Events of Default

If there were events of default during the certification period, the Responsible Officer (RO) will not be able to make a certification of effective internal controls.  Instead, RO must make a Qualified Certification.  

If response to this question is "yes", you will be prompted with the questions for the Qualified Certification.

Events of Default

Participating FFI (PFFI)

An event of default occurs if a PFFI fails to perform material obligations required with respect to the due diligence, verification, withholding, or reporting requirements of the FFI agreement or if the IRS determines that the participating FFI has failed to substantially comply with the requirements of the FFI agreement. An event of default also includes the occurrence of the following: 

(i) Failure to obtain, in any case in which foreign law would (but for a waiver) prevent the reporting of U.S. accounts as required, valid and effective waivers from holders of U.S. accounts or failure to otherwise close or transfer such U.S. accounts; 

(ii) Failure to significantly reduce, over a period of time, the number of account holders or payees that the participating FFI is required to treat as recalcitrant account holders or nonparticipating FFIs, as a result of the participating FFI failing to comply with the due diligence procedures for the identification and documentation of account holders and payees; 

(iii) Failure, in any case in which foreign law prevents or otherwise limits withholding to the extent required, to obtain an authorization from each account holder or payee to withhold, close the account or terminate the obligation, or sell the assets in the account that produce (or could produce) withholdable payments; if such authorization is not obtained within a reasonable period of time, to transfer or block such account or obligation; 

(iv) Failure to establish or maintain a compliance program for fulfilling the requirements of the FFI agreement or to perform a periodic review of the participating FFI's compliance; 

(v) Failure to take timely corrective actions to remedy a material failure after making a qualified certification for any prior certification period; 

(vi) Failure to make the initial certification or to make the periodic certifications required within the specified time period; 

(vii) The PFFI made incorrect claims for refund under the collective refund procedures; 

(viii) Failure to cooperate with an IRS request for additional information or making any fraudulent statement or misrepresentation of material fact to the IRS; 

(ix) The PFFI has entered into or participated in any transaction relating to sponsorship, promotion, or noncustodial distribution for or on behalf of any local FFI that is an investment entity; 

(x) The PFFI has failed to inform the IRS within 90 days of an acquisition of all, or substantially all, of the PFFI's assets in any transaction in which the PFFI is not the surviving legal entity;

(xi) The PFFI has failed to inform the IRS within 90 days that the PFFI (other than a reporting Model 2 FFI) maintains a limited branch that cannot fulfill the requirements for PFFI or deemed-compliant FFI status after the expiration of the transitional rule for limited branches, or the PFFI (other than a reporting Model 2 FFI) is a member of an expanded affiliated group that includes a limited FFI after the expiration of the transitional rule for limited FFIs;

(xii) The PFFI has failed to inform the IRS within 90 days of a change in U.S. federal law or policy, or applicable foreign law or policy, that materially affects the PFFI's ability to perform its obligations under the FFI agreement;

(xiii) The PFFI has failed to inform the IRS within 90 days of a significant change in the PFFI’s business practices that materially affects the FFI’s ability to meet its obligations under the FFI agreement; or

(xiv) If the PFFI is a lead FI, the FFI has failed, without reasonable cause, to inform the IRS within 90 days of an acquisition, sale, or change affecting the chapter 4 status of an FFI in the FFI group for which it is acting as lead FI, including that such FFI ceases to comply with (or does not otherwise comply with) the requirements to maintain its status as a participating or registered deemed-compliant FFI.

Sponsoring entities of sponsored FFIs

An event of default occurs if the sponsoring entity fails to perform material obligations required with respect to the due diligence, verification, withholding, or reporting requirements of the FFI agreement or an applicable Model 2 IGA with respect to any sponsored FFI, to establish or maintain a compliance program, or to perform a periodic review as required. An event of default also includes the occurrence of the following:

(i) With respect to any sponsored FFI, failure to obtain, in any case in which foreign law would (but for a waiver) prevent the reporting of U.S. accounts as required, valid and effective waivers from holders of U.S. accounts or failure to otherwise close or transfer such U.S. accounts; 

(ii) With respect to any sponsored FFI, failure to significantly reduce, over a period of time, the number of account holders or payees that sponsored FIs are required to treat as recalcitrant account holders or nonparticipating FFIs, as a result of the sponsoring entity failing to comply with the due diligence procedures for the identification and documentation of account holders and payees; 

(iii) With respect to any sponsored FFI, failure, in any case in which foreign law prevents or otherwise limits withholding to the extent required, to obtain an authorization from each account holder or payee to withhold, close the account or terminate the obligation, or sell the assets in the account that produce (or could produce) withholdable payments; if such authorization is not obtained within a reasonable period of time, to transfer or block such account or obligation; 

(iv) Failure to take timely corrective actions to remedy a material failure after making a qualified certification for any prior certification period; 

(v) Failure to make the preexisting account certification or to make the periodic certifications required with respect to any sponsored FFI within the specified time period; 

(vi) Making incorrect claims for refund on behalf of any sponsored FFI; 

(vii) Failure to cooperate with an IRS request for additional information;

(viii) Making any fraudulent statement or misrepresentation of material fact to the IRS or representing to a withholding agent or the IRS its status as a sponsoring entity for an entity other than an entity for which it acts as a sponsoring entity; 

(ix) The sponsoring entity is no longer authorized to perform the requirements of a sponsoring entity with respect to one or more sponsored FFIs; or

(x) Failure to have a written sponsorship agreement in effect with each sponsored FFI.

Following an event of default known by the IRS or that is disclosed by the entity to the IRS, the IRS will deliver the entity a notice of default specifying the event(s) of default and, if applicable, identifying each entity to which the notice relates (e.g. sponsored FI or member FI).  In the notice the IRS will request that the event of default be remediated within a specified time.  

Entities will be permitted to remediate an event of default to the extent that it agrees with the IRS on a remediation plan.  If the entity does not provide a response to a notice of default with the time allotted, the IRS may deliver a notice of termination that terminates the entity’s status as a PFFI, Sponsored FFI, or as Registered deemed-compliant FFI.