QI/FATCA Agenda March 2012

 

On the QI Agenda

 

Date	Document	Download
March 15, 2012	Deadline 1042 and 1042-S reporting	1042 1042-S 1042-T Instructions
June 30, 2012	Deadline audit report
June 30, 2012	Deadline request for extension for submission of the audit report
June 30, 2012	Deadline request for waiver of the 2011 tax year Qualified Intermediary audit requirement (reportable amounts not exceeding $1,000,000)	Form Instructions Common Errors
June 30, 2012	Deadline request for waiver of the 2011 tax year Qualified Intermediary audit requirement (reportable amounts exceeding $1,000,000 but not exceeding $4,000,000)“	Form Instructions Common Errors

 

Audit Year 2011

According to the QI Agreement (Revenue Procedure 2000-12) two external audits have to be conducted during its six years term. The Audit Guidance for External Auditors of Qualified Intermediaries (Revenue Procedure 2002-55) characterizes the audit as a three phase audit process. In Phase 1 of the audit, the auditor is required to perform and report the results of so called „Agreed Upon Procedures (AUP)“, which are specified in the Audit Guidelines.

Phase 2 and 3 of the audit include more procedures based on the IRS analysis of the reported results of the Phase 1 basic fact finding.

The audit requirements also apply for renewed agreements according to the Qualified Intermediary Agreement Renewal Instrument to Effect the Second Agreement.

If you belong to one of the following groups of QIs and you are not entitled to an audit waiver for audit year 2011, you should have your QI auditor appointed by now:

• Qualified Intermediary with renewed agreements that entered into force on January 1, 2008 requiring the first and forth year as audit year
• Qualified Intermediary with renewed agreements that entered into force on January 1, 2009 requiring the third and sixth year as audit year
• Qualified Intermediary with renewed agreements that entered into force on January 1, 2010 requiring the second and fifth year as audit year
• Qualified Intermediary with renewed agreements that entered into force on January 1, 2011 requiring the first and forth year as audit year
• Banks, with new Qualified Intermediary Agreements that entered into force on January 1, 2009 (first audit year under the terms of the agreement)
• Banks, with new Qualified Intermediary Agreements that entered into force on January 1, 2007 (second audit year under the terms of the agreement)

 

Audit Waiver

Qualified Intermediaries, for which 2011 is an audit year, may request an audit waiver, if their reportable amounts do not exceed USD 1’000’000 for Waiver 1 or USD 4’000’000 for Waiver 2. However, Waiver 2 is only applicable for the second audit of any audit cycle. It will not be granted for the first audit of any audit cycle.

The signed waiver request form for the audit year 2011 must be submitted to the IRS by the QI no later than 30 June, 2012.

Waiver requests should be sent to the following address:

• Internal Revenue Service
  LMSB:F:QI
  290 Broadway, 12th Floor
  New York, NY 10007-1867 USA
  Attention: Audit Waiver

It is recommended to indicate the type of waiver (Waiver #1 or Waiver #2) on the envelope in order to ensure proper processing upon receipt by the IRS.

 

Audit Waiver #1

An audit waiver can be requested by QIs that have received reportable amounts not exceeding $1,000,000.

Form „Request for Waiver of the 2011 Tax Year Qualified Intermediary Audit Requirement” (Reportable amounts not exceeding $1,000,000) must be used.

In completing the form, the QI should consider the following:
The form must be legible. If the QI did not assume primary withholding responsibility, copies of forms 1042-S received from the custodian must be provided along with a copy of the QIs form 1042. Any differences have to be explained.

 

Audit Waiver #2

An audit waiver can also be requested by QIs that have received reportable amounts exceeding $1,000,000 but not exceeding $4,000,000, if the QI was audited by an external auditor for the immediately preceding audit year of the six years agreement term. A copy of the acceptance letter received from the IRS should be attached.

Form „Request for Waiver of the 2011 Tax Year Qualified Intermediary Audit Requirement” (Reportable amounts exceeding $1,000,000 but not exceeding $4,000,000) must be used.

In completing the form, the QI should consider the following:
The form must be legible. Form 1042 and forms 1042-S issued by the QI should be added to the waiver request. If the QI did not assume primary withholding responsibility, copies of forms 1042-S received from the custodian must be provided as well. Any differences have to be explained.

 

Form 1042 and 1042-S Reporting for 2011

We would like to remind all QIs of their yearly 1042 and 1042-S reporting which has to be filed by March 15, 2012. For both forms, an extension can be obtained from the IRS if needed. See IRS homepage for further details.

 

QI-Audit: Extension of the Due Date of the Audit Report

Please be reminded, that the audit reports of audit year 2011 are due on June 30, 2012. However, the IRS generally allows an extension for the submission of the audit reports until December 31, 2012, which should be requested no later than June 30, 2012. The extension request has to be submitted by the appointed QI auditor. The QI itself is not entitled to file this extension request.

 

New Regulations and Procedures 2012

New Form W-9

A new form W-9 has been issued for 2012:

• New Form W-9

Offshore Voluntary Disclosure Initiative

With announcement of January 9, 2012, the IRS opened a third Offshore Voluntary Disclosure Initiative to get people with hidden offshore accounts back into the U.S. tax system and to encourage tax compliance.

The first and second voluntary disclosure program closed with 33,000 voluntary disclosures. The 2012 initiative includes several changes:

Individuals are required to pay a penalty of 27.5 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance during the eight full tax years prior to the disclosure. As already under the second offshore disclosure program, some taxpayers will be eligible for 5 or 12.5 percent penalties (i.e. offshore accounts up to $75,000). Moreover, participants have to pay back-taxes and interest for up to eight years, accuracy-related and/or delinquency penalties. Unlike the earlier initiatitives, there is no set deadline for people to apply. The IRS, however, has stated that the terms of the new program may be subject to changes at any time.

The 2012 initiative offers clear benefits to encourage taxpayers to fully comply with their tax duties. If non-compliant taxpayers are detected by the IRS, they would face criminal proceedings as well.

• Offshore Voluntary Disclosure Initiative announcement of January 9, 2012 by the IRS

 

FATCA: Proposed regulations

On February 8, 2012, the Department of the Treasury and the IRS issued proposed regulations under the Foreign Account Tax Compliance Act (FATCA) provisions of Sections 1471-1474 (also referred to as the “chapter 4” provisions). The proposed regulations address many, but not all, of the major items requiring further clarification following the three prior notices issued on FATCA.

• Proposed FATCA regulations issued on February 8, 2012 by Treasury and the IRS

At the same time the proposed regulations were released, Treasury also released a joint statement from the United States, France, Germany, Italy, Spain and the United Kingdom announcing an agreement to explore an intergovernmental approach to FATCA implementation that would allow foreign financial institutions (FFIs) in each country to provide the information required under FATCA to that country’s tax authorities rather than to the IRS.

• Joint statement regarding FATCA

 

According to Notice 2011-53, QI Agreements which expire on December 31, 2012 will be extended until December 31, 2013 automatically. However, the automatic extension will come into force only if the QI registers as a Participating FFI under FATCA once the online registration tool will be active.

For further information on FATCA, please refer to the following document:

• EY International FATCA proposed regulations tax alert