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Miscellaneous Qualified Intermediary Information

 

A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U.S. intermediary) that has entered into a qualified intermediary withholding agreement with the IRS. You may treat a QI as a exempt payee to the extent the QI assumes primary withholding responsibility and primary Form 1099 reporting and backup withholding responsibility for a payment. In this situation, the QI is required to withhold the tax. You can determine whether a QI has assumed withholding responsibility from the Form W-8IMY provided by the QI. A QI's EIN will always begin with 98.

A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person (or pool of payees as identified on the withholding statement) on whose behalf the QI acts. If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U.S. persons.
 

QI Withholding Agreement

Foreign financial institutions and foreign branches of U.S. financial institutions can enter into an agreement with the IRS to be a qualified intermediary. A QI is entitled to certain simplified withholding and reporting rules. In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment.

The QI withholding agreement and procedures necessary to complete the QI application are set forth in Revenue Procedure 2000–12 found in Cumulative Bulletin 2000–1 (Internal Revenue Bulletin (I.R.B.) 2000–4). Also see:

  • Notice 2001–4 (I.R.B. 2001–2).
  • Notice 2001-43 (I.R.B. 2001-30)
  • Notice 2002-66 (I.R.B. 2002-42)
  • Revenue Procedure 2003–64, Appendix 3 (I.R.B. 2003–32).

PLEASE NOTE:  IRC Section 1031 Exchanges, describes an unrelated type of "qualified intermediary."

IRC 1031, Like Kind Exchanges involve business or investment property which is exchanged for like kind property.  Like Kind Exchanges must not involve constructive receipt of cash for the property relinquished.  The use of a "qualified intermediary" can facilitate the exchange using escrow accounts.  This type of "qualified intermediary" promises to return the proceeds of the exchange to the transferor of the property.  The proceeds are used to purchase replacement property of like kind.  Real or personal property must be replaced with real or personal property of the same asset class to defer the gain.

The QI Withholding Agreement does not apply to these transactions and the QI program is not responsible for overseeing this activity.
 

Documentation

A QI is not required to forward documentation obtained from foreign account holders to the U.S. withholding agent from whom the QI receives a payment of U.S. source income. The QI maintains such documentation at its location and provides the U.S. withholding agent with a withholding statement, identifying the proportion of each type of payment received, to each declared withholding rate pool. A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding.

A QI is required to provide the U.S. withholding agent with identifying information regarding U.S. persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding.

If a QI obtains documentary evidence under the know your customer rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement.
 

Form 1042-S Reporting

A QI is permitted to report payments made to its direct foreign account holders on a pooled basis to the IRS rather than reporting payments to each direct account holder individually. Pooled basis reporting is not available for payments to certain of the QI's account holders, such as a nonqualified intermediary or a flow-through entity.
 

Collective Refund Procedures

A QI may seek a refund on behalf of its direct account holders. The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI.
 

References/Related Topics

Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.

Page Last Reviewed or Updated: 13-Dec-2013