later).

(3) Change in qualification require-ments. The remedial amendment periodfor a disqualifying provision in a govern-mental plan that arises as a result of achange in qualification requirements (asdescribed in section 5.03 of this revenueprocedure) is extended to the later of: (i)the date determined in section 5.05(3) ofthis revenue procedure; or (ii) 90 daysafter the close of the third regular legisla-tive session of the legislative body withthe authority to amend the plan that beginson or after the date of issuance of theRequired Amendments List in which thechange in qualification requirements ap-pears.

.07 This revenue procedure does notprovide relief from the requirements of§ 411(d)(6) for any plan amendments, in-cluding plan amendments adopted as aresult of changes to the qualification re-quirements. Except to the extent permittedunder § 411(d)(6) and the regulationsthereunder, or under a statutory provision,§ 411(d)(6) prohibits a plan amendmentthat decreases a participant’s accrued ben-efits or that has the effect of eliminating orreducing an early retirement benefit orretirement-type subsidy, or eliminating anoptional form of benefit, with respect tobenefits attributable to service before theamendment. However, an amendment thateliminates or decreases benefits that havenot yet accrued does not violate§ 411(d)(6), provided the amendment isadopted and effective before the benefitsaccrue.

SECTION 6. EXTENDEDREMEDIAL AMENDMENT PERIODTRANSITION RULE FORINDIVIDUALLY DESIGNED PLANS

Section 5.03 of Rev. Proc. 2007–44extends the remedial amendment periodfor certain disqualifying provisions under

§ 401(b) (including provisions designatedin Rev. Proc. 2007–44 as disqualifyingprovisions) to the end of a plan’s applica-ble remedial amendment cycle. As a resultof the elimination of the five-year reme-dial amendment cycle system for individ-ually designed plans, the extended reme-dial amendment period provided insection 5.03 of Rev. Proc. 2007–44 willexpire December 31, 2016. However, pur-suant to this revenue procedure, the reme-dial amendment period is extended to De-cember 31, 2017, for disqualifyingprovisions for which, as of January 1,2017, the remedial amendment period un-der section 5.03 of Rev. Proc. 2007–44has not expired. The extension provided inthis section 6 does not apply to disquali-fying provisions set forth on the 2016Required Amendments List. See section5.05(3) of this revenue procedure, whichprovides that the remedial amendment pe-riod for a disqualifying provision set forthon a Required Amendments List is ex-tended to the end of the second calendaryear that begins after the issuance of theRequired Amendments List in which suchprovision appears. See also section 9 ofthis revenue procedure for a description ofthe Required Amendments List.

SECTION 7. TERMINATINGPLANS

Notwithstanding sections 5 and 6 ofthis revenue procedure, the termination ofa plan ends the plan’s remedial amend-ment period and, thus, generally willshorten the remedial amendment periodfor the plan. Accordingly, any retroactiveremedial plan amendments or other re-quired plan amendments for a terminatingplan (that is, plan amendments required tobe adopted to reflect qualification require-ments that apply as of the date of termi-nation) must be adopted in connectionwith the plan termination regardless ofwhether such requirements are includedon a Required Amendments List.

SECTION 8. PLAN AMENDMENTDEADLINE

.01 With respect to a disqualifying pro-vision described in section 5 of this reve-nue procedure, except as otherwise pro-vided by statute, or in regulations or otherguidance published in the Internal Reve-

Bulletin No. 2016–29 July 18, 2016141

nue Bulletin, the plan amendment dead-line is the date on which the remedialamendment period with respect to suchdisqualifying provision expires. See sec-tions 5.05 and 5.06 of this revenue proce-dure for the determination of the applica-ble remedial amendment period.

.02 With respect to a discretionaryamendment (that is, an amendment that isnot made with respect to a disqualifyingprovision), except as otherwise providedby statute, or in regulations or other guid-ance published in the Internal RevenueBulletin, the plan amendment deadline isthe date described in paragraph (1) or (2)of this section 8.02, as applicable.

(1) In the case of a discretionaryamendment to a plan other than a govern-mental plan within the meaning of§ 414(d), the plan amendment deadline isthe end of the plan year in which the planamendment is operationally put into ef-fect. An amendment is operationally putinto effect when the plan is administeredin a manner consistent with the intendedplan amendment (rather than existing planterms). For example, the deadline foradopting a discretionary amendment withrespect to a calendar year plan that in-creases participants’ accrued benefits andis operationally put into effect during2018 is December 31, 2018. As anotherexample, the deadline for adopting a dis-cretionary amendment with respect to acalendar year plan that is operationally putinto effect during 2018 to provide a newright or benefit as of January 1, 2011, withrespect to participants with same-sexspouses is December 31, 2018. See Notice2015–86, 2015–52 I.R.B. 887, Q&A–5.

(2) In the case of a discretionaryamendment to a governmental plan withinthe meaning of § 414(d), the plan amend-ment deadline is the later of: (i) the end ofthe plan year in which the plan amendmentis operationally put into effect; or (ii) 90days after the close of the second regularlegislative session of the legislative bodywith the authority to amend the plan thatbegins on or after the date the plan amend-ment is operationally put into effect.

SECTION 9. REQUIREDAMENDMENTS LIST

.01 Treasury and the IRS intend to pub-lish annually a Required AmendmentsList that generally applies to changes in

qualification requirements that become ef-fective on or after January 1, 2016. TheRequired Amendments List establishesthe date that the remedial amendment pe-riod expires for changes in qualificationrequirements contained on the list, as de-scribed in section 5.03 of this revenueprocedure. See also section 12 of this rev-enue procedure, which describes the scopeof review by the IRS of a plan submittedfor a determination letter.

.02 In general, an item will be includedon a Required Amendments List afterguidance with respect to such item (in-cluding any model amendment) has beenprovided in regulations or in other guid-ance published in the Internal RevenueBulletin. However, in the discretion of theIRS, an item may be included on a Re-quired Amendments List in other circum-stances, such as when a statutory changeis enacted and it is anticipated that noguidance will be issued.

SECTION 10. OPERATIONALCOMPLIANCE LIST

The remedial amendment period per-mits a plan to be amended retroactively tocomply with a change in plan qualificationrequirements; however, a plan must be op-erated in compliance with a change in qual-ification requirements from the effectivedate of the change. To assist plan sponsorsin achieving operational compliance, theIRS intends to provide annually an Opera-tional Compliance List to identify changesin qualification requirements that are effec-tive during a calendar year. In order to bequalified, however, a plan must comply op-erationally with each relevant qualificationrequirement, even if the requirement is notincluded on an Operational Compliance List.

SECTION 11. EXAMPLES

Examples 1 through 7 illustrate the ex-tended remedial amendment period fornew plans, amendments made to existingplans that are not made as a result ofchanges in qualification requirements, andamendments to existing plans that aremade as a result of changes in qualifica-tion requirements. In each of these exam-ples, assume that the plan is an individu-ally designed plan that is intended to bequalified under § 401(a) and that the plan

amendments meet the requirements of§ 411(d)(6).

Example 1: Remedial amendment period for anew plan. Employer A, which is not a tax exemptemployer, adopts a new individually designed plan,Plan M, on July 1, 2017. Plan M is effective January1, 2017. Plan M’s plan year and Employer A’s taxyear are the calendar year. Plan M contains a provi-sion that does not satisfy the qualification require-ments (a disqualifying provision under § 401(b)).Employer A discovers the disqualifying provision inFebruary 2018. Pursuant to section 5.05(1) of thisrevenue procedure, the remedial amendment periodfor this disqualifying provision is extended to thelater of (i) October 15, 2018 (the 15th day of the 10thcalendar month after the end of the plan’s initial planyear), or (ii) the modified § 401(b) expiration date.The modified § 401(b) expiration date is the later ofSeptember 15, 2018 (the due date for filing Em-ployer A’s tax return plus extensions) and the lastday of the plan year in which the plan is put intoeffect (December 31, 2017). Thus, Employer A mustcorrect the disqualifying provision in Plan M byOctober 15, 2018, retroactively effective beginningJanuary 1, 2017, in order for Plan M to be qualified,and must correct Plan M’s operation to the extentnecessary to reflect the corrective amendment.

Example 2: Determination letter application filedfor a new plan. The facts are the same as in Example 1,except that, instead of Employer A identifying thedisqualifying provision, Employer A files a determina-tion letter application and the IRS discovers the error. IfEmployer A submits Plan M for a determination letterby October 15, 2018, then, pursuant to § 1.401(b)–1(e)(3), Employer A would have until 91 days after thedate a favorable determination letter is issued withrespect to Plan M to adopt an amendment that correctsthe disqualifying provision retroactively effective be-ginning January 1, 2017 (the effective date of Plan M).To maintain plan qualification, Employer A must cor-rect Plan M’s operation to the extent necessary toreflect the corrective amendment.

Example 3: Remedial amendment period foramendment to an existing plan. Employer B main-tains Plan N, an individually designed plan. In 2014,the IRS issued a determination letter for Plan N. OnJanuary 1, 2018, Employer B adopts and makes effec-tive an amendment to Plan N’s vesting schedule. Thisamendment causes Plan N to fail to satisfy the require-ments of the Code. Pursuant to section 5.05(2) of thisrevenue procedure, a remedial amendment to correctthis disqualifying provision generally must be adoptedby December 31, 2020, the end of the second calendaryear following the calendar year in which the amend-ment is adopted or effective (whichever is later). Theremedial amendment must be retroactively effectivebeginning January 1, 2018, the date the earlier planamendment was effective, in order for Plan N to bequalified. Also, to maintain plan qualification, Em-ployer B must correct Plan N’s operation to the extentnecessary to reflect the corrective amendment.

Example 4: Remedial amendment period for achange in qualification requirements. Employer Cmaintains Plan O, an individually designed plan. InJuly 2016, guidance is published in the InternalRevenue Bulletin that would require an amendmentto Employer C’s plan in order to retain the plan’squalification. The guidance is effective in 2017. The

July 18, 2016 Bulletin No. 2016–29142

guidance is included on the 2017 Required Amend-ments List. Pursuant to section 5.05(3) of this reve-nue procedure, the remedial amendment period foritems identified on the 2017 Required AmendmentsList expires December 31, 2019, the end of thesecond calendar year that begins after the issuance ofthe Required Amendments List in which the guid-ance appears; therefore, the expiration of the reme-dial amendment period for the disqualifying provi-sion in Plan O is December 31, 2019. The planamendment deadline for the change in qualificationrequirements is also December 31, 2019, pursuant tosection 8.01 of this revenue procedure.

Example 5: Correction of amendment made dueto a change in qualification requirements. EmployerD maintains Plan P, an individually designed plan. In2015, the IRS issued a determination letter for PlanP. On April 1, 2018, Employer D amends Plan Pbased on a change in a qualification requirement thatwas identified on the 2017 Required AmendmentsList. This amendment was effective January 1, 2017.Pursuant to section 5.05(3) of this revenue proce-dure, the remedial amendment period for the changein qualification requirements expires December 31,2019, the end of the second calendar year that beginsafter the issuance of the Required Amendments Listin which the change in qualification requirementswas identified. In October 2019, Employer D discov-ers the amendment does not satisfy the qualificationrequirements of the Code; therefore, Plan P stillcontains a disqualifying provision. To maintain planqualification, Employer D must correct the disqual-ifying provision in Plan P by amending the plan notlater than December 31, 2019, retroactively effectivebeginning January 1, 2017, and must correct Plan P’soperation to the extent necessary to reflect the cor-rective amendment.

Example 6: Governmental Plans - remedialamendment period for a change in qualification re-quirements. State E maintains Plan Q, a governmen-tal plan within the meaning of § 414(d). In Septem-ber 2015, the IRS issued a determination letter forPlan Q. The legislature of State E annually convenesJanuary 4 and adjourns March 31. On March 1,2020, the legislature of State E amends Plan Q basedon a change in a qualification requirement that wasidentified on the 2018 Required Amendments List.This amendment is effective January 1, 2020. In Jan-uary 2021, State E discovers the amendment created adisqualifying provision. Generally, pursuant to section5.06(3) of this revenue procedure, the legislature ofState E has until the later of (i) December 31, 2020(which is the end of the second calendar year thatbegins after the issuance of the Required AmendmentsList in which the change in qualification requirementswas identified), or (ii) June 29, 2021 (which is 90 daysafter the close of the third regular legislative session ofthe legislative body of State E that began on or after thedate of the issuance of the 2018 Required AmendmentsList) to amend Plan Q, retroactively effective begin-ning January 1, 2020, to correct the disqualifying pro-vision in order for Plan Q to be qualified. To maintainplan qualification, State E must also correct Plan Q’soperation to the extent necessary to reflect the correc-tive amendment.

Example 7: Extended remedial amendment pe-riod transition rule. Employer F maintains Plan R,an individually designed plan. Plan R’s plan year is

the calendar year. Under Rev. Proc. 2007–44, sec-tion 9.03, Plan R’s cycle is Cycle B. Employer Fsubmitted Plan R for a determination letter duringthe Cycle B submission period for the second five-year remedial amendment cycle (February 1, 2012 –January 31, 2013) and received a determination letterin July, 2014. In October 2014, Employer F adopteda timely interim amendment, in accordance withsection 5.04 and 5.05 of Rev. Proc. 2007–44, for achange in qualification requirements identified onthe 2013 Cumulative List of Changes (Notice 2013–84, 2013–52 I.R.B. 82). Because Employer F ad-opted a timely amendment for the change in quali-fication requirements, the remedial amendmentperiod for the change was extended to the end of thethird Cycle B remedial amendment cycle (January31, 2018) pursuant to section 5.03 of Rev. Proc.2007–44.

On January 1, 2017, the five-year remedialamendment cycle system will be eliminated. As aresult, the remedial amendment period under Rev.Proc. 2007–44 for the change in qualification re-quirements for Plan R would not extend beyondDecember 31, 2016. However, pursuant to the ex-tended remedial amendment period transition rule insection 6 of this revenue procedure, the expiration ofthe remedial amendment period is extended to De-cember 31, 2017, with respect to any disqualifyingprovision for which, as of January 1, 2017, theremedial amendment period (as extended by Rev.Proc. 2007–44) has not expired. Thus, Plan R’sextended remedial amendment period for the changein qualification requirements identified on the 2013Cumulative List will expire December 31, 2017.

SECTION 12. SCOPE OF PLANREVIEW

With respect to individually designedplans for which a determination letter ap-plication is submitted, the IRS review willbe based on the Required AmendmentsList that was issued during the secondcalendar year preceding the submission ofthe determination letter application. Forexample, with respect to a plan submittedfor a determination letter during the cal-endar year beginning January 1, 2020, theIRS’s review will be based on the Re-quired Amendments List that was issuedin 2018, regardless of the fact that the planotherwise would not be required to beamended for items on the 2018 RequiredAmendments List until December 31,2020. The review will also take into ac-count all previously issued RequiredAmendments Lists (and Cumulative Listsissued prior to 2016). Terminating planswill be reviewed for amendments requiredto be adopted in connection with plantermination (see section 7 of this revenueprocedure). Plans submitted for initialqualification during the 2017 calendar

year will be reviewed based on the 2015Cumulative List (Notice 2015–84). Withthe exception of a terminating plan, anindividually designed plan must be re-stated to incorporate all previously ad-opted amendments into the plan documentwhen a determination letter application issubmitted.

SECTION 13. RELIANCE ONDETERMINATION LETTERS

.01 Rev. Proc. 2016–6 provides that,effective as of January 4, 2016, determi-nation letters issued to individually de-signed plans will no longer contain anexpiration date.

.02 Under this revenue procedure, ex-piration dates included in determinationletters issued prior to January 4, 2016, areno longer operative.

.03 In general, a plan sponsor thatmaintains a qualified plan for which afavorable determination letter has been is-sued and that is otherwise entitled to relyon the determination letter may not con-tinue to rely on the determination letterwith respect to a plan provision that issubsequently amended or that is subse-quently affected by a change in law. How-ever, a plan sponsor may continue to relyon a determination letter with respect toplan provisions that are not amended oraffected by a change in law. Reliance ondetermination letters is discussed in sec-tion 13 of Rev. Proc. 2016–4, 2016–1I.R.B. 142 (updated annually) and section21.01 of Rev. Proc. 2016–6, 2016–1I.R.B. 200 (updated annually).

PART III – PRE-APPROVED PLANS

SECTION 14. SIX-YEARREMEDIAL AMENDMENT CYCLESYSTEM FOR PRE-APPROVEDPLANS

.01 Under this revenue procedure, ev-ery pre-approved plan (that is, every M&Pand VS plan) generally has a regular, six-year remedial amendment cycle. As a re-sult, M&P sponsors and VS practitioners(including mass submitters), as defined inRev. Proc. 2015–36, may apply for newopinion or advisory letters once every sixyears. Employers that adopt such pre-approved plans generally are on the samesix-year remedial amendment cycle withrespect to their plans, and, if otherwise

Bulletin No. 2016–29 July 18, 2016143

eligible under section 20.03 of this reve-nue procedure and section 8 of Rev. Proc.2016–6 (updated annually), may applyfor determination letters once every sixyears. However, pre-approved definedcontribution plans have different six-yearremedial amendment cycles than pre-approved defined benefit plans. Thus, thesame six-year remedial amendment cycleapplies with respect to all pre-approveddefined contribution plans, and a separatesix-year remedial amendment cycle ap-plies with respect to all pre-approved de-fined benefit plans.

.02 M&P sponsors and VS practitio-ners generally have until January 31st ofthe calendar year following the opening ofthe six-year remedial amendment cycle tosubmit applications for opinion and advi-sory letters. In addition, generally, thedeadline for word-for-word identicaladopters and minor modifier placeholderapplications is January 31st of the calen-dar year following the opening of the six-year remedial amendment cycle (see sec-tion 12 of Rev. Proc. 2015–36 for moredetails). However, see section 16 of thisrevenue procedure, which modifies thedates of the submission period for pre-approved defined contribution plans dur-ing the third six-year remedial amendmentcycle.

.03 When the review of a cycle forpre-approved plans has neared completion(after approximately a two-year reviewprocess), the IRS intends to announce thedate by which adopting employers mustadopt the newly approved plans. This isexpected to be a uniform date that willapply to all adopting employers. Depend-ing upon the length of the review process,it is expected that this deadline will pro-vide virtually all employers approxi-mately a two-year window to adopt theirupdated plans. An employer that adoptsthe approved M&P or VS plan by theannounced deadline will have adopted theplan within the employer’s six-year reme-dial amendment cycle. The announceddeadline will be the end of the plan’sremedial amendment cycle for all disqual-ifying provisions for which the remedialamendment period would otherwise endduring the cycle. For purposes of this rev-

enue procedure, an adopting employermeans an employer that satisfies the re-quirements described in section 19 of thisrevenue procedure.

SECTION 15. EXTENSION OF THEREMEDIAL AMENDMENT PERIODAND DEADLINES FOR THEADOPTION OF INTERIM ANDDISCRETIONARY PLANAMENDMENTS FOR PRE-APPROVED PLANS

.01 To promote compliance during thesix-year remedial amendment cycle withstatutory or regulatory changes with re-spect to plan qualification requirementsthat will affect provisions of the writtenplan document, the adoption of an interimamendment generally will be required.

.02 An amendment with respect to adisqualifying provision described in sec-tion 5.03 of this revenue procedure (thatis, a disqualifying provision that results inthe failure of the plan to satisfy the qual-ification requirements of the Code by rea-son of a change in those requirements thatis effective after December 31, 2001,2 orthat is integral to such disqualifying pro-vision) is referred to as an interim amend-ment for purposes of this revenue proce-dure.

.03 Except as otherwise provided bystatute, or in regulations or other guidancepublished in the Internal Revenue Bulle-tin, the remedial amendment period forthe disqualifying provisions described inthis section 15.03 is extended as follows:

(1) The remedial amendment periodfor any disqualifying provision describedin § 1.401(b)–1(b)(1) that would other-wise apply under § 1.401(b)–1 is extendedto the end of the applicable remedialamendment cycle described in section 16that includes the date on which the reme-dial amendment period would otherwiseend if the disqualifying provision was aprovision of, or absence of a provisionfrom, a new plan and the plan was in-tended, in good faith, to be qualified. Thesame extension of the remedial amend-ment period applies to a disqualifying pro-vision (including a disqualifying provi-sion described in section 15.02) in thecase of an adoption of an amendment to

an existing plan (without regard towhether that amendment was required tobe adopted) if the amendment was ad-opted timely and in good faith with theintent of maintaining the qualified statusof the plan. However, the remedialamendment period for a disqualifying pro-vision will not end before the last day of aplan’s first applicable remedial amend-ment cycle in which an application for anopinion or advisory letter that considersthe disqualifying provision may be sub-mitted. The IRS will make the final deter-mination in all cases as to whether a newplan or an amendment to an existing planwas adopted with the good faith intentionof being qualified or maintaining qualifiedstatus.

(2) In addition, the extension of theremedial amendment period described insection 15.03(1) applies to a disqualifyingprovision described in section 15.02 incases in which the employer (or M&Psponsor or VS practitioner, if applicable)reasonably and in good faith determinesduring the period when an interim amend-ment to reflect a qualification changewould otherwise be required under section15.01 that no amendment is required be-cause the qualification change does notimpact provisions of the written plan doc-ument. Thus, for example, if an employer(or M&P sponsor or VS practitioner, ifapplicable) makes such a determinationand the IRS finds that an amendment isrequired, the plan would still be eligiblefor the six-year remedial amendment cy-cle to correct the disqualifying provisionsdescribed in section 15.02. The IRS willmake the final determination in all casesas to whether the determination that nointerim amendment was required was rea-sonable and in good faith.

(3) Notwithstanding paragraphs (1)and (2) of this section 15.03, the termina-tion of a plan ends the plan’s remedialamendment period and, thus, generallywill shorten the remedial amendment pe-riod for the plan.

.04 Except as otherwise provided insections 15.05 and 15.06 of this revenueprocedure, the deadline for the timelyadoption of an amendment for any pre-approved plan is determined as follows:

2As provided in section 5.01 of Rev. Proc. 2007–44, December 31, 2001, was the date after which all changes in qualification requirements were designated as disqualifying provisions bythe Commissioner in order for the changes to be eligible for the remedial amendment period available with respect to disqualifying provisions.

July 18, 2016 Bulletin No. 2016–29144

(1) In the case of an interim amend-ment, an employer (or a M&P sponsor orVS practitioner, if applicable) is consid-ered to have timely adopted the amend-ment if the plan amendment is adopted bythe end of the remedial amendment perioddescribed in § 1.401(b)–1(b)(3) (deter-mined without regard to the extension un-der section 15.03 of this revenue proce-dure). See section 2.07 of this revenueprocedure.

(2) In the case of a discretionaryamendment (that is, one that is not aninterim amendment described in section15.02), an employer (or a M&P sponsor orVS practitioner, if applicable) is consid-ered to have adopted the amendmenttimely if the plan amendment is adoptedby the end of the plan year in which theplan amendment is operationally put intoeffect. See section 8.02(1) of this revenueprocedure for examples illustrating thisdeadline.

.05 Exceptions to section 15.04 amend-ment adoption deadlines.

Section 15.04 of this revenue proce-dure applies unless a statutory provisionor guidance issued by the IRS sets forth anearlier deadline to timely adopt a discre-tionary amendment with respect to a planyear (for example, an amendment to add aqualified cash or deferred arrangement toa profit sharing plan cannot be adoptedretroactively) or if a statutory provision orguidance provides another specific dead-line for the adoption of a particular type ofinterim amendment that is earlier or laterthan the deadlines under section 15.04.

.06 Special deadlines for governmentaland tax exempt employers.

(1) Governmental plans.

(a) For a governmental plan within themeaning of § 414(d), the adoption dead-line for interim amendments is: the laterof (i) the deadline that would apply underthe rules of section 15.04(1), or (ii) 90days after the close of the third regularlegislative session of the legislative bodywith authority to amend the plan that be-gins on or after the date the amendmentbecomes effective.

(b) For a governmental plan within themeaning of § 414(d), the adoption dead-line for discretionary amendments is: thelater of (i) the deadline that would applyunder the rules of section 15.04(2), or (ii)90 days after the close of the second reg-ular legislative session of the legislativebody with authority to amend the plan thatbegins on or after the date the amendmentbecomes effective.

(2) Tax exempt employers. For a taxexempt employer, the adoption deadlinefor interim amendments set forth in sec-tion 15.04(1) and 15.05 of this revenueprocedure applies, as modified in this sec-tion 15.06(2). For purposes of determin-ing the applicable tax filing deadline, thefollowing rule is used to determine thedue date (including extensions) for filingthe income tax return for the employer’staxable year under section 2.07 of thisrevenue procedure. The due date for filingthe employer’s tax return in the case of atax exempt employer that files Form990–T (or Form 990 or Form 990–EZ ifno Form 990–T is filed) is the later of (i)the 15th day of the 10th month after theend of the employer’s tax year (treatingthe calendar year as the tax year if theemployer does not have a tax year) or (ii)the due date for filing the Form 990 series

(plus extensions). For this purpose, anemployer is not treated as having ob-tained an extension of time for filing theForm 990 series unless such extension isactually applied for and granted. Thedue date for filing the employer’s taxreturn in the case of a tax exempt em-ployer that is not required to file a Form990 series return is the 15th day of the10th month after the end of the employ-er’s tax year (treating the calendar yearas the tax year if the employer does nothave a tax year).

.07 For purposes of this revenue pro-cedure, a pre-approved plan restatementthat generally is effective as of a certaindate should not be treated as supersed-ing a previously adopted interim planamendment that is effective before orafter the restatement’s effective date andthat has not been incorporated or re-flected in the restatement, provided thatthe pre-approved plan is operated in amanner consistent with the interim planamendment. A plan is presumed to beoperating in compliance with the interimplan amendments in any case in whichthe operation of the plan cannot be de-termined.

SECTION 16. SCHEDULES FORTHE SECOND AND THIRD SIX-YEAR REMEDIAL AMENDMENTCYCLES

.01 The table in this section 16 setsforth the schedules for the second andthird six-year remedial amendment cyclesfor pre-approved defined contribution anddefined benefit plans. Subsequent cycleswill continue on six year intervals.

Schedule(s) of Second and Third Six-Year Remedial Amendment Cycles

If the plan is - The second six-yearremedial amendmentcycle began on -

And ends on -

Defined Contribution February 1, 2011 January 31, 2017

Defined Benefit February 1, 2013 January 31, 2019

If the plan is - The third six-year remedial amendmentcycle begins on -

And ends on -

Defined Contribution February 1, 2017 January 31, 2023

Defined Benefit February 1, 2019 January 31, 2025

Bulletin No. 2016–29 July 18, 2016145

.02 In general, sponsors of M&P plansand practitioners maintaining VS plansmust apply for new opinion or advisoryletters for the plans every six years. Thesubmission period for pre-approved de-fined contribution plans during the thirdsix-year remedial amendment cycle wouldordinarily begin February 1, 2017, andend January 31, 2018 (on-cycle submis-sion period). However, pursuant to thissection 16.02, the on-cycle submission pe-riod for M&P sponsors and VS practitio-ners to submit pre-approved defined con-tribution plans for opinion or advisoryletters during the third six-year remedialamendment cycle will begin August 1,2017, and end July 31, 2018.

.03 If necessary, the IRS may revise theschedules described in this section 16 torespond to changing circumstances andthe needs of plan sponsors. The IRS willannounce any such revisions and the tim-ing of the submission periods within eachcycle in future guidance published in theInternal Revenue Bulletin.

SECTION 17. CUMULATIVE LISTSOF CHANGES IN PLANQUALIFICATIONREQUIREMENTS; OPERATIONALCOMPLIANCE LIST

.01 The IRS intends to publish Cumu-lative Lists of Changes in Plan Qualifica-tion Requirements (Cumulative Lists) forpre-approved plans. The Cumulative Listsare intended to identify all changes in thequalification requirements that are re-quired to be taken into account in thewritten plan document that is submitted tothe IRS for an opinion, advisory, or deter-mination letter, as applicable. The IRScurrently anticipates that a CumulativeList will be issued in the year precedingthe year in which the pre-approved de-fined contribution plan or defined benefitplan submission period begins. The targetdate for publication of a Cumulative Listis December of such year.

.02 Each Cumulative List identifieschanges in the qualification requirementsof the Code as well as items of publishedguidance relating to the plan qualificationrequirements, such as regulations and rev-enue rulings, that will be considered bythe IRS in its review of plans whose pre-approved plan submission period beginson the February 1st (or other date deter-

mined under section 16.02 or 16.03, asapplicable) following issuance of the Cu-mulative List.

.03 Except as provided in the applica-ble Cumulative List, the IRS generallywill not consider in its review of anyopinion, advisory, or determination letterapplication any:

(1) guidance issued after the October 1immediately preceding the date the appli-cable Cumulative List is issued;

(2) statutes enacted after the October 1immediately preceding the date the appli-cable Cumulative List is issued;

(3) statutes that are first effective in theyear in which the submission period be-gins for which there is no guidance iden-tified on the applicable Cumulative List(regardless of when they are enacted); or

(4) qualification requirements (eitherstatutory or regulatory) that become effec-tive for the plan in a calendar year afterthe calendar year in which the submissionperiod begins, regardless of when thequalification requirements are enacted orissued (for example, qualification require-ments first effective in 2018, for applica-tions submitted during the period begin-ning August 1, 2017, based on the 2016Cumulative List).

.04 The IRS will, however, consider inits review of any opinion, advisory, ordetermination letter application all quali-fication requirements that are not de-scribed in section 17.03(1) through (4) ofthis revenue procedure. Thus, for exam-ple, a determination letter may be reliedon with respect to guidance issued on orbefore the October 1st preceding the issu-ance of the applicable Cumulative Listand which is effective during the calendaryear in which the submission period be-gins, whether or not identified on the ap-plicable Cumulative List.

In addition, in the case of a terminatingplan, any retroactive remedial planamendments or other required planamendments (that is, plan amendments re-quired to be adopted to reflect qualifica-tion requirements that apply as of the dateof termination) must be adopted in con-nection with the plan termination regard-less of whether such requirements are in-cluded on an applicable Cumulative List.

.05 The remedial amendment periodpermits a plan to be amended retroactivelyto comply with a change in plan qualifi-

cation requirements; however, a plan mustbe operated in compliance with a changein qualification requirements from the ef-fective date of the change. To assist plansponsors in achieving operational compli-ance, the IRS intends to provide annuallyan Operational Compliance List to iden-tify changes in qualification requirementsthat are effective during a calendar year.In order to be qualified, however, a planmust comply operationally with each rel-evant qualification requirement, even ifthe requirement is not included on an Op-erational Compliance List.

SECTION 18. EXTENSION OFDEADLINE FOR AN EMPLOYERTO ADOPT A NEWLY APPROVEDPRE-APPROVED DEFINEDCONTRIBUTION PLAN AND TOAPPLY FOR A DETERMINATIONLETTER (IF APPLICABLE)

.01 Consistent with Notice 2016–03,except as provided in section 18.02 of thisrevenue procedure, the deadline for anemployer to adopt a newly approved pre-approved defined contribution plan thatwas based on the 2010 Cumulative List,and to apply for a determination letter, isextended from April 30, 2016, to April 30,2017, for any newly approved pre-approved defined contribution plan ad-opted on or after January 1, 2016. Forplans eligible for this extension, the pro-cedures for adopting a pre-approved planand for filing a determination letter setforth in Rev. Proc. 2016–6 and Rev. Proc.2007–44 will continue to apply. Thus, forexample, in the case of an employer eli-gible for this extension that is adopting anewly approved pre-approved definedcontribution plan as a modification andrestatement of an individually designedplan, the rules relating to the scope of thedetermination letter program set forth insection 4 of this revenue procedure do notapply, and the employer is permitted, untilApril 30, 2017, to file a determinationletter application for the plan on a Form5307 (Application for Determination forAdopters of Modified Volume SubmitterPlans) or a Form 5300 (Application forDetermination for Employee BenefitPlan), regardless of whether the employerhad previously filed a Form 5300 withrespect to the plan.

July 18, 2016 Bulletin No. 2016–29146

.02 For an employer that adopted apre-approved defined contribution planprior to January 1, 2016, the deadline toadopt a modification and restatement ofthe pre-approved defined contributionplan within the current six-year remedialamendment cycle for defined contributionplans and to apply for a determinationletter, if permissible, was April 30, 2016.

.03 Examples.Examples 8 through 10 illustrate the

deadline for an employer to adopt a pre-approved defined contribution plan and toapply for a determination letter, if permis-sible.

Example 8: Extended deadline for employer withan existing individually designed plan. As of June30, 2016, Employer A maintains Plan X, an individ-ually designed defined contribution plan. EmployerA is considering converting Plan X into a pre-approved defined contribution plan. Employer A hasuntil April 30, 2017, to adopt a newly approvedpre-approved defined contribution plan within thecurrent six-year remedial amendment cycle for de-fined contribution plans and to apply for a determi-nation letter, if permissible.

Example 9: Extended deadline for employer witha new individually designed plan. Employer Badopts Plan Y, an individually designed defined con-tribution plan, on January 1, 2016. Employer B isconsidering converting Plan Y into a pre-approveddefined contribution plan. Employer B has untilApril 30, 2017, to adopt a newly approved pre-approved defined contribution plan within the cur-rent six-year remedial amendment cycle for definedcontribution plans and to apply for a determinationletter, if permissible.

Example 10: Existing deadline for employer thatadopted a pre-approved defined contribution planprior to January 1, 2016. On April 1, 2010, Em-ployer C initially adopted the VS defined contribu-tion plan of Practitioner Z, which was approvedbased on the 2004 Cumulative List. On January 15,2016, Employer C adopted the newly approved VSdefined contribution plan of Practitioner Z as a mod-ification and restatement of Employer C’s existingVS defined contribution plan. The deadline for Em-ployer C to apply for a determination letter, if per-missible, was April 30, 2016. The same deadlinewould apply if Employer C had adopted a plan of adifferent VS practitioner.

SECTION 19. ELIGIBILITY FORSIX-YEAR REMEDIALAMENDMENT CYCLE SYSTEM

.01 An employer’s plan is treated as apre-approved plan and therefore eligible

for a six-year remedial amendment cyclesystem if the employer is:

(1) a prior adopter described in section19.02; or

(2) a new adopter described in section19.03.

.02 An employer is a prior adopter ifthe employer adopted and made effectivean existing pre-approved plan, as de-scribed in section 19.05(1) of this revenueprocedure, during the six-year remedialamendment cycle immediately precedingthe opening of the current six-year cycle3

, and the employer, within the announcedadoption period described in section 14.03of this revenue procedure, either:

(1) adopts the newly approved versionof that pre-approved plan; or

(2) adopts the newly approved versionof a different pre-approved plan main-tained by either the same M&P sponsor orVS practitioner or a different M&P spon-sor or VS practitioner. See section19.05(3) of this revenue procedure for thedefinition of a newly approved pre-approved plan.

.03 An employer is a new adopter if theemployer adopts a pre-approved plan andthe employer is not a prior adopter.

.04 An employer may adopt a pre-approved plan at any time during a six-year remedial amendment cycle; however,if the employer adopts an existing pre-approved plan described in section19.05(1) of this revenue procedure, or aninterim pre-approved plan described insection 19.05(2) of this revenue proce-dure, it must adopt either the newly ap-proved version of the same plan or anewly approved version of a different pre-approved plan by the end of the adoptionperiod described in section 14.03 of thisrevenue procedure (see section 19.05(3)of this revenue procedure for the defini-tion of a newly approved pre-approvedplan). An employer that adopts an existingpre-approved plan or an interim pre-approved plan, but during the adoptionperiod described in section 14.03 of thisrevenue procedure, adopts a plan otherthan a newly approved version of a pre-approved plan, will not be treated as

adopting a pre-approved plan. In suchcase, the plan remains eligible for the cur-rent six-year remedial amendment cycle;however, if the plan is submitted for adetermination letter (as permitted undersection 20.03 of this revenue procedure),the plan will be reviewed on the basis ofthe applicable Required Amendments Listas provided in section 12 of this revenueprocedure.

.05 For purposes of this section 19:(1) An existing pre-approved plan is a

plan (other than a newly approved plan, asdescribed in section 19.05(3) of this rev-enue procedure) that has received a validopinion or advisory letter for the six-yearremedial amendment cycle immediatelypreceding the opening of the current six-year remedial amendment cycle. For pur-poses of this definition, a plan is consid-ered an existing pre-approved planwhether or not interim or discretionaryamendments have been integrated into thepre-approved plan document.

(2) An interim pre-approved plan is aplan (other than a newly approved plan)that was not in existence in the immedi-ately preceding six-year remedial amend-ment cycle and that has been or will besubmitted for an opinion or advisory letterduring the current six-year remedialamendment cycle. For purposes of thisdefinition, a plan is considered an interimpre-approved plan whether or not interimor discretionary amendments have beenintegrated into the pre-approved plan.

(3) A newly approved plan is a pre-approved plan for which an opinion oradvisory letter has been issued in the cur-rent six-year remedial amendment cycle.4

.06 Examples.Examples 11 through 14 illustrate an

employer’s eligibility for the six-year re-medial amendment cycle. In the followingexamples, both the tax year of the em-ployer and the plan year are the calendaryear and, except as otherwise provided,the plan has been operated in accordancewith plan terms, including any interim anddiscretionary amendments.

Example 11: Adoption of plan maintained bydifferent sponsor. Employer L adopted and made

3The current six year remedial amendment cycle as of the date of publication of this revenue procedure began on February 1, 2011, for defined contribution plans and February 1, 2013,for defined benefit plans. The immediately preceding six year remedial amendment cycle ended on January 31, 2011, for defined contribution plans and January 31, 2013, for defined benefitplans.

4See section 21 of this revenue procedure for special rules applicable to an opinion or advisory letter application for a new pre-approved plan created after the submission period for theapplicable six-year cycle.

Bulletin No. 2016–29 July 18, 2016147

effective Plan X on January 1, 2011. Plan X is anexisting pre-approved M&P defined contributionplan sponsored by Sponsor M. Plan Y is also adefined contribution M&P plan but sponsored bySponsor N, which timely submitted an application byApril 2, 2012 (the extended deadline to submit on-cycle applications for opinion and advisory lettersfor pre-approved defined contribution plans for thesecond six-year remedial amendment cycle, as pro-vided in Announcement 2012–3). In Announcement2014–16, the IRS announced that May 1, 2014through April 30, 2016 would be the two-year win-dow for employers to adopt newly approved pre-approved plans and file determination letters, if ap-plicable.

Sponsor M notified Employer L that itno longer qualified as a sponsor because itdid not have the requisite number of em-ployers (30) reasonably expected to adoptPlan X. Therefore, Sponsor M did notsubmit a new opinion letter application forPlan X within the six-year remedialamendment cycle by April 2, 2012. Em-ployer L timely adopts Plan Y of SponsorN within the two-year window period(May 1, 2014 through April 30, 2016).Employer L will be considered to be a“prior adopter” within the meaning of sec-tion 19.02 of this revenue procedure and iseligible for the six-year remedial amend-ment cycle. The result would be the samewhether Employer L switched to Plan Ybecause Sponsor M did not timely submitan application by April 2, 2012, for PlanX, Sponsor M timely submitted an appli-cation by April 2, 2012 but later withdrewthe application, or Employer L chose notto retain the plan of Sponsor M for otherreasons.

Example 12: Adoption of different plan offeredby same sponsor. The facts are the same as in Ex-ample 11 except Employer L adopts Plan Z, a dif-ferent pre-approved M&P defined contribution plansponsored by Sponsor M, within the announced two-year window period and Sponsor M timely submit-ted an application for an opinion letter by April 2,2012 for Plan Z. Employer L is considered to be aprior adopter and is eligible for the six-year remedialamendment cycle.

Example 13: Adoption of VS plan in place ofM&P plan. The facts are the same as in Example 11except Employer L adopts Plan V, a VS definedcontribution plan instead of an approved M&P plan,within the announced two-year window period andthe practitioner timely submitted an applicationfor an advisory letter for Plan V by April 2, 2012.Employer L is considered to be a prior adopter andis eligible for the six-year remedial amendmentcycle.

Example 14: Adoption of plan by new adopter.Employer P has never maintained a qualified plan.Sponsor S timely submitted an application for anopinion letter for Plan Y, an interim pre-approveddefined contribution M&P plan (that was not in

existence in the immediately preceding six-yearremedial amendment cycle), by April 2, 2012.Employer P adopted the interim pre-approved plandocument of Plan Y on December 15, 2012, priorto the announced adoption period (May 1, 2014through April 30, 2016). On March 28, 2014, theIRS issued a favorable opinion letter for Plan Y.Employer P adopted the newly approved versionof Plan Y on June 1, 2014, during the announcedadoption period. Employer P is a new adopter andis eligible for the six-year remedial amendmentcycle.

SECTION 20. EFFECT OFEMPLOYER AMENDMENTS ONSIX-YEAR REMEDIALAMENDMENT CYCLE

.01 General rule. An employer thatamends any provision of an approvedM&P plan, including its adoption agree-ment (other than to change the choice ofoptions, if the plan or adoption agree-ment permits or contemplates such achange), or an employer that amendsprovisions of a VS plan loses reliance onthe opinion or advisory letter issued tothe M&P sponsor or VS practitioner;however, except as provided in section20.02 of this revenue procedure, the em-ployer’s plan will remain on the currentsix-year remedial amendment cycle. Theemployer’s plan may be eligible for thesix-year remedial amendment cycle thatfollows the current six-year remedialamendment cycle if the employer’s plansatisfies the conditions set forth in sec-tion 19.01 of this revenue procedure.See section 20.03 of this revenue proce-dure for procedures for filing a determi-nation application to obtain continuedreliance.

.02 Ineligibility for Six-Year RemedialAmendment Cycle. A plan is ineligible forthe six-year remedial amendment cycle ifthe employer:

(1) amends an approved M&P plan,including its adoption agreement, to incor-porate, within one year of the date theemployer initially adopted the M&P plan,a type of plan not allowed in the M&Pprogram (see section 6.03 of Rev. Proc.2015–36); or

(2) amends an approved VS plan, in-cluding its adoption agreement, if appli-cable, to incorporate, within one year ofthe date the employer initially adopted theVS plan, a type of plan not allowed in theVS program (see section 16.03 of Rev.Proc. 2015–36).

.03 Determination letter procedures.(1) An employer that amends a M&P

or VS plan loses reliance on the opinion oradvisory letter of the M&P or VS plan.However, to the extent permitted in thissection 20.03(2) through (5), that em-ployer may file a determination letter ap-plication for the plan to obtain reliance.See also, Rev. Proc. 2016–6, section 8.01(updated annually).

(2) An adopting employer described insection 20.03(1) that modifies the terms ofan approved VS plan in situations inwhich the modifications are not extensivemay apply for a determination letter onForm 5307, regardless of whether a priordetermination letter has been issued withrespect to the plan.

(3) An adopting employer described insection 20.03(1) that makes extensivemodifications to an approved VS plan andan adopting employer that makes anymodifications to an approved M&P planmay apply for a determination letter onForm 5300. An employer may submit adetermination letter application on a Form5300 only if the application is made uponinitial qualification, plan termination, or inother circumstances identified by the IRS.See section 4 of this revenue procedureand Rev. Proc. 2016 – 6, section 8.01(updated annually). For this purpose, anemployer that previously filed an appli-cation on Form 5300 or Form 5307 withrespect to the plan and was issued afavorable determination letter is not el-igible to file a Form 5300 for initial planqualification.

(4) Subject to section 20.03(5), anadopting employer described in section20.03(2) or (3) that files a determinationletter application for the plan must file theapplication within the announced adop-tion period described in section 14.03 ofthis revenue procedure. In such case, theemployer’s plan is reviewed using the Cu-mulative List that was used to review theunderlying pre-approved plan.

(5) Section 24.03 of Rev. Proc.2015–36 provides that, due to the natureand extent of employer amendments madeto an approved M&P or VS plan, the IRSmay, in its discretion, treat the plan asindividually designed. In such case, al-though the plan remains eligible for thesix-year remedial amendment cycle untilthe expiration of the current remedial

July 18, 2016 Bulletin No. 2016–29148

amendment cycle in accordance with sec-tion 20.01 of this revenue procedure, theemployer’s plan is, in other respects,treated as an individually designed plan.Thus, for example, the IRS reviews theplan using the Required Amendments Listthat was issued during the second calendaryear preceding the submission of the de-termination letter application, in accor-dance with section 12 of this revenue pro-cedure.

(6) Determination letter filing proce-dures are set forth in Rev. Proc. 2016–6,which will be updated annually.

(7) While it is expected that an M&Psponsor and a VS practitioner, if applica-ble, generally will continue to amend onbehalf of the adopting employer even ifthe adopting employer adopts amend-ments to the plan, the sponsor or practi-tioner no longer has the authority toamend on behalf of the employer if theamendment falls into one of the categorieslisted in section 6.03 or section 16.03 ofRev. Proc. 2015–36 or the IRS has exer-cised its authority under section 24.03 ofRev. Proc. 2015–36.

.04 Examples.Examples 15 through 17 illustrate how

different types of employer amendmentsto a pre-approved plan affect an employ-er’s eligibility for the six-year remedialamendment cycle and which applicablelist (either the Cumulative List or the Re-quired Amendments List) the IRS will useto review an employer’s submission. Inthe following examples, both the tax yearof the employer and the plan year are thecalendar year and, except as otherwiseprovided, the plan has been operated inaccordance with the plan terms, includingany interim and discretionary amend-ments.

Example 15: Eligibility for six-year remedialamendment cycle after minor modifications. Em-ployer X has maintained Plan M, an approved VSplan, since 2002. Employer X never received anindividual determination letter for Plan M. Plan Mis timely submitted for the third six-year remedialamendment cycle by the VS practitioner. Duringthe third six-year remedial amendment cycle, Em-ployer X makes minor modifications to Plan M.Pursuant to section 20.01 and 20.03, Plan M iseligible to remain on the six-year remedial amend-ment cycle and may be submitted for a determi-nation letter application on a Form 5307 by theend of the adoption period described in section14.03 of this revenue procedure. The IRS willreview the determination letter application based

upon the Cumulative List that was used to reviewthe underlying VS plan.

Example 16: Eligibility for six-year remedialamendment cycle if plan amendments are not minor.The facts are the same as in Example 15, except thatduring the third six-year remedial amendment cycle,Employer X modifies Plan M to the extent that theplan is not eligible to be submitted on a Form 5307,in accordance with section 8.01(2) of Rev. Proc.2016 – 6. Because Employer X has never receivedan individual determination letter for Plan M, pur-suant to section 20.03(3) of this revenue proce-dure, Employer X may submit a Form 5300 deter-mination letter application for initial planqualification for Plan M. Employer X must submitthe determination letter application for Plan M bythe end of the adoption period described in section14.03 of this revenue procedure. Plan M remainseligible for the third six-year remedial amendmentcycle as described in section 20.01. The IRS willreview the plan based upon the Cumulative Listthat was used to review the underlying VS plan.

Example 17: Eligibility for six-year remedialamendment cycle and applicability of RequiredAmendments List. Employer Z has never maintaineda defined contribution plan and then adopts a newlyapproved VS plan (Plan V); however, Employer Zmakes major modifications to the provisions of theplan. Employer Z submits a determination letter ap-plication on Form 5307 during the two-year windowdescribed in section 14.03 of this revenue procedure.Pursuant to section 24.03 of Rev. Proc. 2015–36, theIRS, in its discretion, determines that Employer Zhas modified the provisions of the plan to such anextent that Plan V is considered an individuallydesigned plan. In accordance with section 20.01 ofthis revenue procedure, Plan V remains eligiblefor the third six-year remedial amendment cycle.Employer Z may submit Plan V for a determina-tion letter for initial qualification on Form 5300.Consistent with section 12 of this revenue proce-dure, the IRS will use the Required AmendmentsList that was issued during the second calendaryear preceding the submission of a determinationletter application in its review of the determinationletter submission for Plan V. The review will alsotake into account all previously issued RequiredAmendments Lists (and Cumulative Lists issuedprior to 2016). The result in this example would bethe same if Employer Z had amended Plan V toincorporate a type of plan provision not permittedin the VS program more than one year after Em-ployer Z initially adopted Plan V (see section16.03 of Rev. Proc. 2015–36).

SECTION 21. OFF-CYCLE FILING

.01 An application for an opinion oradvisory letter for a plan that is word-for-word identical to an approved mass sub-mitter that has a current advisory oropinion letter is not treated as off-cyclemerely because it is submitted after theend of the applicable on-cycle submis-sion period for the six-year remedialamendment cycle. Any other applicationfor an opinion or advisory letter that is

submitted after the applicable on-cyclesubmission period for the six-year reme-dial amendment cycle is treated as anoff-cycle filing. If such an off-cycle ap-plication is submitted before the begin-ning of the two-year window for em-ployer adoption announced by the IRSfor an applicable six-year cycle (as de-scribed in section 14.03 of this revenueprocedure), the IRS generally will notreview the application until it has re-viewed and processed all on-cycleplans. However, the IRS may, in itsdiscretion, determine whether the pro-cessing of off-cycle filings may be pri-oritized and accelerated under certaincircumstances. Off-cycle applicationsthat are submitted during or after thetwo-year window will not be accepted.

.02 As described in section 14.03 ofthis revenue procedure, the IRS intends topublish an announcement providing thedate by which adopting employers mustadopt the newly approved plans when thereview of a cycle for pre-approved planshas neared completion. Depending on thelength of the review process, it is expectedthat this date will provide virtually allemployers approximately a two-year win-dow to adopt the newly approved plans.However, the adoption period for employ-ers to adopt such newly approved plansmay be shorter than this approximate two-year window, depending on when the IRSfinishes the review and approves suchplans. In any event, for adopting employ-ers of such newly approved plans to beeligible for the applicable six-year reme-dial amendment cycle, M&P sponsors orVS practitioners filing off cycle must sub-mit new pre-approved plans prior to thebeginning of such announced adoption pe-riod, to give the IRS time to review suchplans and to provide time for adoptingemployers to adopt such plans.

.03 Adopting employers must adoptsuch newly approved plans within theadoption period described in section 14.03of this revenue procedure and, if eligibleto submit for a determination letter pursu-ant to section 20.03 of this revenue pro-cedure, may file a Form 5307 or Form5300 as appropriate.

Bulletin No. 2016–29 July 18, 2016149

PART IV – EFFECT ON OTHERDOCUMENTS, EFFECT ON OTHERLAWS, EFFECTIVE DATE,DRAFTING INFORMATION

SECTION 22. EFFECT ON OTHERDOCUMENTS

.01 Rev. Proc. 2007–44 is clarified,modified, and superseded.

.02 Sections 2.07 and 24.03 of Rev.Proc. 2015–36 are modified.

.03 Sections I and III of Notice2015–84 are modified.

SECTION 23. EFFECTIVE DATE

This revenue procedure is effectiveJanuary 1, 2017.

DRAFTING INFORMATION

The principal author of this revenueprocedure is Angelique Carrington of theOffice of Associate Chief Counsel (TaxExempt and Government Entities). Forfurther information regarding this revenueprocedure, contact Ms. Carrington at(202) 317-4148 (not a toll-free number).

July 18, 2016 Bulletin No. 2016–29150

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, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, 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 newruling 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. 2016–29 July 18, 2016i

Numerical Finding List1

Bulletin 2016–27 through 2016–29

Action on Decision:

2016-01, 2016-16 I.R.B. 580

Announcements:

2016-21, 2016-27 I.R.B. 82016-23, 2016-27 I.R.B. 10

Notices:

2016-40, 2016-27 I.R.B. 42016-41, 2016-27 I.R.B. 52016-42, 2016-29 I.R.B. 672016-43, 2016-29 I.R.B. 1322016-44, 2016-29 I.R.B. 1322016-45, 2016-29 I.R.B. 135

Proposed Regulations:

REG-123854-12, 2016-28 I.R.B. 15REG-147196-07, 2016-28 I.R.B. 32

Revenue Procedures:

2016-37, 2016-29 I.R.B. 136

Revenue Rulings:

2016-17, 2016-27 I.R.B. 1

Treasury Decisions:

9773, 2016-29 I.R.B. 56

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016–01 through 2016–26 is in Internal Revenue Bulletin2016–26, dated June 27, 2016.

July 18, 2016 Bulletin No. 2016–29ii

Finding List of Current Actions onPreviously Published Items1

Bulletin 2016–27 through 2016–29

Notices:

2013-1Modified byNotice 2016-41, 2016-27 I.R.B. 5

2013-1Superseded byNotice 2016-41, 2016-27 I.R.B. 5

Revenue Procedures:

2007-44Clarified byRev. Proc. 2016-37, 2016-29 I.R.B. 136

2007-44Modified byRev. Proc. 2016-37, 2016-29 I.R.B. 136

2007-44Superseded byRev. Proc. 2016-37, 2016-29 I.R.B. 136

2015-36Modified byRev. Proc. 2016-37, 2016-29 I.R.B. 136

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016–01 through 2016–26 is in Internal Revenue Bulletin2016–26, dated June 27, 2016.

Bulletin No. 2016–29 July 18, 2016iii

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/.

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