Internal Revenue Bulletin 2017-3 (PDF rendition): IRS Notices

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

# INTERNAL REVENUE BULLETIN

IRS

## HIGHLIGHTS OF THIS ISSUE

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

## INCOME TAX

### Rev. Rul. 2017-01, page 377.

Section 995(f) of the Internal Revenue Code requires the IRS to
annually publish a "base period T-bill rate" with which a share-
holder of an interest charge domestic international sales cor-
poration (IC-DISC) calculates the interest due on their IC-DISC-
related deferred tax liability for the year. Revenue Ruling
2017-01 sets forth the base period T-bill rate as determined
by the Office of Debt Management within the Treasury Depart-
ment for the period ending September 30, 2016, and provides
a table of factors compounded daily for taxpayers with short or
alternative taxable years.

### Notice 2017-06, page 422.

Notice 2017-6 waives the eligibility rule for one more year (to
any taxable year beginning before January 1, 2017) for tax-
payers making certain automatic changes to utilize the final
tangible property regulations under §§ 162(a) and 263(a) of
the Internal Revenue Code (and for making certain automatic
changes to comply with the final depreciation and disposition
regulations under § 168). The eligibility rule, set out in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, prohib-
its taxpayers from making certain automatic changes in ac-
counting methods if they applied or made a change in account-
ing method for the same item during any of the five taxable
years ending with the year of change. This notice provides an
additional year's waiver of that requirement for making certain
automatic method changes under these final regulations.

Bulletin No. 2017-3
January 17, 2017

### Notice 2017-07, page 423.

The notice modifies the effective dates in the § 1.987-12T
deferral rule (published in December 2016 in TD 9795) to
apply to deferral events or outbound loss events that occur as
a result of an entity classification election made under
§ 301.7701-3.

Notice 2017-08, page 423.

The notice modifies Notice 2016-66, 2016-47 I.R.B. 745, to
provide an extension of time for the filing of participant and
material advisor disclosure statements until May 1, 2017.

### Rev. Proc. 2017-12, page 424.

The revenue procedure generally provides that the Internal
Revenue Service will treat certain internal total loss-absorbing
capacity (TLAC) instruments as indebtedness for federal tax
purposes.

### Rev. Proc. 2017-15, page 437.

This revenue procedure sets forth the final qualified intermedi-
ary (QI) withholding agreement (QI agreement) that foreign
persons may enter with the Internal Revenue Service (IRS)
under § 1.1441-1(e)(5) to simplify their obligations as with-
holding agents under chapters 3 and 4 and as payors under
chapter 61 and section 3406 for amounts paid to their account
holders. The QI agreement also allows certain foreign persons
to enter into an agreement with the IRS to act as qualified
derivatives dealers (QDDs). This revenue procedure also an-
nounces that because updated withholding foreign partnership
(WP) and withholding foreign trust (WT) agreements will not be
published before December 31, 2016, WPs and WTs with
agreements currently in effect may continue to treat those
agreements as in effect until updated agreements are issued in
January 2017.

(Continued on the next page)

### Rev. Proc. 2017-16, page 501.

This revenue procedure sets forth the agreement entered into
by a foreign financial institution (FFI) with the Internal Revenue
Service (IRS) to be treated as a participating FFI under section
1471(b) of the Internal Revenue Code (Code) and § 1.1471-4
of the Income Tax Regulations (the FFI agreement). This reve-
nue procedure also provides guidance to FFIs and branches of
FFIs treated as reporting financial institutions under an appli-
cable Model 2 intergovernmental agreement (IGA) (reporting
Model 2 FFIs) on complying with the terms of the FFI agree-
ment, as modified by the Model 2 IGA. The FFI agreement
provided in Revenue Procedure 2014-38 (2014-29 I.R.B.
131) (2014 FFI agreement) expires on December 31, 2016.
The FFI agreement in this revenue procedure will apply to FFIs
with an FFI agreement effective on or after January 1, 2017.

### T.D. 9796, page 380.

Final regulations treating a domestic disregarded entity wholly
owned by a foreign person as a domestic corporation separate
from its owner for the limited purposes of the reporting, record
maintenance and associated compliance requirements that
apply to 25 percent foreign-owned domestic corporations un-
der section 6038A of the Code.

### T.D. 9803, page 384.

This final regulations address certain transfers of property by
United States persons to foreign corporations. The final regu-
lations affect United States persons that transfer certain prop-
erty, including foreign goodwill and going concern value, to
foreign corporations in nonrecognition transactions described
in section 367 of the Internal Revenue Code. The regulations
also combine certain sections of the existing regulations under
section 367(a) into a single section. This document also with-
draws certain temporary regulations.

### T.D. 9804, page 406.

These final regulations address issues under section 36B of
the Internal Revenue Code relating to the health insurance
premium tax credit. The final regulations amend the computa-
tion of the premium tax credit for families with children who
enroll in health coverage through Exchanges offering qualified
health plans that do not provide pediatric dental benefits, and
address information reporting by Exchanges and other issues.
The final regulations are reserved on the effect of employer
opt-out arrangements on the affordability of employer-provided
health coverage for purposes of the premium tax credit and the
section 5000A individual shared responsibility provision.

## EMPLOYMENT TAX

### Rev. Proc. 2017-14, page 426.

The Stephen Beck, Jr., Achieving a Better Life Experience Act
of 2014 requires the IRS to establish a voluntary certification
program for professional employer organizations. A profes-
sional employer organization, sometimes referred to as an
employee leasing company, is an organization that enters into
an agreement with a client to perform some or all of the federal
employment tax withholding, reporting, and payment functions
related to workers performing services for the client. Being
certified by the IRS as a certified professional employer orga-
nization (CPEO) has certain federal employment tax conse-
quences for both the CPEO and its clients. This revenue pro-
cedure describes the procedures a CPEO must follow and the
requirements a CPEO must satisfy to maintain its certification.

## ADMINISTRATIVE

### Rev. Proc. 2017-12, page 424.

The revenue procedure generally provides that the Internal
Revenue Service will treat certain internal total loss-absorbing
capacity (TLAC) instruments as indebtedness for federal tax
purposes.

### T.D. 9796, page 380.

## The IRS Mission

Provide America's taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.

## Introduction

The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal practices and procedures that affect the rights and duties
of taxpayers are published.

Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings to
taxpayers or technical advice to Service field offices, identify-
ing details and information of a confidential nature are deleted
to prevent unwarranted invasions of privacy and to comply with
statutory requirements.

Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, 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 unless
the 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 of
the Internal Revenue Code of 1986.

### Part II .- Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A, Tax
Conventions 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 these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the 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 for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published 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.

## Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

### Section 995 .- Taxation of DISC Income to Shareholders

2016 Base Period T-Bill Rate. The "base period
T-bill rate" for the period ending September 30,
2016, is published as required by section 995(f) of
the Internal Revenue Code.

### Rev. Rul. 2017-01

Section 995(f)(1) of the Internal Reve-
nue Code provides that a shareholder of a
domestic international sales corporation
("DISC") shall pay interest each taxable
year in an amount equal to the product of
the "shareholder's DISC-related deferred
tax liability" for the year (as defined in
section 995(f)(2)) and the "base period
T-bill rate." Under section 995(f)(4), the
base period T-bill rate is the annual rate of
interest determined by the Secretary to be
equivalent to the average of the 1-year
constant maturity Treasury yields, as pub-
lished by the Board of Governors of the
Federal Reserve System, for the 1-year
period ending on September 30 of the
calendar year ending with (or the most
recent calendar year ending before) the
close of the taxable year of the share-
holder.

The base period T-bill rate for the pe-
riod ending September 30, 2016, is 0.54
percent.

Pursuant to section 6622 of the Internal
Revenue Code, interest must be com-
pounded daily. The table below provides
factors for compounding the 2016 base
period T-bill rate daily for any number of
days in the shareholder's taxable year (in-
cluding for a 52-53 week accounting pe-
riod). To compute the amount of the in-
terest charge for the shareholder's taxable
year, multiply the amount of the share-
holder's DISC-related deferred tax liabil-
ity for that year by the base period T-bill
rate factor corresponding to the number of
days in the shareholder's taxable year for
which the interest charge is being com-
puted. Generally, one would use the factor
for 365 days. One would use a different
factor only if the shareholder's taxable
year for which the interest charge is being
determined is a short taxable year, if the

shareholder uses a 52-53 week taxable year,
or if the shareholder's taxable year is a leap
year.

For the base period T-bill rates for pe-
riods ending in prior years, see Rev. Rul.
2015-26, 2015-49 IRB 696; Rev. Rul.
2014-33, 2014-52 IRB 957; Rev. Rul.
2013-24, 2013-49 IRB 594; Rev. Rul.
2012-22, 2012-48 IRB 565; and Rev.
Rul. 2011-30, 2011-49 IRB 826.

### DRAFTING INFORMATION

The principal author of this revenue
ruling is Matthew A. Nieters of the Office
of Associate Chief Counsel (Interna-
tional). For further information regarding
the revenue ruling, contact Mr. Nieters at
(202) 317-6939 (not a toll-free number).

ANNUAL RATE, COM- POUNDED DAILY

DAYS

0.54 PERCENT

FACTOR

.000014754

.000029508

.000044263

.000059018

.000073773

.000088528

.000103283

.000118039

.000132795

.000147551

.000162307

.000177064

.000191820

.000206577

.000221334

.000236092

.000250849

.000265607

.000280365

.000295123

.000309882

.000324640

ANNUAL RATE, COM- POUNDED DAILY

DAYS

0.54 PERCENT

FACTOR

.000339399

.000354158

.000368918

.000383677

.000398437

.000413197

.000427957

.000442718

.000457478

.000472239

.000487000

.000501761

.000516523

.000531285

.000546047

.000560809

.000575571

.000590334

.000605097

.000619860

.000634623

.000649386

.000664150

.000678914

.000693678

.000708442

.000723207

.000737972

.000752737

.000767502

.000782267

.000797033

.000811799

.000826565

.000841331

ANNUAL RATE, COM- POUNDED DAILY

DAYS

0.54 PERCENT

0.54 PERCENT FACTOR

FACTOR

DAYS

FACTOR

DAYS

.000856098

132

.001949424

.000870864

.001417387

133

.001964207

.000885631

.001432162

134

.001978990

.001446937

135

.001993774

.000900398

.001461712

136

.002008557

.000915166

100

.001476488

137

.002023341

.000929933

138

.002038125

.000944701

101

.001491264

139

.002052909

.000959469

102

.001506040

140

.002067693

103

.001520816

.000974238

104

.001535593

141

.002082478

.000989006

105

.001550369

142

.002097263

.001003775

143

.002112048

.001018544

106

.001565146

144

.002126833

.001033313

107

.001579924

145

.002141618

108

.001594701

.001048082

109

.001609479

146

.002156404

.001062852

110

.001624257

147

.002171190

.001077621

148

.002185976

.001092391

111

.001639035

149

.002200763

.001107162

112

.001653813

150

.002215549

113

.001668591

.001121932

114

.001683370

151

.002230336

.001136703

115

.001698149

152

.002245123

.001151474

153

.002259910

.001166245

116

.001712928

154

.002274698

.001181016

117

.001727708

155

.002289485

118

.001742487

.001195788

119

.001757267

156

.002304273

.001210559

120

.001772047

157

.002319061

.001225331

158

.002333850

.001240103

121

.001786827

159

.002348638

.001254876

122

.001801608

160

.002363427

123

.001816388

.001269648

124

.001831169

161

.002378216

.001284421

125

.001845950

162

.002393005

.001299194

163

.002407794

.001313968

126

.001860732

164

.002422584

.001328741

127

.001875513

165

.002437374

.001343515

128

.001890295

.001358289

129

.001905077

166

.002452164

.001373063

130

.001919859

167

.002466954

.001387837

168

.002481745

.001402612

131

.001934642

169

.002496535

ANNUAL RATE, COM- POUNDED DAILY

0.54 PERCENT

0.54 PERCENT FACTOR

DAYS

FACTOR

DAYS

FACTOR

DAYS

170

.002511326

208

.003073543

171

.002526117

209

.003088343

246

.003636076

172

.002540909

210

.003103143

247

.003650884

173

.002555700

248

.003665692

174

.002570492

211

.003117942

249

.003680500

175

.002585284

212

.003132743

250

.003695308

213

.003147543

176

.002600077

214

.003162343

251

.003710117

177

.002614869

215

.003177144

252

.003724926

178

.002629662

253

.003739735

179

.002644455

216

.003191945

254

.003754544

180

.002659248

217

.003206746

255

.003769354

181

.002674041

218

.003221548

182

.002688835

219

.003236349

256

.003784163

183

.002703628

220

.003251151

257

.003798973

184

.002718422

258

.003813783

185

.002733217

221

.003265953

259

.003828594

222

.003280756

260

.003843404

186

.002748011

223

.003295558

187

.002762806

224

.003310361

261

.003858215

188

.002777600

225

.003325164

262

.003873026

189

.002792396

226

.003339967

263

.003887837

190

.002807191

227

.003354770

264

.003902649

228

.003369574

265

.003917460

191

.002821986

229

.003384378

192

.002836782

230

.003399182

266

.003932272

193

.002851578

267

.003947085

194

.002866374

231

.003413986

268

.003961897

195

.002881171

232

.003428790

269

.003976709

233

.003443595

270

.003991522

196

.002895967

234

.003458400

271

.004006335

197

.002910764

235

.003473205

272

.004021148

198

.002925561

273

.004035962

199

.002940358

236

.003488011

274

.004050775

200

.002955156

237

.003502816

275

.004065589

238

.003517622

201

.002969953

239

.003532428

276

.004080403

202

.002984751

240

.003547234

277

.004095218

203

.002999550

278

.004110032

204

.003014348

241

.003562041

279

.004124847

205

.003029146

242

.003576847

280

.004139662

243

.003591654

206

.003043945

244

.003606461

281

.004154477

207

.003058744

245

.003621268

282

.004169292

ANNUAL RATE, COM-
POUNDED DAILY

0.54 PERCENT

DAYS

FACTOR

283

.004184108

284

.004198924

285

.004213740

286

.004228556

287

.004243373

288

.004258189

289

.004273006

290

.004287823

291

.004302641

292

.004317458

293

.004332276

294

.004347094

295

.004361912

296

.004376731

297

.004391550

298

.004406368

299

.004421188

300

.004436007

301

.004450826

302

.004465646

303

.004480466

304

.004495286

305

.004510107

306

.004524927

307

.004539748

308

.004554569

309

.004569391

310

.004584212

311

.004599034

312

.004613856

313

.004628678

314

.004643500

315

.004658323

316

.004673146

317

.004687969

318

.004702792

319

.004717616

320

.004732439

ANNUAL RATE, COM- POUNDED DAILY

DAYS

0.54 PERCENT

FACTOR

321

.004747263

322

.004762087

323

.004776912

324

.004791736

325

.004806561

326

.004821386

327

.004836211

328

.004851037

329

.004865863

330

.004880688

331

.004895515

332

.004910341

333

.004925167

334

.004939994

335

.004954821

336

.004969648

337

.004984476

338

.004999303

339

.005014131

340

.005028959

341

.005043788

342

.005058616

343

.005073445

344

.005088274

345

.005103103

346

.005117932

347

.005132762

348

.005147592

349

.005162422

350

.005177252

351

.005192083

352

.005206913

353

.005221744

354

.005236575

355

.005251407

356

.005266238

ANNUAL RATE, COM- POUNDED DAILY

0.54 PERCENT

DAYS

FACTOR

357

.005281070

358

.005295902

359

.005310734

360

.005325567

361

.005340400

362

.005355232

363

.005370066

364

.005384899

365

.005399732

366

.005414566

367

.005429400

368

.005444234

369

.005459069

370

.005473903

371

.005488738

26 CFR 1.6038A-1: General Requirements and Defi-
nitions; 26 CFR 1.6038A-2: Requirement of Return;
26 CFR 301.7701-2: Business entities; definitions

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301

T.D. 9796

Treatment of Certain Domestic
Entities Disregarded as
Separate from Their Owners
as Corporations for Purposes
of Section 6038A

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-
nal regulations that treat a domestic disre-
garded entity wholly owned by a foreign
person as a domestic corporation separate
from its owner for the limited purposes of
the reporting, record maintenance and as-
sociated compliance requirements that ap-
ply to 25 percent foreign-owned domestic
corporations under section 6038A of the
Internal Revenue Code.

DATES: Effective date: These regulations
are effective December 13, 2016.
Applicability date: For dates of applicabil-
ity, see §§ 1.6038A-1(n)(1) and (2) and
301.7701-2(e)(9).

FOR FURTHER INFORMATION CON-
TACT: Ronald M. Gootzeit, (202) 317-6937
(not a toll-free number).

### SUPPLEMENTARY INFORMATION:

#### Paperwork Reduction Act

The collection of information con-
tained in these final regulations has been
previously reviewed and approved by the
Office of Management and Budget in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)) under
control number 1545-1191. The estimated
average annual recordkeeping burden per
recordkeeper is 10 hours. The estimated
reporting burden is being reported under
Form 5472 (OMB # 1545-0123).

The collection of information in these
final regulations is in §§ 1.6038A-2 and
1.6038A-3. This information will enhance
the United States' compliance with interna-
tional standards of transparency and ex-
change of information for tax purposes and
will strengthen the enforcement of U.S. tax
laws. The likely respondents are foreign-
owned domestic entities that are disregarded
as separate from their owners.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less it displays a valid control number
assigned by the Office of Management
and Budget.

Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.

#### Background and Explanation of Provisions

On May 10, 2016, the Department of
the Treasury (Treasury Department) and
the Internal Revenue Service (IRS) pub-
lished in the Federal Register a notice of
proposed rulemaking (REG-127199-15;
81 FR 28784) under sections 6038A and
7701 (the proposed regulations). The pro-

posed regulations would treat a domestic
disregarded entity wholly owned by a for-
eign person as a domestic corporation sep-
arate from its owner for the limited pur-
poses of the reporting, record maintenance
and associated compliance requirements
that apply to 25 percent foreign-owned
domestic corporations under section
6038A of the Internal Revenue Code. The
proposed regulations would have applied
to taxable years of the entities described in
§ 301.7701-2(c)(2)(vi) ending on or after
the date that is 12 months after the date of
publication of the Treasury decision
adopting the proposed rules as final regu-
lations in the Federal Register.

In addition to generally soliciting com-
ments on all aspects of the proposed rules,
the preamble to the proposed regulations
specifically requested comments on possi-
ble alternative methods for reporting a
domestic disregarded entity's transactions
in cases in which the foreign owner of the
domestic disregarded entity already has an
obligation to report the income resulting
from those transactions-for example,
transactions resulting in income effec-
tively connected with the conduct of a
U.S. trade or business.

No written comments on the proposed
regulations were received, and no public
hearing was requested or held. However,
these final regulations reflect a limited
number of changes by the Treasury De-
partment and the IRS to the proposed reg-
ulations.

First, it was and remains the intent of
the Treasury Department and the IRS that
the generally applicable exceptions to the
requirements of section 6038A should not
apply to a domestic disregarded entity that
is wholly owned by a foreign person. Ac-
cordingly, the proposed regulations pro-
vided that the exceptions to the record
maintenance requirements in § 1.6038A-
1(h) and (i) for small corporations and de
minimis transactions would not apply to
these entities. The proposed regulations
did not address the additional exception
provided in § 1.6038A-2(e)(3), under
which a reporting corporation is not re-
quired to file Form 5472, Information Re-
turn of a 25% Foreign-Owned U.S. Corpo-
ration or a Foreign Corporation Engaged in
a U.S. Trade or Business (Under Sections
6038A and 6038C of the Internal Revenue
Code), with respect to a related foreign cor-

poration when a U.S. person that controls
the related foreign corporation files a Form
5471, Information Return of U.S. Persons
With Respect to Certain Foreign Corpora-
tions, containing required information with
respect to reportable transactions between
the reporting corporation and the related for-
eign corporation for the taxable year. Simi-
larly, the proposed regulations did not ad-
dress the additional exception provided in
§ 1.6038A-2(e)(4), under which a reporting
corporation is not required to file Form 5472
with respect to a related foreign corporation
that qualifies as a foreign sales corporation
for a taxable year for which the foreign sales
corporation files Form 1120-FSC, U.S. In-
come Tax Return of a Foreign Sales Corpo-
ration. Upon final consideration of the pro-
posed regulations, the Treasury Department
and the IRS have concluded that, consistent
with the scope and intent of the proposed
regulations, the reporting requirements of
the proposed regulations should apply with-
out regard to the exceptions generally appli-
cable under § 1.6038A-2(e)(3) and (4). The
exceptions in § 1.6038A-2(e)(3) and (4) are
revised accordingly in the final regulations.

Second, to facilitate entities' compli-
ance with the requirements of section
6038A, including the obligation of report-
ing corporations to file Form 5472, the
final regulations provide that these entities
have the same taxable year as their foreign
owner if the foreign owner has a U.S.
return filing obligation. If the foreign
owner has no U.S. return filing obligation,
then for ease of tax administration, the
final regulations provide that the taxable
year of these entities is the calendar year
unless otherwise provided in forms, in-
structions, or published guidance.

Third, the Treasury Department and
the IRS have concluded that for ease of
administration, these regulations should
apply to taxable years of entities begin-
ning on or after January 1, 2017, and
ending on or after December 13, 2017.
The proposed regulations would have ap-
plied to taxable years ending on or after
the date that is 12 months after the date of
publication of the final regulations in the
Federal Register, without regard to the
date on which the taxable year began. This
Treasury decision adopts the proposed
regulations as so amended and with other
minor clarifications for readability.

#### Special Analyses

Certain IRS regulations, including
these, are exempt from the requirements
of Executive Order 12866, as supple-
mented and reaffirmed by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. Pursuant to the
Regulatory Flexibility Act (5 U.S.C.
chapter 6), it is hereby certified that these
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities. Accordingly, a regulatory
flexibility analysis is not required. This
certification is based on the fact that these
regulations will primarily affect a small
number of foreign-owned domestic enti-
ties that do not themselves otherwise have
a U.S. return filing requirement, and that
the requirement to file a return for these
entities will not impose a significant bur-
den on them. Pursuant to section 7805(f),
the proposed regulations were submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small entities.

#### Drafting Information

The principal author of these regula-
tions is Ronald M. Gootzeit, Office of
Associate Chief Counsel (International).
However, other personnel from the Trea-
sury Department and the IRS participated
in their development.

* * * * *

#### Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301
are amended as follows:

##### PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 is amended by revising the entries
for §§ 1.6038A-1 and 1.6038A-2 to read
in part as follows:

Authority: 26 U.S.C. 7805

Section 1.6038A-1 also issued under
26 U.S.C. 6001.

Section 1.6038A-2 also issued under
26 U.S.C. 6001.
* * * * *

Par. 2. Section 1.6038A-0 is amended
by adding an entry for § 1.6038A-2(b)(9)
to read as follows:

§ 1.6038A-0 Table of contents.

* * * * *

###### § 1.6038A-2 Requirement of return.

* * * * *

(b) * * *

(9) Examples.

* * * * *

Par. 3. Section 1.6038A-1 is amended
as follows:

1\. Add a sentence at the end of para-
graph (c)(1).

2\. Revise the first sentence of para-
graph (h).

3\. Revsie the first sentence of para-
graph (i)(1).

4\. Add a sentence at the end of para-
graph (n)(1).

5\. Add a sentence at the end of para-
graph (n)(2).

The additions and revisions read as fol-
lows:

§ 1.6038A-1 General requirements and
definitions.

* * * * *

(1) * * * A domestic business entity
that is wholly owned by one foreign per-
son and that is otherwise classified under
§ 301.7701-3(b)(1)(ii) of this chapter as
disregarded as an entity separate from its
owner is treated as an entity separate from
its owner and classified as a domestic cor-
poration for purposes of section 6038A.
See § 301.7701-2(c)(2)(vi) of this chap-
ter.

* * * * *

(h) * * * A reporting corporation (other
than an entity that is a reporting corpora-
tion as a result of being treated as a cor-
poration under § 301.7701-2(c)(2)(vi) of
this chapter) that has less than
$10,000,000 in U.S. gross receipts for a
taxable year is not subject to
§§ 1.6038A-3 and 1.6038A-5 for that
taxable year .* * *

(i) * * *

(1) * * * A reporting corporation (other
than an entity that is a reporting corpora-
tion as a result of being treated as a cor-
poration under § 301.7701-2(c)(2)(vi) of
this chapter) is not subject to §§ 1.6038A-
3 and 1.6038A-5 for any taxable year in

which the aggregate value of all gross
payments it makes to and receives from
foreign related parties with respect to re-
lated party transactions (including mone-
tary consideration, nonmonetary consider-
ation, and the value of transactions
involving less than full consideration) is
not more than $5,000,000 and is less than
10 percent of its U.S. gross income. * * *
* * * * *

(n) * * *

(1) * * * However, § 1.6038A-1 as it
applies to entities that are reporting cor-
porations as a result of being treated as a
corporation under § 301.7701-2(c)(2)(vi)
of this chapter applies to taxable years of
such reporting corporations beginning af-
ter December 31, 2016, and ending on or
after December 13, 2017.

(2) * * * Section 1.6038A-2 as it ap-
plies to entities that are reporting corpo-
rations as a result of being treated as a
corporation under § 301.7701-2(c)(2)(vi)
of this chapter applies to taxable years of
such reporting corporations beginning af-
ter December 31, 2016, and ending on or
after December 13, 2017.

* * * * *

Par. 4. Section 1.6038A-2 is amended
as follows:

1\. Revise the second sentence of para-
graph (a)(2).

2\. Revise paragraph (b)(3)(vii).

3\. Remove the word "and" at the end of
paragraph (b)(3)(ix).

4\. Remove the undesignated paragraph
following paragraph (b)(3)(x).

5\. Remove the period at the end of
paragraph (b)(3)(x) and add "; and" in its
place.

6\. Add paragraphs (b)(3)(xi) and (b)
(9).

7\. Add a sentence at the end of para-
graph (d).

8\. Revise the first sentence of para-
graph (e)(3).

9\. Revise paragraph (e)(4).

The additions and revisions read as fol-
lows:

§ 1.6038A-2 Requirements of return.

(a) * * *

(2) * * * However, if neither party to
the transaction is a United States person as
defined in section 7701(a)(30) (which, for
purposes of section 6038A, includes an

entity that is a reporting corporation as a
result of being treated as a corporation
under § 301.7701-2(c)(2)(vi) of this chap-
ter) and the transaction-

* * * * *

(b) * * *

(3) * * *

(vii) Amounts loaned and borrowed
(except open accounts resulting from sales
and purchases reported under other items
listed in this paragraph (b)(3) that arise
and are collected in full in the ordinary
course of business), to be reported as
monthly averages or outstanding balances
at the beginning and end of the taxable
year, as the form shall prescribe;
* * * * *

(xi) With respect to an entity that is a
reporting corporation as a result of being
treated as a corporation under § 301.7701-
2(c)(2)(vi) of this chapter, any other trans-
action as defined by § 1.482-1(i)(7), such
as amounts paid or received in connection
with the formation, dissolution, acquisi-
tion and disposition of the entity, includ-
ing contributions to and distributions from
the entity.

* * * * *

(9) Examples. The following examples
illustrate the application of paragraph
(b)(3) of this section:

Example 1. (i) In year 1, W, a foreign corpora-
tion, forms and contributes assets to X, a domestic
limited liability company that does not elect to be
treated as a corporation under § 301.7701-3(c) of
this chapter. In year 2, W contributes funds to X. In
year 3, X makes a payment to W. In year 4, X, in
liquidation, distributes its assets to W.

(ii) In accordance with § 301.7701-3(b)(1)(ii) of
this chapter, X is disregarded as an entity separate
from W. In accordance with § 301.7701-2(c)(2)(vi)
of this chapter, X is treated as an entity separate from
W and classified as a domestic corporation for pur-
poses of section 6038A. In accordance with para-
graphs (a)(2) and (b)(3) of this section, each of the
transactions in years 1 through 4 is a reportable
transaction with respect to X. Therefore, X has a
section 6038A reporting and record maintenance re-
quirement for each of those years.

Example 2. (i) The facts are the same as in
Example 1 of this paragraph (b)(9) except that, in
year 1, W also forms and contributes assets to Y,
another domestic limited liability company that does
not elect to be treated as a corporation under
§ 301.7701-3(c) of this chapter. In year 1, X and Y
form and contribute assets to Z, another domestic
limited liability company that does not elect to be
treated as a corporation under § 301.7701-3(c) of
this chapter. In year 2, X transfers funds to Z. In year
3, Z makes a payment to Y. In year 4, Z distributes
its assets to X and Y in liquidation.

(ii) In accordance with § 301.7701-3(b)(1)(ii) of
this chapter, Y and Z are disregarded as entities
separate from each other, W, and X. In accordance
with § 301.7701-2(c)(2)(vi) of this chapter, Y, Z and
X are treated as entities separate from each other and
W, and are classified as domestic corporations for
purposes of section 6038A. In accordance with para-
graph (b)(3) of this section, each of the transactions
in years 1 through 4 involving Z is a reportable
transaction with respect to Z. Similarly, W's contri-
bution to Y and Y's contribution to Z in year 1, the
payment to Y in year 3, and the distribution to Y in
year 4 are reportable transactions with respect to Y.
Moreover, X's contribution to Z in Year 1, X's funds
transfer to Z in year 2, and the distribution to X in
year 4 are reportable transactions with respect to X.
Therefore, Z has a section 6038A reporting and
record maintenance requirement for years 1 through
4; Y has a section 6038A reporting and record main-
tenance requirement for years 1, 3, and 4; and X has
a section 6038A reporting and record maintenance
requirement in years 1, 2, and 4 in addition to its
section 6038A reporting and record maintenance de-
scribed in Example 1 of this paragraph (b)(9).
* * * * *

(d) * * * In the case of an entity that is
a reporting corporation as a result of
being treated as a corporation under
§ 301.7701-2(c)(2)(vi) of this chapter,
Form 5472 must be filed at such time and
in such manner as the Commissioner may
prescribe in forms or instructions.

(e) * * *

(3) * * * A reporting corporation (other
than an entity that is a reporting corpora-
tion as a result of being treated as a cor-
poration under § 301.7701-2(c)(2)(vi) of
this chapter) is not required to make a
return of information on Form 5472 with
respect to a related foreign corporation for
a taxable year for which a U.S. person that
controls the foreign related corporation
makes a return of information on Form
5471 that is required under section 6038
and this section, if that return contains
information required under § 1.6038-
2(f)(11) with respect to the reportable
transactions between the reporting corpo-
ration and the related corporation for that
taxable year .* * *

(4) Transactions with a foreign sales
corporation. A reporting corporation (other
than an entity that is a reporting corporation
as a result of being treated as a corpora-
tion under § 301.7701-2(c)(2)(vi) of this
chapter) is not required to make a return
of information on Form 5472 with respect
to a related corporation that qualifies as a
foreign sales corporation for a taxable
year for which the foreign sales corpora-
tion files Form 1120-FSC.

* * * * *

### PART 301-PROCEDURE AND ADMINISTRATION

Par. 5. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *

Par. 6. Section 301.7701-2 is amended
by revising the last sentence of paragraph
(a) and adding paragraphs (c)(2)(vi) and
(e)(9) to read as follows:

§ 301.7701-2 Business entities;
definitions.

(a) * * * But see paragraphs (c)(2)(iii)
through (vi) of this section for special
rules that apply to an eligible entity that is
otherwise disregarded as an entity sepa-
rate from its owner.

* * * * *

(2) * * *

(vi) Special rule for reporting under
section 6038A-(A) In general. An entity
that is disregarded as an entity separate
from its owner for any purpose under this
section is treated as an entity separate
from its owner and classified as a corpo-
ration for purposes of section 6038A if-

(1) The entity is a domestic entity; and

(2) One foreign person has direct or
indirect sole ownership of the entity.

(B) Definitions-(1) Indirect sole own-
ership. For purposes of paragraph (c)(2)
(vi)(A)(2) of this section, indirect sole
ownership means ownership by one per-
son entirely through one or more other
entities disregarded as entities separate
from their owners or through one or more
grantor trusts, regardless of whether any
such disregarded entity or grantor trust is
domestic or foreign.

(2) Entity disregarded as separate from
its owner. For purposes of paragraph (c)(2)
(vi)(B)(1) of this section, an entity disre-
garded as an entity separate from its
owner is an entity described in paragraph
(c)(2)(i) of this section.

(3) Grantor trust. For purposes of para-
graph (c)(2)(vi)(B)(1) of this section, a
grantor trust is any portion of a trust that is
treated as owned by the grantor or another
person under subpart E of subchapter J of
chapter 1 of the Code.

section 6038A purposes pursuant to para-
graph (c)(2)(vi)(A) of this section is-

(1) The same as the taxable year of the
foreign person described in paragraph
(c)(2)(vi)(A)(2) of this section, if that for-
eign person has a U.S. income tax or
information return filing obligation for its
taxable year; or

(2) The calendar year, if paragraph
(c)(2)(vi)(C)(1) of this section does not
apply, unless otherwise provided in forms,
instructions, or published guidance.

* * * * *

(e) * * *

(9) Reporting required under section
6038A. Paragraph (c)(2)(vi) of this section
applies to taxable years of entities begin-
ning after December 31, 2016, and ending
on or after December 13, 2017.

John Dalrymple,
Deputy Commissioner for
Services and Enforcement.

Approved: November 15, 2016.

Mark J. Mazur,
Assistant Secretary of the
Treasury (Tax Policy).

(Filed by the Office of the Federal Register on December 12,
2016, at 8:45 a.m .. , and published in the issue of the Federal
Register for December 13, 2016, 81 F.R. 89849)

26 CFR 1.367(a)-1, -2; 26 CFR 1.367(d)-1

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1

T.D. 9803

#### Treatment of Certain Transfers of Property to Foreign Corporations

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-
nal regulations relating to certain transfers
of property by United States persons to
foreign corporations. The final regulations
affect United States persons that transfer

certain property, including foreign good-
will and going concern value, to foreign
corporations in nonrecognition transac-
tions described in section 367 of the In-
ternal Revenue Code (Code). The regula-
tions also combine certain sections of the
existing regulations under section 367(a)
into a single section. This document also
withdraws certain temporary regulations.

DATES: Effective date: These regulations
are effective on December 16, 2016.

Applicability date: For dates of applica-
bility, see §§ 1.367(a)-1(g)(5), 1.367(a)-
2(k), 1.367(a)-4(b), and 1.367(a)-6(j);
1.367(d)-1(j); and 1.6038B-1(g)(7).

FOR FURTHER INFORMATION CON-
TACT: Ryan A. Bowen, (202) 317-6937
(not a toll-free number).

### SUPPLEMENTARY INFORMATION:

#### Paperwork Reduction Act

The collections of information con-
tained in the regulations have been sub-
mitted for review and approved by the
Office of Management and Budget in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)) under
control number 1545-0026.

The collections of information are in
§ 1.6038B-1(c)(4) and (d)(1). The collec-
tions of information are mandatory. The
likely respondents are domestic corpora-
tions. Burdens associated with these re-
quirements will be reflected in the burden
for Form 926, Return by a U.S. Transferor
of Property to a Foreign Corporation. Es-
timates for completing the Form 926 can
be located in the form instructions.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less it displays a valid control number.

Books and records relating to a collec-
tion of information must be retained as
long as their contents might become ma-
terial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.

#### Background

This document contains final regula-
tions issued under sections 367 and 6038B
of the Code. Temporary regulations were

published on May 16, 1986 (TD 8087, 51
FR 17936) (the 1986 temporary regula-
tions). Proposed regulations under these
sections were published on September 16,
2015 (80 FR 55568) (the proposed regula-
tions). Written comments to the proposed
regulations were received, and a public
hearing was held on February 8, 2016. All
comments are available at www.regula-
tions.gov or upon request.

The proposed regulations generally
provided five substantive changes from
the 1986 temporary regulations: (1) elim-
inating the favorable treatment for foreign
goodwill and going concern value by nar-
rowing the scope of the active trade or
business exception under section 367(a)
(3) (ATB exception) and eliminating the
exception under § 1.367(d)-1T(b) that
provides that foreign goodwill and going
concern value is not subject to section
367(d); (2) allowing taxpayers to apply
section 367(d) to certain property that oth-
erwise would be subject to section 367(a);
(3) removing the twenty-year limitation
on useful life for purposes of section
367(d) under § 1.367(d)-1T(c)(3); (4) re-
moving the exception under § 1.367(a)-
5T(d)(2) that permits certain property de-
nominated in foreign currency to qualify
for the ATB exception; and (5) changing
the valuation rules under § 1.367(a)-1T to
better coordinate the regulations under sec-
tions 367 and 482 (including temporary reg-
ulations under section 482 issued with the
proposed regulations (see § 1.482-1T(f)(2)
(i), TD 9738, 80 FR 55538).

Specifically with regard to the ATB
exception, the proposed regulations re-
vised the categories of property that are
eligible for the ATB exception so that
foreign goodwill and going concern
value cannot qualify for the exception.
Under the 1986 temporary regulations,
all property was eligible for the ATB
exception, subject only to five narrowly
tailored exceptions. In addition to limit-
ing the scope of the ATB exception, the
proposed regulations also implemented
changes to the ATB exception that were
intended to consolidate various provi-
sions and update the 1986 temporary
regulations in response to subsequent
changes to the Code.

The proposed regulations did not re-
solve the extent to which property, includ-
ing foreign goodwill and going concern

value, that is not explicitly enumerated in
section 936(h)(3)(B)(i) through (v) (enu-
merated section 936 intangibles) is de-
scribed in section 936(h)(3)(B) and there-
fore subject to section 367(d) or instead is
subject to section 367(a) and not eligible
for the ATB exception. All property that is
described in section 936(h)(3)(B) is re-
ferred to at times in this preamble as "sec-
tion 936 intangibles." Nonetheless, the
proposed regulations permitted taxpayers
to apply section 367(d) to such property.
Under this rule, a taxpayer that has histor-
ically taken the position that goodwill and
going concern value is not described in
section 936(h)(3)(B) could apply section
367(d) to such property.

These regulations generally finalize the
proposed regulations, as well as portions
of the 1986 temporary regulations, as
amended by this Treasury decision. Al-
though minor wording changes have been
made to certain aspects of those portions
of the 1986 temporary regulations, the
final regulations are not intended to be
interpreted as making substantive changes
to those regulations. Further explanation
of the proposed regulations can be found
in the Explanation of Provisions section of
the preamble to the proposed regulations.
That Explanation of Provisions section is
hereby incorporated as appropriate into
this preamble.

#### Summary of Comments and Explanation of Revisions

Nineteen sets of comments were re-
ceived in response to the proposed regu-
lations, and three speakers presented at the
public hearing. In drafting the final regu-
lations, the Treasury Department and the
IRS carefully considered all of the com-
ments received.

This section of the preamble is com-
prised of five parts that discuss, in turn,
the comments received with respect to (i)
the elimination of the favorable treatment
of transfers of foreign goodwill and going
concern value, (ii) the useful life of prop-
erty for purposes of applying section
367(d), (iii) the applicability date of the
final regulations, (iv) the qualification of
property denominated in foreign currency
for the ATB exception, and (v) other is-
sues.

I. Foreign Goodwill and Going Concern
Value

##### A. Overview

The Treasury Department and the IRS
received a variety of comments in re-
sponse to the proposed elimination of the
favorable treatment of transfers of foreign
goodwill and going concern value pro-
vided by the 1986 temporary regulations.
Two comments supported the treatment of
foreign goodwill and going concern value
under the proposed regulations. One com-
ment asserted that allowing intangible
property to be transferred outbound in a
tax-free manner is inconsistent with the
policies of section 367. Other comments
acknowledged the concerns about tax
avoidance described in the preamble to
the proposed regulations, but requested
specific exceptions for transfers of foreign
goodwill and going concern value in sit-
uations that the comments asserted were
not abusive. Other comments disagreed
more fundamentally with the approach
taken and stated that the Treasury Depart-
ment and the IRS should withdraw the
proposed regulations entirely. Many of
these comments asserted that eliminating
the favorable treatment of transfers of for-
eign goodwill and going concern value
would be an invalid exercise of regulatory
authority under section 367.

Overall, the comments indicated widely
divergent understandings of the nature of
foreign goodwill and going concern value.
Accordingly, the comments also widely
differed in their proffered justifications for
an exception for foreign goodwill and go-
ing concern value and in the recom-
mended contours of an appropriate excep-
tion. The variance in the comments
regarding these fundamental issues high-
lights the difficulty of permitting some
form of favorable treatment for foreign
goodwill and going concern value while
preventing tax avoidance.

As described in greater detail in Part
I.B of this Summary of Comments and
Explanation of Revisions, and consistent
with the proposed regulations, the final
regulations eliminate the favorable treat-
ment of foreign goodwill and going con-
cern value contained in the 1986 temporary
regulations. The Treasury Department and
the IRS have determined that this change is

necessary to carry out the tax policy em-
bodied in section 367 in a fair, impartial,
and reasonable manner, taking into ac-
count the intent of Congress, the realities
of relevant transactions, the need for the
IRS to administer the rules and monitor
compliance, and the overall integrity of
the federal tax system. In particular, the
final regulations are consistent with the
policy and intent of the statute, which
does not reference foreign goodwill or
going concern value, and with Congress'
expectation that the Secretary would ex-
ercise the regulatory authority under sec-
tion 367 to require gain recognition when
property is transferred offshore under cir-
cumstances that present a potential for tax
avoidance.

##### B. Interpretation of section 367

###### 1. Summary of Comments Challenging Authority

The Treasury Department and the IRS
received numerous comments addressing
the proposed regulations' treatment of for-
eign goodwill and going concern value.
One comment asserted that the ATB ex-
ception must apply to transfers of foreign
goodwill and going concern value, be-
cause (i) foreign goodwill and going con-
cern value is not a section 936(h)(3)(B)
intangible, and so is subject to section
367(a) rather than section 367(d), and (ii)
the legislative history indicates that Con-
gress expected that the transfer of such
value should be tax-free. The comment
further asserted that, because goodwill
and going concern value is inextricably
linked to the conduct of an active trade or
business, the ATB exception necessarily
encompasses such transfers. Other com-
ments asserted that finalizing the proposed
regulations would represent an unreason-
able exercise of regulatory authority be-
cause the proposed regulations eliminated
the favorable treatment of all transfers of
purported foreign goodwill and going
concern value, rather than just those trans-
fers that the Treasury Department and the
IRS determine are abusive.

Several comments asserted that the
proposed regulations are inconsistent with
Congressional intent and cited statements
from the legislative history to section 367,
such as the following:

The committee does not anticipate
that the transfer of goodwill or go-
ing concern value developed by a
foreign branch to a newly organized
foreign corporation will result in
abuse of the U.S. tax system. .. .
The committee contemplates that
the transfer of goodwill or going
concern value developed by a for-
eign branch will be treated under
[the exception for transfers of prop-
erty for use in the active conduct of
a foreign trade or business] rather
than a separate rule applicable to
intangibles.

H.R. Rep. No. 98-432, pt. 2, at 1317-19
(1984).

Comments also asserted that it is inap-
propriate to use regulatory authority under
section 367 to address transfer pricing
concerns under section 482.

###### 2. Response

The Treasury Department and the IRS
do not agree with the foregoing com-
ments. Section 367 generally provides for
income recognition on transfers of prop-
erty to a foreign corporation in certain
transactions that otherwise would qualify
for nonrecognition. While section 367(a)
(3)(A) includes a broad exception to this
general rule for property used in the active
conduct of a trade or business outside of
the United States, grants of rulemaking
authority in section 367(a)(3)(A) and (B)
authorize the Secretary to exercise admin-
istrative discretion in determining the
property to which nonrecognition treat-
ment applies under the ATB exception.
Moreover, section 367(d) reflects a clear
policy that income generally should be
recognized with respect to transfers of
section 936 intangibles. The 1984 legisla-
tive history to section 367 explains that
Congress intended for the Secretary to use
his "regulatory authority to provide for
recognition in cases of transfers involving
the potential of tax avoidance." S. Rep.
No. 98-169, at 364 (1984) (emphasis
added). The Treasury Department and the
IRS have determined that the proposed
regulations and these final regulations are
consistent with that intention and the au-
thority granted to the Secretary under sec-
tion 367, based on the fact that the statute
does not refer to foreign goodwill and
going concern value and the determina-
tion that, as described in the preamble to

the proposed regulations, the favorable
treatment of foreign goodwill and going
concern value contravenes the policy that
income generally should be recognized
with respect to transfers of section 936
intangibles. The remainder of this section
discusses subsequent changes to the reg-
ulatory, statutory, and market context in
which the 1984 legislative history was
drafted, in order to reconcile the state-
ments in the 1984 legislative history ex-
pressing the expectation that an exception
for foreign goodwill and going concern
value would not result in abuse with the
IRS's contrary experience administering
the statute during the intervening years.

###### a. The 1980s and early 1990s

The Treasury Department and the IRS
considered the 1984 legislative history to
section 367 in issuing the 1986 temporary
regulations. The 1986 temporary regula-
tions gave effect to the statements in the
legislative history indicating that Con-
gress anticipated that the transfer of good-
will and going concern value developed
by a foreign branch to a newly organized
foreign corporation generally would not
result in abuse of the U.S. tax system, and,
on that basis, that such transfers would
benefit from nonrecognition treatment. As
a result, the 1986 temporary regulations
provide nonrecognition treatment for for-
eign goodwill and concern value. The
1986 temporary regulations did not pro-
vide a conceptual definition of foreign
goodwill and going concern value but, in
effect, provided a rule for valuing it by
describing foreign goodwill and going
concern value as the residual value of a
business operation conducted outside of
the United States after all other tangible
and intangible assets have been identified
and valued. § 1.367(a)-1T(d)(5)(iii).

The Treasury Department and the IRS
also took into account the 1984 legislative
history in issuing the proposed regulations
and these final regulations. In doing so,
the Treasury Department and the IRS also
considered that, in amending section 367
in 1984, Congress did not choose to stat-
utorily mandate any particular treatment
of foreign goodwill and going concern
value and instead delegated broad author-
ity to the Secretary to promulgate regula-
tions under section 367 to carry out its

purposes in this complex area. The Trea-
sury Department and the IRS further con-
sidered that the legal and factual context
in which the 1984 legislative history was
drafted has changed significantly over the
last 32 years.

Before 1993, goodwill and going con-
cern value was not amortizable. As a re-
sult, in 1984, much of the case law and
policy debate regarding goodwill and go-
ing concern value involved sales of busi-
ness operations at arm's length between
unrelated parties, where the taxpayer at-
tempted to minimize the value of goodwill
in order to maximize the value of amor-
tizable intangibles. See, for example,
Newark Morning Ledger Co. v. United
States, 507 U.S. 546 (1993). In 1989, the
General Accounting Office analyzed data
with respect to unresolved tax cases in-
volving purchased intangibles and found
that, presumably in order to minimize the
amount of unamortizable goodwill, tax-
payers had identified 175 different types
of customer-based intangibles that were
distinct from goodwill. See General Ac-
counting Office, Report to the Joint Com-
mittee on Taxation: Issues and Policy Pro-
posals Regarding Tax Treatment of
Intangible Assets, at 3 (Aug. 1991).

#### b. Statutory and regulatory changes

In 1993, Congress addressed these val-
uation disputes between taxpayers and the
IRS by enacting section 197, which, sim-
ilar to the approach taken by the proposed
regulations, did not directly address the
underlying disagreement about the rela-
tive size of goodwill but substantially re-
duced the stakes of the disagreement. That
is, by generally providing for the amor-
tization of goodwill over 15 years, the
enactment of section 197 generally
eliminated the incentive that existed in
1984, when Congress enacted section
367(d) in its present form, for taxpayers
to argue that goodwill has relatively mi-
nor value.

Other law changes since 1984 have
increased the relevance of section 367(d)
and the incentive for taxpayers to over-
state the value attributable to goodwill and
going concern value. Before 1997,
amounts received under section 367(d)
were treated as ordinary income from U.S.
sources. In 1997, Congress amended sec-

tion 367(d)(2)(C) to provide that amounts
received under section 367(d) are treated
as ordinary income that is sourced in the
same manner as a royalty, and thus poten-
tially as from sources outside the United
States. Taxpayer Relief Act of 1997,
Public Law 105-34, 111 Stat. 788. The
1997 amendments increased the rele-
vance of section 367(d) and the excep-
tion for foreign goodwill and going con-
cern value because, before 1997, the
consequences under the foreign tax
credit limitation of the treatment of sec-
tion 367(d) deemed royalties as U.S.
source income represented a substantial
disincentive for taxpayers to structure
transactions in a way that would be sub-
ject to section 367(d).

Additionally, the so-called "check-
the-box" regulations of § 301.7701-3,
published December 18, 1996 (TD
8697, 61 FR 66584), and Congress's
enactment in 2006 of the subpart F
"look-thru" rule in section 954(c)(6)
(Tax Increase Prevention and Reconcil-
iation Act of 2005, Public Law 109-
222, 120 Stat. 345), increased the potential
benefit to taxpayers from transferring
high-value intangibles offshore by re-
ducing obstacles to redeploying cash
earned in overseas operations among
foreign affiliates without incurring U.S.
tax. Both of these changes also facilitate,
in certain circumstances, the ability of for-
eign subsidiaries to license transferred in-
tangibles to affiliates without incurring
subpart F income.

Finally, on January 5, 2009, the Trea-
sury Department and the IRS issued tem-
porary regulations under section 482 (TD
9441, 74 FR 340) related to cost sharing
arrangements (subsequently finalized at
TD 9568, 76 FR 80082 (Dec. 22, 2011)).
The 2009 cost sharing regulations, in par-
ticular the supplemental guidance in
§ 1.482-7T(g) on transfer pricing methods
applicable in determining the arm's length
price for a platform contribution transac-
tion or PCT (so-called "buy-in pay-
ments"), were intended, in part, to address
inappropriate income shifting from intan-
gible transfers under the prior cost sharing
regulations. Although the prior cost shar-
ing regulations did not provide any favor-
able treatment for foreign goodwill and
going concern value, in the experience of
the IRS, taxpayers took positions under

those regulations that allowed a domestic
cost sharing participant to transfer intan-
gibles to a foreign cost sharing participant
for development under a cost sharing ar-
rangement without fully compensating the
domestic cost sharing participant for the
value of the transferred intangibles. It is
also the experience of the IRS that the
2009 cost sharing regulations limited tax-
payers' ability to use PCTs in cost sharing
arrangements to shift high value intangi-
bles offshore without appropriate com-
pensation, thereby increasing the relative
appeal of transferring intangibles in a
transaction subject to section 367. Thus,
taxpayers began using transactions subject
to section 367 to transfer intangibles in-
tended for development under a cost shar-
ing arrangement rather than as part of a
PCT.

##### c. Changing markets for intangibles

Moreover, since Congress enacted sec-
tion 367(d) in its current form in 1984, the
relative importance of intangibles in the
economy and in the profitability of busi-
ness has increased greatly. According to a
joint report issued by the Economic and
Statistics Administration and the U.S. Pat-
ent and Trademark Office, "IP use perme-
ates all aspects of the economy with in-
creasing intensity and extends to all parts
of the U.S." Justin Antonipillai, Econom-
ics and Statistics Administration, & Mi-
chelle K. Lee, U.S. Patent and Trademark
Office, Intellectual Property and the U.S.
Economy, at p.30 (2016). This growing
importance is reflected in the significant
increase in the portion of business values
attributable to intangible assets in the
years since 1984, with one study indicat-
ing that intangibles accounted for only 32
percent of the market value of the S&P
500 in 1985, but accounted for 84 percent
by 2015. Annual Study of Intangible As-
set Market Value from Ocean Tomo, LLC
(Mar. 4, 2015, 12:00AM), http://www.
oceantomo.com/2015/03/04/2015-intangible-
asset-market-value-study/. Growth in the
share of business values attributable to
section 936 intangibles during this period,
together with the statutory and regulatory
changes discussed in the preceding para-
graphs, have increased the incentives for
taxpayers to transfer such valuable intan-
gibles to related offshore affiliates in

transactions subject to section 367(d) and
to misattribute intangible value from enu-
merated section 936 intangibles to foreign
goodwill and going concern value in the
context of such transactions.

###### d. The potential for abuse

Since 1984, taxpayers have reversed
their positions regarding the significance
of goodwill and going concern value in
response to the enactment of sections 197
and 367(d), and now commonly assert that
such value constitutes a large percentage -
even the vast majority - of an enterprise's
value. The IRS's experience administer-
ing section 367(d) has, once again, high-
lighted the abuse potential that arises from
the need to distinguish value attributable
to nominally distinct intangibles that are
used together in a single trade or business.
Specifically, the uncertainty inherent in
distinguishing between value attributable
to goodwill and going concern value and
value attributable to other intangible prop-
erty makes any exception to income rec-
ognition for the outbound transfer of
goodwill and going concern value unduly
difficult to administer and prone to tax
avoidance. Of course, any rule that pro-
vides for the tax-free transfer of one type
of property, while the transfer of other
types of property remains taxable, pro-
vides an incentive to improperly allocate
value away from the taxable property and
onto the tax-free property. This problem is
acute, however, in cases involving the off-
shore reorganization of entire business di-
visions that include high-value, interre-
lated intangibles, because goodwill and
going concern value are particularly diffi-
cult to distinguish (perhaps are even in-
distinguishable) from the enumerated sec-
tion 936 intangibles. See, for example,
International Multifoods Corp. v. Com-
missioner, 108 T.C. 25, 42 (1997) (noting
that it "is well established that trademarks
embody goodwill"). See also Joint Com-
mittee on Taxation, Present Law and
Background Related to Possible Income
Shifting and Transfer Pricing, (JCX-37-
10) July 20, 2010, at 110 (noting that
unique intangible property is difficult to
value because it is rarely, if ever, trans-
ferred to third parties).

e. Legislative intent and the broad grant
of authority to limit potential abuses

These statutory, regulatory, and market
developments since Congress amended
section 367(d) in 1984, as well as the
experience of the IRS in administering
section 367 over that period, inform the
manner in which the Treasury Department
and the IRS seek to give effect to the
intent of Congress in this complex area of
law. As a starting point, the Treasury De-
partment and the IRS observe that the
statutory grants of authority in section
367(a) and (d), coupled with the absence
of any specific statutory protection for
transfers of goodwill and going concern
value, form the basis for the broad author-
ity of the Treasury Department and the
IRS to design the appropriate parameters
for the taxation of outbound transfers. The
1984 legislative history expressed an ex-
pectation that outbound transfers of for-
eign goodwill and going concern value
would not lead to abuse of the U.S. tax
system and, on the basis of that expecta-
tion, anticipated that the Secretary would
exercise the regulatory authority under
section 367 in a manner that would allow
taxpayers to transfer foreign goodwill and
going concern value outbound without
current U.S. tax. The legislative history
also explains that Congress expected the
Secretary to use the "regulatory authority
to provide for recognition in cases of
transfers involving the potential of tax
avoidance." Accordingly, the administra-
tive discretion to determine the contours
of nonrecognition treatment must be exer-
cised in light of the income recognition
objectives of the statute and informed by
the IRS's experience in administering the
exception.

The Treasury Department and the IRS
have determined that the premise of the
expectation noted in the legislative history
that an exception to recognition treatment
would apply to foreign goodwill and go-
ing concern value-namely, that out-
bound transfers of foreign goodwill and
going concern value would not lead to
abuse-is inconsistent with the experi-
ence of the IRS in administering section
367(d), and consequently no longer sup-
ports such an exception. Rather, based on
the IRS's experience over the past three
decades, the Treasury Department and the

IRS have determined that the favorable
treatment of foreign goodwill and going
concern value has interfered with the ap-
plication of the general rule in section
367(d) that requires income recognition
upon the outbound transfer of section 936
intangibles due to the inherent difficulty
of distinguishing value attributable to
goodwill and going concern value from
value attributable to enumerated section
936 intangibles, coupled with taxpayer ef-
forts to maximize the value allocated to
goodwill and going concern value.

The Treasury Department and the IRS
also observe that the 1984 legislative his-
tory explains that the 1984 amendments to
section 367(d) were made in response to
challenges the IRS faced in administering
the prior regime. That regime required a
taxpayer to clear its purpose for transfer-
ring property offshore with the IRS. See
H.R. Rep. 98-432, pt. 2, at 1315. The 1984
reworking of section 367 was intended to
promote administrability by making the
analysis of outbound transfers more ob-
jective. Other passages from the legisla-
tive history show that the general purpose
of the amendments to section 367 was to
close "serious loopholes," and that the 1984
revisions were intended to strengthen the
application of that section. Id.

Accordingly, the Treasury Department
and the IRS do not view the legislative
history as mandating an exception for
transfers of goodwill and going concern
value developed by a foreign branch, or as
indicating that Congress anticipated, or
would have condoned, the extent of the
claims regarding foreign goodwill and go-
ing concern value that the IRS has in fact
encountered. To the contrary, the Trea-
sury Department and the IRS have con-
cluded that the statutory purpose of the
income recognition provisions in section
367(d) is incompatible with the favorable
treatment of foreign goodwill and going
concern value reflected in the 1986 tem-
porary regulations. In particular, taking
into account the statutory, regulatory, and
market developments since 1984 and the
experience of the IRS in administering
section 367(d) under the 1986 temporary
regulations, the Treasury Department and
the IRS have determined that, at this junc-
ture, the approach most consistent with
the intent of Congress in 1984, including
the directive to use regulatory authority

"to provide for recognition in cases of
transfers involving the potential of tax
avoidance," is to remove the favorable
treatment for foreign goodwill and going
concern value in the 1986 temporary reg-
ulations.

The Treasury Department and the IRS
also disagree with the notion expressed in
comments that the proposed regulations
inappropriately attempt to solve section
482 transfer pricing problems under the
authority of section 367. Congress made
clear in adding the commensurate with
income language to both sections 367(d)
and 482 in 1986 that the provisions are
closely related, and it is within the author-
ity of the Treasury Department and the
IRS to consider valuation concerns in ad-
ministering section 367. Section 1231
(e)(1) and (2) of the Tax Reform Act of
1986, Public Law 99-514, 100 Stat. 2085,
2562-3.

For these reasons, the Treasury Depart-
ment and the IRS disagree with comments
asserting that the Treasury Department
and the IRS lack the authority to eliminate
the favorable treatment that applied to for-
eign goodwill and going concern value
under the 1986 temporary regulations.

C. Other comments suggesting that some
favorable treatment for transfers of
foreign goodwill and going concern
value be maintained

Several comments generally favored
retaining both the nonrecognition treat-
ment for foreign goodwill and going con-
cern value and its current measurement as
the residual value of a foreign business
operation. Other comments, however, ac-
knowledged the problems associated with
the residual valuation approach but sup-
ported an exception determined on some
other basis. Some of these comments in-
cluded suggestions for other ways to de-
fine goodwill and going concern value and
for determining the amount that should
qualify for nonrecognition. The Treasury
Department and the IRS have determined
that none of the comments provided a
sufficiently administrable approach that
would reliably ensure that section 367 ap-
plies with respect to the full value of all
section 936 intangibles.

####### 1. Local Pressure to Incorporate; Industry-Based Exception

The proposed regulations specifically
requested comments on a potential excep-
tion that would apply to situations where
there is limited potential for abuse. As an
example, the comment solicitation posited
the incorporation, in response to regula-
tory pressure or compulsion, of a financial
services business that previously had op-
erated as a branch in another country. The
Treasury Department and the IRS re-
ceived several comments in response to
this solicitation.

Several comments suggested that the
final regulations provide an exception that
would continue to permit favorable treat-
ment of transfers of foreign goodwill and
going concern value that occur as a result
of the incorporation of a branch in a coun-
try that exerts regulatory pressure (either
implicit or explicit) upon the U.S. trans-
feror to conduct its operations in that
country in corporate form. According to
these comments, the incorporation of a
branch in these circumstances is not mo-
tivated by tax considerations but rather
occurs in order to comply with local law
or regulations.

The regulations under section 367 pro-
vide that certain property is deemed to be
transferred for use in the active conduct of
a trade or business outside of the United
States when the transfer is either legally
required by the local foreign government
as a necessary condition of doing business
or is compelled by a genuine threat of
immediate expropriation by the local for-
eign government. Section 367 and the reg-
ulations thereunder do not, however, pro-
vide exceptions to the requirement to
recognize income or gain when assets that
are not eligible for the ATB exception,
such as section 936 intangibles and assets
described in section 367(a)(3)(B), are
transferred in this circumstance. Accord-
ingly, the policy of section 367 and the
regulations thereunder is not to expand on
the types of assets that are eligible for the
ATB exception in this circumstance.
Moreover, the mere fact that a taxpayer is
compelled or pressured to incorporate its
branch does not mean that the taxpayer
has any less incentive to reduce the tax
consequences of such incorporation by
adopting the aggressive valuation posi-

tions that the proposed regulations were
intended to prevent. Therefore, the final
regulations do not provide a special ex-
ception to continue the favorable treat-
ment of foreign goodwill and going con-
cern value in this circumstance. Notably,
some taxpayers that are pressured to in-
corporate branch operations in these cir-
cumstances can avoid being subject to
section 367 by incorporating the branch
using an eligible entity described in
§ 301.7701-2 that could elect to be treated
as a disregarded entity for U.S. federal
income tax purposes.

Several comments recommended an
exception for transfers of foreign goodwill
and going concern value by taxpayers in
certain industries, such as banking and
finance, life insurance, and industries that
primarily provide services to third parties,
asserting that such businesses do not
possess the types of highly valuable intan-
gibles about which they believe the Trea-
sury Department and the IRS are con-
cerned. The comments did not provide
any basis, however, for the Treasury De-
partment and the IRS to conclude that
taxpayers in particular industries consis-
tently lack valuable intangibles of the kind
listed in section 936(h)(3)(B), even
though the prevalence of specific types of
intangibles may differ across industries.
Additionally, the ability and incentive to
allocate value away from other intangi-
bles, such as trademarks, and toward
goodwill or going concern value is not
limited to particular industries. As a gen-
eral matter, the Treasury Department and
the IRS attempt, to the extent possible, to
avoid issuing guidance based on industry
classifications that are not clearly and
closely tied to specific tax policy con-
cerns. Accordingly, the final regulations
do not provide any industry-specific ex-
ceptions.

Based on these comments, the Trea-
sury Department and the IRS considered
whether it would be possible to provide an
exception for tax-free transfers of foreign
goodwill and going concern value devel-
oped by a foreign branch that did not
possess or otherwise benefit from the use
of any highly valuable enumerated section
936 intangibles. If the absence of such
highly valuable intangibles could be reli-
ably determined, the concerns regarding
the potential to attribute value away from

such intangibles and toward goodwill and
going concern value would be mitigated.
However, such an exception would re-
quire the development and administration
of standards to determine whether any
enumerated section 936 intangible was
highly valuable, an exercise that would be
as difficult (and in many circumstance
would be no different) than the exercise of
distinguishing value attributable to for-
eign goodwill and going concern value
from value attributable to other intangi-
bles transferred together with it. Such an
exception also would require a careful ex-
amination of the particular facts of a trans-
feror's assets and business as a threshold
matter to confirm that valuable enumer-
ated section 936 intangibles are not made
available for the benefit of the transferee
foreign corporation, either through a sep-
arate but related transfer to the foreign
corporation or through a service provided
to the foreign corporation using such in-
tangibles. Accordingly, the Treasury De-
partment and the IRS did not adopt this
potential exception in these final regula-
tions.

####### 2. Foreign Branch Exception

Several comments suggested maintain-
ing the favorable treatment of foreign
goodwill and going concern value in sit-
uations in which section 367 applies to the
incorporation of a long-standing foreign
branch or a branch that conducts an active
foreign business operation. The Treasury
Department and the IRS acknowledge that
conditioning favorable treatment for for-
eign goodwill and going concern value on
the presence of a robust foreign branch
would increase the likelihood that the
business at issue has substantive foreign
operations. However, in situations where
the exception would continue to apply, the
requirement of a robust foreign branch
would not address the potential for tax
avoidance that motivated the proposed
regulations when value must be allocated
between foreign goodwill and going con-
cern value, on the one hand, and enumer-
ated section 936 intangibles, on the other
hand. Thus, the final regulations do not
adopt the comments suggesting an excep-
tion for goodwill and going concern value
developed by a foreign branch that is sub-
sequently incorporated because, when ap-

plicable, such an exception would not ad-
dress the administrative difficulties in
identifying and separately valuing the
property that is and is not eligible for the
exception, and therefore would be insuf-
ficient to prevent the potential for tax
avoidance.

##### 3. New Rules for Valuing Foreign Goodwill and Going Concern Value

Other comments suggested that the
regulations provide new rules for deter-
mining foreign goodwill and going con-
cern value, such that an exception for such
transfers could be provided that would be
less susceptible to the abuses described in
the preamble to the proposed regulations.
That is, the comments suggested deter-
mining goodwill and going concern value
using an approach that differs from that in
existing § 1.367(a)-1T(d)(5)(iii), which
treats it as the residual after other intangi-
bles are valued.

Several of these comments suggested
determining foreign goodwill and going
concern value by classifying intangibles
as routine and non-routine and permitting
value attributable to routine intangibles to
be transferred tax-free under an exception.
One comment asserted that goodwill is
relatively easy to value as compared to
certain enumerated section 936 intangi-
bles but did not explain why or how good-
will is more easily valued or how to reli-
ably allocate value between goodwill and
enumerated section 936 intangibles. An-
other comment asserted that goodwill can
be valued based on the premise that it is
the kind of asset that enables an existing
business to produce "routine" or "normal"
operating profits or cash flow during the
period that a new business would be as-
sembling its assets and workforce and at-
tracting a customer base, but the comment
did not explain how to determine “rou-
tine" or "normal" operating profits.

Another comment recommended deter-
mining foreign goodwill and going con-
cern value using a formulaic approach
based on sales and general and adminis-
trative expenses, asserting that routine ex-
penses for operational costs and compen-
sation are closely associated with the
business activities that give rise to good-
will and going concern value. The com-
ment did not provide any support for this

premise. As a general matter, cost-based
methods (in comparison with market-
based and income-based methods) are not
a reliable means of valuing intangible
property because the value of intangible
property does not necessarily bear any
predictable relationship to the costs of de-
veloping the property. The comment sug-
gesting a cost-based approach did not
demonstrate that determining goodwill
and going concern value in the section
367(d) context is a situation where costs
are a reliable measure of value (regardless
of whether goodwill and going concern
value are section 936(h)(3)(B) intangi-
bles). Accordingly, the Treasury Depart-
ment and the IRS have determined that a
rule that determined foreign goodwill and
going concern value based on certain ex-
penses would be inappropriate.

Another comment proposed, for
branches incorporated in a jurisdiction
with which the United States has an in-
come tax treaty in effect, using the earn-
ings before interest, taxes, depreciation,
and amortization of the branch as reported
to foreign tax authorities as reliable data
on which to base a valuation. An excep-
tion based on information reported to a
foreign country's tax authority, which
may be based on that jurisdiction's gener-
ally accepted accounting standards, does
not address the concerns expressed by the
Treasury Department and the IRS in the
preamble to the proposed regulations.
Most significantly, the comment does not
explain how this information would be
useful in determining the value of foreign
goodwill and going concern value or dis-
tinguishing value attributable to enumer-
ated section 936 intangibles from that of
other property, nor have the Treasury De-
partment and the IRS been able to identify
how it would be useful. Accordingly, this
recommendation has not been adopted.

In summary, none of the proposed ap-
proaches for more directly valuing foreign
goodwill and going concern value offer a
principled and administrable basis for al-
locating value between foreign goodwill
and going concern value that would be
subject to an exception and other intangi-
bles that would not. The Treasury Depart-
ment and the IRS therefore concluded that
the proposed approaches would not pro-
vide a meaningful improvement over the
residual value approach in the 1986 tem-

porary regulations as a conceptual or ad-
ministrative matter.

###### 4. Formulaic Caps on Foreign Goodwill and Going Concern Value

Several comments suggested that the
favorable treatment for transfers of for-
eign goodwill and going concern value
could be maintained while addressing the
concerns that prompted the issuance of
the proposed regulations by capping the
amount that can qualify for the exception,
either on a non-rebuttable basis or in the
absence of a ruling. For example, one
comment suggested that the excepted
amount should not exceed 25 percent of
the branch's net enterprise value, unless a
ruling is obtained from the IRS. The com-
ment asserted that 25 percent represents a
modest portion of a branch's value that is
likely to be attributable to branch good-
will and going concern value. Another
comment suggested that the excepted
amount should not exceed 50 percent of
the total value of the assets transferred to
the foreign corporation. Although such
formulaic caps would limit the potential
tax avoidance from improperly attributing
value from enumerated section 936 intan-
gibles to foreign goodwill and going con-
cern value that is eligible for an exception,

the amount excepted under such an ap-
proach would still potentially reflect value
properly attributable to enumerated sec-
tion 936 intangibles. That is, with respect
to amounts claimed below the cap, a for-
mulaic cap would not relieve the IRS of
the need to distinguish foreign goodwill
and going concern value from enumerated
section 936 intangibles, a key challenge
that motivated the approach of the pro-
posed regulations. Moreover, the Treasury
Department and the IRS have determined
that the discretionary ruling practice pro-
posed by one comment would require an
onerous commitment of IRS resources
(which the comment acknowledged are
constrained), and, without detailed proce-
dures for both identifying and valuing for-
eign goodwill and going concern value,
would simply accelerate the disputes that
occur under the 1986 temporary regula-
tions. As a result, the final regulations do
not adopt the recommendations to use a
formulaic cap to limit the amount of for-
eign goodwill and going concern value.

##### 5. Professional Services Exception

One comment stated that U.S. citizens
may conduct professional services outside
the United States as sole practitioners, or
in partnership with other practitioners, and
observed that the incorporation of such a
business would entail a section 351 con-
tribution subject to section 367 (assuming
the transferee entity was classified as a
corporation for U.S. federal income tax
purposes). According to the comment, be-
cause any goodwill in such a scenario
would relate to foreign customers and a
foreign business or professional license,
there could be no abuse warranting taxa-
tion under section 367.

The Treasury Department and the IRS
do not agree that the outbound transfer of
value developed in such cases will neces-
sarily not result in abuse of the U.S. tax
system. The potential for abuse in a trans-
fer subject to section 367 arises not just
from the possibility that value associated
with U.S. customers would be denomi-
nated as foreign goodwill, but also from
the fundamental difficulty in reliably dis-
tinguishing value attributable to enumer-
ated section 936 intangibles from value
attributable to other intangibles, an issue
that is no different in the professional ser-
vices context. Therefore, the final regula-
tions do not adopt this comment.

##### 6. Joint Venture Exception

One comment proposed maintaining
the favorable treatment of foreign good-
will and going concern value for transfers
to joint venture companies, particularly
cases in which the U.S. transferor is going
into business with one or more unrelated
foreign parties (third parties) and in which
the U.S. transferor's interest in the joint
venture is equal to or less than 50 percent.
According to the comment, the U.S. trans-
feror in this situation has a financial in-
centive to segregate its intangibles con-
tributed to the joint venture from its other
property. The presence of a third party,
however, would not necessarily reduce the
U.S. transferor's incentive to attribute
value to foreign goodwill and going con-
cern value, rather than to enumerated sec-
tion 936 intangibles, in order to minimize
the tax consequences of the transfer, since
such a distinction may be irrelevant to the

third party. Accordingly, the final regula-
tions do not adopt this proposal.

D. Classifying foreign goodwill and
going concern value as subject to
section 367(a) or (d)

Several comments requested that the
Treasury Department and the IRS address
whether goodwill and going concern
value should be characterized as a section
936(h)(3)(B) intangible, and thus subject
to section 367(d), or instead as property
subject to section 367(a). Comments also
requested that the regulations provide cer-
tainty to taxpayers that have taken the
position that goodwill and going concern
value is not described in section
936(h)(3)(B) by providing that such tax-
payers will be permitted to treat goodwill
and going concern value as property sub-
ject to section 367(a) rather than section
367(d).

As discussed in the preamble to the
proposed regulations, the Treasury De-
partment and the IRS acknowledge that
taxpayers have taken different positions
regarding the scope of section 936(h)
(3)(B) and that the issue is more signifi-
cant following the elimination of the fa-
vorable treatment for foreign goodwill
and going concern value. Any enumerated
section 936 intangible, and any item sim-
ilar to such specifically enumerated intan-
gibles, is subject to the regime provided
by section 367(d). The Treasury Depart-
ment and the IRS have determined that it
would be inconsistent with the policy un-
derlying section 367(d) to permit intangi-
ble property that is described in section
936(h)(3)(B) to be subject to section
367(a). Accordingly, the Treasury Depart-
ment and the IRS have determined that it
is appropriate to retain the approach pro-
vided in the proposed regulations, which
allows taxpayers to apply section 367(d)
to certain property that otherwise would
be taxed under section 367(a) but which
continues to require taxpayers to apply
section 367(d) to all property described in
section 936(h)(3)(B). Because the identi-
fication of items that are neither explicitly
listed in section 936(h)(3)(B)(i) through
(v) nor explicitly listed as potentially
qualifying for the ATB exception gener-
ally will require a case-by-case functional
and factual analysis, the final regulations

do not address the characterization of such
items as similar items (within the meaning
of section 936(h)(3)(B)(vi)) or as some-
thing else. In general, potential rules un-
der section 367 for identifying and valu-
ing transferred property are beyond the
scope of these final regulations.

###### II. Useful Life

The proposed regulations eliminated
the 20-year limitation on useful life for
intangible property subject to section
367(d) that was included in § 1.367(d)-
1T(c)(3), because of concerns that the lim-
itation results in less than all of the in-
come attributable to transferred intangible
property being taken into account by the
U.S. transferor. In the preamble to the
proposed regulations, the Treasury De-
partment and the IRS solicited comments
on how to simplify the administration of
section 367(d) inclusions for property
with a very long useful life in the absence
of the 20-year limitation. In response to
this comment solicitation, several com-
ments requested that the final regulations
restore the 20-year limitation on useful
life because it promotes administrability
for both taxpayers and the IRS.

After considering the comments re-
ceived, the Treasury Department and the
IRS agree that a 20-year limitation on
inclusions may promote administrability
for both taxpayers and the IRS in cases
where the useful life of the transferred
property is indefinite or is reasonably an-
ticipated to exceed twenty years. Accord-
ingly, in such cases, the final regulations
provide that taxpayers may, in the year of
transfer, choose to take into account sec-
tion 367(d) inclusions only during the 20-
year period beginning with the first year in
which the U.S transferor takes into ac-
count income pursuant to section 367(d).
However, the Treasury Department and
the IRS have determined that this optional
limitation should not affect the present
value of all amounts included by the tax-
payer under section 367(d). Accordingly,
the final regulations specifically require a
taxpayer that chooses to limit section
367(d) inclusions to a 20-year period to
include, during that period, amounts that
reasonably reflect amounts that, in the ab-
sence of the limitation, would be required
to be included over the useful life of the

transferred property following the end of
the 20-year period. This requirement is
consistent with the requirement in section
367(d) to include amounts that are com-
mensurate with the income attributable to
the transferred intangible during its full
useful life, without limitation. The re-
quirement of the final regulations that in-
clusions during the limited 20-year period
begin in the first year in which in which
the U.S transferor takes into account in-
come pursuant to section 367(d) reflects
the possibility of delays between the year
the intangible property is transferred and
the first year in which exploitation of the
transferred property results in taxable in-
come being earned by the transferee and
included under section 367(d) by the
transferor.

One comment also suggested that
the IRS be precluded from making
commensurate-with-income adjustments
for taxable years beginning more than 20
years after the outbound transfer. In re-
sponse to this comment, the final regula-
tions provide that, if a taxpayer chooses to
limit inclusions under section 367(d) to a
20-year period, no adjustments will be
made for taxable years beginning after the
conclusion of the 20-year period. Thus,
after the statute of limitations expires for
taxable years during the 20-year period, a
taxpayer will have no further section
367(d) inclusions as a result of the Com-
missioner's examination of taxable years
that begin after the end of the 20-year
period. However, consistent with the
commensurate-with-income principle, for
purposes of determining whether income
inclusions during the 20-year period are
commensurate with the income attribut-
able to the transferred property, and
whether adjustments should be made for
taxable years during that period while the
statute of limitations for such taxable
years is open, the Commissioner may take
into account information with respect to
taxable years after that period, such as the
income attributable to the transferred
property during those later years.

The final regulations revise the defini-
tion of useful life to provide that useful
life includes the entire period during
which exploitation of the transferred in-
tangible property is reasonably anticipated
to affect the determination of taxable in-
come, in order to appropriately account

for the fact that exploitation of intangible
property can result in both revenue in-
creases and cost decreases. A comment
asserted that including use in subse-
quently developed intangibles within the
useful life of the transferred intangible
property would be too difficult to admin-
ister and was not consistent with the arm's
length standard. The Treasury Department
and the IRS disagree with this comment.
The value of many types of intangible
property is derived not only from use of
the intangible property in its present form,
but also from its use in further develop-
ment of the next generation of that intan-
gible and other property. For example, if a
software developer were to sell all of its
copyright rights in its software to an un-
related party, and the copyright rights are
expected to derive value both from the
exclusive right to use the current genera-
tion computer code to make and sell cur-
rent generation software products and
from the exclusive right to use the current
generation code in the development of
other versions of the software, which will
then be used to make and sell future gen-
eration software products, the software
developer would expect to be compen-
sated for the latter right. That is, if the
software has value in developing a future
generation of products, the software de-
veloper would not ignore the value of the
use of the software in future research and
development and hand over those rights
free of charge, and an uncontrolled pur-
chaser would be willing to compensate the
developer to obtain such rights.

##### III. Applicability Date

Several comments requested that the
final regulations apply to transfers occur-
ring after their date of publication, and not
relate back to the date the proposed regu-
lations were issued. These comments as-
serted that the proposed regulations
change long-standing law in a way that
would prejudice taxpayers that had ar-
ranged their business operations based on
the 1986 temporary regulations. Others
speculated that the final regulations might
deviate from the proposed regulations to
such an extent that substantial confusion
would result for taxpayers attempting to
determine their tax results in the interim
period before the final regulations were

published. Finally, one comment asserted
that an applicability date relating back to
the proposed regulations would violate the
Administrative Procedure Act (APA),
specifically 5 U.S.C. § 553, which pro-
vides that the effective date of certain final
regulations must be at least 30 days after
their date of publication.

After considering these comments, the
Treasury Department and the IRS have
determined that the proposed applicability
date, under which the final regulations
would apply to transfers occurring on or
after September 14, 2015, should be re-
tained. The proposed regulations were is-
sued to curtail the potential for abuse that
exists under the 1986 temporary regula-
tions from treating value that should be
attributed to enumerated section 936 in-
tangibles instead as exempt foreign good-
will or going concern value. The proposed
effective date was intended to prevent tax-
payers from using the time while the pro-
posed regulations were pending to accel-
erate transfers subject to section 367 in
order to take abusive positions under the
1986 temporary regulations before the fi-
nalization of the proposed regulations.

The Treasury Department and the IRS
have statutory authority to issue regula-
tions applicable at least as of the date the
proposed regulations were filed with the
Federal Register. The pre-1996 version of
section 7805(b)-which governs regula-
tions related to statutory provisions en-
acted before July 30, 1996, such as section
367-provides express retroactive rule-
making authority by stating that the Sec-
retary may prescribe the extent, if any, to
which any ruling or regulation shall be
applied without retroactive effect. Section
7805(b) (1995). Because section 7805(b)
is the more specific statute, it controls
over the general notice requirements of 5
U.S.C. § 553. See, for example, Redhouse
v. Commissioner, 728 F.2d 1249, 1253
(9th Cir. 1984); Wing v. Commissioner, 81
T.C. 17, 28-30 & n.17 (1983).

Finally, the Treasury Department and
the IRS disagree with the comment that
differences between the proposed and fi-
nal regulations may create confusion. The
final regulations are a logical outgrowth of
the proposed regulations in light of the
comments received and their consider-
ation by the Treasury Department and the
IRS. In particular, the final regulations do

not differ from the proposed regulations
with respect to the elimination of the fa-
vorable treatment for transfers of foreign
goodwill and going concern value. Fur-
thermore, a transfer of property that is
subject to recognition treatment under
section 367 under the final regulations
would also have been subject to such
treatment under section 367 under the pro-
posed regulations.

For these reasons, the final regulations
generally apply to transfers occurring on
or after September 14, 2015, the date the
proposed regulations were filed with the
Federal Register, and to transfers occur-
ring before September 14, 2015, resulting
from entity classification elections made
under § 301.7701-2 that are filed on or
after September 14, 2015.

##### IV. Qualification of Property Denominated in Foreign Currency for the ATB Exception

Although section 367(a)(3)(B)(iii) pro-
vides that the ATB exception does not
apply, and therefore that section 367(a)(1)
applies, to foreign currency or other prop-
erty denominated in foreign currency, cur-
rent § 1.367(a)-5T(d)(2) generally pro-
vides that section 367(a)(1) nonetheless
does not apply to certain transfers of prop-
erty denominated in the currency of the
country in which the transferee foreign
corporation is organized. The proposed
regulations eliminated this regulatory ex-
ception from the general rule in section
367(a)(3)(B)(iii) that turns off the ATB
exception for such property. One com-
ment recommended clarifying the regula-
tions under section 367(a) by adopting the
language and concepts reflected in the
changes to the foreign currency rules in
subpart J that were made after the publi-
cation of the 1986 temporary regulations.
In response to this comment, § 1.367(a)-
2(c)(3) of the final regulations, which cor-
responds to existing § 1.367(a)-5T(d)(2),
reflects amendments that increase consis-
tency with the rules in sections 987 and
988. In particular, the terms "foreign cur-
rency" and "property denominated in for-
eign currency" are no longer used. Rather,
proposed § 1.367(a)-2(c)(3) is revised to
refer to nonfunctional currency and other
property that gives rise to a section 988
transaction of the taxpayer described in
section 988(c)(1)(B), or that would give

rise to such a section 988 transaction if it
were acquired, accrued, or entered into
directly by the taxpayer. The Treasury
Department and the IRS consider that
these modifications do not substantially
change the scope of property subject to
the rule at § 1.367(a)-5T(d)(2).

##### V. Other Issues

Other comments suggested that regula-
tions address many outstanding issues in
the context of section 367 that were not
addressed in the proposed regulations.
These suggestions include guidance to ad-
dress the following topics: (i) the valua-
tion of intangibles subject to section
367(d) and the forms that deemed pay-
ments should take, including guidance
providing parity with the section 482
form-of-payment rules; (ii) whether a re-
ceivable is created upon an audit-related
adjustment; (iii) the tax basis conse-
quences under section 367(d), including
how section 367(d) applies to intangibles
subject to the section 197 anti-churning
rules; (iv) coordination of the general rules
and disposition rules in section 367(d); (v)
issues raised in connection with Notice
2012-39 (2012-31 IRB 95); (vi) the defini-
tion of "property" for purposes of section
367; and (vii) the subsequent transfer rules
under the ATB exception.

The Treasury Department and the IRS
generally agree that additional guidance
under section 367(a) and (d) is desirable
and would benefit both taxpayers and
the government. However, these issues
are beyond the scope of this project. For
example, while the Treasury Department
and the IRS are aware that there is uncer-
tainty regarding the application of the sub-
sequent transfer rules to transactions in-
volving hybrid partnerships, the Treasury
Department and the IRS have determined
that transactions involving partnerships
merit a more holistic consideration and
that this regulation package is not the ap-
propriate vehicle to address the issue.
Consequently, the regulations finalize the
subsequent transfer rules in § 1.367(a)-
2T(c) (located in § 1.367(a)-2(g) of these
final regulations), but the Treasury De-
partment and the IRS expect those rules
will be amended after a more detailed
consideration of transactions involving
partnerships.

#### Special Analyses

Certain IRS regulations, including
these, are exempt from the requirements
of Executive Order 12866, as supple-
mented and reaffirmed by Executive Or-
der 13563. Therefore, a regulatory impact
assessment is not required. It is hereby
certified that the collection of information
contained in these regulations will not
have a significant economic impact on a
substantial number of small entities. Ac-
cordingly, a regulatory flexibility analysis
is not required. This certification is based
on the fact that the regulations under sec-
tion 367(a) and (d) simplify existing reg-
ulations, and the regulations under section
6038B make relatively minor changes to
existing information reporting require-
ments. Moreover, these regulations pri-
marily will affect large domestic corpora-
tions filing consolidated returns. Pursuant
to section 7805(f) of the Code, the notice
of proposed rulemaking that preceded this
regulation was submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on their
impact on small business. No comments
were received.

#### Drafting information

The principal author of these regula-
tions is Ryan Bowen, Office of Associate
Chief Counsel (International). However,
other personnel from the Treasury Depart-
ment and the IRS participated in their
development.

** * * *

#### Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended
as follows:

PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read as follows:

Authority: 26 U.S.C. 7805 * *

Section 1.367(d)-1 also issued under
26 U.S.C. 367(d).

* * * * *

Par. 2. Section 1.367(a)-0 is added to
read as follows:

§ 1.367(a)-0 Table of contents.

(5) Use in the trade or business. (6) Active leasing and licensing.

(9) Private letter ruling option. (10) Examples.

This section lists the paragraphs con-

(e) Special rules for certain property to be

(11) Effective date.

tained in §§ 1.367(a)-1 through 1.367

leased.

(d) Indirect stock transfers in certain non-

(a)-8.

(1) Leasing business of the foreign corpo-

recognition transfers.

ration.

(1) In general.

§ 1.367(a)-1 Transfers to foreign

(2) De minimis leasing by the foreign

(2) Special rules for indirect transfers.

corporations subject to section 367(a):

corporation.

(3) Examples.

In general.

(3) Aircraft and vessels leased in foreign

(e) [Reserved].

commerce.

(f) Failure to file statements.

(a) Scope.

(f) Special rules for oil and gas working

(1) Failure to file.

(b) General rules.

interests.

(2) Relief for certain failures to file that

(1) Foreign corporation not considered a

(1) In general.

corporation for purposes of certain trans-

(2) Active use of working interest.

are not willful.

fers.

(3) Start-up operations.

(g) Effective/applicability dates.

(2) Cases in which foreign corporate sta-

(4) Other applicable rules.

(1) Rules of applicability.

tus is not disregarded.

(g) Property retransferred by the foreign

(2) Election.

(3) Determination of value.

corporation.

(h) Former 10-year gain recognition

(4) In general.

(1) General rule.

agreements.

(5) Treatment of certain property as sub-

(2) Exception.

(i) [Reserved].

ject to section 367(d).

(h) Compulsory transfers of property.

(j) Transition rules regarding certain

(i) [Reserved].

transfers of domestic or foreign stock or

(d) Definitions.

(j) Failure to comply with reporting re-

securities after December 16, 1987, and

(1) United States person.

quirements of section 6038B.

prior to July 20, 1998.

(2) Foreign corporation.

(1) Failure to comply.

(1) Scope.

(3) Transfer.

(2) Relief for certain failures to comply

(2) Transfers of domestic or foreign stock

(4) Property.

that are not willful.

or securities: additional substantive rules.

(5) Intangible property.

(k) Effective/applicability dates.

(k) [Reserved].

(6) Operating intangibles.

(1) In general.

(e) Close of taxable year in certain section

(2) Foreign currency exception.

368(a)(1)(F) reorganizations.

§ 1.367(a)-4 Special rule applicable to

(f) Exchanges under sections 354(a) and

U.S. depreciated property.

361(a) in certain section 368(a)(1)(F) re-

§ 1.367(a)-3 Treatment of transfers of

organizations.

stock or securities to foreign

(1) Rule

corporations.

(a) Depreciated property used in the

(2) Rule applies regardless of whether a

United States.

continuance under applicable law.

(a) In general.

(1) In general.

(g) Effective/applicability dates.

(1) Overview.

(2) U.S. depreciated property.

(2) Exceptions for certain exchanges of

(3) Property used within and without the

§ 1.367(a)-2 Exceptions for transfers of

stock or securities.

United States.

property for use in the active conduct of

(3) Cross-references.

(b) Effective/applicability dates.

a trade or business.

(b) Transfers of stock or securities of for- eign corporations.

(a) Scope and general rule.

(1) General rule.

§ 1.367(a)-5 [Reserved].

(1) Scope.

(2) Certain transfers subject to sections

(2) General rule.

367(a) and (b).

(b) Eligible property.

§ 1.367(a)-6 Transfer of foreign branch

mestic corporations.

with previously deducted losses.

(1) Inventory.

(1) General rule.

(2) Installment obligations, etc.

(2) Ownership presumption.

(a) through (b)(1) [Reserved].

(3) Nonfunctional currency, etc.

(3) Active trade or business test.

(2) No active conduct exception.

(4) Certain leased tangible property.

(4) Special rules.

(c)(1) [Reserved].

(d) Active conduct of a trade or business

(5) Definitions.

(2) Gain limitation.

outside the United States.

(6) Reporting requirements of U.S. target

(3) [Reserved].

(1) In general.

company.

(4) Transfers of certain intangible prop-

(2) Trade or business.

(7) Ownership statements.

erty.

(3) Active conduct.

(8) Certain transfers in connection with

(d) through (i) [Reserved].

(4) Outside of the United States.

performance of services.

(j) Effective/applicability dates.

§ 1.367(a)-7 Outbound transfers of

(2) Special requirements.

(m) Receipt of boot in nonrecognition

property described in section 361(a) or

(3) Common parent as agent for U.S.

transactions.

(b).

transferor. (e) Signatory.

(1) Dispositions of transferred stock or securities.

(a) Scope and purpose.

(1) General rule.

(2) Dispositions of assets of transferred

(b) General rule.

(2) Signature requirement.

corporation.

(1) Nonrecognition exchanges enumer-

(f) Extension of period of limitations on

(n) Special rules for distributions with re-

ated in section 367(a)(1).

assessments of tax.

spect to stock.

(2) Nonrecognition exchanges not enu-

(1) General rule.

(1) Certain dividend equivalent redemp-

merated in section 367(a)(1).

(2) New gain recognition agreement.

tions treated as dispositions.

(g) Annual certification.

(2) Gain recognized under section

(1) Control.

(h) Use of security.

301(c)(3).

(2) Gain recognition.

(i) [Reserved].

(o) Dispositions or other events that ter-

(3) Basis adjustments required for control

(j) Triggering events.

minate or reduce the amount of gain sub-

group members.

(1) Disposition of transferred stock or se-

ject to the gain recognition agreement.

(4) Agreement to amend or file a U.S.

curities.

(1) Taxable disposition of stock of the

income tax return.

(2) Disposition of substantially all of the

transferee foreign corporation.

(5) Election and reporting requirements.

assets of the transferred corporation.

(2) Gain recognized in connection with

(d) Section 361 exchange followed by

(3) Disposition of certain partnership in-

certain nonrecognition transactions.

successive distributions to which section

terests.

(3) Gain recognized under section

355 applies.

(4) Disposition of stock of the transferee

301(c)(3).

(e) Other rules.

foreign corporation.

(4) Dispositions of substantially all of the

(1) Section 367(a) property with respect to

(5) Deconsolidation.

assets of a domestic transferred corpora-

which gain is recognized.

(6) Consolidation.

tion.

(2) Relief for certain failures to comply

(7) Death of an individual; trust or estate

(5) Certain distributions or transfers of

that are not willful.

ceases to exist.

transferred stock or securities to U.S. per-

(3) Anti-abuse rule.

(8) Failure to comply.

sons.

(4) Certain income inclusions under

(9) Gain recognition agreement filed in

(6) Dispositions or other event following

§ 1.367(b)-4.

connection with indirect stock transfers

certain intercompany transactions.

(5) Certain gain under § 1.367(a)-6.

and certain triangular asset reorganiza-

(7) Expropriations under foreign law.

(f) Definitions.

tions.

(p) Relief for certain failures to file or

(g) Examples.

(10) Gain recognition agreement filed pur-

failures to comply that are not willful.

(h) Applicable cross-references.

suant to paragraph (k)(14) of this section.

(1) In general.

(i) [Reserved].

(k) Triggering event exceptions.

(2) Procedures for establishing that a fail-

(j) Effective/applicability dates.

(1) Transfers of stock of the transferee

ure to file or failure to comply was not

(1) In general.

foreign corporation to a corporation or

willful.

(2) Section 367(d) property.

partnership.

(3) Examples.

(2) Complete liquidation of U.S. trans-

(q) Examples.

§ 1.367(a)-8 Gain recognition

feror under sections 332 and 337.

(1) Presumed facts and references.

agreement requirements.

(3) Transfers of transferred stock or secu- rities to a corporation or partnership.

(2) Examples.

(r) Effective/applicability date.

(a) Scope.

(4) Transfers of substantially all of the

(1) General rule.

(b) Definitions and special rules.

assets of the transferred corporation.

(2) Applicability to transfers occurring be-

(1) Definitions.

(5) Recapitalizations and section 1036 ex-

fore March 13, 2009.

(2) Special rules.

changes.

(3) Applicability to requests for relief sub-

(6) Certain asset reorganizations.

mitted before November 19, 2014.

(1) Terms of agreement.

(7) Certain triangular reorganizations.

(2) Content of gain recognition agree-

(8) Complete liquidation of transferred

Par. 3. Section 1.367(a)-1 is revised to

ment.

corporation.

read as follows:

(3) Description of transferred stock or se-

(9) Death of U.S. transferor.

curities and other information.

(10) Deconsolidation.

§ 1.367(a)-1 Transfers to foreign

(4) Basis adjustments for gain recognized.

(11) Consolidation.

corporations subject to section 367(a):

(5) Terms and conditions of a new gain

(12) Intercompany transactions.

In general.

recognition agreement.

(13) Deemed asset sales pursuant to sec-

(6) Cross-reference.

tion 338(g) elections.

(a) Scope. Section 367(a)(1) provides

(d) Filing requirements.

(14) Other dispositions or events.

the general rule concerning certain trans-

(1) General rule.

(l) [Reserved].

fers of property by a United States person

(referred to at times in this section as the
"U.S. person" or "U.S. transferor") to a
foreign corporation. Paragraph (b) of this
section provides general rules explaining
the effect of section 367(a)(1). Paragraph
(c) of this section describes transfers of
property that are described in section
367(a)(1). Paragraph (d) of this section
provides definitions that apply for pur-
poses of sections 367(a) and (d) and the
regulations thereunder. Paragraphs (e) and
(f) of this section provide rules that apply
to certain reorganizations described in
section 368(a)(1)(F). Paragraph (g) of this
section provides dates of applicability. For
rules concerning the reporting require-
ments under section 6038B for certain
transfers of property to a foreign corpora-
tion, see § 1.6038B-1.

(b) General rules-(1) Foreign corpo-
ration not considered a corporation for
purposes of certain transfers. If a U.S.
person transfers property to a foreign cor-
poration in connection with an exchange
described in section 351, 354, 356, or 361,
then, pursuant to section 367(a)(1), the
foreign corporation will not be considered
to be a corporation for purposes of deter-
mining the extent to which gain is recog-
nized on the transfer. Section 367(a)(1)
denies nonrecognition treatment only to
transfers of items of property on which
gain is realized. Thus, the amount of gain
recognized because of section 367(a)(1) is
unaffected by the transfer of items of
property on which loss is realized (but not
recognized).

(2) Cases in which foreign corporate
status is not disregarded. For circum-
stances in which section 367(a)(1) does
not apply to a U.S. transferor's transfer of
property to a foreign corporation, and thus
the foreign corporation is considered to be
a corporation, see §§ 1.367(a)-2,
1.367(a)-3, and 1.367(a)-7.

(3) Determination of value. In cases in
which a U.S. transferor's transfer of prop-
erty to a foreign corporation constitutes a
controlled transaction as defined in
§ 1.482-1(i)(8), the value of the property
transferred is determined in accordance
with section 482 and the regulations there-
under.

(4) Character, source, and adjust-
ments-(i) In general. If a U.S. person is
required to recognize gain under section

367 upon a transfer of property to a for-
eign corporation, then -

(A) The character and source of such
gain are determined as if the property had
been disposed of in a taxable exchange
with the transferee foreign corporation
(unless otherwise provided by regulation);
and

(B) Appropriate adjustments to earn-
ings and profits, basis, and other affected
items will be made according to otherwise
applicable rules, taking into account the
gain recognized under section 367(a)(1).
For purposes of applying section 362, the
foreign corporation's basis in the property
received is increased by the amount of
gain recognized by the U.S. transferor un-
der section 367(a) and the regulations is-
sued pursuant to that section. To the ex-
tent the regulations provide that the U.S.
transferor recognizes gain with respect to
a particular item of property, the foreign
corporation increases its basis in that item
of property by the amount of such gain
recognized. For example, §§ 1.367(a)-2,
1.367(a)-3, and 1.367(a)-4 provide that
gain is recognized with respect to partic-
ular items of property. To the extent the
regulations do not provide that gain rec-
ognized by the U.S. transferor is with re-
spect to a particular item of property, such
gain is treated as recognized with respect
to items of property subject to section
367(a) in proportion to the U.S. transfer-
or's gain realized in such property, after
taking into account gain recognized with
respect to particular items of property
transferred under any other provision of
section 367(a). For example, § 1.367(a)-6
provides that branch losses must be recap-
tured by the recognition of gain realized
on the transfer but does not associate the
gain with particular items of property. See
also § 1.367(a)-1(c)(3) for rules concern-
ing transfers by partnerships or of partner-
ship interests.

(C) The transfer will not be recharac-
terized for U.S. Federal tax purposes
solely because the U.S. person recognizes
gain in connection with the transfer under
section 367(a)(1). For example, if a U.S.
person transfers appreciated stock or se-
curities to a foreign corporation in an ex-
change described in section 351, the trans-
fer is not recharacterized as other than an
exchange described in section 351 solely

because the U.S. person recognizes gain
in the transfer under section 367(a)(1).

(ii) Example. The rules of this para-
graph (b)(4) are illustrated by the follow-
ing example.

Example. Domestic corporation DC
transfers inventory with a fair market
value of $ 1 million and adjusted basis of
$ 800,000 to foreign corporation FC in
exchange for stock of FC that is described
in section 351(a). Title passes within the
United States. Pursuant to section 367(a),
DC is required to recognize gain of
$200,000 upon the transfer. Under the rule
of this paragraph (b)(4), the gain is treated
as ordinary income (sections 1201 and
1221) from sources within the United
States (section 861) arising from a taxable
exchange with FC. Appropriate adjust-
ments to earnings and profits, basis, etc.,
will be made as if the transfer were sub-
ject to section 351. Thus, for example,
DC's basis in the FC stock received, and
FC's basis in the transferred inventory,
will each be increased by the $200,000
gain recognized by DC, pursuant to sec-
tions 358(a)(1) and 362(a), respectively.

(5) Treatment of certain property as
subject to section 367(d). A U.S. trans-
feror may apply section 367(d) and
§ 1.367(d)-1, rather than section 367(a)
and the regulations thereunder, to a trans-
fer of property to a foreign corporation
that otherwise would be subject to section
367(a), provided that the property is not
eligible property, as defined in § 1.367(a)-
2(b) but determined without regard to
§ 1.367(a)-2(c). A U.S. transferor and any
other U.S. transferor that is related (within
the meaning of section 267(b) or 707(b)
(1)) to the U.S. transferor must consis-
tently apply this paragraph (b)(5) to all
property described in this paragraph (b)(5)
that is transferred to one or more foreign
corporations pursuant to a plan. A U.S.
transferor applies the provisions of this
paragraph (b)(5) in the form and manner
set forth in § 1.6038B-1(d)(1)(iv) and (v).

(c)(1) through (c)(3)(i) reserved. For
further guidance, see § 1.367(a)-1T(c)(1)
through (c)(3)(i).

(ii) Transfer of partnership interest
treated as transfer of proportionate share
of assets-(A) In general. If a U.S. person
transfers an interest as a partner in a part-
nership (whether foreign or domestic) in
an exchange described in section 367(a)

(1), then that person is treated as having
transferred a proportionate share of the
property of the partnership in an exchange
described in section 367(a)(1). Accord-
ingly, the applicability of the exception to
section 367(a)(1) provided in § 1.367(a)-2
is determined with reference to the prop-
erty of the partnership rather than the part-
nership interest itself. A U.S. person's
proportionate share of partnership prop-
erty is determined under the rules and
principles of sections 701 through 761 and
the regulations thereunder.

(c)(3)(i)(A) Example through (7) re-
served. For further guidance, see § 1.367
(a)-1T(c)(3)(i)(A) Example through (7).

(d) Definitions. The following defini-
tions apply for purposes of sections 367(a)
and (d) and the regulations thereunder.

(1) United States person. The term
"United States person" includes those per-
sons described in section 7701(a)(30). The
term includes a citizen or resident of the
United States, a domestic partnership, a
domestic corporation, and any estate or
trust other than a foreign estate or trust.
(For definitions of these terms, see section
7701 and the regulations thereunder.) For
purposes of this section, an individual
with respect to whom an election has been
made under section 6013(g) or (h) is con-
sidered to be a resident of the United
States while such election is in effect. A
nonresident alien or a foreign corporation
will not be considered a United States
person because of its actual or deemed
conduct of a trade or business within the
United States during a taxable year.

(2) Foreign corporation. The term
"foreign corporation" has the meaning set
forth in section 7701(a)(3) and (5) and
§ 301.7701-5.

(3) Transfer. For purposes of section
367 and regulations thereunder, the term
"transfer" means any transaction that con-
stitutes a transfer for purposes of section
332, 351, 354, 355, 356, or 361, as appli-
cable. A person's entering into a cost shar-
ing arrangement under § 1.482-7 or ac-
quiring rights to intangible property under
such an arrangement shall not be consid-
ered a transfer of property described in
section 367(a)(1). See § 1.6038B-
1T(b)(4) for the date on which the transfer
is considered to be made.

(4) Property. For purposes of section
367 and the regulations thereunder, the

term "property" means any item that con-
stitutes property for purposes of section
351, 354, 355, 356, or 361, as applicable.

(5) Intangible property. The term "in-
tangible property" means either property
described in section 936(h)(3)(B) or prop-
erty to which a U.S. person applies section
367(d) pursuant to paragraph (b)(5) of this
section, but does not include property de-
scribed in section 1221(a)(3) or a working
interest in oil and gas property.

(6) Operating intangibles. An operat-
ing intangible is any property described in
section 936(h)(3)(B) of a type not ordinar-
ily licensed or otherwise transferred in
transactions between unrelated parties for
consideration contingent upon the licens-
ee's or transferee's use of the property.
Examples of operating intangibles may
include long-term purchase or supply con-
tracts, surveys, studies, and customer lists.

(f) Exchanges under sections 354(a)
and 361(a) in certain section 368(a)(1)(F)
reorganizations-(1) Rule. In every reor-
ganization under section 368(a)(1)(F),
where the transferor corporation is a do-
mestic corporation, and the acquiring cor-
poration is a foreign corporation, there is
considered to exist-

(i) A transfer of assets by the transferor
corporation to the acquiring corporation
under section 361(a) in exchange for stock
(or stock and securities) of the acquiring
corporation and the assumption by the ac-
quiring corporation of the transferor cor-
poration's liabilities;

(ii) A distribution of the stock (or
stock and securities) of the acquiring
corporation by the transferor corpora-
tion to the shareholders (or shareholders
and security holders) of the transferor
corporation; and

(iii) An exchange by the transferor cor-
poration's shareholders (or shareholders
and security holders) of their stock (or
stock and securities) of the transferor cor-
poration for stock (or stock and securities)
of the acquiring corporation under section
354(a).

(2) Rule applies regardless of whether
a continuance under applicable law. For
purposes of paragraph (f)(1) of this sec-
tion, it shall be immaterial that the appli-
cable foreign or domestic law treats the
acquiring corporation as a continuance of
the transferor corporation.

(g) Effective/applicability dates. (1)
through (3) [Reserved]. For further guid-
ance, see § 1.367(a)-1T(g)(1) through (3).

(4) The rules in paragraphs (b)(4)(i)(B)
and (b)(4)(i)(C) of this section apply to
transfers occurring on or after April 18,
2013. For guidance with respect to para-
graph (b)(4)(i)(B) of this section before
April 18, 2013, see 26 CFR part 1 revised
as of April 1, 2012. The rules in paragraph
(e) of this section apply to transactions
occurring on or after March 31, 1987. The
rules in paragraph (f) of this section apply
to transactions occurring on or after Jan-
uary 1, 1985.

(5) Paragraphs (a), (b)(1) through (b)
(4)(i)(B), (b)(4)(ii) through (b)(5), (c)(3)
(ii)(A), (d) introductory text through
(d)(2), (d)(4) through (d)(6) of this section
apply to transfers occurring on or after
September 14, 2015, and to transfers oc-
curring before September 14, 2015, result-
ing from entity classification elections
made under § 301.7701-3 that are filed on
or after September 14, 2015. For transfers
occurring before this section is applicable,
see §§ 1.367(a)-1 and 1.367(a)-1T as
contained in 26 CFR part 1 revised as of
April 1, 2016.

## § 1.367(a)-1T [Amended]

Par. 4. Section 1.367(a)-1T is amended
by removing and reserving paragraphs (a),
(b)(1), (b)(2), (b)(3), (b)(4)(i)(A), (b)(4)
(ii), (c)(3)(ii)(A), (d) introductory text,
(d)(1), (d)(2), (d)(4), and (d)(5), and add-
ing and reserving new paragraphs (b)(5)
and (d)(6).

Par. 5. Section 1.367(a)-2 is revised to
read as follows:

§ 1.367(a)-2 Exceptions for transfers of
property for use in the active conduct of
a trade or business.

(a) Scope and general rule-(1) Scope.
Paragraph (a)(2) of this section provides
the general exception to section 367(a)(1)
for certain property transferred for use in
the active conduct of a trade or business.
Paragraph (b) of this section describes
property that is eligible for the exception
provided in paragraph (a)(2) of this sec-
tion. Paragraph (c) of this section de-
scribes property that is not eligible for the
exception provided in paragraph (a)(2) of

this section. Paragraph (d) of this section
provides general rules, and paragraphs (e)
through (h) of this section provide special
rules, for determining whether property is
used in the active conduct of a trade or
business outside of the United States.
Paragraph (i) of this section is reserved.
Paragraph (j) of this section provides re-
lief for certain failures to comply with the
reporting requirements under paragraph
(a)(2)(iii) of this section that are not will-
ful. Paragraph (k) of this section provides
dates of applicability. The rules of this
section do not apply to a transfer of stock
or securities in an exchange subject to
§ 1.367(a)-3.

(2) General rule. Except as otherwise
provided in §§ 1.367(a)-4, 1.367(a)-6,
and 1.367(a)-7, section 367(a)(1) does not
apply to property transferred by a United
States person (U.S. transferor) to a foreign
corporation if-

(i) The property constitutes eligible
property;

(ii) The property is transferred for use
by the foreign corporation in the active
conduct of a trade or business outside of
the United States, as determined under
paragraph (d), (e), (f), (g), or (h) of this
section, as applicable; and

(iii) The U.S. transferor complies with
the reporting requirements of section
6038B and the regulations thereunder.

(b) Eligible property. Except as pro-
vided in paragraph (c) of this section, el-
igible property means-

(1) Tangible property;

(2) A working interest in oil and gas
property; and

(3) A financial asset. For purposes of
this section, a financial asset is-

(i) A cash equivalent;

(ii) A security within the meaning of
section 475(c)(2), without regard to the
last sentence of section 475(c)(2) (refer-
encing section 1256) and without regard
to section 475(c)(4), but excluding an in-
terest in a partnership;

(iii) A commodities position described
in section 475(e)(2)(B), 475(e)(2)(C), or
475(e)(2)(D); and

(iv) A notional principal contract de-
scribed in § 1.446-3(c)(1).

(c)(1), (2), (3), or (4) of this section does
not constitute eligible property.

(1) Inventory. Stock in trade of the
taxpayer or other property of a kind which
would properly be included in the inven-
tory of the taxpayer if on hand at the close
of the taxable year, or property held by the
taxpayer primarily for sale to customers in
the ordinary course of its trade or business
(including raw materials and supplies,
partially completed goods, and finished
products).

(2) Installment obligations, etc. Install-
ment obligations, accounts receivable, or
similar property, but only to the extent
that the principal amount of any such ob-
ligation has not previously been included
by the taxpayer in its taxable income.

(3) Nonfunctional currency, etc .- (i)
In general. Property that gives rise to a
section 988 transaction of the taxpayer
described in section 988(c)(1)(A) through
(C), without regard to section 988(c)
(1)(D) and (E), or that would give rise to
such a section 988 transaction if it were
acquired, accrued, entered into, or dis-
posed of directly by the taxpayer.

(ii) Limitation of gain required to be
recognized. If section 367(a)(1) applies to
a transfer of property described in para-
graph (c)(3)(i) of this section, then the
gain required to be recognized is limited
to the gain realized as part of the same
transaction upon the transfer of property
described in paragraph (c)(3)(i) of this
section, less any loss realized as part of
the same transaction upon the transfer of
property described in paragraph (c)(3)(i)
of this section. This limitation applies in
lieu of the rule in § 1.367(a)-1(b)(1). No
loss is recognized with respect to property
described in this paragraph (c)(3).

(4) Certain leased tangible property.
Tangible property with respect to which
the transferor is a lessor at the time of the
transfer, unless either the foreign corporation
is the lessee at the time of the transfer or the
foreign corporation will lease the property
to third persons.

(d) Active conduct of a trade or busi-
ness outside the United States-(1) In
general. Except as provided in paragraphs
(e), (f), (g), and (h) of this section, to
determine whether property is transferred
for use by the foreign corporation in the
active conduct of a trade or business out-

side of the United States, four factual de-
terminations must be made:

(i) What is the trade or business of the
foreign corporation (see paragraph (d)(2)
of this section);

(ii) Do the activities of the foreign cor-
poration constitute the active conduct of
that trade or business (see paragraph
(d)(3) of this section);

(iii) Is the trade or business conducted
outside of the United States (see para-
graph (d)(4) of this section); and

(iv) Is the transferred property used or
held for use in the trade or business (see
paragraph (d)(5) of this section)?

(2) Trade or business. Whether the ac-
tivities of the foreign corporation consti-
tute a trade or business is determined
based on all the facts and circumstances.
In general, a trade or business is a specific
unified group of activities that constitute
(or could constitute) an independent eco-
nomic enterprise carried on for profit. For
example, the activities of a foreign selling
subsidiary could constitute a trade or busi-
ness if they could be independently car-
ried on for profit, even though the subsid-
iary acts exclusively on behalf of, and has
operations fully integrated with, its parent
corporation. To constitute a trade or busi-
ness, a group of activities must ordinarily
include every operation which forms a
part of, or a step in, a process by which an
enterprise may earn income or profit. In
this regard, one or more of such activities
may be carried on by independent con-
tractors under the direct control of the
foreign corporation. (However, see para-
graph (d)(3) of this section.) The group of
activities must ordinarily include the col-
lection of income and the payment of ex-
penses. If the activities of the foreign cor-
poration do not constitute a trade or
business, then the exception provided by
this section does not apply, regardless of
the level of activities carried on by the
corporation. The following activities are
not considered to constitute by themselves
a trade or business for purposes of this
section:

(i) Any activity giving rise to expenses
that would be deductible only under sec-
tion 212 if the activities were carried on
by an individual; or

(ii) The holding for one's own account
of investments in stock, securities, land, or

other property, including casual sales
thereof.

(3) Active conduct. Whether a trade or
business is actively conducted by the for-
eign corporation is determined based on
all the facts and circumstances. In general,
a corporation actively conducts a trade or
business only if the officers and employ-
ees of the corporation carry out substantial
managerial and operational activities. A
corporation may be engaged in the active
conduct of a trade or business even though
incidental activities of the trade or busi-
ness are carried out on behalf of the cor-
poration by independent contractors. In
determining whether the officers and em-
ployees of the corporation carry out sub-
stantial managerial and operational activ-
ities, however, the activities of independent
contractors are disregarded. On the other
hand, the officers and employees of the
corporation are considered to include the
officers and employees of related entities
who are made available to and supervised
on a day-to-day basis by, and whose sal-
aries are paid by (or reimbursed to the
lending related entity by), the foreign cor-
poration. See paragraph (d)(6) of this sec-
tion for the standard that applies to deter-
mine whether a trade or business that
produces rents or royalties is actively con-
ducted. The rule of this paragraph (d)(3) is
illustrated by the following example.

Example. X, a domestic corporation,
and Y, a foreign corporation not related to
X, transfer property to Z, a newly formed
foreign corporation organized for the pur-
pose of combining the research activities
of X and Y. Z contracts all of its opera-
tional and research activities to Y for an
arm's-length fee. Z's activities do not con-
stitute the active conduct of a trade or
business.

(4) Outside of the United States. Whether
the foreign corporation conducts a trade or
business outside of the United States is
determined based on all the facts and cir-
cumstances. Generally, the primary man-
agerial and operational activities of the
trade or business must be conducted out-
side the United States and immediately
after the transfer the transferred assets
must be located outside the United States.
Thus, the exception provided by this sec-
tion would not apply to the transfer of the
assets of a domestic business to a foreign
corporation if the domestic business con-

tinued to operate in the United States after
the transfer. In such a case, the primary
operational activities of the business
would continue to be conducted in the
United States. Moreover, the transferred
assets would be located in the United
States. However, it is not necessary that
every item of property transferred be used
outside of the United States. As long as
the primary managerial and operational
activities of the trade or business are con-
ducted outside of the United States and
substantially all of the transferred assets
are located outside the United States, in-
cidental items of transferred property lo-
cated in the United States may be consid-
ered to have been transferred for use in the
active conduct of a trade or business out-
side of the United States.

(5) Use in the trade or business.
Whether property is used or held for use
by the foreign corporation in a trade or
business is determined based on all the
facts and circumstances. In general, prop-
erty is used or held for use in the foreign
corporation's trade or business if it is-

(i) Held for the principal purpose of
promoting the present conduct of the trade
or business;

(ii) Acquired and held in the ordinary
course of the trade or business; or

(iii) Otherwise held in a direct relation-
ship to the trade or business. Property is
considered held in a direct relationship to
a trade or business if it is held to meet the
present needs of that trade or business and
not its anticipated future needs. Thus,
property will not be considered to be held
in a direct relationship to a trade or busi-
ness if it is held for the purpose of pro-
viding for future diversification into a new
trade or business, future expansion of
trade or business activities, future plant
replacement, or future business contin-
gencies.

(6) Active leasing and licensing. For
purposes of paragraph (d)(3) of this sec-
tion, whether a trade or business that pro-
duces rents or royalties is actively con-
ducted is determined under the principles
of section 954(c)(2)(A) and the regula-
tions thereunder, but without regard to
whether the rents or royalties are received
from an unrelated party. See §§ 1.954-
2(c) and (d).

(e) Special rules for certain property to
be leased-(1) Leasing business of the

foreign corporation. Except as otherwise
provided in this paragraph (e), tangible
property that will be leased to another
person by the foreign corporation will be
considered to be transferred for use by the
foreign corporation in an active trade or
business outside the United States only
if-

(i) The foreign corporation's leasing of
the property constitutes the active conduct
of a leasing business, as determined under
paragraph (d)(6) of this section;

(ii) The lessee of the property is not
expected to, and does not, use the property
in the United States; and

(iii) The foreign corporation has a need
for substantial investment in assets of the
type transferred.

(2) De minimis leasing by the foreign
corporation. Tangible property that will
be leased to another person by the foreign
corporation but that does not satisfy the
conditions of paragraph (e)(1) of this sec-
tion will, nevertheless, be considered to be
transferred for use in the active conduct of
a trade or business if either-

(i) The property transferred will be
used by the foreign corporation in the
active conduct of a trade or business but
will be leased during occasional brief pe-
riods when the property would otherwise
be idle, such as an airplane leased during
periods of excess capacity; or

(ii) The property transferred is real
property located outside the United States
and-

(A) The property will be used primar-
ily in the active conduct of a trade or
business of the foreign corporation; and

(B) Not more than ten percent of the
square footage of the property will be
leased to others.

(3) Aircraft and vessels leased in for-
eign commerce. For purposes of satisfying
paragraph (e)(1) of this section, an aircraft
or vessel, including component parts such
as an engine leased separately from the
aircraft or vessel, that will be leased to
another person by the foreign corporation
will be considered to be transferred for
use in the active conduct of a trade or
business if-

(i) The employees of the foreign cor-
poration perform substantial managerial
and operational activities of leasing air-
craft or vessels outside the United States;
and

(ii) The leased property is predomi-
nantly used outside the United States, as
determined under § 1.954-2(c)(2)(v).

(f) Special rules for oil and gas work-
ing interests-(1) In general. A working
interest in oil and gas property will be
considered to be transferred for use in the
active conduct of a trade or business if-

(i) The transfer satisfies the conditions
of paragraph (f)(2) or (f)(3) of this sec-
tion;

(ii) At the time of the transfer, the
foreign corporation has no intention to
farm out or otherwise transfer any part of
the transferred working interest; and

(iii) During the first three years after
the transfer there are no farmouts or other
transfers of any part of the transferred
working interest as a result of which the
foreign corporation retains less than a 50-
percent share of the transferred working
interest.

(2) Active use of working interest. A
working interest in oil and gas property
that satisfies the conditions in paragraphs
(f)(1)(ii) and (iii) of this section will be
considered to be transferred for use in the
active conduct of a trade or business if-

(i) The U.S. transferor is regularly and
substantially engaged in exploration for
and extraction of minerals, either directly
or through working interests in joint ven-
tures, other than by reason of the property
that is transferred;

(ii) The terms of the working interest
transferred were actively negotiated
among the joint venturers;

(iii) The working interest transferred
constitutes at least a five percent working
interest;

(iv) Before and at the time of the trans-
fer, through its own employees or officers,
the U.S. transferor was regularly and ac-
tively engaged in-

(A) Operating the working interest, or

(B) Analyzing technical data relating
to the activities of the venture;

(v) Before and at the time of the trans-
fer, through its own employees or officers,
the U.S. transferor was regularly and ac-
tively involved in decision making with
respect to the operations of the venture,
including decisions relating to explora-
tion, development, production, and mar-
keting; and

(vi) After the transfer, the foreign cor-
poration will for the foreseeable future

satisfy the requirements of subparagraphs
(iv) and (v) of this paragraph (f)(2).

(3) Start-up operations. A working in-
terest in oil and gas property that satisfies
the conditions in paragraphs (f)(1)(ii) and
(iii) of this section but that does not satisfy
all the requirements of paragraph (f)(2) of
this section will, nevertheless, be consid-
ered to be transferred for use in the active
conduct of a trade or business if-

(i) The working interest was acquired
by the U.S. transferor immediately before
the transfer and for the specific purpose of
transferring it to the foreign corporation;

(ii) The requirements of paragraphs
(f)(2)(ii) and (iii) of this section are satis-
fied; and

(iii) The foreign corporation will for
the foreseeable future satisfy the require-
ments of paragraph (f)(2)(iv) and (v) of
this section.

(4) Other applicable rules. A working
interest in oil and gas property that is not
described in paragraph (f)(1) of this sec-
tion may nonetheless qualify for the ex-
ception to section 367(a)(1) contained in
this section depending upon the facts and
circumstances.

(g) Property retransferred by the
foreign corporation-(1) General rule.
Property will not be considered to be
transferred for use in the active conduct of
a trade or business outside of the United
States if-

(i) At the time of the transfer, it is
reasonable to believe that, in the reason-
ably foreseeable future, the foreign corpo-
ration will sell or otherwise dispose of any
material portion of the property other than
in the ordinary course of business; or

(ii) Except as provided in paragraph
(g)(2) of this section, the foreign corpora-
tion receives the property in an exchange
described in section 367(a)(1), and, as part
of the same transaction, transfers the prop-
erty to another person. For purposes of the
preceding sentence, a subsequent transfer
within six months of the initial transfer
will be considered to be part of the same
transaction, and a subsequent transfer
more than six months after the initial
transfer may be considered to be part of
the same transaction under step-transaction
principles.

(2) Exception. Notwithstanding para-
graph (g)(1) of this section, the active

conduct exception provided by this sec-
tion shall apply to the initial transfer if-

(i) The initial transfer is followed by
one or more subsequent transfers de-
scribed in section 351 or 721; and

(ii) Each subsequent transferee is either
a partnership in which the preceding
transferor is a general partner or a corpo-
ration in which the preceding transferor
owns common stock; and

(iii) The ultimate transferee uses the
property in the active conduct of a trade or
business outside the United States.

(h) Compulsory transfers of property.
Property is presumed to be transferred for
use in the active conduct of a trade or
business outside of the United States, if-

(1) The property was previously in use
in the country in which the foreign corpo-
ration is organized; and

(2) The transfer is either:

(i) Legally required by the foreign gov-
ernment as a necessary condition of doing
business; or

(ii) Compelled by a genuine threat of
immediate expropriation by the foreign
government.

(i) [Reserved].

(j) Failure to comply with reporting
requirements of section 6038B-(1) Fail-
ure to comply. For purposes of the excep-
tion to the application of section 367(a)(1)
provided in paragraph (a)(2) of this sec-
tion, a failure to comply with the reporting
requirements of section 6038B and the
regulations thereunder (failure to comply)
has the meaning set forth in § 1.6038B-
1(f)(2).

(2) Relief for certain failures to comply
that are not willful-(i) In general. A
failure to comply described in paragraph
(j)(1) of this section will be deemed not to
have occurred for purposes of satisfying
the requirements of this section if the tax-
payer demonstrates that the failure was
not willful using the procedure set forth in
this paragraph (j)(2). For this purpose,
willful is to be interpreted consistent with
the meaning of that term in the context of
other civil penalties, which would include
a failure due to gross negligence, reckless
disregard, or willful neglect. Whether a
failure to comply was a willful failure will
be determined by the Director of Field
Operations, Cross Border Activities Prac-
tice Area, Large Business & International
(or any successor to the roles and respon-

sibilities of such position, as appropriate)
(Director) based on all the facts and cir-
cumstances. The taxpayer must submit a
request for relief and an explanation as
provided in paragraph (j)(2)(ii)(A) of this
section. Although a taxpayer whose fail-
ure to comply is determined not to be
willful will not be subject to gain recog-
nition under this section, the taxpayer will
be subject to a penalty under section
6038B if the taxpayer fails to demonstrate
that the failure was due to reasonable
cause and not willful neglect. See
§ 1.6038B-1(b)(1) and (f). The determi-
nation of whether the failure to comply
was willful under this section has no ef-
fect on any request for relief made under
§ 1.6038B-1(f).

(ii) Procedures for establishing that a
failure to comply was not willful-(A)
Time and manner of submission. A tax-
payer's statement that the failure to com-
ply was not willful will be considered
only if, promptly after the taxpayer be-
comes aware of the failure, an amended
return is filed for the taxable year to which
the failure relates that includes the infor-
mation that should have been included
with the original return for such taxable
year or that otherwise complies with the
rules of this section, and that includes a
written statement explaining the reasons
for the failure to comply. The amended

return must be filed with the Internal Rev-
enue Service at the location where the
taxpayer filed its original return. The tax-
payer may submit a request for relief from
the penalty under section 6038B as part of
the same submission. See § 1.6038B-1(f).

(B) Notice requirement. In addition to
the requirements of paragraph (j)(2)(ii)(A)
of this section, the taxpayer must comply
with the notice requirements of this para-
graph (j)(2)(ii)(B). If any taxable year of
the taxpayer is under examination when
the amended return is filed, a copy of the
amended return and any information re-
quired to be included with such return
must be delivered to the Internal Revenue
Service personnel conducting the exami-
nation. If no taxable year of the taxpayer
is under examination when the amended
return is filed, a copy of the amended
return and any information required to be
included with such return must be deliv-
ered to the Director.

(3) For illustrations of the application
of the willfulness standard of this para-
graph (j), see the examples in § 1.367(a)-
8(p)(3).

(4) Paragraph (j) applies to requests for
relief submitted on or after November 19,
2014.

(k) Effective/applicability dates-(1)
In general. Except as provided in para-
graphs (j)(4) and (k)(2) of this section, the

rules of this section apply to transfers oc-
curring on or after September 14, 2015,
and to transfers occurring before Septem-
ber 14, 2015, resulting from entity classifi-
cation elections made under § 301.7701-3
that are filed on or after September 14, 2015.
For transfers occurring before this section is
applicable, see §§ 1.367(a)-2, -2T, -4,
-4T, -5, and -5T as contained in 26 CFR
part 1 revised as of April 1, 2016.

(2) Foreign currency exception. Not-
withstanding paragraph (c)(3)(i) of this
section, § 1.367(a)-5T(d)(2) as contained
in 26 CFR part 1 revised as of April 1,
2016, applies to transfers of property de-
nominated in a foreign currency occurring
before December 16, 2016, other than
transfers occurring before that date result-
ing from entity classification elections
made under § 301.7701-3 that are filed on
or after that date.

## § 1.367(a)-2T [Removed]

Par. 6. Section 1.367(a)-2T is re-
moved.

## § 1.367(a)-3 [Amended]

Par. 7. For each section listed in the
following the table, remove the language
in the "Remove" column and add in its
place the language in the "Add" column.

Section

Remove

Add

§ 1.367(a)-3(a)(3), first sentence

§ 1.367(a)-1T(c)

§ 1.367(a)-1(c)

§ 1.367(a)-3(c)(3)(i)(A)

§ 1.367(a)-2T(b)(2) and (3)

§ 1.367(a)-2(d)(2), (3), and (4)

§ 1.367(a)-3(c)(3)(ii)(B), last sentence

§ 1.367(a)-2T(b)(2) and (3)

§ 1.367(a)-2(d)(2) and (3)

§ 1.367(a)-3(c)(4)(i), last sentence

§ 1.367(a)-1T(c)(3)

§ 1.367(a)-1(c)(3)

§ 1.367(a)-3(c)(5)(iv), first sentence

§ 1.367(a)-1T(d)(1)

§ 1.367(a)-1(d)(1)

§ 1.367(a)-3(d)(3) Example 7A(ii), penultimate sentence

§ 1.367(a)-2T(a)(2)

§ 1.367(a)-2(a)(2)(iii)

§ 1.367(a)-3(d)(3) Example 13(i), penultimate sentence

§ 1.367(a)-2T(c)(2)

§ 1.367(a)-2(g)(2)

Par. 8. Section 1.367(a)-4 is revised to
read as follows:

§ 1.367(a)-4 Special rule applicable to
U.S. depreciated property.

(a) Depreciated property used in the
United States-(1) In general. A U.S. per-
son that transfers U.S. depreciated prop-
erty (as defined in paragraph (a)(2) of this
section) to a foreign corporation in an
exchange described in section 367(a)(1),

must include in its gross income for the
taxable year in which the transfer occurs
ordinary income equal to the gain realized
that would have been includible in the
transferor's gross income as ordinary in-
come under section 617(d)(1), 1245(a),
1250(a), 1252(a), 1254(a), or 1255(a),
whichever is applicable, if at the time of
the transfer the U.S. person had sold the
property at its fair market value. Recap-
ture of depreciation under this paragraph
(a) is required regardless of whether the

exception to section 367(a)(1) provided
by § 1.367(a)-2(a)(2) applies to the trans-
fer of the U.S. depreciated property. How-
ever, the transfer of the U.S. depreciated
property may qualify for the exception
with respect to realized gain that is not
included in ordinary income pursuant to
this paragraph (a).

(2) U.S. depreciated property. U.S.
depreciated property subject to the rules
of this paragraph (a) is any property
that-

(i) Is either mining property (as defined
in section 617(f)(2)), section 1245 prop-
erty (as defined in section 1245(a)(3)),
section 1250 property (as defined in sec-
tion 1250(c)), farm land (as defined in
section 1252(a)(2)), section 1254 property
(as defined in section 1254(a)(3)), or sec-
tion 126 property (as defined in section
1255(a)(2)); and

(ii) Has been used in the United States
or has been described in section 168(g)(4)
before its transfer.

(3) Property used within and without
the United States. (i) If U.S. depreciated
property has been used partly within and
partly without the United States, then the
amount required to be included in ordi-
nary income pursuant to this paragraph (a)
is reduced to an amount determined in
accordance with the following formula:
U.S use

Full recapture amount X
Total use

(ii) For purposes of the fraction in para-
graph (a)(3)(i) of this section, the "full
recapture amount" is the amount that
would otherwise be included in the trans-
feror's income under paragraph (a)(1) of
this section. "U.S. use" is the number of
months that the property either was used
within the United States or has been de-
scribed in section 168(g)(4), and was sub-
ject to depreciation by the transferor or a
related person. "Total use" is the total
number of months that the property was
used (or available for use), and subject to
depreciation, by the transferor or a related
person. For purposes of this paragraph
(a)(3), property is not considered to have
been in use outside of the United States
during any period in which such property
was, for purposes of section 168, treated
as property not used predominantly out-
side the United States pursuant to section
168(g)(4). For purposes of this paragraph
(a)(3), the term "related person" has the
meaning set forth in § 1.367(d)-1(h).

(b) Effective/applicability dates. The
rules of this section apply to transfers oc-
curring on or after September 14, 2015,
and to transfers occurring before Septem-
ber 14, 2015, resulting from entity classi-
fication elections made under § 301.7701-3
that are filed on or after September 14,
2015. For transfers occurring before this
section is applicable, see §§ 1.367(a)-4
and 1.367(a)-4T as contained in 26 CFR
part 1 revised as of April 1, 2016.

§ 1.367(a)-4T [Removed]

Par. 9. § 1.367(a)-4T is removed.

§ 1.367(a)-5 [Removed and Reserved]

Par. 10. Section 1.367(a)-5 is removed
and reserved.

### § 1.367(a)-5T [Removed]

Par. 11. § 1.367(a)-5T is removed.

Par. 12. Section 1.367(a)-6 is revised
to read as follows:

§ 1.367(a)-6 Transfer of foreign branch
with previously deducted losses.

(a) through (b)(1) [Reserved]. For fur-
ther guidance, see § 1.367(a)-6T(a) through
(b)(1).

(b)(2) No active conduct exception.
The rules of this paragraph (b) apply re-
gardless of whether any of the assets of
the foreign branch satisfy the active trade
or business exception of § 1.367(a)-
2(a)(2).

(c)(1) [Reserved]. For further guid-
ance, see § 1.367(a)-6T(c)(1).

(2) Gain limitation. The gain required
to be recognized under paragraph (b)(1) of
this section will not exceed the aggregate
amount of gain realized on the transfer of
all branch assets (without regard to the
transfer of any assets on which loss is
realized but not recognized).

(3) [Reserved].

(4) Transfers of certain intangible prop-
erty. Gain realized on the transfer of intan-
gible property (computed with reference
to the fair market value of the intangible
property as of the date of the transfer) that
is an asset of a foreign branch is taken into
account in computing the limitation on
loss recapture under paragraph (c)(2) of
this section. For rules relating to the cred-
iting of gain recognized under this section
against income deemed to arise by opera-
tion of section 367(d), see § 1.367(d)-
1(g)(3).

(d) through (i) [Reserved]. For further
guidance, see § 1.367(a)-6T(d) through
(i).

(j) Effective/applicability dates. The
rules of this section apply to transfers oc-
curring on or after September 14, 2015,
and to transfers occurring before Septem-
ber 14, 2015, resulting from entity classifi-

cation elections made under § 301.7701-3
that are filed on or after September 14, 2015.
For transfers occurring before this section is
applicable, see § 1.367(a)-6T as contained
in 26 CFR part 1 revised as of April 1, 2016.

### § 1.367(a)-6T [Amended]

Par. 13. Section 1.367(a)-6T is amended
by

1\. Removing and reserving paragraphs
(b)(2), (c)(2), and (c)(4).

2\. Adding and reserving paragraph (j).
Par. 14. Section 1.367(a)-7 is amended
by:

1\. Revising paragraph (f)(11).

2\. Redesignating paragraph (j) as (j)(1)
and revising the first sentence, and adding
paragraph (j)(2).

The revision and addition read as fol-
lows:

§ 1.367(a)-7 Outbound transfers of
property described in section 361(a) or
(b).

* * * * *

(f) * * *

(11) Section 367(d) property is intan-
gible property as defined in § 1.367(a)-
1(d)(5).

* * * * *

(j) Effective/applicability dates-(1) In
general. Except for paragraph (e)(2) of
this section, and as provided in paragraph
(j)(2) of this section, this section applies to
transfers occurring on or after April 18,
2013. * * *

(2) Section 367(d) property. The defi-
nition provided in paragraph (f)(11) of
this section applies to transfers occurring
on or after September 14, 2015, and to
transfers occurring before September 14,
2015, resulting from entity classification
elections made under § 301.7701-3 that
are filed on or after September 14, 2015.
For transfers occurring before this section
is applicable, see § 1.367(a)-7 as con-
tained in 26 CFR part 1 revised as of April
1, 2016.

#### § 1.367(a)-7 [Amended]

Par. 15. For each section listed in the
following table, remove the language in
the "Remove" column and add in its place
the language in the "Add" column.

Section

Remove

Add

§ 1.367(a)-7(a), sixth sentence

§ 1.367(a)-6T

§ 1.367(a)-6

§ 1.367(a)-7(c), second sentence

§ 1.367(a)-2T

§ 1.367(a)-2

§ 1.367(a)-7(c), second sentence

§ 1.367(a)-4T, 1.367(a)-5T

§ 1.367(a)-4

§ 1.367(a)-7(c), second sentence

§ 1.367(a)-6T

§ 1.367(a)-6

§ 1.367(a)-7(c)(2)(i)(B)

§ 1.367(a)-6T

§ 1.367(a)-6

§ 1.367(a)-7(c)(2)(ii)(A)(2)

§ 1.367(a)-6T

§ 1.367(a)-6

§ 1.367(a)-7(e)(1), third sentence

§ 1.367(a)-2T

§ 1.367(a)-2

§ 1.367(a)-7(e)(1), third sentence

§ 1.367(a)-4T, 1.367(a)-5T

§ 1.367(a)-4

§ 1.367(a)-7(e)(1), third sentence

§ 1.367(a)-6T

§ 1.367(a)-6

§ 1.367(a)-7(e)(1), last sentence

§ 1.367(a)-1T(b)(4) and § 1.367(a)-1(b)(4)(i)(B)

§ 1.367(a)-1(b)(4)

§ 1.367(a)-7(e)(2)(i), third sentence

Director of Field Operations International, Large Business &amp; International

Director of Field Operations, Cross Border Activities Practice Area of Large Business &amp; International

§ 1.367(a)-7(e)(4)(ii), first and

§ 1.367(a)-6T

§ 1.367(a)-6

second sentences

§ 1.367(a)-7(e)(5), heading

§ 1.367(a)-6T

§ 1.367(a)-6

§ 1.367(a)-7(e)(5)(i), first sentence

§ 1.367(a)-6T

§ 1.367(a)-6

§ 1.367(a)-7(e)(5)(ii), first sentence

§ 1.367(a)-6T

§ 1.367(a)-6

§ 1.367(a)-7(f)(4)(ii)

§ 1.367(a)-6T

§ 1.367(a)-6

§ 1.367(a)-7(g), last sentence

§ 1.367(a)-2T

§ 1.367(a)-2

§ 1.367(a)-7(g), Example 1 (ii)(A),

§ 1.367(a)-2T

§ 1.367(a)-2

last sentence

§ 1.367(a)-7(g), Example 2 (ii)(A),

§ 1.367(a)-2T

§ 1.367(a)-2

last sentence

§ 1.367(a)-7(h), first sentence

§ 1.367(a)-1(b)(4)(i)(B) and § 1.367(a)-1T(b)(4)

§ 1.367(a)-1(b)(4)

## § 1.367(a)-8 [Amended]

Par. 16. For each section listed in
the following table, remove the lan-

guage in the "Remove" column and add
in its place the language in the "Add"
column.

Section

Remove

Add

§ 1.367(a)-8(b)(1)(xvii), first sentence

§ 1.367(a)-1T(d)(1)

§ 1.367(a)-1(d)(1)

§ 1.367(a)-8(b)(1)(xvii), second sentence

§ 1.367(a)-1T(c)(3)(i)

§ 1.367(a)-1(c)(3)(i)

§ 1.367(a)-8(c)(3)(viii)

§ 1.367(a)-1T(c)(3)(i)

§ 1.367(a)-1(c)(3)(i

§ 1.367(a)-8(c)(3)(viii)

§ 1.367(a)-1T(c)(3)(ii)

§ 1.367(a)-1(c)(3)(ii)

§ 1.367(a)-8(c)(4)(iv), second sentence

§ 1.367(a)-1T(b)(4)

§ 1.367(a)-1(b)(4)

§ 1.367(a)-8(j)(3)

§ 1.367(a)-1T(c)(3)(ii)

§ 1.367(a)-1(c)(3)(ii)

§ 1.367(a)-8(j)(8), second sentence

Director of Field Operations International, Large Business &amp; International

Director of Field Operations, Cross Border Activities Practice Area of Large Business &amp; International

Par. 17. Section 1.367(d)-1 is added to
read as follows:

§ 1.367(d)-1 Transfers of intangible
property to foreign corporations.

(a) [Reserved]. For further guidance,
see § 1.367(d)-1T(a).

(b) Property subject to section 367(d).
Section 367(d) and the rules of this sec-
tion apply to the transfer of intangible
property, as defined in § 1.367(a)-1(d)(5),
by a U.S. person to a foreign corporation
in an exchange described in section 351 or
361. See section 367(a) and the regula-
tions thereunder for the rules that apply to

the transfer of any property other than
intangible property.

(c)(1) through (2) [Reserved]. For fur-
ther guidance, see § 1.367(d)-1T(c)(1)
and (2).

(3) Useful life-(i) In general. For pur-
poses of determining the period of inclu-
sions for deemed payments under § 1.367

(d)-1T(c)(1), the useful life of intangible
property is the entire period during which
exploitation of the intangible property is
reasonably anticipated to affect the deter-
mination of taxable income, as of the time
of transfer. Exploitation of intangible
property includes any direct or indirect
use or transfer of the intangible property,
including use without further develop-
ment, use in the further development of
the intangible property itself (and any ex-
ploitation of the further developed intan-
gible property), and use in the develop-
ment of other intangible property (and any
exploitation of the other developed intan-
gible property).

(ii) Procedure to limit inclusions to 20
years. In cases where the useful life of the
transferred property is indefinite or is rea-
sonably anticipated to exceed twenty
years, taxpayers may, in lieu of including
amounts during the entire useful life of the
intangible property, choose in the year of
transfer to increase annual inclusions dur-
ing the 20-year period beginning with the
first year in which the U.S transferor takes
into account income pursuant to section
367(d), to reflect amounts that, but for this
paragraph (c)(3)(ii), would have been re-
quired to be included following the end of
the 20-year period. See § 1.6038B-
1(d)(1)(iv) for guidance on reporting this
choice of method. If the taxpayer applies
this method during the 20-year period, no
adjustments will be made for taxable
years beginning after the conclusion of the
20-year period. However, for purposes of
determining whether amounts included
during the 20-year period are commensu-
rate with the income attributable to the
transferred intangible property, the Com-
missioner may take into account informa-
tion with respect to taxable years after that
period, such as the income attributable to
the transferred property during those later
years. The application of this paragraph
(c)(3)(ii) must be reflected in a statement
(titled "Application of 20-Year Inclusion
Period to Section 367(d) Transfers") at-
tached to a timely filed original federal
income tax return (including extensions)
for the year of the transfer. An increase to
the deemed payment rate made pursuant
to this paragraph (c)(3)(ii) will be irrevo-
cable, and a failure to timely file the state-
ment under this paragraph (c)(3)(ii) may
not be remedied.

(iii) Example. Property subject to sec-
tion 367(d) is transferred from USP, a
domestic corporation, to FA, a foreign
corporation wholly owned by USP. The
useful life of the transferred property, in-
clusive of derivative works, at the time of
transfer is indefinite but is reasonably an-
ticipated to exceed 20 years. In the first
five years following the transfer, sales re-
lated to the property are expected to be
$100x, $130x, $160x, $180x and $187.2x,
respectively. Thereafter, for the remainder
of the property's useful life, sales are ex-
pected to grow by four percent annually.
In the first five years following the trans-
fer, operating profits attributable to the
property are expected to be $5x, $8x,
$11x, $12.5x, and $13x, respectively.
Thereafter, for the remainder of the prop-
erty's useful life, operating profits are ex-
pected to grow by four percent annually. It
is determined that the appropriate dis-
count rate for sales and operating profits is
10 percent. The present value of operating
profits through the property's indefinite
useful life is $185x. The present value of
sales through the property's indefinite
useful life is $2698x. Accordingly, the
sales based royalty rate during the prop-
erty's useful life is 6.8 percent ($185x/
$2698x). The taxpayer may choose to take
income inclusions into account over a 20-
year period. The present value of sales
through the 20-year period is $1787x. Ac-
cordingly, the sales based royalty rate un-
der the 20-year option is increased to 10.3
percent ($185x/$1787x).

(c)(4) through (g)(2) (introductory
text) [Reserved]. For further guidance, see
§ 1.367(d)-1T(c)(4) through (g)(2) (intro-
ductory text).

(g)(2)(i) The intangible property trans-
ferred constitutes an operating intangible,
as defined in § 1.367(a)-1(d)(6).

(g)(2)(ii) through (iii)(D) [Reserved].
For further guidance, see § 1.367(d)-
1T(g)(2)(ii) through (iii)(D).

(E) The transferred intangible property
will be used in the active conduct of a
trade or business outside of the United
States within the meaning of § 1.367(a)-2
and will not be used in connection with
the manufacture or sale of products in or
for use or consumption in the United
States.

(g)(2)(iii) undesignated concluding
paragraph [Reserved]. For further guid-

ance, see § 1.367(d)-1T(g)(2)(iii) undes-
ignated concluding paragraph.

(3) Intangible property transferred
from branch with previously deducted
losses. (i) If income is required to be rec-
ognized under section 904(f)(3) and the
regulations thereunder or under § 1.367
(a)-6 upon the transfer of intangible prop-
erty of a foreign branch that had previ-
ously deducted losses, then the income
recognized under those sections with re-
spect to that property is credited against
amounts that would otherwise be required
to be recognized with respect to that same
property under paragraphs (c) through (f)
of this section in either the current or
future taxable years. The amount recog-
nized under section 904(f)(3) or
§ 1.367(a)-6 with respect to the trans-
ferred intangible property is determined in
accordance with the following formula:

Loss recapture income X
gain from all branch assets

gain from intangible property

(ii) For purposes of the formula in
paragraph (g)(3)(i) of this section, the
"loss recapture income" is the total
amount required to be recognized by the
U.S. transferor pursuant to section 904(f)
(3) or § 1.367(a)-6. The "gain from in-
tangible property" is the total amount of
gain realized by the U.S. transferor pursu-
ant to section 904(f)(3) and § 1.367(a)-6
upon the transfer of items of property that
are subject to section 367(d). "Gain from
intangible property" does not include gain
realized with respect to intangible prop-
erty by reason of an election under para-
graph (g)(2) of this section. The “gain
from all branch assets" is the total amount
of gain realized by the transferor upon the
transfer of items of property of the branch
for which gain is realized.

(g)(4) through (i) [Reserved]. For fur-
ther guidance, see § 1.367(d)-1T(g)(4)
through (i).

(j) Effective/applicability dates. This
section applies to transfers occurring on or
after September 14, 2015, and to transfers
occurring before September 14, 2015, re-
sulting from entity classification elections
made under § 301.7701-3 that are filed
on or after September 14, 2015. For
transfers occurring before this section is
applicable, see § 1.367(d)-1T as con-
tained in 26 CFR part 1 revised as of
April 1, 2016.

## § 1.367(d)-1T [Amended]

Par. 18. Section 1.367(d)-1T is
amended by removing and reserving para-
graphs (b), (c)(3), and (g)(2)(i), (g)(2)(iii)
(E), and (g)(3).

Par. 19. Section 1.367(e)-2 is amended
by

1\. Revising paragraph (b)(3)(iii).

2\. Revising paragraph (e)(4)(ii)(B).

The revisions read as follows.

§ 1.367(e)-2 Distributions described in
section 367(e)(2).

* * * * *

(b) * * *

(3) * * *

(iii) Other rules. For other rules that
may apply, see sections 381, 897, 1248,
and § 1.482-1(f)(2)(i)(C).

* * * * *

(e) * * *

(4) * * *

(ii) * * *

(B) The period of limitations on assess-
ment of tax for the taxable year in which
gain is required to be reported will be
extended until the close of the third full
taxable year ending after the date on
which the domestic liquidating corpora-
tion, foreign distributee corporation, or
foreign liquidating corporation, as appli-
cable, furnishes to the Director of Field
Operations, Cross Border Activities Prac-
tice Area of Large Business & Interna-
tional (or any successor to the roles and
responsibilities of such position, as appro-
priate) (Director) the information that
should have been provided under this sec-
tion.

* * * * *

### § 1.884-5 [Amended]

Par. 20. Section 1.884-5 is amended in
paragraph (e)(3)(ii)(A) by removing the
citation "§ 1.367(a)-2T(b)(5)," and add-
ing the citation "§ 1.367(a)-2(d)(5)" in its
place.

#### § 1.1248-8 [Amended]

Par. 21. Section 1.1248-8 is amended
in paragraph (b)(2)(iv)(B)(1)(ii) by re-
moving the citation "§§ 1.367(a)-6T,"
and adding the citation “§ 1.367(a)-6" in
its place.

##### § 1.1248(f)-2 [Amended]

Par. 22. Section 1.1248(f)-2 is
amended in the last sentence of paragraph
(e) by removing the citation "§ 1.367(a)-
2T," and adding the citation "§ 1.367
(a)-2" in its place.

Par. 23. Section 1.6038B-1 is amended
by:

1\. Removing the citation “§ 1.367(a)-
1T(c)," in the fourth sentence of para-
graph (b)(1)(i) and adding the citation
"§ 1.367(a)-1(c)" in its place.

2\. Revising paragraphs (c)(1) through
(5) and (d).

3\. Revising the first sentence of para-
graph (g)(1).

4\. Adding paragraph (g)(7).

The additions and revision read as fol-
lows:

###### § 1.6038B-1 Reporting of certain transfers to foreign corporations.

** * * *

(1) through (4) introductory text [Re-
served]. For further guidance, see § 1.6038B-
1T(c)(1) through (4) introductory text.

(i) Active business property. Describe
any transferred property that qualifies un-
der § 1.367(a)-2(a)(2). Provide here a
general description of the business con-
ducted (or to be conducted) by the trans-
feree, including the location of the busi-
ness, the number of its employees, the
nature of the business, and copies of the
most recently prepared balance sheet and
profit and loss statement. Property listed
within this category may be identified by
general type. For example, upon the trans-
fer of the assets of a manufacturing oper-
ation, a reasonable description of the
property to be used in the business might
include the categories of office equipment
and supplies, computers and related
equipment, motor vehicles, and several
major categories of manufacturing equip-
ment. However, any property that is in-
cludible in both paragraphs (c)(4)(i) and
(iii) of this section (property subject to
depreciation recapture under § 1.367(a)-
4(a)) must be identified in the manner
required in paragraph (c)(4)(iii) of this
section. If property is considered to be
transferred for use in the active conduct of
a trade or business under a special rule in

paragraph (e), (f), or (g) of § 1.367(a)-2,
specify the applicable rule and provide
information supporting the application of
the rule.

(ii) Stock or securities. Describe any
transferred stock or securities, including
the class or type, amount, and character-
istics of the transferred stock or securities,
as well as the name, address, place of
incorporation, and general description of
the corporation issuing the stock or secu-
rities.

(iii) Depreciated property. Describe
any property that is subject to depreciation
recapture under § 1.367(a)-4(a). Property
within this category must be separately
identified to the same extent as was re-
quired for purposes of the previously
claimed depreciation deduction. Specify
with respect to each such asset the rele-
vant recapture provision, the number of
months that such property was in use
within the United States, the total number
of months the property was in use, the fair
market value of the property, a schedule
of the depreciation deduction taken with
respect to the property, and a calculation
of the amount of depreciation required to
be recaptured.

(iv) Property not transferred for use in
the active conduct of a trade or business.
Describe any property that is eligible
property, as defined in § 1.367(a)-2(b)
taking into account the application of
§ 1.367(a)-2(c), that was transferred to
the foreign corporation but not for use in
the active conduct of a trade or business
outside the United States (and was there-
fore not listed under paragraph (c)(4)(i) of
this section).

(v) Property transferred under com-
pulsion. If property qualifies for the ex-
ception of § 1.367(a)-2(a)(2) under the
rules of paragraph (h) of that section, pro-
vide information supporting the claimed
application of such exception.

(vi) Certain ineligible property. De-
scribe any property that is described in
§ 1.367(a)-2(c) and that therefore cannot
qualify under § 1.367(a)-2(a)(2) regard-
less of its use in the active conduct of a
trade or business outside of the United
States. The description must be divided
into the relevant categories, as follows:

(A) Inventory, etc. Property described
in § 1.367(a)-2(c)(1);

(B) Installment obligations, etc. Prop-
erty described in § 1.367(a)-2(c)(2);

(D) Leased property. Property de-
scribed in § 1.367(a)-2(c)(4).

(vii) Other property that is ineligible
property. Describe any property, other
than property described in § 1.367(a)-
2(c), that cannot qualify under § 1.367(a)-
2(a)(2) regardless of its use in the active
conduct of a trade or business outside of
the United States and that is not subject to
the rules of section 367(d) under
§ 1.367(a)-1(b)(5) (treatment of certain
property as subject to section 367(d)).
Each item of property must be separately
identified.

(viii) [Reserved]. For further guidance,
see § 1.6038B-1T(c)(4)(viii).

(5) Transfer of foreign branch with
previously deducted losses. If the property
transferred is property of a foreign branch
with previously deducted losses subject to
§§ 1.367(a)-6 and -6T, provide the fol-
lowing information:

(i) through (iv) [Reserved]. For further
information, see § 1.6038B-1T(c)(5)(i)
through (iv).

* * * * *

(d)(1) through (1)(iii) [Reserved]. For
further guidance, see § 1.6038B-1T(d)(1)
through (1)(iii).

(iv) Intangible property transferred.
Provide a description of the intangible
property transferred, including its ad-
justed basis. Generally, each item of in-
tangible property must be separately iden-
tified, including intangible property
described in § 1.367(d)-1(g)(2)(i). Iden-
tify all property that is subject to the rules
of section 367(d) under § 1.367(a)-1(b)(5)
(treatment of certain property as subject to
section 367(d)). Describe any property for
which the income required to be taken
into account under section 367(d) and the
regulations thereunder will be recognized
over a 20-year period pursuant to
§ 1.367(d)-1(c)(3)(ii). Estimate the antic-
ipated income or cost reductions attribut-
able to the intangible property's use be-
yond the 20-year period.

(v)-(vi) [Reserved]. For further guid-
ance, see § 1.6038B-1T(d)(1)(v) through
(1)(vi).

(vii) Coordination with loss rules. List
any intangible property subject to section

367(d) the transfer of which also gives
rise to the recognition of gain under sec-
tion 904(f)(3) or §§ 1.367(a)-6 or -6T.
Provide a calculation of the gain required
to be recognized with respect to such
property, in accordance with the provi-
sions of § 1.367(d)-1(g)(3).

(d)(1)(viii) through (d)(2) [Reserved].
For further guidance, see § 1.6038B-
1T(d)(1)(viii) through (d)(2).
* * * * *

(g) Effective/applicability dates. (1)
This section applies to transfers occurring
on or after July 20, 1998, except as pro-
vided in paragraphs (g)(2) through (g)(7)
of this section, and except for transfers of
cash made in tax years beginning on or
before February 5, 1999 (which are not
required to be reported under section
6038B), and transfers described in para-
graph (e) of this section (which applies to
transfers that are subject to §§ 1.367(e)-
1(f) and 1.367(e)-2(e)). * * *

* * * * *

(7) Paragraphs (c)(4)(i) through (vii),
(c)(5), and (d)(1)(iv) and (vii) of this sec-
tion apply to transfers occurring on or
after September 14, 2015, and to transfers
occurring before September 14, 2015, re-
sulting from entity classification elections
made under § 301.7701-3 that are filed on
or after September 14, 2015. For guidance
with respect to paragraphs (c)(4), (c)(5),
and (d)(1) of this section before this sec-
tion is applicable, see §§ 1.6038B-1 and
1.6038B-1T as contained in 26 CFR part
1 revised as of April 1, 2016.

Par. 24. Section 1.6038B-1T is
amended by removing and reserving para-
graphs (c)(4)(i) through (c)(5) introduc-
tory text, and (d)(1)(iv) and (vii).

John Dalrymple
Deputy Commissioner for
Services and Enforcement.

Approved: November 23, 2016

Mark J. Mazur
Assistant Secretary of the
Treasury (Tax Policy).

(Filed by the Office of the Federal Register on December 15,
2016, at 8:45 a.m., and published in the issue of the Federal
Register for December 16, 2016, 81 F.R. 91092)

26 CFR 1.36B-1

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301

T.D. 9804

####### Premium Tax Credit Regulation VI

AGENCY: Internal Revenue Service (IRS),
Treasury.

ACTION: Final Regulations.

SUMMARY: This document contains fi-
nal regulations relating to the health insur-
ance premium tax credit (premium tax
credit). These final regulations affect in-
dividuals who enroll in qualified health
plans through Health Insurance Ex-
changes (Exchanges, also called Market-
places) and claim the premium tax credit,
and Exchanges that make qualified health
plans available to individuals and employ-
ers. These final regulations also affect in-
dividuals who are eligible for employer-
sponsored health coverage.

DATES: Effective Date: These regula-
tions are effective December 19, 2016.

Applicability Date: For dates of appli-
cability, see §§ 1.36B-1(0), 1.36B-2(e),
1.36B-3(n), 1.36B-5(h), and 1.6011-
8(b).

FOR FURTHER INFORMATION CON-
TACT: Steve Toomey at (202) 317-4735,
Shareen Pflanz at (202) 317-4727, or Lisa
Mojiri-Azad at (202) 317-4649 (not toll-
free calls).

SUPPLEMENTARY INFORMATION:

######## Paperwork Reduction Act

The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545-2232.

The collection of information in these
regulations is in § 1.36B-5. The collection
of information is necessary to reconcile
advance payments of the premium tax
credit and determine the allowable pre-

mium tax credit. The collection of infor-
mation is required to comply with the
provisions of section 36B of the Internal
Revenue Code (Code). The likely respon-
dents are Marketplaces that enroll individ-
uals in qualified health plans.

The burden for the collection of infor-
mation contained in these regulations will
be reflected in the burden estimate for
Form 1095-A, Health Insurance Market-
place Statement, which is the form that the
Marketplace will use to submit the infor-
mation described in the final regulations.

######## Background

This document contains final regula-
tions amending the Income Tax Regula-
tions (26 CFR part 1) under section 36B
relating to the health insurance premium
tax credit. Section 36B was enacted by the
Patient Protection and Affordable Care
Act, Public Law 111-148 (124 Stat. 119
(2010)), and the Health Care and Educa-
tion Reconciliation Act of 2010, Public
Law 111-152 (124 Stat. 1029 (2010))
(collectively, the Affordable Care Act).
Final regulations under section 36B (TD
9590) were published on May 23, 2012
(77 FR 30,385). These regulations were
amended in 2014 by TD 9663, published
on May 7, 2014 (79 FR 26,117), and in
2015 by TD 9745, published December
18, 2015 (80 FR 78,974). On July 8, 2016,
a notice of proposed rulemaking (REG-
109086-15) was published in the Federal
Register (81 FR 44,557). Written com-
ments responding to the proposed regula-
tions were received. The comments have
been considered in connection with these
final regulations and are available for pub-
lic inspection at www.regulations.gov or
on request. No public hearing was re-
quested or held. After consideration of all
the comments, the proposed regulations
are adopted, in part, as amended by this
Treasury decision. The rules proposed un-

der REG-109086-15 on the effect of opt-
out arrangements on an employee's re-
quired contribution for employer-
sponsored coverage have been reserved
and the Treasury Department and the IRS
expect to finalize those regulations sepa-
rately (see, section 1.d of this preamble).

######## Summary of Comments and Explanation of Provisions

######### 1. Eligibility

########## a. Applicable taxpayers

A taxpayer is eligible for a premium
tax credit only if the taxpayer is an appli-
cable taxpayer. To be an applicable tax-
payer, a taxpayer's household income
generally must be between 100 percent
and 400 percent of the Federal poverty
line (FPL) for the taxpayer's family size.
The existing regulations in § 1.36B-
2(b)(6) allow a taxpayer whose household
income is below 100 percent of the appli-
cable FPL to be treated as an applicable
taxpayer if (1) the taxpayer or a family
member enrolls in a qualified health plan,
(2) an Exchange estimates at the time of
enrollment that the taxpayer's household
income for the taxable year will be be-
tween 100 and 400 percent of the appli-
cable FPL, (3) advance credit payments
are authorized and paid for one or more
months during the taxable year, and (4)
the taxpayer would be an applicable tax-
payer but for the fact that the taxpayer's
household income for the taxable year is
below 100 percent of the applicable FPL.

An applicable taxpayer is allowed a
premium tax credit for a month only if one
or more members of the applicable tax-
payer's family is enrolled in one or more
qualified health plans through an Ex-
change and is not eligible for minimum
essential coverage in that month. Section
36B(c)(2), § 1.36B-2(a). In general,
government-sponsored programs are min-
imum essential coverage. Section 1.36B-
2(c)(1). Under § 1.36B-2(c)(2)(v), an in-
dividual is treated as not eligible for
Medicaid, the Children's Health Insurance
Program (CHIP), or a similar program for
a period of coverage under a qualified

health plan if, when the individual enrolls
in the qualified health plan, an Exchange
determines or considers (within the mean-
ing of 45 CFR 155.302(b)) the individual
to be ineligible for such program.

In addition, coverage under an eligible
employer-sponsored plan is generally
minimum essential coverage.1 However,
an individual who may (but does not) en-
roll in an employer-sponsored plan is gen-
erally considered eligible for that plan
only if the plan is considered affordable
and provides minimum value. Section
36B(c)(2)(C), § 1.36B-2(c)(3). In addi-
tion, under the employee safe harbor in
§ 1.36B-2(c)(3)(v)(A)(3), an employer-
sponsored plan is not considered afford-
able for a plan year if, when the employee
or a related individual enrolls in a quali-
fied health plan for a period coinciding
with the plan year, an Exchange deter-
mines that the employer-sponsored plan is
not affordable for that plan year.

The existing regulations describing the
employee safe harbor contain an excep-
tion for reckless disregard for the facts.
Under the exception, the safe harbor does
not apply in situations in which an Ex-
change determines that an individual is
not eligible for affordable employer-
sponsored coverage because an individ-
ual, with reckless disregard of the facts,
provides incorrect information to the Ex-
change regarding affordability of the plan.

The proposed regulations add two ad-
ditional intentional or reckless disregard
exceptions to provisions regarding eligi-
bility determinations by the Exchanges.
First, to reduce the likelihood that individ-
uals who recklessly or intentionally pro-
vide inaccurate information to an Ex-
change will benefit from the rule in
§ 1.36B-2(b)(6) (regarding an Exchange
determination that the taxpayer's house-
hold income for the taxable year will be
between 100 and 400 percent of the ap-
plicable FPL), the proposed regulations
provide that a taxpayer whose household
income is below 100 percent of the appli-
cable FPL for the taxpayer's family size
does not receive the benefit of that rule if,
with intentional or reckless disregard for
the facts, the taxpayer provided incorrect

1In general, an eligible employer-sponsored plan is coverage provided by an employer to its employees (and their dependents) under a group health plan maintained by the employer. See
section 5000A(f)(2) and § 1.5000A-2(c). Under section 5000A(f)(3) and § 1.5000A-2(g), minimum essential coverage does not include any coverage that consists solely of excepted benefits
described in section 2791(c)(1), (c)(2), (c)(3), or (c)(4) of the Public Health Service Act (PHS Act) (42 U.S.C. 300gg-91(c)), or regulations issued under those provisions (45 CFR 148.220).
In general, excepted benefits are benefits that are limited in scope or are conditional.

information to an Exchange for the year of
coverage.

Second, the proposed regulations pro-
vide that an individual who was deter-
mined or considered by an Exchange to be
ineligible for Medicaid, CHIP, or a similar
program (such as a Basic Health Program)
does not receive the benefit of the rule in
§ 1.36B-2(c)(2)(v) (regarding an Ex-
change determination that an individual
was not eligible for coverage under Med-
icaid, CHIP, or a similar program) if, with
intentional or reckless disregard for the
facts, the individual (or a person claiming
a personal exemption for the individual)
provided incorrect information to an Ex-
change for the year of coverage.

In each of the three instances in the
existing and proposed section 36B regu-
lations where an intentional or reckless
disregard for the facts exception is pro-
vided, the proposed regulations clarify
that a reckless disregard of the facts oc-
curs if the taxpayer makes little or no
effort to determine whether the informa-
tion provided to the Exchange is accurate
under circumstances that demonstrate a
substantial deviation from the standard of
conduct a reasonable person would ob-
serve. The proposed regulations also pro-
vide that a disregard of the facts is inten-
tional if the taxpayer knows the
information provided to the Exchange is
inaccurate.

Commenters asked that the final regu-
lations clarify how the IRS will determine
whether an individual has acted with reck-
less or intentional disregard of the facts,
and how these standards will be applied
and enforced. Some commenters re-
quested that the final regulations clarify
the definition of "reckless disregard" and
provide examples. Other commenters ex-
pressed concern that the proposed rule
would make taxpayers responsible for in-
formation provided by third parties who
provide assistance with enrollment. Thus,
the commenters recommended that the fi-
nal regulations clarify that an individual is
only responsible for information he or she
provides to the Exchange and is not re-
sponsible for information provided by
third parties. The commenters also sug-
gested that the final regulations provide
that individuals who use an expert to as-
sist with enrolling in coverage should not
be considered to have acted recklessly

when relying on the expert's professional
advice. Other commenters requested that
the final regulations require that individu-
als be notified of the consequences of po-
tential income-based eligibility fraud.

A commenter also stated that, under
the final regulations, the IRS should have
the burden of showing that a taxpayer's
incorrect information was provided to the
Exchange with intentional or reckless dis-
regard for the facts. One commenter sug-
gested that the final regulations clarify
that the reckless or intentional disregard
for the facts exceptions will be applied on
an individual basis. In addition, the com-
menter asked that the final regulations ad-
dress how the intentional or reckless dis-
regard for the facts exception, as it applies
to the employee safe harbor in § 1.36B-
2(c)(3)(v)(A)(3), will be implemented by
the Exchanges.

Finally, one commenter requested that
the final regulations not adopt the inten-
tional or reckless disregard for the facts
exceptions.

After careful consideration of the com-
ments received, the final regulations adopt
the intentional or reckless disregard for
the facts exception, and the definition of
its terms, to the section 36B eligibility
safe harbors for household income below
100 percent of the FPL, government pro-
grams such as Medicaid, and employer-
sponsored coverage. As clarified in the
proposed and final regulations, the inten-
tional or reckless disregard for the facts
exception applies only when the taxpayer
knowingly provides inaccurate informa-
tion to the Exchange or makes little or no
effort to determine whether the informa-
tion provided is accurate under circum-
stances that demonstrate a substantial de-
viation from the standard of conduct of a
reasonable person. The commenters' con-
cerns are further addressed in this preamble.

These final regulations, in adopting the
intentional or reckless disregard for the
facts exceptions set forth in the proposed
regulations without modification, do not
create new or heightened standards or
rules for determining whether a taxpayer
acted with intentional or reckless disre-
gard for the facts. Rather, the phrase "in-
tentional or reckless disregard for the
facts" as used in the section 36B regula-
tions has a similar meaning and applica-
tion currently used in other areas of the

Code. For example, an intentional or reck-
less disregard standard also is applied in
determining eligibility for other tax cred-
its such as the earned income tax credit
and the American opportunity tax credit,
see sections 32(k) and 25A(i)(7)(A).

The IRS is responsible for enforcement
of the intentional or reckless disregard for
the facts exceptions during an examina-
tion of a taxpayer's tax return. Thus, the
IRS must make the initial showing of facts
demonstrating intentional or reckless be-
havior. Exchanges have no role in enforc-
ing or implementing this standard, al-
though other provisions of law provide
Exchanges the authority to impose penal-
ties on individuals who provide incorrect
information to an Exchange.

To provide additional clarity, in gen-
eral, the intentional or reckless disregard
for the facts exception only applies to the
conduct of the individual attesting to the
Exchange. Thus, an individual is only re-
sponsible for the information that he or
she provides to the Exchange and is not
liable for inaccurate information provided
by third parties, such as an employer.

An individual's attestations, however,
may affect the eligibility of all individuals
who are listed on a Marketplace Applica-
tion for Health Coverage and who the
taxpayer intends at the time of enrollment
to claim as a dependent. For example, if a
taxpayer, with intentional or reckless dis-
regard for the facts, provides incorrect
information to an Exchange concerning
his household income and receives ad-
vance credit payments for coverage of
himself and his three dependents, and his
actual household income is below 100%
of the applicable FPL, then the taxpayer is
not an applicable taxpayer and a premium
tax credit is not allowed for his coverage
or the coverage of his three dependents.

Similarly, many individuals solicit and
receive assistance with enrollment and
completing the Marketplace Application
for Health Coverage. To ensure effective
and efficient enrollment through the Ex-
change, the Department of Health and Hu-
man Services uses Navigators, as de-
scribed at 45 CFR 155.210, to assist
potential applicants. In addition, the Mar-
ketplaces administer a program for indi-
viduals and entities to apply for and re-
ceive recognition as a certified application
counselor, as defined in 45 CFR 155.225,

who may formally offer and provide en-
rollment assistance to individuals and
small businesses. Finally, 45 CFR
155.220 provides standards under which
agents and brokers may register and facil-
itate enrollments through the Market-
places. Navigators, certified application
counselors, agents, and brokers (collec-
tively, authorized advisors) receive com-
prehensive training on enrollment and
completion of a Marketplace Application
for Health Coverage, and individuals are
encouraged to use them when making en-
rollment and advance credit payment de-
cisions. Accordingly, for purposes of the
final regulations, an individual does not
act recklessly when following the advice
of an authorized advisor, so long as the
individual provided the authorized advisor
with necessary and accurate information.
Whether reliance on advice provided by a
person other than an authorized advisor is
reckless will depend on all of the relevant
facts and circumstances, including whether
reliance was reasonable and whether the
taxpayer provided necessary and accurate
information to the other person.

To illustrate, assume Individual D is
told by a Navigator that the child support
payments D receives from her former
spouse are included in her household in-
come in determining whether she is eligi-
ble for advance credit payments. Relying
on that information, D reports on a Mar-
ketplace Application for Health Coverage
that her household income for the year of
coverage will be over 100 percent of the
applicable FPL for D's family size, and D
receives the benefit of advance credit pay-
ments for the year. When filing her tax
return for the year of coverage, D learns
that child support payments are not in-
cluded in her household income for the
year of coverage and, thus, her household
income is actually under 100 percent of
the applicable FPL. D is not considered to
have acted with intentional or reckless
disregard for the facts because she relied
on the advice of a Navigator in providing
the information that the Marketplace used
to determine whether she was eligible for
advance credit payments. Thus, the provi-
sion in § 1.36B-2(b)(6) that allows a tax-

payer whose household income is below
100 percent of the applicable FPL to be
treated as an applicable taxpayer will ap-
ply to D despite the fact that her house-
hold income for the taxable year is below
100 percent of the applicable FPL.

In contrast, assume Individual E told
the Navigator assisting with E's Market-
place Application for Health Coverage
that E's lowest-cost option for purchasing
self-only employer-sponsored coverage
that provides minimum value would cost
E $10,000 for the taxable year, when in
fact E knew that he could purchase such
coverage for $5,000. Based on the infor-
mation E provided, the Navigator advises
E that he should indicate on his Market-
place Application for Health Coverage
that his required contribution for employer-
sponsored coverage is $10,000. E follows
this advice and consequently receives the
benefit of advance credit payments for the
year. During a subsequent examination,
the IRS determines that E could have pur-
chased employer-sponsored coverage that
provides minimum value for $5,000. For
the year of coverage, E is not considered
to have reasonably relied on the advice of
a Navigator in providing information to
the Marketplace because E knowingly
provided inaccurate information to the
Navigator. Thus, the employee safe har-
bor in § 1.36B-2(c)(3)(v)(A)(3) does not
apply to E.

b. Nonappropriated Fund Health
Benefits Program of the Department of
Defense

The proposed regulations provide that
the Nonappropriated Fund Health Benefits
Program of the Department of Defense
(the Program) is treated as an eligible
employer-sponsored plan for purposes of
determining if an individual is eligible for
minimum essential coverage under sec-
tion 36B. This treatment conforms the
regulations under section 36B to the reg-
ulations under section 5000A, which treat
the Program as an eligible employer-
sponsored plan. Thus, if coverage under
the Program does not provide minimum
value (under § 1.36B-2(c)(3)(vi)) or is not

considered affordable (under § 1.36B-
2(c)(3)(v)) for an individual who does not
enroll in the coverage, he or she is not
treated as eligible for minimum essential
coverage under the Program for purposes
of premium tax credit eligibility.

One commenter requested that the final
regulations clarify how Marketplaces will
determine and verify whether an offer of
coverage under the Program provides
minimum value and is affordable. In gen-
eral, employers are required to provide
certain information to employees about
the coverage that they offer, including in-
formation that is relevant to affordability
and minimum value. These regulations do
not make any changes to those require-
ments.

########### c. Eligibility for employer-sponsored coverage for months during a plan year

The existing section 36B regulations
provide that an individual is eligible for
minimum essential coverage through an
eligible employer-sponsored plan if the
individual had the opportunity to enroll in
the plan and the plan is affordable and
provides minimum value. Because in
some instances individuals may not be
allowed an annual opportunity to decide
whether to enroll in eligible employer-
sponsored coverage, the proposed regula-
tions provide that if an individual declines
to enroll in employer-sponsored coverage
for a plan year and does not have the
opportunity to enroll in that coverage for
one or more succeeding plan years, for
purposes of section 36B, the individual is
treated as ineligible for that coverage for
the succeeding plan year or years for
which there is no enrollment opportunity.
This rule relating to eligibility for
employer-sponsored coverage is proposed
to apply for taxable years beginning after
December 31, 2016.2

One commenter sought clarification on
how this rule relating to eligibility for
employer-sponsored coverage applies to
employers with fiscal-year employer
plans. The commenter also requests a de-
lay in the effective date to allow addi-
tional time for implementation.

2Note that for purposes of section 4980H, in general, an applicable large employer will not be treated as having made an offer of coverage to a full-time employee for a plan year if the
employee does not have an effective opportunity to elect to enroll in the coverage at least once with respect to the plan year. For this purpose, a plan year must be twelve consecutive months,
unless a short plan year of less than twelve consecutive months is permitted for a valid business purpose. For additional rules on the definition of "offer" and "plan year" under section
4980H, see §§ 54.4980H-1(a)(35), 54.4980H-4(b), and 54.4980H-5(b).

The rule in the proposed regulations re-
lating to eligibility for employer-sponsored
coverage applies to fiscal year plans in the
same manner that it applies to calendar
year plans. For example, assume an em-
ployer offers an employee affordable,
minimum value coverage for a plan year
of April 1, 2017 through March 30, 2018.
In addition, under the terms of the em-
ployer's plan, if the employee declines the
coverage beginning on April 1, 2017, the
employee is precluded from enrolling for
the plan year of April 1, 2018 through
March 30, 2019, absent a special enroll-
ment period. Under the proposed regula-
tions, the employee is treated as eligible
for this employer-sponsored coverage
only for the period between April 1, 2017
and March 31, 2018. Thus, assuming the
employee does not enroll in the employer-
sponsored coverage through a special en-
rollment period, the employee is not con-
sidered eligible for this employer
coverage during the period April 1, 2018
through March 31, 2019.

The final regulations do not adopt the
commenter's suggestion to delay the ap-
plicability date of the provision relating to
eligibility for employer-sponsored cover-
age to a year after 2017. The Treasury
Department and the IRS believe that it
would be unfair to employees and their
family members who do not have an an-
nual opportunity to enroll in coverage of-
fered to them by an employer to delay the
applicability date of this provision. Con-
sequently, the final regulations provide
that this provision is applicable for taxable
years beginning after December 31, 2016.

############ d. Opt-out arrangements and an employee's required contribution

The proposed regulations provide rules
on the effect of payments made available
under opt-out arrangements on an em-
ployee's required contribution for pur-
poses of eligibility for the premium tax
credit and an exemption from the section
5000A individual shared responsibility
provision.3 An opt-out arrangement is an
arrangement under which a payment
(called an opt-out payment) is made avail-

able to an employee by an employer only
if the employee declines coverage under
an eligible employer-sponsored plan
offered by the employer. Prior to the pro-
posed regulations, the Treasury Depart-
ment and the IRS released Notice 2015-
87, 2015-52 I.R.B. 889, which also
addressed the effect of opt-out arrange-
ments on an employee's required contri-
bution.

Several comments on the proposed rule
were received. The Treasury Department
and the IRS continue to examine the is-
sues raised by opt-out arrangements and
expect to finalize regulations on the effect
of opt-out arrangements on an employee's
required contribution at a later time.

As provided in Notice 2015-87, Q&A
9, and reiterated in the proposed rule, the
regulations on opt-out arrangements gen-
erally will apply only for periods after the
applicability of those final regulations.
Until those final regulations are applica-
ble, individuals and employers can con-
tinue to rely on the guidance provided in
Notice 2015-87 and on the proposed rule,
including transition relief as clarified and
expanded in section 2.f of the preamble to
the proposed rule (for opt-out arrange-
ments contained in collective bargaining
agreements in effect before December 16,
2015). See 81 FR 44,561.

Accordingly, until the applicability
date of final regulations on opt-out ar-
rangements, individuals may treat opt-out
payments made available under uncondi-
tional opt-out arrangements (as defined in
the Background section of the preamble to
the proposed regulations (see 81 FR
44,560)) as increasing the employee's re-
quired contribution for purposes of sec-
tions 36B and 5000A. In addition, for the
same period, an individual who can dem-
onstrate that he or she meets the condi-
tion(s) (in addition to declining the em-
ployer's health coverage) that must be
satisfied to receive an opt-out payment
under a conditional opt-out arrangement
(as defined in the Background section of
the preamble to the proposed regulations
(see 81 FR 44,560)), may treat the amount
of the conditional opt-out payment as in-
creasing the employee's required contri-

bution for purposes of sections 36B and
5000A.

In contrast, until the applicability date
of final regulations on opt-out arrange-
ments, employers are not required to in-
crease an employee's required contribu-
tion by the amount of an opt-out payment
made available under an opt-out arrange-
ment (other than a payment made avail-
able under a non-relief-eligible opt-out ar-
rangement4) for purposes of section 6056
(Form 1095-C, Employer-Provided Health
Insurance Offer and Coverage), and an opt-
out payment made available under an opt-
out arrangement (other than a payment
made available under a non-relief-eligible
opt-out arrangement) will not be treated as
increasing an employee's required contri-
bution for purposes of any potential con-
sequences under section 4980H.

e. Effective date of eligibility for
minimum essential coverage when
advance credit payments discontinuance
is delayed

The proposed regulations provide that
if an individual who is enrolled in a qual-
ified health plan for which advance credit
payments are made informs the Exchange
that the individual is or will soon be eli-
gible for other minimum essential cover-
age and that advance credit payments
should be discontinued, but the Exchange
does not discontinue advance credit pay-
ments for the first calendar month begin-
ning after the month the individual noti-
fies the Exchange, the individual is treated
as eligible for the other minimum essen-
tial coverage no earlier than the first day
of the second calendar month beginning
after the first month the individual may
enroll in the other minimum essential cov-
erage. Similarly, if a determination is
made that an individual is eligible for
Medicaid or CHIP but advance credit pay-
ments are not discontinued for the first
calendar month beginning after the eligi-
bility determination, the individual is
treated as eligible for Medicaid or CHIP
no earlier than the first day of the second
calendar month beginning after the deter-
mination.

3The amount of an employee's required contribution has consequences under section 4980H and the related reporting requirements under section 6056. For more information, see Notice
2015-87, Q&A 7-9 and section 2.f of the preamble to the proposed rule (see 81 FR 44,561).

4For a discussion of non-relief-eligible opt-out arrangements, see Notice 2015-87, Q&A 9 and section 2.f of the preamble of the proposed rule. See 81 FR 44,561.

Commenters noted that the proposed
regulations do not address how the IRS
will identify and verify scenarios in which
an individual requested prospective dis-
continuation of advance credit payments
but there was a delay in the discontinua-
tion. The commenters also pointed out
that consumers may request an acceler-
ated termination if the Exchange and
health plan issuer allow it and the pro-
posed regulations do not address how
these scenarios will be handled. Conse-
quently, the commenters requested that
the IRS issue clear instructions and guid-
ance for taxpayers and tax preparers for
situations in which there is a delay discon-
tinuing or terminating advance credit pay-
ments to ensure that taxpayers will not be
subject to penalties or repayment of ad-
vance credit payments for which they are
not responsible.

The Instructions to Form 8962, Pre-
mium Tax Credit (PTC), and Publication
974, Premium Tax Credit, will include a
discussion of this rule concerning eligibil-
ity for certain non-Marketplace minimum
essential coverage when the discontinu-
ance of advance credit payments is de-
layed. Furthermore, the IRS intends to, in
Questions and Answers on www.irs.gov,
address situations in which there is a delay
in the discontinuance of advance credit
payments and the taxpayer is allowed a
premium tax credit for a month for which
the taxpayer receives a Form 1095-B or
Form 1095-C showing that the taxpayer
was enrolled in non-Marketplace mini-
mum essential coverage.

Commenters requested that the final
regulations acknowledge that this rule
concerning eligibility for non-Marketplace
minimum essential coverage when there has
been a delay in the discontinuance of ad-
vance credit payments does not change the
obligations of health plan issuers for prior
years, notwithstanding that the rule in the
proposed regulations may be relied on by
taxpayers for taxable years beginning after
December 31, 2013. Although the obliga-
tions of health plan issuers are generally
outside the scope of these regulations, it is
the understanding of the Treasury Depart-
ment and the IRS, in consultation with the
Department of Health and Human Services
(HHS), that this rule regarding when an
individual is eligible for certain non-
Marketplace coverage does not affect the

obligations of health plan issuers or the
deadlines imposed by or on those issuers.

One commenter requested that the rule
extend to other situations, such as when an
individual receiving the benefit of ad-
vance credit payments is incarcerated af-
ter disposition of charges. Under section
1312(f)(1)(B) of the Affordable Care Act
(42 U.S.C. 18032(f)(1)(B)), incarcerated
individuals may not be enrolled through a
Marketplace. However, unlike an individ-
ual enrolled in minimum essential cover-
age outside of the Marketplace, if there is
a delay in disenrolling the incarcerated
individual and discontinuing the advance
credit payments, neither section 36B nor
its regulations prohibit a taxpayer from
claiming a premium tax credit for an in-
carcerated individual's Marketplace cov-
erage. Thus, the final regulations do not
adopt this comment.

The same commenter also requested a
change in the rule concerning delays in
discontinuance of advance credit pay-
ments after a Medicaid or CHIP determi-
nation. Under the proposed regulations, if
there is a delay in discontinuance of ad-
vance credit payments following a Med-
icaid or CHIP eligibility determination,
the individual is treated as eligible for
Medicaid or CHIP no earlier than the first
day of the second calendar month begin-
ning after the determination. The com-
menter stated that, under the final regula-
tions, an individual should be treated as
eligible for Medicaid or CHIP no earlier
than the first day of the second calendar
month beginning after the eligibility de-
termination is communicated to the Ex-
change.

The final regulations do not adopt this
comment. The commenter is likely con-
cerned about a situation in which the of-
fice that made a Medicaid or CHIP deter-
mination for an individual does not
promptly notify the Marketplace of that
status and the individual remains enrolled
in Marketplace coverage with advance
credit payments for multiple months.
However, individuals enrolled in Market-
place coverage with advance credit pay-
ments who are determined eligible for
Medicaid or CHIP should also promptly
notify their Marketplace to discontinue
the advance credit payments. Amending
the rule to delay eligibility until the sec-
ond month after the determination is com-

municated to the Marketplace effectively
allows individuals who fail to promptly
communicate with their Marketplaces to
be dual enrolled for multiple months with
advance credit payments.

######### 2. Premium Assistance Amount

a. Payment of taxpayer's share of
premiums for advance credit payments
following appeal determinations

Under existing § 1.36B-3(c)(1)(ii), a
month is a coverage month for an individ-
ual only if the share of the premium for
the individual's coverage for the month
not covered by advance credit payments is
paid by the unextended due date of the
income tax return for the year of coverage
of the taxpayer claiming a personal ex-
emption for the individual.

As discussed in the preamble to the
proposed regulations, instances arise in
which an individual is initially determined
ineligible for advance credit payments,
does not enroll in a qualified health plan
pending the individual's appeal of the de-
termination, and is later determined to be
eligible for advance credit payments
through the appeals process. If the indi-
vidual then elects to be retroactively en-
rolled in an Exchange health plan, the
deadline for paying premiums for the ret-
roactive coverage may be after the unex-
tended due date for filing an income tax
return for the year of coverage. To address
this issue, the proposed regulations pro-
vide that a taxpayer who is eligible for
advance credit payments pursuant to an
eligibility appeal for a member of the tax-
payer's coverage family who, based on
the appeals decision, retroactively enrolls
in a qualified health plan, is considered to
have met the requirement in § 1.36B-
3(c)(1)(ii) for a month if the taxpayer pays
the individual's share of the premium for
coverage under the plan for the month on
or before the 120th day following the date
of the appeals decision (the appeal pre-
mium payment period).

A commenter opined that to ensure ac-
curate and consistent identification and re-
porting of payment deadlines, the trigger-
ing event that begins the appeal premium
payment period under the section 36B
regulations should align with the trigger-
ing event provided in 45 CFR 155.400

(e)(1)(iii), which provides as follows:
"For coverage to be effectuated under ret-
roactive effective dates, ... the deadline
for making the binder payment must be no
earlier than 30 calendar days from the date
the issuer receives the enrollment transac-
tion." The commenter notes that the date
the appeal premium payment period be-
gins under the proposed regulations (the
date of the appeals decision) is different
from the date the period begins under 45
CFR 155.400(e)(1)(iii) (the date the issuer
receives the enrollment transaction) and
suggests that the final regulations conform
to the language in 45 CFR 155.400(e)(1)(iii)
because qualified health plan issuers would
not know the date of the appeals decision
and would not know whether the premium
payment was made within 120 days of the
appeals decision. The commenter also
opined that the 120-day period in the pro-
posed regulations may be too long for
some retroactive enrollment scenarios,
such as a situation in which an individual
is enrolled in retroactive coverage for only
a few months. The commenter also sug-
gested that the appeal premium payment
rule in the section 36B regulations should
apply only in situations in which the ap-
peal decision is after the individual's un-
extended due date for filing an income tax
return for the year of coverage.

The final regulations do not adopt the
suggested changes. The purpose of the ap-
peal premium payment period in the section
36B regulations is to ensure that taxpayers
who pay their premiums within a reason-
able time following a favorable appeal
decision may qualify for a premium tax
credit. On the other hand, the payment
date rule in 45 CFR 155.400(e)(1)(iii) re-
lates to when the payment must be made
to effectuate the retroactive coverage.
Qualified health plan issuers need to know
the date they received the enrollment
transaction and thus whether the premium
payments were timely made to effectuate
the retroactive coverage, but have no need
to know whether the payments were made
within 120 days of the appeal decision. In
addition, the 120-day period is needed to
provide equitable treatment, whether the
appeal decision is before or after the un-
extended due date for filing an income tax
return for the year of coverage. It would
be inequitable to allow a taxpayer who
gets a favorable appeal decision five days

after the unextended due date of his or her
tax return the benefit of the 120-day ap-
peal premium payment period but not ex-
tend the same benefit to a taxpayer who
gets an appeal decision five days before
the unextended due date.

######### 3. Benchmark Plan Premium

######### a. Pediatric dental benefits

Under the existing section 36B regula-
tions, if a member of a taxpayer's cover-
age family is enrolled in a stand-alone
dental plan, the portion of the monthly
premium for the stand-alone dental plan
allocable to pediatric dental benefits is
added to the taxpayer's monthly enroll-
ment premium in determining the taxpay-
er's premium assistance amount for the
month. Under the existing regulations,
however, the portion of the monthly pre-
mium for a stand-alone dental plan allo-
cable to pediatric dental benefits does not
affect the taxpayer's applicable bench-
mark plan premium.

Because the existing regulations frus-
trate the goal of section 36B of making
coverage for essential health benefits af-
fordable to individuals eligible for the pre-
mium tax credit, the proposed regulations
provide that, if an Exchange offers one or
more silver-level qualified health plans
that do not include pediatric dental bene-
fits, the applicable benchmark plan is de-
termined by ranking (1) the premiums for
the silver-level qualified health plans that
include pediatric dental benefits offered
by the Exchange and (2) the aggregate of
the premiums for the silver-level qualified
health plans offered by the Exchange that
do not include pediatric dental benefits
plus the portion of the premium allocable
to pediatric dental benefits for stand-alone
dental plans offered by the Exchange. In
constructing this ranking, the proposed
regulations provide that the premium for
the lowest-cost silver plan that does not
include pediatric dental benefits is added
to the lowest cost portion of the premium
for a stand-alone dental plan that is allo-
cable to pediatric dental benefits, and sim-
ilarly, the premium for the second lowest-
cost silver plan that does not include
pediatric dental benefits is added to the
second-lowest cost portion of the pre-
mium for a stand-alone dental plan that is

allocable to pediatric dental benefits. The
second lowest-cost amount from this com-
bined ranking of premiums is the taxpay-
er's applicable benchmark plan premium.
Finally, the proposed regulations provide
that the rule for determining the applica-
ble benchmark plan for situations in
which an Exchange offers one or more
silver-level qualified health plans that do
not cover pediatric dental benefits (the
pediatric dental rule) is applicable for tax-
able years beginning after December 31,
2018.

One commenter noted that the effect of
the rule in the proposed regulations relat-
ing to pediatric dental benefits is that
some taxpayers will have a lower monthly
premium assistance amount as compared
to their monthly premium assistance
amount under the existing section 36B
regulations. In particular, the commenter
pointed to Example 4 of § 1.36B-3(f)(9)
of the proposed regulations in which the
taxpayer's benchmark plan premium is
lower under the rules of the proposed reg-
ulations than under the existing section
36B regulations. Under this example, the
applicable benchmark plan premium
would be based on the lowest-cost rather
than the second-lowest-cost silver-level
qualified health plan. The commenter sug-
gested that this is likely not a result in-
tended by the Treasury Department and
the IRS and recommended that the final
regulations include a revision to the lan-
guage of the proposed regulations to fix
this unintended result.

The final regulations adopt the recom-
mendation in this comment. Under the
final regulations, if one or more silver-
level qualified health plans offered
through an Exchange do not cover pedi-
atric dental benefits, the premium for the
applicable benchmark plan is determined
based on the second lowest-cost option
among (i) the silver-level qualified health
plans that are offered by the Exchange to
the members of the coverage family and
that provide pediatric dental benefits; and
(ii) the silver-level qualified health plans
that are offered by the Exchange to the
members of the coverage family that do
not provide pediatric dental benefits in
conjunction with the second lowest-cost
portion of the premium for a stand-alone
dental plan (within the meaning of section
1311(d)(2)(B)(ii) of the Affordable Care

Act (42 U.S.C. 18031(d)(2)(B)(ii))) of-
fered by the Exchange to the members of
the coverage family that is properly allo-
cable to pediatric dental benefits. Thus,
under the final regulations, if a taxpayer's
coverage family is able to enroll in one or
more silver-level qualified health plans
that do not provide pediatric dental bene-
fits, the second lowest-cost portion of the
premium for a stand-alone dental plan of-
fered by the Exchange to the members of
the coverage family that is properly allo-
cable to pediatric dental benefits is added
to the premium for each of those silver-
level plans in determining the taxpayer's
applicable benchmark plan.

One commenter requested clarification
on how to determine the portion of the
premium of a stand-alone dental plan
properly allocable to the cost of pediatric
dental benefits. According to the com-
menter, the portion of a plan's premium
that is allocable to each essential health
benefit (EHB) is determined by using an
EHB factor (a multiplier that applies to
the plan and represents the portion of the
total benefit package that represents the
EHB), and the EHB factor does not
change based on who is purchasing the
plan and what benefits they are eligible to
use. The commenter asks for clarification
on if, and how, an EHB factor is to be
applied to a stand-alone dental plan and
whether a stand-alone dental plan should
have a different EHB factor apply based
on whether children, or only adults, are
enrolled in the plan.

The determination of the portion of the
premium of a stand-alone dental plan
properly allocable to pediatric dental ben-
efits is outside the scope of these regula-
tions. However, HHS has confirmed that,
under its guidance, if no members of a
taxpayer's coverage family are eligible for
pediatric dental benefits, the portion of the
premium allocable to pediatric dental ben-
efits for all stand-alone dental plans the
family may enroll in is $0.

Another commenter stated that the pe-
diatric dental rule in the proposed regula-
tions is inconsistent with the provisions of
section 36B. Specifically, the commenter
contends that the clear meaning of section
36B(b)(3)(E) is that the portion of a stand-
alone pediatric dental plan premium allo-
cable to pediatric dental benefits is added
only to the enrollment premium, not the

benchmark plan premium, in computing
the premium tax credit, and is added only
for taxpayers who have a family member
who enrolls in a stand-alone dental plan.
In addition, the commenter opines that
the pediatric dental rule in the proposed
regulations is overly complex and pro-
vides minimal benefit to a small group
of taxpayers.

The Treasury Department and the IRS
disagree that the pediatric dental rule is
inconsistent with the provisions of section
36B. Although, as noted by the com-
menter, section 36B(b)(3)(E) relates only
to the portion of a stand-alone dental plan
premium that is added to a taxpayer's
enrollment premium, the proposed regula-
tions do not rely upon an interpretation of
section 36B(b)(3)(E). Rather, as discussed
in the preamble of the proposed regula-
tions, the pediatric dental rule is based on
statutory references to "self-only cover-
age" and "family coverage" in section
36B(b)(3)(B)(ii), and is consistent with
the overall goal of section 36B, which is
to make affordable the coverage of each
of the essential health benefits described
in section 1302(b) of the Affordable Care
Act for individuals eligible for a premium
tax credit. As discussed, that coverage
may be obtained from either a qualified
health plan covering all of the essential
health benefits or one covering all benefits
except pediatric dental in combination
with a stand-alone dental plan. Finally,
although the pediatric dental rule does add
some complexity to the determination of a
taxpayer's applicable benchmark plan, the
rule will, in general, not result in more
complexity to taxpayers because they gen-
erally use the benchmark plan premium
amount reported to them by Exchanges to
compute their premium tax credit. In ad-
dition, the pediatric dental rule in the final
regulations, which, for stand-alone dental
plans, considers just the second lowest-
cost portion of the premium properly al-
locable to pediatric dental benefits in the
determination of a taxpayer's applicable
benchmark plan, is less complex than the
rule in the proposed regulations, which
requires consideration of both the lowest-
cost and the second lowest-cost portion.

Other commenters supported the pedi-
atric dental rule and asked that taxpayers
be allowed to compute their applicable
benchmark plan using the pediatric dental

rule in the proposed regulations for tax-
able years beginning before January 1,
2019. However, taxpayers must know
their benchmark plan premium amount to
properly compute their premium tax credit
and, consequently, Exchanges must pro-
vide this information to taxpayers. Be-
cause this pediatric dental rule involves a
change in the manner in which a taxpay-
er's applicable benchmark plan is deter-
mined, Exchanges need time to imple-
ment the new rule and have indicated that
they are likely unable to do so for taxable
years beginning before January 1, 2019.
Consequently, the final regulations do not
adopt this comment.

######### b. Members of coverage family residing in different states

Under existing § 1.36B-3(f)(4), if
members of a taxpayer's family reside in
different states and enroll in separate qual-
ified health plans, the premium for the
taxpayer's applicable benchmark plan is
the sum of the premiums for the applica-
ble benchmark plans for each group of
family members living in the same state.
Because this rule may not accurately re-
flect the cost of available coverage for a
taxpayer whose family members reside in
different locations in the same state, the
proposed regulations provide that if mem-
bers of a taxpayer's coverage family re-
side in different locations, whether within
the same state or in different states, the
taxpayer's benchmark plan premium is
the sum of the premiums for the applica-
ble benchmark plans for each group of
coverage family members residing in dif-
ferent locations, based on the plans of-
fered to the group through the Exchange
for the rating area where the group re-
sides. The proposed regulations provide
that the rules for calculating the premium
tax credit operate the same for families
residing in multiple locations within a
state and families residing in multiple
states.

One commenter expressed concern that
the rule in the proposed regulations con-
cerning the benchmark plan premium for
members of the coverage family residing
in different locations could result in un-
equal treatment of separate families, par-
ticularly in Marketplaces in which there
are many rating areas within a relatively

small geographic area and numerous plans
are available for enrollment in many or all
rating areas. Thus, the commenter asked
that Marketplaces be allowed to use their
own benchmark plan rating methodology
rather than the rule in the proposed regu-
lations for members of the coverage fam-
ily who reside in different locations within
a state.

The final regulations do not adopt this
comment. The amount of a taxpayer's pre-
mium tax credit depends on the taxpayer's
applicable benchmark plan and the pre-
mium for that plan. Allowing Exchanges
to use different methodologies to deter-
mine the benchmark plan premium could
result in inequitable treatment of taxpay-
ers in different locations. One Exchange's
methodology would undoubtedly provide
a more generous benchmark plan pre-
mium for taxpayers who enroll in a
qualified health plan through that Ex-
change as compared to taxpayers who
enroll through another Exchange using a
different methodology.

Another commenter asked that the final
regulations clarify how the rule relating to
family members residing in different lo-
cations works for farm workers who fre-
quently migrate to find agricultural work,
especially those who stay enrolled in the
same plan despite the relocations. The rule
concerning family members residing in
different locations has no unique effect for
individuals who frequently move to new
locations and thus the final regulations
include no new rules addressing this situ-
ation. HHS regulations at 45 CFR
155.335(e) require individuals who move
to a new rating area to inform the Ex-
change in the new rating area of their
move. The move may require a recompu-
tation of the individual's advance credit
payments, or perhaps necessitate the indi-
vidual to enroll in a new qualified health
plan, both of which are determined by the
Exchange in the new rating area.

######### c. Aggregation of silver-level policies

Existing § 1.36B-3(f)(3) provides that
if one or more silver-level plans offered
through an Exchange do not cover all
members of a taxpayer's coverage family
under one policy (for example, because an
issuer will not cover a taxpayer's depen-
dent parent on the same policy the tax-

payer enrolls in), the premium for the
applicable benchmark plan may be the
premium for a single policy or for more
than one policy, whichever is the second
lowest-cost silver option. Because this
rule is complex for taxpayers and difficult
for Exchanges and the IRS to administer,
the proposed regulations delete the exist-
ing rule and provide a new rule in its
place. Under the proposed regulations, if a
silver-level plan offers coverage to all
members of a taxpayer's coverage family
who reside in the same location under a
single policy, the plan premium taken into
account for purposes of determining the
applicable benchmark plan is the premium
for that policy. However, if a silver-level
plan would require multiple policies to
cover all members of a taxpayer's cover-
age family who reside in the same loca-
tion, the plan premium taken into ac-
count for purposes of determining the
applicable benchmark plan is the sum of
the premiums for self-only policies un-
der the plan for each member of the
coverage family who resides in the same
location. The proposed regulations also
requested comments on an alternative
rule under which the sum of the premi-
ums for self-only policies under a plan
for each member of the taxpayer's cov-
erage family would always be used to
determine a taxpayer's applicable bench-
mark plan.

One commenter asked that the final
regulations adopt the alternative rule dis-
cussed in the preamble to the proposed
regulations concerning the determination
of a taxpayer's applicable benchmark
plan, not the rules in the proposed regula-
tions, which vary based on whether a sin-
gle policy or multiple policies are needed
to cover a taxpayer's family. The com-
menter opined that this alternative rule has
the potential to streamline the applicable
benchmark plan calculation with minimal
impact to the amount of premium tax
credit a taxpayer is allowed.

The final regulations do not adopt this
comment. Under HHS regulations, the
qualified health plan premium for a tax-
payer with three dependents is not in-
creased by adding one or more additional
dependents to the taxpayer's family. 45
CFR 147.102(c)(1). That is, the portion of
the premium due to the taxpayer's depen-
dents is capped at three dependents and

does not increase as a result of adding
more dependents to the family. However,
if the alternative rule suggested by the
commenter is adopted, a taxpayer with
four or more dependents would have a
higher benchmark plan premium than a
similarly-situated taxpayer with three de-
pendents even though the additional de-
pendents do not add to the cost of the
coverage for the taxpayer with four or
more dependents. Thus, aggregating the
sum of the self-only policies under a plan
for each member of a taxpayer's coverage
family may provide an undue benefit to
taxpayers with four or more dependents.
Accordingly, this approach should be lim-
ited to situations in which a silver-level
plan requires multiple policies to cover all
members of a taxpayer's coverage family
who reside in the same location.

########## d. Effective/applicability dates

Under the proposed regulations, the
changes to the rules concerning the deter-
mination of a taxpayer's applicable
benchmark plan are proposed to be appli-
cable for tax years beginning after De-
cember 31, 2018. Commenters noted that
State-based Marketplaces often have very
different eligibility and enrollment sys-
tems from the Federally-Facilitated Mar-
ketplace and from each other, and the
changes to the applicable benchmark plan
rules will require significant changes to
their systems and long timelines for im-
plementation. Consequently, the com-
menters asked that the Treasury Depart-
ment and the IRS provide flexibility to
State-based Marketplaces and provide
ample time between the effective date of
the final regulations and the date the states
must implement the benchmark plan
changes.

The final regulations do not alter the
applicability date for the rule for comput-
ing the benchmark plan. Doing so would
permit inequitable treatment of taxpayers
in different locations and potentially have
an adverse impact on certain taxpayers.
Thus, the final regulations provide that the
changes to the benchmark plan rules are
applicable for taxable years beginning af-
ter December 31, 2018.

########### 4. Information Reporting

The proposed regulations provide that
when multiple families enroll in a single
qualified health plan and advance credit
payments are made for the coverage, the
enrollment premiums reported by the Ex-
change for each family are the family's
allocable share of the enrollment premi-
ums, which is based on the proportion of
each family's applicable benchmark plan
premium. One commenter requested clar-
ification that this reporting rule applies
only in situations in which a taxpayer re-
quests financial assistance through ad-
vance credit payments or cost-sharing re-
ductions, or is seeking to enroll in
Medicaid. The final regulations, like the
proposed regulations, provide that the Ex-
change must report a portion of the plan's
enrollment premium to each enrolled fam-
ily if multiple families enroll in a single
qualified health plan and advance credit
payments are made for coverage under the
plan. The portion reported is based on the
proportion of each family's applicable
benchmark plan premium.

The proposed regulations also provide
that, if an individual's coverage in a qual-
ified health plan is terminated before the
last day of a month, or if an individual is
enrolled in coverage after the first day of a
month and the coverage is effective on the
date of the individual's birth, adoption, or
placement for adoption or in foster care,
or on the effective date of a court order, an
Exchange must report the enrollment pre-
miums for the month (excluding the pre-
mium allocated to benefits in excess of
essential health benefits), reduced by any
amount that was refunded because the en-
rollment was for less than a full month.
This reporting requirement was proposed
to apply for taxable years beginning after
December 31, 2016.

One commenter expressed concern
with the rule requiring that Exchanges re-
duce the reported enrollment premium by
any amounts of the enrollment premiums
that are refunded by the issuer of the qual-
ified health plan. The commenter stated
that this requirement is not something that
currently is captured by its reporting sys-
tem, and updating the system would re-
quire an effort that would be out of scale
with the small size of the population en-
rolled for less than a full month. The com-

menter suggests that refund information
could be obtained when a taxpayer com-
putes his or her premium tax credit on the
taxpayer's Federal income tax return. Al-
ternatively, the commenter requested that
this requirement become effective for a
taxable year later than 2017. To provide
enrollment systems additional time to im-
plement the updates and system modifica-
tions necessary to accurately report re-
funds for partial months of coverage, the
final regulations delay the applicability
date for this rule by two years, so that it
applies for taxable years beginning after
December 31, 2018. Exchanges able to
comply with the reporting rule before that
date are encouraged to do so.

######## Effective/Applicability Date

Except as otherwise provided, these fi-
nal regulations apply for taxable years be-
ginning after December 31, 2016. The
rules relating to the benchmark plan pre-
mium described in section 3 of this pre-
amble and the rules relating to reporting
by the Exchanges described in section 4 of
this preamble apply for taxable years be-
ginning after December 31, 2018. As dis-
cussed in the Effective/Applicability Date
section of the preamble to the proposed
regulations, taxpayers may rely on certain
provisions of the proposed regulations for
taxable years ending after December 31,
2013.

See section 1.d of this preamble for a
discussion of the effective date/applicabil-
ity date for proposed regulations regard-
ing opt-out arrangements.

######## Special Analyses

It is hereby certified that these regula-
tions will not have a significant economic
impact on a substantial number of small
entities. This certification is based on the
fact that the information collection re-
quired under these regulations is imposed
under section 36B. Consistent with the
statute, these regulations require Ex-
changes to report certain coverage infor-
mation to the IRS and to furnish a state-

ment to the responsible individual who
enrolled an individual or family in the
coverage. These regulations merely pro-
vide the method for reporting the informa-
tion and furnishing the statements re-
quired under section 36B. Moreover, the
regulations attempt to minimize the bur-
den associated with this collection of in-
formation by limiting reporting to the in-
formation that the IRS requires to
administer the premium tax credit.

Based on these facts, a Regulatory
Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not
required.

Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
that preceded this regulation was submit-
ted to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small business.
No comments were received.

######## Drafting Information

The principal authors of these pro-
posed regulations are Lisa Mojiri-Azad,
Shareen S. Pflanz, and Stephen J. Toomey
of the Office of Associate Chief Counsel
(Income Tax and Accounting). However,
other personnel from the IRS and the
Treasury Department participated in the
development of the regulations.

* * * * *

######### 26 CFR Part 301

Employment taxes, Estate taxes, Ex-
cise taxes, Gift taxes, Income taxes, Pen-
alties, Reporting and recordkeeping re-
quirements.

########## Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301
are amended as follows:

PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 ***

Par. 2. Section 1.36B-0 is amended
by:

1\. Adding the entries for § 1.36B-
2(b)(6)(i) and (ii).

2\. Redesignating entry for § 1.36B-
2(c)(4) as (c)(5) and adding new entries

for § 1.36B-2(c)(3)(v)(A)(7), (c)(4),
(c)(4)(i), (c)(4)(ii), (c)(4)(ii)(A), (c)(4)
(ii)(B), (c)(5), (d), and (e).

3\. Redesignating entry for § 1.36B-
3(c)(4) as (c)(5) and adding a new entry
for § 1.36B-3(c)(4).

4\. Revising entries for § 1.36B-3(d)(1)
and (2).

5\. Revising entries for § 1.36B-3(f)(3),
(4), and (5).

6\. Adding entries for § 1.36B-
3(f)(5)(i) and (ii).

7\. Revising entries for § 1.36B-3(f)(6)
and (7).

8\. Adding entries for § 1.36B-3(f)(8),
(f)(9), (m), and (n).

9\. Adding entries for § 1.36B-
5(c)(3)(iii), (c)(3)(iii)(A), and (c)(3)
(iii)(B).

The revisions and additions read as fol-
lows:

§ 1.36B-0 Table of contents.

* * * * *

§ 1.36B-2 Eligibility for premium tax
credit.

* * * * *

(b) * * *

(6) * * *

(i) In general.

(ii) Exceptions.

* * * * *

(3) * * *

(v) * * *

(A) * * *

(7) Opt-out arrangements.

* * * * *

(4) Special eligibility rules.

(i) Related individual not claimed as a
personal exemption deduction.

(ii) Exchange unable to discontinue ad-
vance credit payments.

(A) In general.

(B) Medicaid or CHIP.

(5) Related individuals not claimed as a
personal exemption deduction.

(d) [Reserved]

(e) Effective/applicability dates.

* * * * *

§ 1.36B-3 Computing the premium
assistance credit amount.

* * * * *

(4) Appeals of coverage eligibility.

(d) * * *

(1) Premium assistance amount.

(2) Examples.

* * * * *

(f) * * *

(3) Silver-level plan not covering pediat-
ric dental benefits.

(4) Family members residing in different
locations.

(5) Single or multiple policies needed to
cover the family.

(i) Policy covering a taxpayer's family.

(ii) Policy not covering a taxpayer's fam-
ily.

(6) Plan not available for enrollment.

(7) Benchmark plan terminates or closes
to enrollment during the year.

(8) Only one silver-level plan offered to
the coverage family.

(9) Examples.

* * * * *

(m) [Reserved]

(n) Effective/applicability date.

########### § 1.36B-5 Information reporting by Exchanges.

* * * * *

(3) * * *

(iii) Partial month of coverage.

(A) In general.

(B) Certain mid-month enrollments.

* * * * *

Par. 3. Section 1.36B-1 is amended by
revising paragraphs (l), (m), and (o) to
read as follows:

########### § 1.36B-1 Premium tax credit definitions.

* * * * *

(l) Self-only coverage. Self-only cover-
age means health insurance that covers
one individual and provides coverage for
the essential health benefits as defined in
section 1302(b)(1) of the Affordable Care
Act (42 U.S.C. 18022).

(m) Family coverage. Family coverage
means health insurance that covers more
than one individual and provides coverage
for the essential health benefits as defined

in section 1302(b)(1) of the Affordable
Care Act (42 U.S.C. 18022).

* * * * *

(o) Effective/applicability date. Except
for paragraphs (l) and (m), this section
applies to taxable years ending after De-
cember 31, 2013. Paragraphs (l) and (m)
of this section apply to taxable years be-
ginning after December 31, 2018. Para-
graphs (1) and (m) of § 1.36B-1 as con-
tained in 26 CFR part I edition revised as
of April 1, 2016, apply to taxable years
ending after December 31, 2013, and be-
ginning before January 1, 2019.

Par. 4. Section 1.36B-2 is amended by:

1\. Revising paragraph (b)(6) introduc-
tory text and paragraphs (b)(6)(i) and (ii).

2\. Adding three sentences to the end of
paragraph (c)(2)(v).

3\. Revising paragraph (c)(3)(i).

4\. Revising paragraph (c)(3)(iii)(A).

5\. Removing the sentence at the end of
the paragraph (c)(3)(v)(A)(3) and adding
in its place three new sentences.

6\. Adding paragraph (c)(3)(v)(A)(7).

7\. Revising paragraph (c)(4).

8\. Removing and reserving paragraph

(d).
9. Adding paragraph (e).

The revisions and additions read as fol-
lows:

########### § 1.36B-2 Eligibility for premium tax credit.

* * * * *

(b) * * *

(6) Special rule for taxpayers with
household income below 100 percent of
the Federal poverty line for the taxable
year-(i) In general. A taxpayer (other
than a taxpayer described in paragraph
(b)(5) of this section) whose household
income for a taxable year is less than 100
percent of the Federal poverty line for the
taxpayer's family size is treated as an ap-
plicable taxpayer for the taxable year if-

(A) The taxpayer or a family member
enrolls in a qualified health plan through
an Exchange for one or more months dur-
ing the taxable year;

(B) An Exchange estimates at the time
of enrollment that the taxpayer's house-
hold income will be at least 100 percent
but not more than 400 percent of the Fed-
eral poverty line for the taxable year;

(D) The taxpayer would be an applica-
ble taxpayer if the taxpayer's household
income for the taxable year was at least
100 but not more than 400 percent of the
Federal poverty line for the taxpayer's
family size.

(ii) Exceptions. This paragraph (b)(6)
does not apply for an individual who, with
intentional or reckless disregard for the
facts, provides incorrect information to an
Exchange for the year of coverage. A
reckless disregard of the facts occurs if the
taxpayer makes little or no effort to deter-
mine whether the information provided to
the Exchange is accurate under circum-
stances that demonstrate a substantial de-
viation from the standard of conduct a
reasonable person would observe. A dis-
regard of the facts is intentional if the
taxpayer knows the information provided
to the Exchange is inaccurate.

* * * * *

(2) * * *

(v) * * * This paragraph (c)(2)(v) does
not apply for an individual who, with in-
tentional or reckless disregard for the
facts, provides incorrect information to an
Exchange for the year of coverage. A
reckless disregard of the facts occurs if the
taxpayer makes little or no effort to deter-
mine whether the information provided to
the Exchange is accurate under circum-
stances that demonstrate a substantial de-
viation from the standard of conduct a
reasonable person would observe. A dis-
regard of the facts is intentional if the
taxpayer knows that information provided
to the Exchange is inaccurate.

* * * * *

(3) * * *

(i) In general. For purposes of section
36B, an employee who may enroll in an
eligible employer-sponsored plan (as de-
fined in section 5000A(f)(2) and the reg-
ulations under that section) that is mini-
mum essential coverage, and an individual
who may enroll in the plan because of a
relationship to the employee (a related
individual), are eligible for minimum es-
sential coverage under the plan for any
month only if the plan is affordable and
provides minimum value. Except for the
Nonappropriated Fund Health Benefits

Program of the Department of Defense,
established under section 349 of the Na-
tional Defense Authorization Act for Fis-
cal Year 1995 (Public Law 103-337; 10
U.S.C. 1587 note), government-sponsored
minimum essential coverage is not an
eligible employer-sponsored plan. The
Nonappropriated Fund Health Benefits
Program of the Department of Defense is
considered eligible employer-sponsored
coverage, but not government-sponsored
coverage, for purposes of determining if
an individual is eligible for minimum es-
sential coverage under this section.

* * * * *

(iii) * * *

(A) Failure to enroll in plan. An em-
ployee or related individual may be eligi-
ble for minimum essential coverage under
an eligible employer-sponsored plan for a
month during a plan year if the employee
or related individual could have enrolled
in the plan for that month during an open
or special enrollment period for the plan
year. If an enrollment period relates to
coverage for not only the upcoming plan
year (or the current plan year in the case
of an enrollment period other than an open
enrollment period), but also coverage in
one or more succeeding plan years, this
paragraph (c)(3)(iii)(A) applies only to el-
igibility for the coverage in the upcoming
plan year (or the current plan year in the
case of an enrollment period other than an
open enrollment period).

* * * * *

(v) * * *

(A) * * *

(3) * * * This paragraph (c)(3)(v)

(A)(3) does not apply for an individual
who, with intentional or reckless disregard
for the facts, provides incorrect informa-
tion to an Exchange concerning the por-
tion of the annual premium for coverage
for the employee or related individual un-
der the plan. A reckless disregard of the
facts occurs if the taxpayer makes little or
no effort to determine whether the infor-
mation provided to the Exchange is accu-
rate under circumstances that demonstrate
a substantial deviation from the standard
of conduct a reasonable person would ob-
serve. A disregard of the facts is inten-
tional if the taxpayer knows that the in-
formation provided to the Exchange is
inaccurate.

* * * * *

(7) Opt-out arrangements. [Reserved]
* * * * *

(4) Special eligibility rules-(i) Re-
lated individual not claimed as a personal
exemption deduction. An individual who
may enroll in minimum essential coverage
because of a relationship to another per-
son eligible for the coverage, but for
whom the other eligible person does not
claim a personal exemption deduction un-
der section 151, is treated as eligible for
minimum essential coverage under the
coverage only for months that the related
individual is enrolled in the coverage.

(ii) Exchange unable to discontinue
advance credit payments-(A) In general.
If an individual who is enrolled in a qual-
ified health plan for which advance credit
payments are made informs the Exchange
that the individual is or will soon be eli-
gible for other minimum essential cover-
age and that advance credit payments
should be discontinued, but the Exchange
does not discontinue advance credit pay-
ments for the first calendar month begin-
ning after the month the individual in-
forms the Exchange, the individual is
treated as eligible for the other minimum
essential coverage no earlier than the first
day of the second calendar month begin-
ning after the first month the individual
may enroll in the other minimum essential
coverage.

(B) Medicaid or CHIP. If a determina-
tion is made that an individual who is
enrolled in a qualified health plan for
which advance credit payments are made
is eligible for Medicaid or CHIP but the
advance credit payments are not discon-
tinued for the first calendar month begin-
ning after the eligibility determination, the
individual is treated as eligible for the
Medicaid or CHIP no earlier than the first
day of the second calendar month begin-
ning after the eligibility determination.

(d) [Reserved]

(e) Effective/applicability date. (1) Ex-
cept as provided in paragraph (e)(2) of
this section, this section applies to taxable
years ending after December 31, 2013.

(2) Paragraph (b)(6)(ii), the last three
sentences of paragraph (c)(2)(v), para-
graph (c)(3)(i), paragraph (c)(3)(iii)(A),
the last three sentences of paragraph
(c)(3)(v)(A)(3), and paragraph (c)(4) of
this section apply to taxable years begin-
ning after December 31, 2016. Paragraphs

(b)(6),(c)(3)(i), (c)(3)(iii)(A), and (c)(4)
of § 1.36B-2 as contained in 26 CFR part
I edition revised as of April 1, 2016, apply
to taxable years ending after December
31, 2013, and beginning before January 1,
2017.

Par. 5. Section 1.36B-3 is amended by:

1\. Redesignating paragraph (c)(4) as
paragraph (c)(5) and adding a new para-
graph (c)(4).

2\. Revising paragraph (d)(1).

3\. Revising paragraph (d)(2).

4\. Revising paragraph (f).

5\. Adding paragraph (n).

The revisions and additions read as fol-
lows:

§ 1.36B-3 Computing the premium tax
credit amount.

* * * * *

(4) Appeals of coverage eligibility. A
taxpayer who is eligible for advance credit
payments pursuant to an eligibility appeal
decision implemented under 45 CFR
§ 155.545(c)(1)(ii) for coverage of a
member of the taxpayer's coverage family
who, based on the appeal decision, retro-
actively enrolls in a qualified health plan
is considered to have met the requirement
in paragraph (c)(1)(ii) of this section for a
month if the taxpayer pays the taxpayer's
share of the premiums for coverage under
the plan for the month on or before the
120th day following the date of the ap-
peals decision.

* * * * *

(d) * * *

(1) Premium assistance amount. The
premium assistance amount for a cover-
age month is the lesser of-

(i) The premiums for the month, re-
duced by any amounts that were refunded,
for one or more qualified health plans in
which a taxpayer or a member of the
taxpayer's family enrolls (enrollment pre-
miums); or

(ii) The excess of the adjusted monthly
premium for the applicable benchmark
plan (benchmark plan premium) over 1/12
of the product of a taxpayer's household
income and the applicable percentage for
the taxable year (the taxpayer's contribu-
tion amount).

(2) Examples. The following examples
illustrate the rules of paragraph (d)(1) of
this section.

Example 1. Taxpayer Q is single and has no
dependents. Q enrolls in a qualified health plan with
a monthly premium of $400. Q's monthly bench-
mark plan premium is $500, and his monthly con-
tribution amount is $80. Q's premium assistance
amount for a coverage month is $400 (the lesser of
$400, Q's monthly enrollment premium, and $420,
the difference between Q's monthly benchmark plan
premium and Q's contribution amount).

Example 2. (i) Taxpayer R is single and has no
dependents. R enrolls in a qualified health plan with
a monthly premium of $450. The difference between
R's benchmark plan premium and contribution
amount for the month is $420.

(ii) The issuer of R's qualified health plan is
notified that R died on September 20. The issuer
terminates coverage as of that date and refunds the
remaining portion of the September enrollment pre-
miums ($150) for R's coverage.

(iii) R's premium assistance amount for each
coverage month from January through August is
$420 (the lesser of $450 and $420). Under paragraph
(d)(1) of this section, R's premium assistance
amount for September is the lesser of the enrollment
premiums for the month, reduced by any amounts
that were refunded ($300 ($450 - $150)) or the
difference between the benchmark plan premium
and the contribution amount for the month ($420).
R's premium assistance amount for September is
$300, the lesser of $420 and $300.

Example 3. The facts are the same as in Example
2 of this paragraph (d)(2), except that the qualified
health plan issuer does not refund any enrollment
premiums for September. Under paragraph (d)(1) of
this section, R's premium assistance amount for Sep-
tember is $420, the lesser of $450 and $420.
* * * * *

(f) Applicable benchmark plan-(1) In
general. Except as otherwise provided in
this paragraph (f), the applicable bench-
mark plan for each coverage month is the
second- lowest-cost silver plan (as de-
scribed in section 1302(d)(1)(B) of the
Affordable Care Act (42 U.S.C.
18022(d)(1)(B))) offered to the taxpayer's
coverage family through the Exchange for
the rating area where the taxpayer resides
for-

(i) Self-only coverage for a taxpayer-
(A) Who computes tax under section
1(c) (unmarried individuals other than
surviving spouses and heads of house-
hold) and is not allowed a deduction under
section 151 for a dependent for the taxable
year;

(B) Who purchases only self-only cov-
erage for one individual; or

(ii) Family coverage for all other tax-
payers.

(2) Family coverage. The applicable
benchmark plan for family coverage is the
second lowest-cost silver plan that would
cover the members of the taxpayer's cov-
erage family (such as a plan covering two
adults if the members of a taxpayer's cov-
erage family are two adults).

(3) Silver-level plan not covering pedi-
atric dental benefits. If one or more silver-
level qualified health plans offered
through an Exchange do not cover pedi-
atric dental benefits, the premium for the
applicable benchmark plan is determined
based on the second lowest-cost option
among-

(i) The silver-level qualified health
plans that are offered by the Exchange to
the members of the coverage family and
that provide pediatric dental benefits; and

(ii) The silver-level qualified health
plans that are offered by the Exchange to
the members of the coverage family that
do not provide pediatric dental benefits in
conjunction with the second lowest-cost
portion of the premium for a stand-alone
dental plan (within the meaning of section
1311(d)(2)(B)(ii) of the Affordable Care
Act (42 U.S.C. 18031(d)(2)(B)(ii))) of-
fered by the Exchange to the members of
the coverage family that is properly allo-
cable to pediatric dental benefits deter-
mined under guidance issued by the Sec-
retary of Health and Human Services.

(4) Family members residing in differ-
ent locations. If members of a taxpayer's
coverage family reside in different loca-
tions, the taxpayer's benchmark plan pre-
mium is the sum of the premiums for the
applicable benchmark plans for each
group of coverage family members resid-
ing in different locations, based on the
plans offered to the group through the
Exchange where the group resides. If all
members of a taxpayer's coverage family
reside in a single location that is different
from where the taxpayer resides, the tax-
payer's benchmark plan premium is the
premium for the applicable benchmark
plan for the coverage family, based on the
plans offered through the Exchange to the
taxpayer's coverage family for the rating
area where the coverage family resides.

(5) Single or multiple policies needed
to cover the family-(i) Policy covering a
taxpayer's family. If a silver-level plan or

a stand-alone dental plan offers coverage
to all members of a taxpayer's coverage
family who reside in the same location
under a single policy, the premium (or
allocable portion thereof, in the case of a
stand-alone dental plan) taken into ac-
count for the plan for purposes of deter-
mining the applicable benchmark plan un-
der paragraphs (f)(1), (f)(2), and (f)(3) of
this section is the premium for this single
policy.

(ii) Policy not covering a taxpayer's
family. If a silver-level qualified health
plan or a stand-alone dental plan would
require multiple policies to cover all
members of a taxpayer's coverage family
who reside in the same location (for ex-
ample, because of the relationships within
the family), the premium (or allocable
portion thereof, in the case of a standalone
dental plan) taken into account for the
plan for purposes of determining the ap-
plicable benchmark plan under paragraphs
(f)(1), (f)(2), and (f)(3) of this section is
the sum of the premiums (or allocable
portion thereof, in the case of a stand-
alone dental plan) for self-only policies
under the plan for each member of the
coverage family who resides in the same
location.

(6) Plan not available for enrollment.
A silver-level qualified health plan or a
stand-alone dental plan that is not open to
enrollment by a taxpayer or family mem-
ber at the time the taxpayer or family
member enrolls in a qualified health plan
is disregarded in determining the applica-
ble benchmark plan.

(7) Benchmark plan terminates or
closes to enrollment during the year. A
silver-level qualified health plan or a
stand-alone dental plan that is used for
purposes of determining the applicable
benchmark plan under this paragraph (f)
for a taxpayer does not cease to be the
applicable benchmark plan for a taxable
year solely because the plan or a lower
cost plan terminates or closes to enroll-
ment during the taxable year.

(8) Only one silver-level plan offered
to the coverage family. If there is only one
silver-level qualified health plan or one
stand-alone dental plan offered through an
Exchange that would cover all members
of a taxpayer's coverage family who re-
side in the same location (whether under
one policy or multiple policies), that plan

is used for purposes of determining the
taxpayer's applicable benchmark plan.

(9) Examples. The following examples
illustrate the rules of this paragraph (f).
Unless otherwise stated, in each example
the plans are open to enrollment to a tax-
payer or family member at the time of
enrollment and are offered through the
Exchange for the rating area where the
taxpayer resides:

Example 1. Single taxpayer enrolls in Exchange
coverage. Taxpayer A is single, has no dependents,
and enrolls in a qualified health plan. The Exchange
in the rating area in which A resides offers only
silver-level qualified health plans that provide pedi-
atric dental benefits. Under paragraphs (f)(1) and
(f)(2) of this section, A's applicable benchmark plan
is the second lowest cost silver plan providing self-
only coverage for A.

Example 2. Single taxpayer enrolls with depen-
dent child through an Exchange where all qualified
health plans provide pediatric dental benefits. Tax-
payer B is single and claims her 12-year old daugh-
ter, C, as a dependent. B purchases family coverage
for herself and C. The Exchange in the rating area in
which B and C reside offers qualified health plans
that provide pediatric dental benefits but does not
offer qualified health plans without pediatric dental
benefits. Under paragraphs (f)(1) and (f)(2) of this
section, B's applicable benchmark plan is the second
lowest-cost silver plan providing family coverage to
B and C.

Example 3. Single taxpayer enrolls with depen-
dent child through an Exchange where one or more
qualified health plans do not provide pediatric den-
tal benefits. (i) Taxpayer D is single and claims his
10-year old son, E, as a dependent. The Exchange in
the rating area in which D and E reside offers three
silver-level qualified health plans, one of which pro-
vides pediatric dental benefits (S1) and two of which
do not (S2 and S3), in which D and E may enroll.
The Exchange also offers two stand-alone dental
plans (DP1 and DP2) available to D and E. The
monthly premiums allocable to essential health ben-
efits for the silver-level plans are as follows:

S1 -$650

S2 -$620

S3 - $590

(ii)The monthly premiums, and the
portion of the premium allocable to pedi-
atric dental benefits, for the two dental
plans are as follows:

DP1 - $50 ($20 allocable to pediatric den-
tal benefits)

DP2 - $40 ($15 allocable to pediatric den-
tal benefits).

(iii) Under paragraph (f)(3) of this sec-
tion, D's applicable benchmark plan is the
second lowest cost option among the fol-
lowing offered by the rating area in which
D resides: silver-level qualified health
plans providing pediatric dental benefits
($650 for S1) and the silver-level qualified

health plans not providing pediatric dental
benefits, in conjunction with the second
lowest-cost portion of the premium for a
stand-alone dental plan properly allocable
to pediatric dental benefits ($590 for S3 in
conjunction with $20 for DP1 = $610 and
$620 for S2 in conjunction with $20 for
DP1 = $640). Under paragraph (e) of this
section, the adjusted monthly premium for
D's applicable benchmark plan is $640.

Example 4. Single taxpayer enrolls with depen-
dent adult through an Exchange where one or more
qualified health plans do not provide pediatric den-
tal benefits. (i) The facts are the same as in Example
3, except Taxpayer D's coverage family consists of
D and D's 22-year old son, F, who is a dependent of
D. The monthly premiums allocable to essential
health benefits for the silver-level plans are as fol-
lows:

S1 -$630
S2 -$590
S3 - $580

(ii) Because no one in D's coverage
family is eligible for pediatric dental ben-
efits, $0 of the premium for a stand-alone
dental plan is allocable to pediatric dental
benefits in determining D's applicable
benchmark plan. Consequently, under
paragraphs (f)(1), (f)(2), and (f)(3) of this
section, D's applicable benchmark plan is
the second lowest-cost option among the
following options offered by the rating
area in which D resides: silver-level qual-
ified health plans providing pediatric den-
tal benefits ($630 for S1) and the silver-
level qualified health plans not providing
pediatric dental benefits, in conjunction
with the second lowest-cost portion of the
premium for a stand-alone dental plan
properly allocable to pediatric dental ben-
efits ($580 for S3 in conjunction with $0
for DP1 = $580 and $590 for S2 in con-
junction with $0 for DP1 = $590). Under
paragraph (e) of this section, the adjusted
monthly premium for D's applicable
benchmark plan is $590.

Example 5. Single taxpayer enrolls with depen-
dent and nondependent. Taxpayer G is single and
resides with his 25-year old daughter, H, and with
his 14-year old son, I. G may claim I, but not H, as
a dependent. G, H, and I enroll in coverage through
the Exchange in the rating area in which they all
reside. The Exchange offers only silver-level plans
providing pediatric dental benefits. Under para-
graphs (f)(1) and (f)(2) of this section, G's applicable
benchmark plan is the second lowest-cost silver plan
covering G and I. However, H may qualify for a
premium tax credit if H is otherwise eligible. See
paragraph (h) of this section.

Example 6. Change in coverage family. Tax-
payer J is single and has no dependents when she

enrolls in a qualified health plan. The Exchange in
the rating area in which she resides offers only
silver-level plans that provide pediatric dental bene-
fits. On August 1, J has a child, K, whom she claims
as a dependent. J enrolls in a qualified health plan
covering J and K effective August 1. Under para-
graphs (f)(1) and (f)(2) of this section, J's applicable
benchmark plan for January through July is the sec-
ond lowest-cost silver plan providing self-only cov-
erage for J, and J's applicable benchmark plan for
the months August through December is the second
lowest-cost silver plan covering J and K.

Example 7. Minimum essential coverage for
some coverage months. Taxpayer L claims his 6-year
old daughter, M, as a dependent. L and M are enrolled
for the entire year in a qualified health plan that offers
only silver-level plans that provide pediatric dental
benefits. L, but not M, is eligible for government-
sponsored minimum essential coverage for September
to December. Thus, under paragraph (c)(1)(iii) of this
section, January through December are coverage
months for M, and January through August are cover-
age months for L. Because, under paragraphs (d) and
(f)(1) of this section, the premium assistance amount
for a coverage month is computed based on the appli-
cable benchmark plan for that coverage month, L's
applicable benchmark plan for January through August
is the second lowest-cost option covering L and M.
Under paragraph (f)(1)(i)(C) of this section, L's appli-
cable benchmark plan for September through Decem-
ber is the second lowest-cost silver plan providing
self-only coverage for M.

Example 8. Family member eligible for minimum
essential coverage for the taxable year. The facts are
the same as in Example 7, except that L is not eligible
for government-sponsored minimum essential cover-
age for any months and M is eligible for government
sponsored minimum essential coverage for the entire
year. Under paragraph (f)(1)(i)(C) of this section, L's
applicable benchmark plan is the second lowest-cost
silver plan providing self-only coverage for L.

Example 9. Benchmark plan premium for a cov-
erage family with family members who reside in differ-
ent locations. (i) Taxpayer N's coverage family con-
sists of N and her three dependents O, P, and Q. N, O,
and P reside together but Q resides in a different loca-
tion. The monthly applicable benchmark plan premium
for N, O, and P is $1,000 and the monthly applicable
benchmark plan premium for Q is $220.

(ii) Under paragraph (f)(4) of this section, be-
cause the members of N's coverage family reside in
different locations, the monthly premium for N's
applicable benchmark plan is the sum of $1,000, the
monthly premiums for the applicable benchmark
plan for N, O, and P, who reside together, and $220,
the monthly applicable benchmark plan premium for
Q, who resides in a different location than N, O, and
P. Consequently, the premium for N's applicable
benchmark plan is $1,220.

Example 10. Aggregation of silver-level policies
for plans not covering a family under a single policy.
(i) Taxpayers R and S are married and live with S's
mother, T, whom they claim as a dependent. The
Exchange for their rating area offers self-only and
family coverage at the silver level through Issuers A,
B, and C, which each offer only one silver-level
plan. The silver-level plans offered by Issuers A and
B do not cover R, S, and T under a single policy. The

silver-level plan offered by Issuer A costs the fol-
lowing monthly amounts for self-only coverage of R,
S, and T, respectively: $400, $450, and $600. The
silver-level plan offered by Issuer B costs the fol-
lowing monthly amounts for self-only coverage of R,
S, and T, respectively: $250, $300, and $450. The
silver-level plan offered by Issuer C provides cover-
age for R, S, and T under one policy for a $1,200
monthly premium.

(ii) Under paragraph (f)(5) of this section, Issuer
C's silver-level plan that covers R, S, and T under
one policy ($1,200 monthly premium) and Issuer A's
and Issuer B's silver-level plans that do not cover R,
S and T under one policy are considered in deter-
mining R's and S's applicable benchmark plan. In
addition, under paragraph (f)(5)(ii) of this section, in
determining R's and S's applicable benchmark plan,
the premium taken into account for Issuer A's plan is
$1,450 (the aggregate premiums for self-only poli-
cies covering R ($400), S ($450), and T ($600) and
the premium taken into account for Issuer B's plan is
$1,000 (the aggregate premiums for self-only poli-
cies covering R ($250), S ($300), and T ($450).
Consequently, R's and S's applicable benchmark
plan is the Issuer C silver-level plan covering R's
and S's coverage family and the premium for their
applicable benchmark plan is $1,200.

Example 11. Benchmark plan premium for a tax-
payer with family members who cannot enroll in one
policy and who reside in different locations. (i) Tax-
payer U's coverage family consists of U, U's mother,
V, and U's two daughters, W and X. U and V reside
together in Location 1 and W and X reside together in
Location 2. The Exchange in the rating area in which U
and V reside does not offer a silver-level plan that
covers U and V under a single policy, whereas all the
silver-level plans offered through the Exchange in the
rating area in which W and X reside cover W and X
under a single policy. Both Exchanges offer only
silver-level plans that provide pediatric dental benefits.
The silver plan offered by the Exchange for the rating
area in which U and V reside that would cover U and
V under self-only policies with the second-lowest ag-
gregate premium costs $400 a month for self-only
coverage for U and $600 a month for self-only cover-
age for V. The monthly premium for the second-lowest
cost silver plan covering W and X that is offered by the
Exchange for the rating area in which W and X reside
is $500.

(ii) Under paragraph (f)(5)(ii) of this section,
because multiple policies are required to cover U and
V, the members of U's coverage family who reside
together in Location 1, the premium taken into ac-
count in determining U's benchmark plan is $1,000,
the sum of the premiums for the second-lowest ag-
gregate cost of self-only policies covering U ($400)
and V ($600) offered by the Exchange to U and V
for the rating area in which U and V reside. Under
paragraph (f)(5)(i) of this section, because all silver-
level plans offered by the Exchange in which W and
X reside cover W and X under a single policy, the
premium for W and X's coverage that is taken into
account in determining U's benchmark plan is $500,
the second-lowest cost silver policy covering W and
X that is offered by the Exchange for the rating area
in which W and X reside. Under paragraph (f)(4) of
this section, because the members of U's coverage
family reside in different locations, U's monthly

benchmark plan premium is $1,500, the sum of the
premiums for the applicable benchmark plans for
each group of family members residing in different
locations ($1,000 for U and V, who reside in Loca-
tion 1, plus $500 for W and X, who reside in Loca-
tion 2).

Example 12. Qualified health plan closed to en-
rollment. Taxpayer Y has two dependents, Z and
AA. Y, Z, and AA enroll in a qualified health plan
through the Exchange for the rating area where the
family resides. The Exchange, which offers only
qualified health plans that include pediatric dental
benefits, offers silver-level plans J, K, L, and M,
which are, respectively, the first, second, third, and
fourth lowest cost silver plans covering Y's family.
When Y's family enrolls, Plan J is closed to enroll-
ment. Under paragraph (f)(6) of this section, Plan J is
disregarded in determining Y's applicable bench-
mark plan. Plan L is Y's applicable benchmark plan.

Example 13. Benchmark plan closes to new en-
rollees during the year. (i) Taxpayers BB, CC, and
DD each have coverage families consisting of two
adults. In that rating area, Plan 2 is the second lowest
cost silver plan and Plan 3 is the third lowest cost
silver plan covering the two adults in each coverage
family offered through the Exchange. The BB and
CC families each enroll in a qualified health plan that
is not the applicable benchmark plan (Plan 4) in
November during the annual open enrollment period.
Plan 2 closes to new enrollees the following June.
Thus, on July 1, Plan 3 is the second lowest cost
silver plan available to new enrollees through the
Exchange. The DD family enrolls in a qualified
health plan in July.

(ii) Under paragraphs (f)(1), (f)(2), (f)(3), and
(f)(7) of this section, with BB's and CC's applicable
benchmark plan for all coverage months during the
year is plan 2. DD's applicable benchmark plan is
Plan 3, because Plan 2 is not open to enrollment
through the Exchange when the DD family enrolls.

Example 14. Benchmark plan terminates for all
enrollees during the year. The facts are the same as
in Example 13, except that Plan 2 terminates for all
enrollees on June 30. Under paragraphs (f)(1), (f)(2),
(f)(3), and (f)(7) of this section, Plan 2 is BB's and
CC's applicable benchmark plan for all coverage
months during the year, and Plan 3 is DD's applica-
ble benchmark plan.

Example 15. Exchange offers only one silver-
level plan. Taxpayer EE's coverage family consists
of EE, his spouse FF, and their two dependent chil-
dren GG and HH, who all reside together. The Ex-
change for the rating area in which they reside offers
only one silver-level plan that EE's family may
enroll in and the plan does not provide pediatric
dental benefits. The Exchange also offers one stand-
alone dental plan in which the family may enroll.
Under paragraph (f)(8) of this section, the silver-
level plan and the stand-alone dental plan offered by
the Exchange are used for purposes of determining
EE's applicable benchmark plan under paragraph
(f)(3) of this section. Moreover, the lone silver-level
plan and the lone stand-alone dental plan offered by
the Exchange are used for purposes of determining
EE's applicable benchmark plan regardless of
whether these plans cover EE's family under a single
policy or multiples policies.

* * * * *

(n) Effective/applicability date. (1) Ex-
cept as provided in paragraph (n)(2) of
this section, this section applies to taxable
years ending after December 31, 2013.

(2) Paragraphs (c)(4), (d)(1) and (d)(2)
of this section apply to taxable years be-
ginning after December 31, 2016. Para-
graph (f) of this section applies to taxable
years beginning after December 31, 2018.
Paragraphs (d)(1) and (d)(2) of § 1.36B-3,
as contained in 26 CFR part I edition
revised as of April 1, 2016, applies to
taxable years ending after December 31,
2013, and beginning before January 1,
2017. Paragraph (f) of § 1.36B-3, as con-
tained in 26 CFR part I edition revised as
of April 1, 2016, applies to taxable years
ending after December 31, 2013, and be-
ginning before January 1, 2019.

Par. 6. Section 1.36B-5 is amended by:

1\. Adding a sentence to the end of
paragraph (c)(3)(i).

2\. Adding paragraphs (c)(3)(iii) and (h).
The additions read as follows:

§ 1.36B-5 Information reporting by
Exchanges.

* * * * *

(3) * * *

(i) * * * If advance credit payments are
made for coverage under the plan, the
enrollment premiums reported to each
family under paragraph (c)(1)(viii) of this
section are the premiums allocated to the
family under § 1.36B-3(h) (allocating en-
rollment premiums to each taxpayer in
proportion to the premiums for each tax-
payer's applicable benchmark plan).
* * * * *

(iii) Partial month of coverage .- (A)
In general. Except as provided in para-
graph (c)(3)(iii)(B) of this section, if an
individual is enrolled in a qualified health
plan after the first day of a month, the
amount reported for that month under
paragraphs (c)(1)(iv), (c)(1)(v), and
(c)(1)(viii) of this section is $0.

(B) Certain mid-month enrollments.
For information reporting that is due on or
after January 1, 2019, if an individual's
qualified health plan is terminated before
the last day of a month, or if an individual
is enrolled in coverage after the first day

of a month and the coverage is effective
on the date of the individual's birth, adop-
tion, or placement for adoption or in foster
care, or on the effective date of a court
order, the amount reported under para-
graphs (c)(1)(iv) and (c)(1)(v) of this sec-
tion is the premium for the applicable
benchmark plan for a full month of cov-
erage (excluding the premium allocated to
benefits in excess of essential health ben-
efits), and the amount reported under para-
graph (c)(1)(viii) of this section is the
enrollment premium for the month re-
quired to be reported under paragraphs
(c)(1)(Viii)(A), (B), and (C) of this sec-
tion, reduced by any amounts that were
refunded.

* * * * *

(h) Effective/applicability date. Except
for the last sentence of paragraph (c)(3)(i) of
this section and paragraph (c)(3)(iii) of this
section, this section applies to taxable years
ending after December 31, 2013. The last
sentence of paragraph (c)(3)(i) of this sec-
tion and paragraph (c)(3)(iii) of this section
apply to taxable years beginning after De-
cember 31, 2018. Paragraph (c)(3) of
§ 1.36B-5 as contained in 26 CFR part I
edition revised as of April 1, 2016, applies
to information reporting for taxable years
ending after December 31, 2013, and begin-
ning before January 1, 2019.

Par. 7. Section 1.5000A-3 is amended
by adding a new paragraph (e)(3)(ii)(G) to
read as follows:

§ 1.5000A-3 Exempt individuals.

* * * * *

(e) * * *

(3) * * *

(ii) * * *

(G) Opt-out arrangements. [Reserved]
* * * * *

Par. 8. Section 1.6011-8 is revised to
read as follows:

§ 1.6011-8 Requirement of income tax
return for taxpayers who claim the
premium tax credit under section 36B.

(a) Requirement of return. Except as
otherwise provided in this paragraph (a), a
taxpayer who receives the benefit of ad-
vance payments of the premium tax credit

under section 36B must file an income tax
return for that taxable year on or before
the due date for the return (including ex-
tensions of time for filing) and reconcile
the advance credit payments. However, if
advance credit payments are made for
coverage of an individual for whom no
taxpayer claims a personal exemption de-
duction, the taxpayer who attests to the
Exchange to the intention to claim a per-
sonal exemption deduction for the indi-
vidual as part of the determination that the
taxpayer is eligible for advance credit
payments must file a tax return and rec-
oncile the advance credit payments.

(b) Effective/applicability date. Except
as otherwise provided, this section applies
for taxable years beginning after December
31, 2016. Paragraph (a) of § 1.6011-8 as
contained in 26 CFR part I edition revised as
of April 1, 2016, applies to taxable years
ending after December 31, 2013, and begin-
ning before January 1, 2017.

## PART 301-PROCEDURE AND ADMINISTRATION

Par. 9. The authority citation for part
301 continues to read in part as follows:

AUTHORITY: 26 U.S.C. 7805. * * *

Section 301.6011-2 also issued under
26 U.S.C. 6011(e). * * *

### § 301.6011-2 [Amended]

Par. 10. Section 301.6011-2(b)(1) is
amended by adding "1095-B, 1095-C"
after "1094 series", and removing "1095
series".

John Dalrymple,
Deputy Commissioner for
Service and Enforcement.

Approved: December 8, 2016

Mark J. Mazur,
Assistant Secretary of the
Treasury (Tax Policy).

(Filed by the Office of the Federal Register on December 14,
2016, at 4:15 p.m., and published in the issue of the Federal
Register for December 19, 2016, 81 F.R. 91755)

## Part III. Administrative, Procedural, and Miscellaneous

Extension of Eligibility Rule
Waivers for Certain
Automatic Changes Made
To Comply with the Final
Tangible Property
Regulations
Notice 2017-06

### PURPOSE

This notice extends the waiver of the
eligibility rule set out in section 5.01(1)(f)
of Rev. Proc. 2015-13, 2015-5 I.R.B.
419, (which Revenue Procedure was clar-
ified and modified by Rev. Proc. 2015-33,
2015-24 I.R.B. 1067, and modified by
Rev. Proc. 2016-1, 2016-1 I.R.B. 1) that
was provided under Rev. Proc. 2016-29,
2016-21 I.R.B. 880, for making certain
automatic changes in accounting methods.
Specifically, this notice extends this eligi-
bility rule waiver for one year to any
taxable year beginning before January 1,
2017, for taxpayers making certain auto-
matic changes to utilize the final tangible
property regulations under §§ 162(a) and
263(a) of the Internal Revenue Code (the
Code) and for making certain automatic
changes to depreciation and dispositions
under § 168 of the Code.

### BACKGROUND

On September 19, 2013, the Depart-
ment of the Treasury (Treasury Depart-
ment) and the Internal Revenue Service
(IRS) published in the Federal Register
(78 Fed. Reg. 57686) final regulations un-
der §§ 1.162-3, 1.162-4, 1.168(i)-1,
1.168(i)-7, 1.168(i)-8, 1.263(a)-1, 1.263
(a)-2, and 1.263(a)-3 of the Income Tax
Regulations (T.D. 9636). See also
2013-43 I.R.B. 331. Corrections to those
regulations were published in the Federal
Register (79 Fed. Reg. 42189) on July 21,
2014, and the final regulations and the
corrections thereto are referred to collec-
tively in this notice as the final tangible
property regulations. The final tangible
property regulations provide guidance on
the treatment of amounts paid to acquire,
produce, or improve tangible property and
generally apply to taxable years beginning
on or after January 1, 2014, or, at the

option of the taxpayer, to taxable years
beginning on or after January 1, 2012.

On August 18, 2014, the Treasury De-
partment and the IRS published in the
Federal Register (79 Fed. Reg. 48661)
final regulations under §§ 1.168(i)-1,
1.168(i)-7, and 1.168(i)-8 (T.D. 9689).
See also 2014-36 I.R.B. 456. Corrections
to those regulations were published in the
Federal Register (79 Fed. Reg. 78696) on
December 31, 2014, and the final regula-
tions and the corrections thereto are re-
ferred to collectively in this notice as the
final depreciation and disposition regula-
tions. The final depreciation and disposi-
tion regulations provide guidance regard-
ing accounting for property depreciated
under § 168, the Modified Accelerated
Cost Recovery System (MACRS), and for
dispositions of MACRS property. These
rules also generally apply to taxable years
beginning on or after January 1, 2014, or,
at the option of the taxpayer, to taxable
years beginning on or after January 1,
2012.

Except as otherwise provided in the
Code or regulations, a change to comply
with the final tangible property regula-
tions and the final depreciation and dispo-
sition regulations is a change in method of
accounting to which the provisions of
§§ 446 and 481 and the accompanying
regulations apply. A taxpayer seeking to
change its method of accounting under
these regulations must secure the consent
of the Commissioner of Internal Revenue
in accordance with § 1.446-1(e) and fol-
low the administrative procedures issued
under § 1.446-1(e)(3)(ii).

Rev. Proc. 2015-13 provides the gen-
eral procedures under § 446(e) for a tax-
payer to obtain the automatic or non-
automatic consent of the Commissioner to
change a method of accounting. Rev.
Proc. 2016-29 provides the list of auto-
matic changes in methods of accounting
to which the automatic change procedures
of Rev. Proc. 2015-13 apply.

Section 11.08 of Rev. Proc. 2016-29
provides for certain automatic changes to
utilize the final tangible property regula-
tions. Section 6.14 of Rev. Proc. 2016-29
provides for automatic changes to permis-
sible methods of accounting for deprecia-
tion of MACRS property under sections

§§ 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8.
In addition, sections 6.15 through 6.17 of
Rev. Proc. 2016-29 provide for automatic
changes related to dispositions of certain
MACRS property under §§ 1.168(i)-1
and 1.168(i)-8.

Section 5 of Rev. Proc. 2015-13 pro-
vides certain eligibility rules for a tax-
payer that applies for the Commissioner's
consent to make a change in method of
accounting under the automatic change
procedures. Section 5.01(1)(f) provides
that the automatic change procedures may
not be utilized if the taxpayer has made or
requested a change for the same item dur-
ing any of the five taxable years ending
with the year of change. This rule gener-
ally precludes a taxpayer from using the
automatic change procedures to change
the treatment of the same item more than
once within a five-year period. However,
in order to facilitate the transition to the
final tangible property regulations and the
final depreciation and disposition regula-
tions, sections 6.14(2)(b), 6.15(2)(b),
6.16(2)(b), 6.17(2)(b), and 11.08(2) of
Rev. Proc. 2016-29 provide a waiver of
this eligibility rule for a limited period
of time. Each of these sections of Rev.
Proc. 2016-29 specifically provides that
the eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13 does not apply to a
taxpayer that makes one or more of the
changes in method of accounting permit-
ted under that section for any taxable year
beginning before January 1, 2016.

## DISCUSSION

The Treasury Department and the IRS
are aware that taxpayers continue to re-
quest consent to change their methods of
accounting to utilize the final tangible
property regulations and final depreciation
and disposition regulations. To continue
to ease taxpayers' transition to these final
regulations and to reduce the administra-
tive burden that would result from requir-
ing taxpayers to apply for non-automatic
changes of accounting methods for each
of the changes specified above, this notice
modifies the applicable sections of Rev.
Proc. 2016-29 to extend the waiver of the
eligibility rule under section 5.01(1)(f) of
Rev. Proc. 2015-13 for one year to any

taxable year beginning before January 1,
2017. The applicable sections are:

(1) Section 6.14, relating to a change
from a permissible to another permissible
method of accounting for depreciation of
MACRS property under § 1.168(i)-1,
§ 1.168(i)-7, and § 1.168(i)-8, as appli-
cable;

(2) Section 6.15, relating to a change in
method of accounting for dispositions of a
building or structural component under
§ 1.168(i)-8;

(3) Section 6.16, relating to a change in
method of accounting for dispositions of
tangible depreciable assets (other than a
building or its structural components) un-
der § 1.168(i)-8;

(4) Section 6.17, relating to a change in
method of accounting for dispositions of
tangible depreciable assets in a general
asset account under § 1.168(i)-1; and

(5) Section 11.08, relating to changes in
methods of accounting for tangible prop-
erty under the final tangible property reg-
ulations.

Specifically, sections 6.14(2)(b),
6.15(2)(b), 6.16(2)(b), and 6.17(2)(b) of
Rev. Proc. 2016-29, which waive certain
eligibility rules for making automatic
changes under the final depreciation and
disposition regulations, are modified by
replacing the references to the date, "Jan-
uary 1, 2016," with the date, "January 1,
2017." In addition, section 11.08(2) of
Rev. Proc. 2016-29, which waives certain
eligibility rules for making automatic
changes under the tangible property regu-
lations, including the eligibility rule under
section 5.01(1)(d) of Rev. Proc. 2015-13,
is modified by replacing all references to
the date, "January 1, 2016," with the date,
"January 1, 2017." These modifications
also apply for purposes of the concurrent
automatic changes that are specifically
referenced in these sections.

## TRANSITION RULE

If, before December 20, 2016, a tax-
payer properly filed a Form 3115 under
the non-automatic change procedures in
Rev. Proc. 2015-13 requesting the Com-
missioner's consent for a change in
method of accounting described in this
notice, and the Form 3115 is pending with
the national office on December 20, 2016,
the taxpayer may choose to make the
change of accounting method under the

automatic change procedures in Rev.
Proc. 2015-13 by following the require-
ments and procedures in subsection .02(1)
of the EFFECTIVE DATE section in Rev.
Proc. 2016-29 with the following modi-
fications:

(1) The references to the date, "May 5,
2016," are replaced with the date, "De-
cember 20, 2016" and

(2) The references to the date, "June 6,
2016," are replaced with the date, "Janu-
ary 19, 2017."

EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2016-29 is modified.

EFFECTIVE DATE

This notice is effective December 20,
2016.

## CONTACT INFORMATION

The principal author of this notice is
Merrill D. Feldstein of the Office of
Associate Chief Counsel (Income Tax
and Accounting). For further informa-
tion regarding this notice, contact Ms.
Feldstein at (202) 317-5100 (not a toll-
free number).

Foreign currency guidance
under section 987
Notice 2017-07

On December 7, 2016, the Department
of the Treasury (Treasury Department)
and the Internal Revenue Service (IRS)
filed with the Federal Register Treasury
Decision 9795, which includes temporary
regulations under § 1.987-12T relating to
the recognition and deferral of foreign
currency gain or loss under section 987
with respect to a qualified business unit in
connection with a deferral event or out-
bound loss event. Section 1.987-12T(j)(1)
provides that § 1.987-12T generally ap-
plies to any deferral event or outbound
loss event that occurs on or after January
6, 2017. Under § 1.987-12T(j)(2), how-
ever, § 1.987-12T also applies to any de-
ferral event or outbound loss event that
occurs on or after December 7, 2016, if
such deferral event or outbound loss event
is undertaken with a principal purpose of
recognizing section 987 gain or loss.

In order to prevent abuse, § 1.987-
12T(j)(2) will be modified so that § 1.987-
12T also will apply to any deferral event or
outbound loss event that is undertaken with
a principal purpose of recognizing section
987 gain or loss and that occurs as a result of
an entity classification election made under
§ 301.7701-3 that is filed on or after De-
cember 22, 2016, and that is effective before
December 7, 2016. Additionally, § 1.987-
12T(j)(1) will be modified so that § 1.987-
12T also will apply to any deferral event or
outbound loss event that occurs as a result of
an entity classification election made under
§ 301.7701-3 that is filed on or after Janu-
ary 6, 2017, and that is effective before
January 6, 2017.

The principal author of this notice is
Steven D. Jensen of the Office of Associ-
ate Chief Counsel (International). How-
ever, other personnel from the Treasury
Department and the IRS participated in its
development. For further information re-
garding this notice contact Steven D. Jen-
sen at (202) 317-6938 (not a toll-free
number).

## Transaction of Interest- Section 831(b) Micro- Captive Transactions

Notice 2017-08

SECTION 1. BACKGROUND

On November 1, 2016, the Department
of the Treasury (the "Treasury Depart-
ment") and the Internal Revenue Service
(the "IRS") released Notice 2016-66,
2016-47 I.R.B. 745, identifying transac-
tions that are the same as, or substantially
similar to, the transaction described in
section 2.01 of Notice 2016-66 as trans-
actions of interest for purposes of
§ 1.6011-4(b)(6) of the Income Tax Reg-
ulations and §§ 6111 and 6112 of the
Internal Revenue Code. Notice 2016-66
alerted persons involved in these transac-
tions to certain responsibilities and penal-
ties that may arise from their involvement
with these transactions.

Generally, § 1.6011-4(e)(1) provides
that the disclosure statement for a report-
able transaction must be attached to the
taxpayer's tax return for each taxable year
for which a taxpayer participates in a re-

portable transaction. In addition, a disclo-
sure statement for a reportable transaction
must be attached to each amended return
that reflects a taxpayer's participation in a
reportable transaction. A copy of the dis-
closure statement must be sent to the Of-
fice of Tax Shelter Analysis (OTSA) at
the same time that any disclosure state-
ment is first filed by the taxpayer pertain-
ing to a particular reportable transaction.

In addition, § 1.6011-4(e)(2)(i) pro-
vides that if a transaction becomes a trans-
action of interest after the filing of a tax-
payer's tax return (including an amended
return) reflecting the taxpayer's participa-
tion in the transaction of interest and be-
fore the end of the period of limitations
for assessment of tax for any taxable year
in which the taxpayer participated in the
transaction of interest, then a disclosure
statement must be filed, regardless of
whether the taxpayer participated in the
transaction in the year the transaction be-
came a transaction of interest, with OTSA
within 90 calendar days after the date on
which the transaction became a transac-
tion of interest.

Section 301.6111-3(e) of the Proce-
dure and Administration Regulations, pro-
vides that the material advisor's disclo-
sure statement for a reportable transaction
must be filed with OTSA by the last day
of the month that follows the end of the
calendar quarter in which the advisor be-
came a material advisor with respect to
the reportable transaction or in which the
circumstances necessitating an amended
disclosure statement occur.

Section 3.03 of Notice 2016-66 pro-
vided that the rules regarding the time for
providing disclosure of a transaction de-
scribed in section 2.01 of Notice 2016-66
are in § 1.6011-4(e), with respect to par-
ticipants in the transaction of interest, and
§ 301.6111-3(e), with respect to material
advisors. Notice 2016-66 further pro-
vided that, if, under § 1.6011-4(e), a par-
ticipant is required to file a disclosure
statement with respect to a transaction de-
scribed in section 2.01 of Notice 2016-66
after November 1, 2016, and prior to Jan-
uary 30, 2017, that disclosure statement
will be considered to be timely filed if the
taxpayer alternatively files the disclosure
with the OTSA by January 30, 2017.

After the release of Notice 2016-66,
the Treasury Department and the IRS re-

ceived several requests for an extension of
time for participants and material advisors
filing disclosure statements. This notice
modifies section 3.03 of Notice 2016-66
to provide an extension of time for the
filing of those disclosure statements.

## SECTION 2. EXTENSION AND MODIFICATION OF TIME FOR DISCLOSURE

The time for providing disclosure of a
transaction described in section 2.01 of
Notice 2016-66 set forth in § 1.6011-
4(e), with respect to participants in the
transaction of interest, and § 301.6111-
3(e), with respect to material advisors, is
extended. Accordingly, section 3.03 of
Notice 2016-66 is modified as follows:

### .03 Time for Disclosure

#### a. Participants

For rules regarding the time for pro-
viding disclosure of a transaction de-
scribed in section 2.01 of this notice,
see § 1.6011-4(e). However, if, under
§ 1.6011-4(e)(1), a taxpayer is required to
file a disclosure statement with respect to
a transaction described in section 2.01 of
this notice after November 1, 2016, and
prior to May 1, 2017, that disclosure state-
ment will be considered to be timely filed
if the taxpayer alternatively files the dis-
closure with the Office of Tax Shelter
Analysis by May 1, 2017 (because April
30 is a Sunday). In addition, for purposes
of disclosure of transactions described in
section 2.01 of this notice, the 90-day
period provided in § 1.6011-4(e)(2)(i) is
extended to 180 days.

##### b. Material advisors

For rules regarding the time for pro-
viding disclosure of a transaction de-
scribed in section 2.01 of this notice,
see § 301.6111-3(e). However, if, under
§ 301.6111-3(e), a material advisor is re-
quired to file a disclosure statement with
respect to a transaction described in sec-
tion 2.01 of this notice by January 31,
2017, that disclosure statement will be
considered to be timely filed if the mate-
rial advisor files the disclosure with the
Office of Tax Shelter Analysis by May 1,
2017 (because April 30 is a Sunday).

## SECTION 3. EFFECT ON OTHER DOCUMENTS

Section 3.03 of Notice 2016-66 is
modified.

## SECTION 4. DRAFTING INFORMATION

The principal author of this notice is
John E. Glover of the Office of Associate
Chief Counsel (Financial Institutions &
Products). For further information regard-
ing this notice contact Mr. Glover at (202)
317-6995 (not a toll-free number).

26 CFR § 601.105: Examination of returns and
claims for refund, credit or abatement; determina-
tion of correct tax liability.

## Rev. Proc. 2017-12

### SECTION 1. PURPOSE

This revenue procedure provides that
the Internal Revenue Service (IRS) will
treat an instrument described in section 3
of this revenue procedure as indebtedness
for federal tax purposes.

### SECTION 2. BACKGROUND

.01 In addition to special provisions of
the Internal Revenue Code and Treasury
regulations relating to the federal income
taxation of banks, banks are generally
subject to comprehensive non-tax regula-
tion that governs their capital structure
and their transactions with affiliates. To
promote consistency between the rules of
different countries, and to enhance global
financial stability by improving the qual-
ity of banking supervision worldwide, an
international body known as the Basel
Committee on Banking Supervision (Ba-
sel) sets internationally agreed minimum
standards for the regulation and supervi-
sion of banks. Another international body,
the Financial Stability Board (FSB) also
develops regulatory and supervisory poli-
cies for financial entities, including banks.
The FSB focuses on the risk that the fail-
ure of one financial institution or the col-
lapse of one financial system could trigger
a chain reaction throughout the broader
financial system, commonly referred to as
systemic risk. Additionally, the Dodd-
Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203 (124

Stat. 1376 (2010)) (Dodd-Frank), includes
rules prescribing the "orderly liquidation
authority," which permits the Federal De-
posit Insurance Corporation to take over
and resolve certain bank holding compa-
nies in a process similar to that which it
uses to resolve a failing bank. Dodd-Frank
also requires each large bank to prepare a
"living will," which sets out a plan for
unwinding the bank group so that the crit-
ical services provided to the U.S. financial
system by core members - notably the
bank - can continue even if other services
are terminated or other members are liq-
uidated or sold off. The living will process
has required banks to restructure to facil-
itate the implementation of these plans.

.02 The current framework for bank
capital is commonly known as Basel III.1
Basel III responds to events of the past
decade by strengthening both capital and
liquidity requirements for banks, espe-
cially global systemically important bank-
ing organizations (GSIBs). In addition to
the enhanced capital required by Basel III,
regulators have sought to minimize the
risk of insolvency by requiring GSIBs to
issue instruments that provide total loss-
absorbing capacity (TLAC). Standards is-
sued by the FSB describe the require-
ments for an instrument to qualify as a
TLAC and require GSIBs to issue an
amount of TLAC determined by reference
to the bank group's risk-weighted assets
and Basel III leverage ratio. The FSB
standard distinguishes between "external"
and "internal" TLAC. External TLAC are
securities issued to third-party investors
by an entity subject to resolution powers
(generally, the top-most parent bank or
bank holding company). Internal TLAC
are securities issued by a subsidiary of a
resolution entity to the resolution entity.
Thus, for example, a foreign GSIB with a
significant U.S. presence would be re-
quired under the FSB standard to establish
a domestic intermediate holding company
(IHC) to hold its U.S. subsidiaries, and the
IHC would be required to issue internal
TLAC to the foreign GSIB.

.03 Both external and internal TLAC
are issued in the form of debt. The FSB

standard requires TLAC to have a matu-
rity of at least one year, to be callable
prior to maturity only with regulatory ap-
proval, to be unsecured, and generally to
be subordinated to insured deposits, other
short-term deposits, derivatives, struc-
tured notes, non-contractual liabilities like
tax liabilities, and secured liabilities.
TLAC may rank senior to certain securi-
ties that can qualify for equity credit under
Basel III,2 but generally must be subordi-
nate to a bank's depositors and general
creditors. The FSB standard also calls for
TLAC to contain a contractual trigger or
be subject to a statutory mechanism that
permits the relevant resolution authority
to effectively write the TLAC down or
convert TLAC to equity in resolution.

.04 Separately, the Board of Governors
of the Federal Reserve Bank (Board) has
issued regulations (Board regulations)3
that prescribe the amount and form of
both external and internal TLAC required
for domestic GSIBs and the U.S. opera-
tions of foreign GSIBs. In the case of
internal TLAC, the Board regulations re-
quire the IHC of a foreign GSIB to issue a
specified minimum amount of TLAC to
its foreign parent (and not to third parties).
Under 12 CFR § 252.161, the Board reg-
ulations generally require that internal
TLAC:

· not be secured, not be guaranteed by
the IHC or a subsidiary of the IHC,
and not be subject to any other ar-
rangement that legally or economi-
cally enhances the seniority of the in-
strument;

· have a maturity of greater than or
equal to one year from the date of
issuance;

· be governed by the laws of the United
States or any State thereof;

· not provide the holder of the TLAC a
contractual right to accelerate payment
of items denominated as principal or
interest on the instrument, except a
right that is exercisable on one or more
dates that are specified in the instru-
ment or in the event of (A) a receiver-
ship, insolvency, liquidation, or simi-

lar proceeding of the IHC or (B) a
failure of the IHC to pay principal or
interest on the instrument when due
and payable that continues for 30 days
or more;

· be issued to and held by a company
that is incorporated or organized out-
side of the United States, and directly
or indirectly controls the IHC or is a
wholly owned subsidiary of such com-
pany; and

· have a contractual provision approved
by the Board that provides for the im-
mediate conversion or exchange of the
instrument into common equity tier 1
of the IHC upon the Board's issuance
of an internal debt conversion order
for the TLAC.

An internal debt conversion order
means an order by the Board to immedi-
ately convert or exchange to common eq-
uity tier 1 capital an amount of TLAC
specified by the Board in its discretion. The
Board may issue an internal debt conversion
order only if the Board has determined that
the IHC is in default or danger of default
and any of three enumerated circumstances
apply. 12 CFR § 252.163(a). One of those
circumstances is that the home country su-
pervisor of the top-tier foreign banking or-
ganization has consented or not promptly
objected after notification by the Board to
the conversion or exchange of the TLAC
issued by the IHC. 12 CFR § 252.163(a)
(2)(ii). The Board regulations also prescribe
the circumstances in which an IHC will be
considered to be in default or danger of
default. 12 CFR § 252.163(b). An objection
by the home country supervisor to the con-
version or exchange of TLAC issued by the
IHC is considered to be prompt if the Board
receives the objection no later than 24 hours
after the Board requests the consent or non-
objection from the home country supervisor.
12 CFR § 252.163(b)(2). Finally, the pre-
amble to the Board regulations acknowl-
edges that the regulations do not restrict the
ability of an IHC to include certain tradi-
tional debt terms in TLAC, provided that
such terms are consistent with applicable
law. Examples of such terms noted in the
preamble are terms providing that existing

1See Basel Committee on Banking Supervision, Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (December 2010; revised June 2011), available
online at http://www.bis.org/publ/bcbs189.pdf (Basel III Bank Capital Rules).

2Basel III 2011 Bank Capital Rules, Part I.B.3, at 17-19.

3The final regulations were approved by the Board of Governors of the Federal Reserve System on December 15, 2016.

equity would be transferred to the IHC and
canceled upon transfer if the TLAC con-
verts to equity, or debt covenants on the
same terms permissible for covered bank
holding companies.

.05 TLAC is issued in the form of debt.
An instrument issued in the form of debt,
however, may have one or more features,
or lack one or more features, that cause
the instrument not to be respected as in-
debtedness for federal tax purposes. In
particular, an instrument that does not un-
conditionally obligate the issuer to pay a
sum certain on demand or at one or more
fixed dates, or that does not provide the
holder with the rights of a creditor to
enforce the obligation, generally will not
be treated as indebtedness for federal tax
purposes. The rights of a creditor typically
include the right to force an issuer into
insolvency, and a right superior to that of
a shareholder to share in the assets of the
issuer in case of dissolution. Despite being
debt in form, internal TLAC issued under
the Board regulations lacks several of the
elements that generally are required for an
instrument to be treated as indebtedness
for federal tax purposes.

.06 GSIBs play a unique role in the
global economy, and are consequently
subject to extensive oversight of their
transactions and capital structure. As part
of this oversight the Board has prescribed
unique and highly specific rules to mini-
mize the risks that GSIBs present, includ-
ing the use of TLAC to enable the Board
to resolve an IHC owned by a GSIB. The
Treasury Department and the IRS believe
that it is in the interest of sound tax ad-
ministration to apply federal tax principles
in a manner that will support the rules
promulgated by the Board for recapitaliz-
ing the issuer of internal TLAC on a
going-concern basis.

### SECTION 3. SCOPE

This revenue procedure applies to in-
ternal TLAC that is issued by an IHC of a
foreign GSIB pursuant to the Board reg-
ulations described in section 2.04 of this
revenue procedure.

## SECTION 4. APPLICATION

The IRS will treat an instrument de-
scribed in section 3 of this revenue proce-
dure as indebtedness for federal tax pur-

poses to the extent that the internal TLAC
has not been subject to a debt conversion
order.

## SECTION 5. EFFECTIVE DATE

This revenue procedure is effective for
an instrument described in section 3 of
this revenue procedure issued on or after
December 15, 2016.

## SECTION 6. NO INFERENCE

This revenue procedure provides guid-
ance with respect to the federal tax char-
acterization of an instrument described in
section 3 of this revenue procedure. No
inference should be drawn about the fed-
eral tax characterization of an instrument
that is outside the scope of this revenue
procedure.

## SECTION 7. CONTACT INFORMATION

For further information regarding this
revenue procedure, contact William E.
Blanchard or Diana Imholtz of the Office
of Associate Chief Counsel (Financial In-
stitutions & Products) at (202) 317-3900
(not a toll-free number).

26 CFR 301.7705: Maintaining certification as a
certified professional employer organization.

## Rev. Proc. 2017-14

## SECTION 1. BACKGROUND AND DEFINITIONS

The Stephen Beck, Jr., Achieving a
Better Life Experience (ABLE) Act of
2014, enacted on December 19, 2014, as
part of The Tax Increase Prevention Act
of 2014 (Pub. L. 113-295), added new
sections 3511 and 7705 to the Internal
Revenue Code (Code) relating to the cer-
tification requirements for, and the federal
employment tax consequences of being, a
certified professional employer organiza-
tion (CPEO). The ABLE Act requires the
establishment of a voluntary program for
persons to apply to become certified as a
CPEO. Temporary and final regulations
under section 7705 of the Code (TD 9768,
published May 6, 2016, at 81 FR 27315,
as corrected July 12, 2016, at 81 FR
45012) describe the certification require-
ments necessary for a person to become

and remain a CPEO, and proposed reg-
ulations under section 3511 of the Code
(REG-127561-15, published May 6,
2016, at 81 FR 27360) describe the fed-
eral employment tax consequences of
becoming a CPEO. Revenue Procedure
2016-33, 2016-25 I.R.B. 1034, sets
forth the detailed procedures for apply-
ing to be certified as a CPEO. Notice
2016-49, 2016-34 I.R.B. 265, provides
interim guidance and describes modifi-
cations to certain certification requirements
that the Department of the Treasury (Trea-
sury) and the Internal Revenue Service
(IRS) intend to make when publishing final
regulations and updating Rev. Proc. 2016-
33.

This revenue procedure addresses the
requirements for a CPEO to remain certi-
fied and the procedures relating to suspen-
sion and revocation of CPEO certification,
and consolidates in one place the ongoing
requirements articulated in the regulations
(both proposed and temporary) under sec-
tions 3511 and 7705 of the Code as well
as certain applicable requirements of Rev.
Proc. 2016-33, as modified by Notice
2016-49. In addition, this revenue proce-
dure provides guidance, including certain
transition relief, to CPEOs with an effec-
tive date of certification of January 1,
2017, that receive notice of certification
after that date.

.01 Definitions. For purposes of this
revenue procedure-

(1) The term "application" means the
electronic submission by a CPEO appli-
cant and its responsible individuals of all
information required by the online appli-
cation form for CPEO certification (made
available by the IRS on www.irs.gov), as
well as all accompanying forms and doc-
umentation required by § 301.7705-2T,
Rev. Proc. 2016-33, Notice 2016-49,
and instructions accompanying the appli-
cation.

(2) The term "controlled group" means
any controlled group of corporations or
trades or businesses under common con-
trol within the meaning of sections 414(b)
and (c) of the Code, and the regulations
thereunder.

(3) The term "certified public accoun-
tant" (CPA) means a certified public ac-
countant who-

(a) With respect to a CPEO, is inde-
pendent of the CPEO (as prescribed by the

American Institute of Certified Public Ac-
countants' Professional Standards, Code
of Professional Conduct, and its interpre-
tations and rulings);

(b) Is not currently under suspension
or disbarment from practice before the
IRS;

(d) Files with the IRS a written dec-
laration that he or she is currently quali-
fied as a CPA.

(4) The term "covered employee"
means, with respect to a customer, any
individual (other than a self-employed in-
dividual, as defined in section 1.01(14) of
this revenue procedure) who performs ser-
vices for the customer and who is covered
by a CPEO contract between the CPEO
and the customer.

(5) The term "CPEO" means a person
that has been certified by the Commis-
sioner as meeting the requirements of
§ 301.7705-2T, Rev. Proc. 2016-33, No-
tice 2016-49, the instructions accompa-
nying the application, and any applicable
subsequent guidance and whose certifica-
tion has not been revoked or voluntarily
terminated.

(6) The term "CPEO contract" means a
service contract between a CPEO and a
customer that satisfies the requirements in
section 7705(e)(2) of the Code.

(7) The term "customer" means any
person who enters into a CPEO contract
with a CPEO, except that a provider of
employment-related services that uses its
own employer identification number
(EIN) for filing federal employment tax
returns on behalf of its clients (or that
used its own EIN immediately prior to
entering into a CPEO contract with the
CPEO) is not a customer, even if it has
entered into a CPEO contract with the
CPEO.

(8) The term "federal employment
taxes" means the taxes imposed by subti-
tle C of the Code.

(9) The term "guidance" includes guid-
ance published in the Federal Register or
Internal Revenue Bulletin, as well as ad-
ministrative guidance such as forms, in-
structions, publications, or other guidance
on the irs.gov Web site.

(10) The term "precursor entity" means
an entity described in § 301.7705-
1T(b)(10).

(11) The term "qualified surety" means
a surety that meets the requirements of
§ 301.7705-2T(g)(6).

(12) The term "related entity" means
an entity described in § 301.7705-
1T(b)(12).

(13) The term "responsible individ-
ual" means an individual described in
§ 301.7705-1T(b)(13).

(14) The term "self-employed individ-
ual" means an individual with net earn-
ings from self-employment (as defined in
section 1402(a) of the Code and without
regard to the exceptions thereunder) de-
rived from providing services covered by
a CPEO contract, whether such net earn-
ings from self-employment are derived
from providing services as a non-
employee to a customer of the CPEO,
from the individual's own trade or busi-
ness as a sole proprietor customer of the
CPEO, or as an individual who is a partner
in a partnership that is a customer of the
CPEO, but only with regard to such net
earnings.

(15) The term "work site" means a
physical location at which an individual
regularly performs services for a customer
of a CPEO or, if there is no such location,
the location from which the customer as-
signs work to the individual. A work site
may not be the individual's residence or a
telework site unless the customer requires
the individual to work at that site. For
purposes of this section 1.01(15), work
sites that are contiguous locations will be
treated as a single physical location and
thus a single work site, and noncontiguous
locations that are not reasonably proxi-
mate will be treated as separate physical
locations and thus separate work sites. A
CPEO may treat noncontiguous locations
that are reasonably proximate as a single
physical location and thus a single work
site. Any two work sites that are separated
by 35 or more miles or that operate in a
different industry or industries will not be
treated as reasonably proximate for pur-
poses of this section 1.01(15).

(16) The term "work site employee"
means, with respect to a customer, a cov-
ered employee who performs services for
such customer at a work site where, at any
time during a calendar quarter, at least 85
percent of the individuals performing ser-
vices for the customer are covered em-
ployees of the customer. To be a work site

employee, a covered employee regularly
performing services for a customer at a
work site during a calendar quarter is not
required to be performing services for the
customer at the time the work site cover-
age requirement is met at that work site.

(a) Solely for purposes of determining
whether the 85 percent threshold de-
scribed in this section 1.01(16) is met, a
self-employed individual described in sec-
tion 1.01(14) of this revenue procedure is
treated as a covered employee if such in-
dividual is performing services at the
work site and would be a covered em-
ployee but for the exclusion of self-
employed individuals from the definition
of covered employee in section 1.01(4) of
this revenue procedure.

(b) In determining whether the 85 per-
cent threshold described in this section
1.01(16) is met, an individual who is an
excluded employee described in section
414(q)(5) of the Code is not treated either
as an individual providing services or a
covered employee.

(c) Notwithstanding the first sentence
of this section 1.10(16), a covered em-
ployee will be considered a work site em-
ployee for the entirety of a calendar quar-
ter with respect to all services performed
for a customer at one or more work sites if
the employee qualifies as a work site em-
ployee with respect to such customer at
any work site during that calendar quarter.

(d) The determination of whether a
work site meets the 85 percent threshold
described in this section 1.01(16) is made
separately with respect to each customer
of a CPEO and with respect to each work
site of a customer. In making this deter-
mination, a covered employee is taken
into account at each work site of a cus-
tomer at which the employee regularly
performs services for such customer.

.02 Changes and request for com-
ments. This revenue procedure may be
updated periodically to improve CPEO
program procedures. The IRS solicits
comments on this revenue procedure and
the administration of the CPEO program.
All comments will be available for public
inspection and copying. Comments may
be submitted in one of three ways:

(1) By mail to CC:PA:LPD:PR (Rev.
Proc. 2017-14), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.

(2) Electronically to Notice.Comments@
irscounsel.treas.gov. Please include "Rev.
Proc. 2017-14" in the subject line of any elec-
tronic communications.

(3) By hand-delivery Monday through
Friday between the hours of 8 a.m. and 4
p.m. to CC:PA:LPD:PR (Rev. Proc.
2017-14), Courier's Desk, Internal Reve-
nue Service, 1111 Constitution Ave., NW,
Washington, DC 20224.

## SECTION 2. PROCEDURES FOR MAINTAINING CERTIFICATION AS A CPEO

.01 In general. To maintain certifica-
tion, a CPEO must meet the applicable
requirements described in § 301.7705-2T,
this revenue procedure, and other guid-
ance. In addition, any responsible individ-
uals of the CPEO must meet any require-
ments applicable to them that are
described in § 301.7705-2T, this revenue
procedure, and other guidance. Except as
otherwise provided in this revenue proce-
dure or other guidance, the information
and documents required in sections 2.02
through 2.05, 2.06(3), and 2.06(4) of this
revenue procedure must be submitted
electronically via the online account cre-
ated by the CPEO or responsible individ-
ual, as applicable. The individual submit-
ting information and documents on behalf
of the CPEO through the CPEO's online
account must be authorized by section
6103(e) of the Code to inspect the returns
and return information of the CPEO. For
more information on how to electronically
submit the information and documents re-
quired in this revenue procedure, see in-
structions accompanying the CPEO's or
responsible individual's online account
(accessible on www.irs.gov).

.02 Annual verification.

(1) In general. Consistent with
§ 301.7705-2T(j), a CPEO must submit
a properly completed and executed on-
line annual verification to maintain cer-
tification. CPEOs that are members of a
controlled group must each submit a
separate annual verification. The due
date for submitting the annual verifica-
tion is 30 days before the anniversary of
the date (month and day) on which the
CPEO's certification became effective.

(2) User fee. Consistent with section
7528(b)(4) of the Code, upon submission
of the online annual verification, the indi-

vidual that submits the verification on be-
half of the CPEO will be automatically
directed to pay a user fee in the amount of
$1,000 through www.pay.gov. Payment
confirmations are provided through the
www.pay.gov portal. Additional informa-
tion about payment submission can be
found under Frequently Asked Questions
at www.pay.gov. No CPEO annual verifi-
cation will be processed until a user fee in
the amount of $1,000 is received. Once
processing of the annual verification has
begun, the user fee will not be returned.

(3) Background check and tax compli-
ance check. As part of a CPEO's annual
verification, the IRS may investigate the
accuracy of statements and representa-
tions made by a CPEO and its responsible
individuals by conducting background
checks, including checks on tax compli-
ance, criminal background, professional
experience, credit history, professional
sanctions, and other relevant facts. By
submitting an annual verification, a CPEO
and its responsible individuals agree to
provide the IRS with such additional in-
formation as the IRS may request to facil-
itate its background investigations. A
CPEO and each of its responsible individ-
uals must take such actions as are neces-
sary to authorize the IRS to conduct back-
ground checks and to investigate the
accuracy of statements and submissions.
This may include waiving confidentiality
and privilege in situations in which the
IRS would otherwise be prevented from
obtaining or confirming information nec-
essary to evaluate a CPEO's qualification
for certification from relevant third parties
(such as former employers) because of
the existence of confidentiality, non-
disclosure, or similar agreements. Failure
to provide such information or take such
action may result in revocation of certifi-
cation.

.03 Bond requirements.

(1) In general. In addition to the bond
that must be posted within 30 days of the
notice of certification, as provided in sec-
tion 7705(c) of the Code, § 301.7705-
2T(g), and section 2.04(2) of Rev. Proc.
2016-33, a CPEO must continue to post a
bond (or bonds, as described in section
2.03(3) of this revenue procedure) from a
qualified surety for the payment of federal
employment taxes using Form 14751,
Certified Professional Employer Organi-

zation Surety Bond, in the amount de-
scribed in § 301.7705-2T(g)(2) and this
section 2.03, for each period beginning on
April 1 of any calendar year and ending
on March 31 of the following calendar
year (the bond period). As prescribed by
§ 301.7705-2T(g)(2)(i), the amount of the
bond (or bonds, as described in section
2.03(3) of this revenue procedure) with
respect to the bond period must be at least
equal to the greater of 5 percent of the
CPEO's liability under section 3511 of the
Code during the preceding calendar year
(up to $1,000,000) or $50,000. See
§ 301.7705-2T(g)(2)(ii) for special rules
applying to a CPEO in its first or second
year of certification. The bond, any riders
thereto, and any strengthening bonds
posted to satisfy the requirements of sec-
tion 2.03(3) of this revenue procedure, are
considered one continuous obligation of
the surety for unpaid tax liabilities ac-
crued by the CPEO under subtitle C from
the effective date of the bond until the
bond is superseded, as described in sec-
tion 2.03(3) of this revenue procedure, or
cancelled, as described in section 2.03(4)
of this revenue procedure (the term of the
bond).

(2) Controlled Groups. All CPEO
members of a controlled group are re-
quired to be covered by the same bond in
the amount required by § 301.7705-
2T(g)(2), applied as if all such CPEO
members were one organization.

(3) Increase in bond amount. By
March 1 in any calendar year, a CPEO
must determine if an increase in bond
amount for the new bond period begin-
ning on April 1 of that calendar year is
necessary and, if so, increase the amount
of the bond covering the new bond period.
That is, if 5 percent of a CPEO's liability
under section 3511 of the Code (or other
applicable federal employment tax liabil-
ity) for the preceding calendar year ex-
ceeds the current amount of the bond, the
CPEO must increase the amount of its
bond with respect to the new bond period
beginning on April 1 (up to the
$1,000,000 maximum bond amount). To
increase the amount of the bond, the
CPEO must submit a properly completed
and executed Form 14751, or such other
form or document required by the IRS in
the instructions for Form 14751 or further
guidance, by March 1 of the calendar year

in which the new bond period begins. The
CPEO must also increase the amount of
its bond if, at a later point in the bond
period, the CPEO or the IRS determines
that the applicable federal employment
tax liability for the preceding calendar
year was higher than the amount reported
and paid and on which the bond amount
for the bond period was based and makes
an adjustment or assessment reflecting
such determination. To increase the
amount of its bond due to such an adjust-
ment or assessment, the CPEO must sub-
mit a properly completed and executed
Form 14751, or such other form or docu-
ment required by the IRS in the instruc-
tions for Form 14751 or further guidance,
within 30 days of the date of the adjust-
ment or assessment. To increase the bond
amount, a CPEO may amend an existing
bond through the use of a rider, or post a
strengthening, superseding, or new bond,
where applicable.

(a) For these purposes, a rider is an
amendment to an existing bond that in-
creases the bond amount. The rider must
apply to liabilities that arise on or after the
effective date of the bond that the rider
amends. The surety remains liable under
the existing bond, as amended by the
rider, for the assessment and collection
periods applicable to the CPEO under sec-
tions 6501 and 6502 of the Code, respec-
tively, with respect to any taxable period
that occurs during the term of the bond
unless and until the bond is superseded.

(b) For these purposes, a strengthening
bond is an additional bond posted in the
incremental amount of the increase so that
the strengthening bond together with the
existing bond equal the total required
bond amount. The strengthening bond
must apply to liabilities that arise on or
after the effective date of the bond it
strengthens. Both the strengthening bond
and the bond it strengthens must remain in
effect, and the surety remains liable under
both bonds for the assessment and collec-
tion periods applicable to the CPEO under
sections 6501 and 6502 of the Code, re-
spectively, with respect to any taxable pe-
riod that occurs during the term of the
bonds, unless and until the bonds are su-
perseded.

mental increase. Upon execution of the
superseding bond, the superseded bond is
no longer in effect, and the surety that
provided the superseded bond is no longer
liable under the superseded bond. The su-
perseding bond must apply to liabilities
that arise on or after the effective date of
the superseded bond.

(d) For these purposes, a new bond is a
bond posted for the total required bond
amount and may only be posted upon the
CPEO's initial certification or immedi-
ately following cancellation of an existing
bond. In the case of a cancellation of an
existing bond, the effective date of the
new bond must be no later than the effec-
tive date of the cancellation of the existing
bond, and the surety providing the exist-
ing (now cancelled) bond remains liable
for liabilities that accrued during the term
of the cancelled bond for the assessment
and collection periods applicable to the
CPEO under sections 6501 and 6502 of
the Code, respectively, with respect to any
taxable period that occurred during the
term of that bond.

(4) Cancellation of bond. Consistent
with § 301.7705-2T(g)(3), a bond may be
cancelled by the surety only after the
surety gives written notice of such cancel-
lation to the IRS and the CPEO in the
manner provided in the instructions for
Form 14751. Similarly, a bond may be
cancelled by the CPEO only after the
CPEO gives written notice of such can-
cellation to the IRS in the manner pro-
vided in the instructions for Form 14751
or other guidance. If a CPEO either re-
ceives a notice of cancellation from the
surety provider of its bond, or gives notice
to the IRS of the CPEO's intent to cancel
the bond, the CPEO must post a new or
superseding bond for the required amount
by submitting Form 14751 no later than
30 days prior to the effective date of the
cancellation of the previous bond.

(5) Loss of qualified surety. If the
surety provider of a CPEO's bond no lon-
ger meets the requirements for a qualified
surety, the CPEO must post a new or
superseding bond with a qualified surety
for the required amount by submitting
Form 14751 no later than 30 days after
notification that the previous surety no
longer meets the requirements of a quali-
fied surety.

.04 Submission of annual audited fi-
nancial statements.

(1) Copy of financial statements. By
the last day of the sixth month after the
end of each fiscal year of the CPEO (the
audit date as defined in section 7705(c)(6)
of the Code), and beginning with the first
fiscal year that ends after the CPEO's ef-
fective date of certification, a CPEO must
submit a copy of its annual audited finan-
cial statements for the fiscal year.

(2) CPA opinion. With its annual au-
dited financial statements, a CPEO must
submit an opinion of a CPA that such
financial statements are presented fairly
and in accordance with generally accepted
accounting principles (GAAP). The CPA
opinion must be an unmodified opinion
(i.e., it cannot be a qualified opinion, an
adverse opinion, or an opinion subject to a
disclaimer of opinion) and accompanied
by a written declaration, signed by the
CPA, that he or she is currently qualified
as a CPA.

(3) Working capital statement. Either
the CPA opinion or a Note to the Finan-
cial Statements covered by the CPA opin-
ion must state that the CPEO's financial
statements reflect positive working capital
(as defined by GAAP), or, only if the
requirements of section 2.04(4) of this
revenue procedure are met, reflect nega-
tive working capital, and, in either case,
set forth in detail a calculation of the
CPEO's working capital as reflected in the
financial statements.

(4) Exception for negative working
capital. A working capital statement that
states that a CPEO's annual audited finan-
cial statements reflect negative working
capital will meet the requirements of sec-
tion 2.04(3) of this revenue procedure
only if-

(a) The CPEO has negative working
capital for no more than two consecutive
fiscal quarters of the fiscal year, as dem-
onstrated by the required annual audited
financial statements or the statements de-
scribed in section 2.05(3) of this revenue
procedure, or the submission of quarterly
unaudited financial statements;

(b) The CPEO provides with the state-
ment a detailed calculation of its negative
working capital and an explanation to the
IRS describing the reason for the negative
working capital; and

(c) The IRS determines, in its sole
discretion, that the negative working cap-
ital does not present a material risk to the
IRS's collection of federal employment
taxes. The determination of whether the
failure presents a material risk to the
IRS's collection of federal employment
taxes may depend, in part, on whether the
CPEO has identified facts and circum-
stances that will result in positive working
capital in the near future.

(5) Annual audited financial statements
for controlled groups. In the case of a
controlled group in which more than one
member of the controlled group is a
CPEO, each CPEO in the controlled group
must submit the annual audited financial
statements described in section 2.04(1) of
this revenue procedure, with an accompa-
nying CPA opinion described in section
2.04(2) of this revenue procedure, on a
combined or consolidated basis for all
CPEOs in the controlled group, rather
than for the CPEO individually. Although
the CPEO is not required to provide a
copy of its separate financial statements as
part of its submission, if the financial po-
sition of a CPEO is unclear from the com-
bined or consolidated financial statements
of the controlled group of which the
CPEO is a member, the IRS may request
additional financial information that is
needed to evaluate the CPEO's position,
such as the annual balance sheet, income
statement, and statement of cash flow of
the individual CPEO.

(a) The combined or consolidated
annual audited financial statements pro-
vided pursuant to this section 2.04(5)
may, but are not required to, also include
all members of the controlled group that
are not CPEOs. The name and EIN of
each member of the controlled group that
is included within the consolidated au-
dited financial statements of the controlled
group so provided (including each mem-
ber that is not a CPEO) must be listed in
the CPA opinion, a Note to the Financial
Statements covered by the CPA opinion,
or in a separate attachment signed by a
responsible individual of the CPEO under
penalties of perjury.

(b) As required by section 2.04(3) of
this revenue procedure, a CPEO that is a
member of a controlled group of which
other members are CPEOs must provide,
in the CPA opinion or in a Note to the

Financial Statements covered by the CPA
opinion, a statement that the individual
CPEO's financial statements reflect posi-
tive working capital (as defined by
GAAP) or, if the requirements of section
2.04(4) of this revenue procedure are met,
reflect negative working capital, with the
statement in either case setting forth in
detail a calculation of the individual
CPEO's working capital. If it is unclear
whether the CPEO has positive or nega-
tive working capital for the last quarter of
the fiscal year based on the combined or
consolidated financial statements of the
controlled group of which the CPEO is a
member, the IRS may request additional
financial information on an individual
CPEO basis. The status of other CPEOs in
the controlled group is not affected if the
CPEO's certification is suspended or re-
voked because the CPEO's working cap-
ital statement reflects negative working
capital and the CPEO fails to meet the
exception described in section 2.04(4).

.05 Submission of quarterly assertions,
attestations, and working capital state-
ments. By the last day of the second
month after the end of each calendar quar-
ter, a CPEO must provide an assertion, as
described in section 2.05(1) of this reve-
nue procedure, that it has withheld and
made deposits of all federal employment
taxes for which the CPEO is liable for the
quarter; an examination level attestation
from a CPA, as described in section
2.05(2) of this revenue procedure, stating
that this assertion is fairly stated in all
material respects; and a statement verify-
ing that the CPEO has positive working
capital, as described in section 2.05(3) of
this revenue procedure.

(1) Assertion. The assertion must be
signed under penalties of perjury by a
responsible individual of the CPEO and
state that the CPEO has withheld and
made deposits of all federal employment
taxes for the calendar quarter as required
by subtitle C (except that the assertion is
not required with respect to federal em-
ployment taxes imposed by chapter 23 of
the Code).

(2) Examination level attestation. The
examination level attestation from a CPA
must state that the assertion described in
section 2.05(1) of this revenue procedure
is fairly stated in all material respects and
complies with the requirements of the

American Institute of Certified Public Ac-
countants' Statements of Standards for
Attestation Engagements, including the
specific requirements for Examination Re-
ports. The attestation must be accompa-
nied by a written declaration, signed by
the CPA, that he or she is currently qual-
ified as a CPA. A CPEO will not fail to
meet the requirements of this section
2.05(2) if the examination level attestation
indicates that the CPEO has failed to with-
hold or make deposits in certain immate-
rial respects, provided that-

(a) The attestation provides a sum-
mary of the immaterial failures that were
found;

(b) The attestation states that, and ex-
plains why, the failures were immaterial
and isolated and do not reflect a meaning-
ful lapse in compliance with federal em-
ployment tax withholding and deposit re-
quirements; and

(c) The IRS determines, in its sole
discretion, that the isolated and immaterial
failures identified by the CPA do not pres-
ent a material risk to the IRS's collection
of federal employment taxes.

(3) Working capital statement. The
statement verifying positive working cap-
ital must be signed by a responsible indi-
vidual under penalties of perjury and ver-
ify that the CPEO has positive working
capital (as defined by GAAP) with respect
to the most recently completed fiscal quar-
ter. The statement must include a detailed
calculation of the CPEO's working capital
and be accompanied by a copy of the
CPEO's unaudited financial statements
for the most recently completed fiscal
quarter, if such statements are available. A
CPEO will not fail to meet the require-
ments of this section 2.05(3) as a result of
having negative working capital at the end
of the fiscal quarter if-

(a) The CPEO does not have negative
working capital at the end of the two fiscal
quarters immediately preceding such fis-
cal quarter, as demonstrated by the re-
quired annual audited financial statements
described in section 2.04 of this revenue
procedure or the statements described in
this section 2.05(3), or by the submission
of quarterly unaudited financial state-
ments;

(b) The CPEO provides a detailed cal-
culation of its negative working capital,
unaudited financial statements for the

quarter, if available, and an explanation to
the IRS describing the reason for such
negative working capital; and

(c) The IRS determines, in its sole
discretion, that the negative working cap-
ital does not present a material risk to the
IRS's collection of federal employment
taxes. The determination of whether the
negative working capital presents a mate-
rial risk to the IRS's collection of federal
employment taxes may depend, in part, on
whether the CPEO has identified facts and
circumstances that will result in positive
working capital in the near future.

(4) Quarterly assertions, attestations,
and working capital statements for con-
trolled groups. In the case of a controlled
group in which more than one member of
the controlled group is a CPEO, each
CPEO in the controlled group must sub-
mit for each calendar quarter the assertion
described in section 2.05(1) of this reve-
nue procedure and the examination level
attestation described in section 2.05(2) of
this revenue procedure on a combined or
consolidated basis for all CPEOs in the
controlled group, rather than for the
CPEO individually. The assertion must
contain the name and EIN of each CPEO
in the controlled group. However, the
working capital statement described in
section 2.05(3) of this revenue procedure
must relate to the CPEO alone and must
not be prepared on a combined or consol-
idated basis with other members of the
controlled group. For purposes of the re-
quirements of section 2.05(3), if it is un-
clear whether the CPEO has positive or
negative working capital for the last quar-
ter of the fiscal year based on the com-
bined or consolidated annual audited fi-
nancial statements of the controlled group
of which the CPEO is a member, the IRS
may request additional financial informa-
tion about the individual CPEO. The sta-
tus of other CPEOs in the controlled
group is not affected if the CPEO's certi-
fication is suspended or revoked because
the working capital statement described in
section 2.05(3) reflects negative working
capital and the CPEO fails to meet the
exception described in section 2.05(3).

.06 Reporting Requirements.

(1) Commencement and termination
of contracts. A CPEO must report the
commencement or termination of any
CPEO contract between the CPEO and a

customer, or any service agreement de-
scribed in § 31.3504-2(b)(2) between the
CPEO and a client, and the name and EIN
of such customer or client, using Form
8973, Certified Professional Employer
Organization/Customer Reporting Agree-
ment.

(a) Except as provided in section
2.06(1)(b) of this revenue procedure, a
CPEO must submit Form 8973 within 30
days of the commencement of any CPEO
contract or service agreement described in
§ 31.3504-2(b)(2) (including the conver-
sion of an existing service agreement de-
scribed in § 31.3504-2(b)(2) to a CPEO
contract and vice versa).

(b) To provide a newly certified
CPEO with sufficient time to complete
Forms 8973 for clients with whom it has
had service agreements prior to certifica-
tion as a CPEO (existing clients), a CPEO
has six months from the date of its notice
of certification to submit Forms 8973 with
respect to the commencement of any
CPEO contracts with existing clients (in-
cluding the conversion of a service agree-
ment described in § 31.3504-2(b)(2) with
an existing client to a CPEO contract) or
the commencement of any service agree-
ments described in § 31.3504-2(b)(2)
with existing clients (including the
continuation by a newly certified CPEO
of a service agreement described in
§ 31.3504-2(b)(2) with an existing cli-
ent).

(c) A CPEO must submit Form 8973
to the IRS within 30 days of the termina-
tion of any CPEO contract or service
agreement described in § 31.3504-
2(b)(2).

(d) Form 8973 includes a CPEO
Consent to Disclosure of Tax Information,
on which the CPEO consents to the IRS
disclosing to the customer or client iden-
tified on the Form 8973 information from
the CPEO's employment tax returns (for
example, Forms 940 and 941) filed with
respect to the customer or client identified
on the Form 8973 and information about
the CPEO's certification. The CPEO con-
sents to such disclosure only to the extent
necessary to carry out the purposes of the
CPEO program, and will list on the CPEO
Consent to Disclosure of Tax Information
the specific year(s) or period(s) for which
consent to disclosure of employment tax
return information is provided. The CPEO

must file a new CPEO Consent to Disclo-
sure of Tax Information before the end of
the last year or period listed on the most
recent prior consent for the customer or
client, unless and until the CPEO submits
a Form 8973 to report the termination of
such CPEO contract or service agreement.
For more information, see Form 8973 and
its instructions.

(2) Employment tax reporting. A
CPEO that is treated as an employer of a
covered employee under section 3511 of
the Code must meet all reporting and re-
cordkeeping requirements described in
subtitle F of the Code that are applicable
to employers, in a manner consistent with
such treatment. Specifically, with any
Form 940, Employer's Annual Federal
Unemployment (FUTA) Tax Return, and
Form 941, Employer's QUARTERLY Fed-
eral Tax Return, that it files, a CPEO must
file Schedule R (Form 940), Allocation
Schedule for Aggregate Form 940 Filers,
and Schedule R (Form 941), Allocation
Schedule for Aggregate Form 941 Filers,
respectively, providing all the information
required by the form and its instructions.
In addition, Form 940 and, except with
respect to the first calendar quarter for
which the CPEO is certified, Form 941,
along with all required schedules, includ-
ing Schedule R, must be electronically
filed. A CPEO may file the Form 941,
along with all required schedules, includ-
ing Schedule R, on paper with respect to
the calendar quarter that begins on the
effective date of certification. See the in-
structions for Form 940, Form 941,
Schedule R (Form 940), and Schedule R
(Form 941) for additional information on
filing these forms. The IRS may waive the
electronic filing requirements of this sec-
tion 2.06(2) in case of undue economic
hardship. The principal factor in determin-
ing undue economic hardship will be the
amount, if any, by which the cost of elec-
tronically filing Form 940 and Form 941
(and all applicable schedules) exceeds the
cost of paper filing. To request a waiver
from electronic filing requirements, a
CPEO must submit in writing a request
that specifies the type of filing (that is, the
name of the form or schedule), as well as
the period to which it applies, and that
explains the undue economic hardship
caused by electronic filing. In addition,
the waiver will be subject to such terms

and conditions regarding the method of
filing as may be prescribed by the IRS.
For additional information on how to re-
quest a waiver from electronic filing re-
quirements, see the information provided
on the IRS CPEO web page on www.irs.
gov.

(3) Reporting of material changes. A
CPEO must notify the IRS of any change
that materially affects the continuing ac-
curacy of any agreement or information
that was previously made or provided to
the IRS (material change), including a
modification or update to previously pro-
vided information, as well as new infor-
mation (for example, a new responsible
individual). A CPEO must notify the IRS
of a material change no later than 30 days
(45 days in the case of a new responsible
individual) after the date of the material
change. Notification must be provided
through the online account of the CPEO
by which the initial application was sub-
mitted, or through such other means as the
IRS prescribes in further guidance. Mate-
rial changes that must be reported as pre-
scribed in this section 2.06(3) include, but
are not limited to, the following items:

(a) Any change to the information
previously provided by the CPEO as part
of its initial application for certification or
as part of a prior material change notifi-
cation or annual verification related to
business name or organization, address,
fiscal year, licensing information, precur-
sor entities, related entities, controlled
group information, responsible individu-
als, or background information.

(b) Any change to the tax compliance
information previously provided by the
CPEO as part of its initial application for
certification or as part of a prior material
change notification or annual verification.
When reporting material changes to the
CPEO's tax compliance information, the
CPEO must specifically report: (i) the dis-
covery of any failure (other than immate-
rial and isolated failures that do not reflect
a meaningful lapse in compliance with
federal employment tax withholding and
deposit requirements) by the CPEO or any
of its precursor or related entities within
the last six years to timely and accurately
file federal, state, or local tax or informa-
tion returns (including federal employ-
ment tax returns) or pay any applicable
federal, state, or local tax (including fed-

eral employment taxes), except that with
respect to precursor entities that are no
longer related entities, the CPEO must
report only those failures of which it be-
comes aware and that relate to the precur-
sor entity's tax and reporting responsibil-
ities connected with any assets that were
transferred to the CPEO from the precur-
sor entity; and (ii) the assessment of fraud
penalties by the IRS or a state or local tax
authority against the CPEO or any of its
precursor or related entities for any year,
including for years before the CPEO was
certified, except that with respect to pre-
cursor entities that are no longer related
entities, the CPEO must report only those
assessments of fraud penalties of which it
becomes aware and that relate to the pre-
cursor entity's tax and reporting responsi-
bilities connected with any assets that
were transferred to the CPEO from the
precursor entity.

(c) Any change to any annual audited
financial statements or annual working
capital statements previously submitted to
the IRS in accordance with section 2.04 of
this revenue procedure, section 2.05 of
Rev. Proc. 2016-33, and § 301.7705-
2T(e), that would require a restatement of
previously submitted annual audited fi-
nancial statements.

(d) Any change to the quarterly work-
ing capital statements previously submit-
ted to the IRS in accordance with section
2.05 of this revenue procedure, section
2.06 of Rev. Proc. 2016-33, and
§ 301.7705-2T(f), that causes working
capital to no longer be positive or that
causes a CPEO with negative working
capital that met the requirements of sec-
tion 2.05(3) of this revenue procedure to
no longer meet those requirements.

(e) The discovery by the CPEO of tax
fraud or criminal activity in violation of
federal, state, or local laws by a responsi-
ble individual.

(f) The charging or conviction of the
CPEO, or a related entity or a responsible
individual of the CPEO, with or for any
federal, state, or local criminal offense.

(g) The commencement of an active
IRS criminal investigation of the CPEO,
or the discovery by the CPEO of an active
IRS criminal investigation of a related en-
tity or a responsible individual.

(h) The occurrence of a transaction by
which a person or group of persons gain

control or effective control, directly or
indirectly (including through control of
the owner of the CPEO), of 50 percent or
more of the stock or other ownership in-
terests in a CPEO (determined by vote or
value).

(i) The sale, transfer, or disposition of
all or substantially all of the CPEO busi-
ness, or the reorganization, spin off or
similar division, liquidation, or closure of
the CPEO business, directly or indirectly
(including through sale, transfer, disposi-
tion, reorganization, spin off, or division
of the owner of the CPEO) regardless of
whether the event is taxable or tax free.

(4) Reporting of material changes by
responsible individuals and reporting of
new responsible individuals. Responsible
individuals of a CPEO must notify the
IRS of any material changes to the infor-
mation they submitted on the Responsible
Individual Personal Attestation (RIPA)
pursuant to section 2.01 of Rev. Proc.
2016-33 or this section 2.06(4), within 30
days of the change, by submitting an up-
date through the online account of the
responsible individual who submitted the
previous RIPA. Material changes that
must be reported as prescribed in this sec-
tion 2.06(4) include any change to the
responsible individual's basic informa-
tion, address, business information, re-
lated entities, and other attestations (such
as attestations related to the denial, sus-
pension, or revocation of licenses, regis-
trations, or accreditations; disbarments;
charges or convictions for any federal,
state, or local criminal offense; IRS crim-
inal investigations; any failures to file any
required federal, state, or local tax or in-
formation returns, or to pay any required
federal, state, or local taxes, in a timely or
accurate manner; the initiation of a bank-
ruptcy proceeding by the responsible in-
dividual; and any assessments of the Trust
Fund Recovery Penalty on the responsible
individual). This reporting requirement is
in addition to the requirement that the
CPEO report material changes relating to
responsible individuals, as provided in
sections 2.06(3)(a), (e), (f), and (g) of this
revenue procedure. In addition, each indi-
vidual who, since the CPEO's effective
date of certification, becomes a responsi-
ble individual of the CPEO must, within
30 days of becoming a responsible indi-
vidual, either, (i) if the responsible indi-

vidual had previously completed a RIPA
for any CPEO, submit an update through
his or her online account adding the
CPEO as a CPEO with which the respon-
sible individual is associated; or, (ii) if the
responsible individual had not previously
completed a RIPA, electronically submit a
properly completed and executed online
RIPA and provide a FD-258, Fingerprint
Card, obtain an individual (INDV) num-
ber from the IRS, and provide this INDV
number to the CPEO in the manner de-
scribed on www.irs.gov (all of which must
take place before the CPEO can update its
responsible individual information).

(5) Reporting to customers. A CPEO
must meet the following reporting re-
quirements with respect to its customers:

(a) A CPEO must notify a customer in
writing if its CPEO contract has been
transferred to another person (or if another
person will report, withhold, or pay, under
such other person's EIN, any applicable
federal employment taxes with respect to
the remuneration of any individuals cov-
ered by its CPEO contract with the cus-
tomer) and provide the customer with the
name and EIN of such other person no
later than 10 days after the transfer or
other applicable event.

(b) A CPEO must provide its custom-
ers with the information necessary to
claim the credits specified in section
3511(d)(2) of the Code and any other
credits specified in future guidance, and
the information necessary to properly re-
port employee tips, as provided in section
6053(c)(8) of the Code.

(c) If a CPEO's certification is sus-
pended or revoked, as described in section
3 of this revenue procedure, the CPEO
must provide written notice to each of its
customers within 10 days of the effective
date of such suspension or revocation, as
provided in sections 3.03(1) and 3.09 of
this revenue procedure.

(d) If any covered employees are not,
or cease to be, work site employees be-
cause they perform services at a location
at which the 85 percent threshold de-
scribed in section 7705(e)(3) of the Code
is not met, the CPEO must notify the
customer in writing within 30 days fol-
lowing the end of the applicable calendar
quarter that the customer may also be li-
able for the federal employment taxes im-

posed on remuneration remitted by the
CPEO to such covered employees.

(6) Information and agreements re-
quired in any contract between a CPEO
and a client or customer.

(a) In general. In the case of a service
agreement described in § 31.3504-2(b)(2)
that is not a CPEO contract (as a result of
which the individuals covered by that ser-
vice agreement are not covered employees),
or if section 3511 of the Code does not
apply to a CPEO contract in accordance
with paragraph (b) of this section 2.06(6),
the agreement or contract must notify, or be
accompanied by a notification to, the client
or customer that the service agreement or
contract is not covered by section 3511 of
the Code and does not alter the client or
customer's liability for federal employment
taxes on remuneration remitted by the
CPEO to the employees covered by the ser-
vice agreement or contract.

(b) Section 3511 of the Code does
not apply to a CPEO contract under the
following circumstances-

(i) The customer has a relationship to
a CPEO described in section 267(b) of the
Code (including by cross-reference to sec-
tion 267(f) of the Code) or section 707(b)
of the Code, except that "10 percent" shall
be substituted for "50 percent" wherever it
appears in the applicable sections;

(ii) The customer has commenced a
CPEO contract with the CPEO but such
commencement has not been reported to
the IRS in accordance with section 2.06(1)
of this revenue procedure;

(iii) The CPEO contract has been en-
tered into by the CPEO while its certifi-
cation has been suspended by the IRS; or

(iv) The certification of a CPEO has
been revoked or voluntarily terminated
but only for the period following the re-
vocation or voluntary termination, and in
such case the notification required by
paragraph (a) of this section 2.06(6)
should be sent as required by sections 3.09
and 4.01 of this revenue procedure.

(c) In situations in which a CPEO con-
tract with a customer covers remuneration
paid by a CPEO to self-employed individ-
uals, the CPEO contract must notify, or be
accompanied by notification to, the cus-
tomer that the remuneration paid by the
CPEO to any self-employed individuals is
not covered by section 3511 of the Code.

(7) Penalties and additions to tax. A
CPEO is subject to the penalty under sec-
tion 6652(n) of the Code for failure to
make any report required by sections 3511
and 7705 of the Code (and the guidance
thereunder), which includes the reporting
requirements described in this section
2.06. In addition, a CPEO is subject to the
same penalties and additions to tax as any
employer that fails to meet the applicable
employment tax reporting requirements
discussed in section 2.06(2) of this reve-
nue procedure, including but not limited
to penalties and additions to tax under
sections 6651, 6656, 6672, 6721, 6722,
and 6723 of the Code. However, the fail-
ure to file Forms 940 and 941, along with
all required schedules, electronically, as
provided in section 2.06(2) of this revenue
procedure, does not constitute a failure to
file for purposes of the section 6651(a)(1)
addition to tax or a failure to make a
report for purposes of the section 6652(n)
penalty. The consequence of any failure to
file these forms and associated schedules
electronically is the potential suspension
or revocation of certification as a CPEO,
addressed in section 3 of this revenue pro-
cedure.

## SECTION 3. SUSPENSION AND REVOCATION OF CPEO CERTIFICATION

.01 In general. The IRS may suspend
and/or revoke the certification of any
CPEO as a result of one or more failures
to comply with any of the requirements
for CPEOs described in sections 3511 and
7705 of the Code, the regulations there-
under, Rev. Proc. 2016-33, Notice 2016-
49, this revenue procedure, and any other
guidance issued by the IRS applicable to
CPEOs, and will do so if the IRS deter-
mines, in its sole discretion and based on
a review of the relevant facts and circum-
stances, that one or more of such failures
present a material risk to the IRS's collec-
tion of federal employment taxes. Section
3.02 of this revenue procedure provides
examples of specific failures that may re-
sult in the issuance of a notice of suspen-
sion and proposed revocation, the conse-
quences of which are described in section
3.03(1) of this revenue procedure. A
CPEO may request review of the pro-
posed revocation, in the manner described
in section 3.03(2) of this revenue proce-

dure, which may result in the lifting of the
suspension or the issuance of a notice of
final revocation. Consequences of revoca-
tion of certification are described in sec-
tion 3.09 of this revenue procedure.

.02 Specific failures resulting in sus-
pension and proposed revocation. Spe-
cific circumstances that may result in sus-
pension and proposed revocation of
certification include, but are not limited
to-

(1) A failure to timely complete an
annual verification, timely submit annual
audited financial statements and an ac-
companying CPA opinion, or timely sub-
mit a quarterly assertion, attestation, or
working capital statement, as provided in
sections 2.02, 2.04, and 2.05 of this reve-
nue procedure;

(2) A failure to maintain a bond or
bonds in the required bond amount, as
provided in section 2.03 of this revenue
procedure;

(3) A failure to satisfy the reporting
requirements provided in section 2.06 of
this revenue procedure, including a failure
of the CPEO or a responsible individual of
the CPEO to notify the IRS of a material
change (as provided in sections 2.06(3)
and 2.06(4) of this revenue procedure);

(4) The charging or conviction of the
CPEO, or a related entity or a responsible
individual of the CPEO, with or for any
criminal offense under the laws of the
United States or a state or political subdi-
vision;

(5) The CPEO, or a related entity or a
responsible individual of the CPEO, being
the subject of an active IRS criminal in-
vestigation;

(6) A failure (other than an immaterial
and isolated failure that does not reflect a
meaningful lapse in compliance with fed-
eral employment tax withholding and de-
posit requirements) by the CPEO or any
responsible individual to pay any applica-
ble federal, state, or local taxes or file any
required federal, state, or local tax or in-
formation returns in a timely and accurate
manner, unless the failure is determined to
be due to reasonable cause and not due to
willful neglect;

(7) The assessment of fraud penalties
against the CPEO or any of its responsible
individuals or related entities by the IRS
or another tax authority; and

(8) The discovery of any errors or
omissions in any annual audited financial
statements or working capital statements
previously submitted to the IRS in ac-
cordance with sections 2.04 and 2.05 of
this revenue procedure, sections 2.05
and 2.06 of Rev. Proc. 2016-33, and
§§ 301.7705-2T(e) and (f), that would
require a restatement of previously sub-
mitted statements.

.03 Notice of suspension and proposed
revocation. If the CPEO program office
determines that suspension and proposed
revocation of certification is appropriate,
the IRS will issue a notice of suspension
and proposed revocation to the CPEO that
will explain the reason(s) for and con-
sequences of the suspension and pro-
posed revocation, as described in sec-
tion 3.03(1) of this revenue procedure,
and advise the CPEO of its opportunity
to request review of the proposed revo-
cation, as described in section 3.03(2) of
this revenue procedure. The CPEO's
suspension is effective as of the date on
the notice.

(1) Consequences of suspension of cer-
tification. Within 10 days of the date of
the notice of suspension and proposed re-
vocation, the CPEO must provide written
notice to its customers of its suspended
status. Moreover, the IRS will include the
suspended CPEO in the published list of
suspended CPEOs, available on www.irs.
gov, and may also individually notify the
CPEO's customers of the suspension. A
CPEO that has received a notice of sus-
pension and proposed revocation is still
responsible for meeting all applicable cer-
tification requirements contained in the
regulations and this revenue procedure.
However, section 3511 of the Code will
not apply to any new CPEO contract (not
including modifications or extensions to
existing contracts) that the CPEO enters
into while its certification is suspended.
Notwithstanding the foregoing, any new
CPEO contract entered into while the
CPEO's certification is suspended is still
subject to the applicable provisions of sec-
tions 2.06(1), (2), and (6) of this revenue
procedure, which restate requirements
stated in § 31.3511-1(g) of the proposed
regulations, assuming such contract other-
wise constitutes a service agreement de-
scribed in § 31.3504-2(b)(2).

(2) Request for review of proposed re-
vocation. A notice of suspension and pro-
posed revocation, in accordance with this
section 3.03, will advise the CPEO of its
opportunity to request review of the pro-
posed revocation. To request a review, the
CPEO must submit to the CPEO program
office identified in the notice of suspen-
sion and proposed revocation, within 30
days of the date of the notice and in the
manner prescribed by the notice, a written
request for review that contains a state-
ment of the facts, law, and arguments in
support of the CPEO's position, including
a description of the actions it has taken, is
taking, or intends to take to cure the fail-
ure(s) identified in the notice (if possible)
and to prevent the failure(s) from reoccur-
ring. The arguments in support of the
CPEO's position should focus on the fac-
tual information being provided by the
CPEO concerning its failure(s) to comply
with the requirements for CPEOs and/or
on the factual information being provided
as evidence disputing any underlying facts
on which the IRS based its conclusion, as
well as on the actions it has taken or
intends to take to cure the failure(s) (if
possible) and to prevent the failure(s)
from reoccurring. Although arguments
concerning whether the actions the CPEO
has taken or intends to take have cured or
will cure the failure(s) (if possible) and
will prevent the failure(s) from reoccur-
ring are appropriate for the CPEO to make
in its request for review, arguments con-
cerning whether the failure(s) presented or
continue to present a material risk to the
IRS's collection of federal employment
taxes are outside the scope of review and
will not be considered.

.04 Notice of final revocation issued if
no request for review of the proposed re-
vocation is submitted. If the CPEO does
not timely submit a request for review of
the proposed revocation in accordance
with section 3.03(2) of this revenue pro-
cedure, a notice of final revocation will be
issued to the CPEO by the CPEO program
office.

.05 How the IRS handles a request for
review of the proposed revocation. The
CPEO program office will first review the
request.

(1) If the CPEO program office finds
that the CPEO's actions have cured or will
cure the failure(s) (if possible) and will

prevent the failure(s) from reoccurring,
the suspension will be lifted. The CPEO
program office will provide to the CPEO
written notice of this finding that will in-
clude the date the suspension is lifted.
Section 3511 of the Code will apply to
any new CPEO contract that the CPEO
enters into on or after the date the suspen-
sion is lifted. However, section 3511 of
the Code does not apply to any CPEO
contract that the CPEO entered into
while it was suspended. The IRS will
remove the listed CPEO from the pub-
lished list of suspended CPEOs as soon
as practicable, but no later than the next
update of the list that occurs after the
suspension is lifted.

(2) If, upon review of the CPEO's
request for review of the proposed revo-
cation, the CPEO program office deter-
mines that the CPEO's actions have not
cured or will not cure the failure(s) and
will not prevent the failure(s) from reoc-
curring, it will forward the notice of sus-
pension and proposed revocation, the
CPEO's request for review, and all ac-
companying supporting documentation to
the IRS Office of Professional Responsi-
bility (OPR).

.06 Consideration by OPR. If the re-
quest for review of the proposed revoca-
tion is forwarded to OPR, OPR will con-
sider the CPEO's request for review. OPR
will apply an abuse-of-discretion standard
to its review, and if, applying this stan-
dard, OPR finds that the CPEO program
office erred in proposing revocation or in
determining that the CPEO's actions have
not cured or will not cure the failure(s)
and will not prevent the failure(s) from
reoccurring, the CPEO's certification will
not be revoked, and its suspension will be
lifted. OPR will provide written notice of
its finding to both the CPEO and the
CPEO program office, which will include
the date the suspension is lifted. As of the
date the suspension is lifted, the CPEO
will be restored to full status as a CPEO,
section 3511 of the Code will once again
apply to any new CPEO contract that the
CPEO enters into. However, section 3511
of the Code does not apply to any CPEO
contract that the CPEO entered into while
it was suspended. The IRS will remove
the listed CPEO from the list of suspended
CPEOs as soon as practicable, but no later
than the next update of the list that occurs

after the suspension is lifted. If OPR finds
no abuse of discretion, OPR will provide
written notice of its finding to both the
CPEO and the CPEO program office and
will issue a notice of final revocation to
the CPEO, which is described in section
3.08 of this revenue procedure.

.07 A request for review may be with-
drawn. A CPEO may withdraw its request
for review of the notice of proposed revo-
cation before OPR provides written notice
of its finding to the CPEO. A request for
review may be withdrawn only upon the
written request of the CPEO. Upon receipt
of the CPEO's withdrawal request, the
IRS will issue a notice of final revocation.

.08 Notice of final revocation. The no-
tice of final revocation will incorporate by
reference the notice of suspension and
proposed revocation (including an expla-
nation of the reason(s) for the suspension
and proposed revocation) and explain the
consequences of revocation of certifica-
tion, as described in section 3.09 of this
revenue procedure. If the CPEO requested
review of the proposed revocation (and
did not withdraw its request for review),
the notice of final revocation will also
include additional discussion of the IRS's
rationale for revocation of certification in
response to arguments made in the
CPEO's request for review. The notice of
final revocation will state the effective
date of the revocation.

.09 Consequences of revocation. A
CPEO is no longer a CPEO as of the
effective date of revocation stated in the
notice of final revocation, and the provi-
sions of section 3511 of the Code no lon-
ger apply to the organization as of that
date. Unless otherwise stated in the notice
of final revocation, within 10 days after
the date of the notice of final revocation
and no less than 30 days before the effec-
tive date of revocation, the CPEO must
provide written notice to each of its cus-
tomers that the CPEO's certification has
been revoked, that the provisions of sec-
tion 3511 of the Code no longer apply to
the customer's relationship with the
CPEO, and that the customers may also be
liable (as of the effective date of revoca-
tion) for federal employment taxes im-
posed on remuneration remitted by the
CPEO to all employees covered by the
customer's contract with the CPEO.
Moreover, the IRS will include the CPEO

in the published list of revoked CPEOs,
available on www.irs.gov, as soon as prac-
ticable, but no later than the next update of
the list that occurs after the effective date
of revocation, and may also individually
notify the CPEO's customers of the revo-
cation. The former CPEO may not reapply
to be certified as a CPEO until one year
has passed after the effective date of its
revocation.

## SECTION 4. VOLUNTARY TERMINATION

.01 Notice of voluntary termination. A
CPEO may voluntarily terminate its certi-
fication at any time other than while its
certification is suspended. To voluntarily
terminate its certification, the CPEO must
submit to the IRS, via the CPEO's online
account or such other method as the IRS
shall prescribe in further guidance, a writ-
ten notice of voluntary termination at least
30 days prior to the date on which the
CPEO intends for the termination to take
effect. The effective date chosen by the
CPEO must coincide with the first day of
a calendar quarter. Prior to sending the
IRS the notice of voluntary termination,
the CPEO must notify each of its custom-
ers in writing of the CPEO's intention to
terminate its certification and of the pro-
posed effective date of termination, and
provide an explanation of the employment
tax consequences of termination, includ-
ing a statement that the customer may also
be liable (as of the effective date of ter-
mination) for federal employment taxes
imposed on remuneration remitted by the
CPEO to all employees covered by the
customer's contract with the CPEO. A
sample of the notification to customers
referred to in the preceding sentence must
be attached to the notice of voluntary ter-
mination submitted by the CPEO to the
IRS.

.02 Notice of termination sent to cus-
tomers by IRS. Upon receipt of a CPEO's
notice of voluntary termination, the IRS
may also send notification of the CPEO's
intent to terminate certification to the
CPEO's customers.

.03 Effect of voluntary termination. A
CPEO that voluntarily terminates its cer-
tification is, as of the effective date stated
in the notice of voluntary termination, no
longer a CPEO and the provisions of sec-
tion 3511 of the Code will no longer apply

to the organization. The CPEO will also
be removed from the list of CPEOs that
the IRS publishes on www.irs.gov, which
is updated by the 15th day of the first
month of every calendar quarter.

## SECTION 5. GUIDANCE FOR CPEOS WITH AN EFFECTIVE DATE OF CERTIFICATION OF JANUARY 1, 2017, THAT RECEIVE NOTICE OF CERTIFICATION AFTER THAT DATE

.01 In general. Rev. Proc. 2016-33, as
modified by Notice 2016-49, provides
that the effective date of certification for a
CPEO applicant that submits a complete
and accurate application before October 1,
2016, and is certified, will be January 1,
2017, even if the date of its notice of
certification is after January 1, 2017. A
CPEO applicant that submitted a complete
and accurate application before October 1,
2016, under this special rule should begin
keeping track of the information neces-
sary to properly complete a Schedule R
(Form 941), Allocation Schedule for Ag-
gregate Form 941 Filers (a draft of the
new Schedule R (Form 941) that includes
CPEO reporting is available at www.irs.
gov) as of January 1, 2017, even if the
CPEO applicant has not yet received no-
tice of certification. The IRS anticipates
that a CPEO that receives a notice of
certification during the first quarter
of 2017 providing for an effective date of
certification of January 1, 2017, will be
able to comply with CPEO employment
tax reporting requirements, as described in
section 2.06(2) of this revenue procedure,
and file Form 941 with an attached Sched-
ule R by the first quarter deadline of April
30, 2017. However, in the event a CPEO
receives a notice of certification after the
end of the first quarter of 2017 (that is,
after March 31, 2017) that provides for an
effective date of certification of January 1,
2017, the CPEO may file Form 941 for the
first quarter of 2017 without an attached
Schedule R, but then must file Form 941-X,
Adjusted Employer's QUARTERLY Federal
Tax Return or Claim for Refund, with a
properly completed Schedule R for the first
quarter by July 31, 2017.

.02 Transition rule for filing Form
14751. Under § 301.7705-2T(g) and sec-
tion 2.04(2) of Rev. Proc. 2016-33, a
CPEO applicant that is certified under the

special rule described in section 5.01 of
this revenue procedure would have 30
days to post a bond that is effective be-
ginning January 1, 2017, (using Form
14751) in the amount required by
§ 301.7705-2T(g)(2). To comply with
section 2.03(3) of this revenue proce-
dure, a CPEO that is certified under the
special rule and whose bond amount un-
der § 301.7705-2T(g)(2) increases for
the bond period beginning April 1,
2017, would need to increase its bond
amount (using Form 14571) for the new
bond period by March 1, 2017. If a
CPEO that is certified under the special
rule receives its notice of certification
after March 1, 2017, meeting this March
1 deadline will not be possible. More-
over, whether or not notice of certifica-
tion is received by the March 1 deadline,
obtaining a bond for a three-month pe-
riod beginning January 1, 2017, and
then within a short timeframe increasing
that bond amount for a period beginning
April 1, 2017, may prove administra-
tively difficult.

Accordingly, Treasury and the IRS are
providing transition relief for newly certi-
fied CPEOs that are certified with an ef-
fective date of January 1, 2017, under the
special rule described in section 5.01 of
this revenue procedure. Specifically, with
respect to both the bond period from Jan-
uary 1, 2017, to March 31, 2017, and the
bond period from April 1, 2017, to March
31, 2018, such a CPEO will be required to
submit only one properly completed and
executed Form 14751 covering both bond
periods. The single bond posted using this
Form 14751 must have an effective date
of January 1, 2017, and cover both bond
periods using the same bond amount,
which is in the amount required by
§ 301.7705-2T(g)(2), calculated for the
bond period beginning April 1, 2017,
and ending March 31, 2018. In addition,
the CPEO will have 30 days from the
date of its notice of certification to sub-
mit this Form 14751, without regard to
when the CPEO's notice of certification
is received.

## SECTION 6. EFFECTIVE DATE

This revenue procedure is effective
December 29, 2016.

## SECTION 7. PAPERWORK REDUCTION ACT

The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget (OMB) in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. § 3507) under control number
1545-2266.

The collection of information in this
revenue procedure relates to the informa-
tion a person must submit to the IRS to
maintain certification as a CPEO for pur-
poses of sections 3511 and 7705 of the
Code and to the information a CPEO must
report to the IRS and to its customers and
clients to ensure the accurate, efficient,
and transparent payment and reporting of
employment taxes. Generally, the collec-
tion of information burden associated with
sections 2 through 4 of this revenue pro-
cedure is reflected in the burden estimates
for Form 14737, Request for Voluntary
IRS Certification of a Professional Em-
ployer Organization; Form 14737-A, Re-
sponsible Individual Personal Attestation;
Form 14751, Certified Professional Em-
ployer Organization Surety Bond; and
§ 301.7705-2T and § 31.3511-1, all of
which are under the same control number.
The collection of information burden as-
sociated with sections 2.06(1) and 2.06(2)
of this revenue procedure, in particular,
will be reflected in the burden estimates
for new Form 8973, Certified Professional
Employer Organization/Customer Report-
ing Agreement, and for the amendments
made to the applicable Schedules R of
Forms 940 and 941.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less the collection of information displays
a valid OMB control number.

Books and records relating to the col-
lection of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by section 6103 of the Code.

## SECTION 8. DRAFTING INFORMATION

The principal authors of this revenue
procedure are Andrew Holubeck and Me-

lissa Duce of the Office of the Associate
Chief Counsel (Tax Exempt and Govern-
ment Entities). For further information re-
garding this revenue procedure, please
contact Andrew Holubeck at (202) 317-
4774 (not a toll-free number).

### Qualified Intermediary Agreement

## Revenue Procedure 2017- 15

### SECTION 1. PURPOSE

.01 In General. This Revenue Proce-
dure sets forth the final qualified interme-
diary (QI) withholding agreement (QI
agreement) entered into under §1.1441-
1(e)(5).4 In general, the QI agreement al-
lows foreign persons to enter into an
agreement with the Internal Revenue Ser-
vice (IRS) to simplify their obligations as
withholding agents under chapters 3 and 4
and as payors under chapter 61 and sec-
tion 3406 for amounts paid to their ac-
count holders. The QI agreement also al-
lows certain foreign persons to enter into
an agreement with the IRS to act as qual-
ified derivatives dealers (QDDs) and to
assume primary withholding and report-
ing responsibilities on all dividend equiv-
alent payments that they make.

.02 Withholding Foreign Partnership
and Withholding Foreign Trust Agree-
ments. Revenue Procedure 2014-47,
2014-35 I.R.B. 393, includes the with-
holding foreign partnership (WP) and
withholding foreign trust (WT) agree-
ments that are currently in effect, and
that are supposed to expire on December
31, 2016. This revenue procedure an-
nounces that because the updated WP
and WT agreements will not be pub-
lished before December 31, 2016, WPs
and WTs with agreements currently in
effect may continue to treat those agree-
ments as in effect until updated agree-
ments are issued in January 2017.

### SECTION 2. SCOPE

.01 Entities Eligible to Execute a QI
Agreement. A QI agreement may be en-
tered into by persons described in
§1.1441-1(e)(5)(ii), including foreign fi-

nancial institutions (FFIs) (as defined in
§1.1471-5(d)), foreign clearing organiza-
tions, and foreign branches of U.S. finan-
cial institutions and clearing organiza-
tions. An eligible entity (as defined in
§1.1441-1(e)(6)(ii)) may also enter into a
QI agreement for purposes of becoming a
qualified derivatives dealer (QDD).

An FFI may apply to enter into a QI
agreement if the FFI is able to, and agrees
to, satisfy the requirements and obligations
of (1) a participating FFI (including a report-
ing Model 2 FFI), (2) a registered deemed-
compliant FFI (including a reporting Model
1 FFI and a nonreporting Model 2 FFI
treated as registered deemed-compliant), or
(3) a registered deemed-compliant Model 1
IGA FFI (as defined in section 2.17(C) of
the 2017 QI Agreement). An FFI that is a
certified deemed-compliant FFI (including a
nonreporting IGA FFI, as defined in
§1.1471-1(b)(83)) may enter into a QI
agreement if the FFI is able to and agrees to
assume the obligations of, and to be treated
as, a participating FFI (including a reporting
Model 2 FFI), a registered deemed-
compliant FFI (including a reporting Model
1 FFI or a nonreporting Model 2 FFI treated
as registered deemed-compliant), or a regis-
tered deemed-compliant Model 1 IGA FFI
with respect to all accounts that it maintains
(even if the FFI does not intend to act as a
QI for all of the accounts it maintains). A
central bank of issue may enter into a QI
agreement provided that it meets and agrees
to assume the obligations of, and to be
treated as, a participating FFI (including a
reporting Model 2 FFI) or registered
deemed-compliant FFI (including a report-
ing Model 1 FFI) with respect to any ac-
count that it maintains that is held in con-
nection with a commercial financial activity
described in §1.1471-6(h) and for which it
receives a withholdable payment (as defined
in §1.1471-1(b)(145)). A foreign branch of
a U.S. financial institution or clearing orga-
nization may also apply to enter into a QI
agreement provided that it is a reporting
Model 1 FFI or it agrees to assume the
requirements and obligations of a participat-
ing FFI (including a reporting Model 2 FFI).

An entity that is a territory financial
institution (territory FI) (as defined in
§1.1471-1(b)(130)) or a nonparticipating

FFI (as defined in §1.1471-1(b)(82)) may
not apply to enter into a QI agreement.

A foreign corporation that is a non-
financial foreign entity or NFFE (as de-
fined in §1.1471-1(b)(80)) that is de-
scribed in one of the categories in
§1.1441-1(e)(5)(ii) may also apply to en-
ter into a QI agreement. An NFFE that
seeks to act as an intermediary on behalf
of its shareholders should not apply for QI
status and instead should apply for with-
holding foreign partnership status as a re-
verse hybrid entity. An NFFE that enters
into a QI agreement to act an as interme-
diary on behalf of persons other than its
shareholders will be required to satisfy the
withholding and reporting requirements of
§§1.1472-1(a) and 1.1474-1(i) with re-
spect to any NFFE that is a beneficial
owner for whom the QI is acting with
respect to a withholdable payment. The QI
agreement generally does not apply to a
foreign partnership or foreign trust. A for-
eign partnership or foreign trust may ap-
ply for status as a withholding foreign
partnership or withholding foreign trust.
See §§1.1441-5(c)(2)(ii) and 1.1441-
5(e)(5)(v).

.02 Effect on Other Documents. Reve-
nue Procedure 2014-39, 2014-29 I.R.B.
150, is superseded with respect to a QI's
requirements that apply after December
31, 2016. A QI agreement in effect prior
to December 31, 2016 expires, in accor-
dance with its terms, on December 31,
2016.

## SECTION 3. BACKGROUND - WITHHOLDING AND REPORTING REQUIREMENTS UNDER CHAPTERS 3, 4, AND 61 AND SECTION 3406

.01 Withholding and Reporting under
Chapter 4 on Payments Made to FFIs and
Other Payees. Section 1471(a) requires a
withholding agent to deduct and withhold
a tax equal to 30 percent on any withhold-
able payment made to an FFI, unless the
FFI agrees to and complies with the terms
of the FFI agreement to satisfy the obli-
gations specified in section 1471(b) (a
participating FFI); is deemed to meet the
requirements under section 1471(b) (a
deemed-compliant FFI), or is treated as an

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

exempt beneficial owner under §1.1471-
6. Section 1472(a) requires a withholding
agent to deduct and withhold a tax equal
to 30 percent on any withholdable pay-
ment made to an NFFE (other than an
excepted NFFE) unless such entity pro-
vides a certification that it does not have
any substantial U.S. owners or provides
information regarding its substantial U.S.
owners.

A participating FFI (including a report-
ing Model 2 FFI) or registered deemed-
compliant FFI (other than a reporting
Model 1 FFI) will satisfy its requirement
to withhold under sections 1471(a) and
1472(a) on withholdable payments made
to accounts held by entities by withhold-
ing on accounts that the FFI is required to
treat as held by nonparticipating FFIs and
recalcitrant account holders under the FFI
agreement, §1.1471-5(f), or an applicable
Model 2 IGA. A participating FFI (includ-
ing a reporting Model 2 FFI) or registered
deemed-compliant FFI (other than a re-
porting Model 1 FFI) is also required to
withhold on withholdable payments made
to accounts held by individuals that the
FFI is required to treat as recalcitrant ac-
count holders to the extent required under
the FFI agreement, §1.1471-5(f), or an
applicable Model 2 IGA. See, however,
the Model 2 IGA for the suspension of
withholding on non-consenting U.S. ac-
counts. A QI that is a reporting Model 1
FFI or a registered deemed-compliant
Model 1 IGA FFI will satisfy its require-
ment to withhold under section 1471(a) on
withholdable payments made to accounts
held by entities by withholding on ac-
counts that the FFI is required to treat as
held by nonparticipating FFIs.

A participating FFI (including a report-
ing Model 2 FFI), a registered deemed-
compliant FFI, and a registered deemed-
compliant Model 1 IGA FFI must report
certain account information regarding
each U.S. account (or U.S. reportable ac-
count) that it maintains to the extent re-
quired under the FFI agreement, §1.1471-
5(f), or a Model 1 or Model 2 IGA. A
participating FFI (including a reporting
Model 2 FFI) or a registered deemed-
compliant FFI (other than a reporting
Model 1 FFI) must report certain informa-
tion about accounts that it maintains that
are held by recalcitrant account holders
(or non-consenting U.S. accounts). A

withholding agent making payments to an
NFFE that is not reported by an FFI as a
U.S. account (or U.S. reportable account)
is also required to report withholdable
payments made to an NFFE (other than an
excepted NFFE) with substantial U.S.
owners on Form 8966, FATCA Report.
See §§1.1472-1(b)(1)(iii) and 1.1474-
1(i). A withholding agent (including a
participating FFI or registered deemed-
compliant FFI) that is required to with-
hold on a withholdable payment must
report the payment on Form 1042-S,
Foreign Person's U.S. Source Income
Subject to Withholding.

.02 Withholding and Reporting under
Chapter 3 on Payments to Foreign Per-
sons. Sections 1441 and 1442 require a
withholding agent to deduct and withhold
a tax equal to 30 percent on any payment
of U.S. source fixed or determinable an-
nual or periodical (FDAP) income that is
an amount subject to withholding (as de-
fined in §1.1441-2(a)) made to a foreign
person. A lower rate of withholding may
apply under the Code (for example, sec-
tion 1443), the regulations, or an income
tax treaty. Generally, a withholding agent
must also report the payments on Form
1042-S regardless of whether withholding
was required. See §1.1461-1(c).

.03 Backup Withholding under Section
3406 and Reporting on Payments to Cer-
tain U.S. Persons under Chapter 61. Un-
der sections 6041, 6042, 6045, 6049,
and 6050N (chapter 61 or the Form 1099
reporting provisions), payors of interest,
dividends, royalties, gross proceeds
from the sales of securities, and other
fixed or determinable income must re-
port payments made to certain U.S. per-
sons (that is, U.S. non-exempt recipients
or presumed U.S. non-exempt recipi-
ents) on the appropriate Form 1099 un-
less an exception to reporting applies.
See §§1.6041-4(a); 1.6042-3(b)(1)(iii);
1.6045-1(g)(1)(i); 1.6049-5(b)(12);
and 1.6050N-1(c)(1)(i). Under section
3406, a payor must generally obtain a
Form W-9, Request for Taxpayer Iden-
tification Number and Certification,
from a U.S. non-exempt recipient re-
ceiving a payment reportable on a Form
1099 or must otherwise backup with-
hold under section 3406 and report the
payment on Form 1099.

.04 Coordination of Withholding and
Reporting Requirements under Chapters 3
and 4. With respect to a withholdable pay-
ment that is subject to withholding under
chapter 4, a withholding agent may credit
any tax withheld under chapter 4 against
its liability for any tax due with respect to
the payment under chapter 3. A withhold-
ing agent is required to report on a single
Form 1042-S the information required un-
der both chapters 3 and 4 with respect to a
payment subject to withholding under
both chapters 3 and 4. With respect to a
withholdable payment that is not subject
to withholding under chapter 4 and that is
an amount subject to withholding under
chapter 3, a withholding agent is also re-
quired to report on Form 1042-S the ap-
plicable chapter 4 exemption code for the
payment and the recipient's chapter 4 sta-
tus.

.05 Responsibilities of Intermediaries
that Enter into QI Agreements. When the
IRS enters into a QI agreement with a
foreign person (or foreign branch of a
U.S. person), that foreign person (or for-
eign branch of a U.S. person) becomes a
QI. A QI is a withholding agent under
chapters 3 and 4 and a payor under chap-
ter 61 and section 3406 for amounts that it
pays to its account holders. The general
obligations of a QI as a withholding agent
and payor are described in section 1.01 of
the QI agreement and are relevant to
whether an event of default occurs under
section 11.04 of the QI agreement.

## SECTION 4. SUMMARY OF CHANGES TO THE QI AGREEMENT

Notice 2016-42, 2016-19 I.R.B. 67, set
forth a proposed QI agreement (the Pro-
posed QI Agreement) that included revi-
sions to the QI agreement currently in
effect, contained in Revenue Procedure
2014-39 (the 2014 QI Agreement) as well
as provisions relating to QDDs. Com-
ments were received in response to the
Proposed QI Agreement. This section pro-
vides a summary of changes reflected in
the QI agreement provided in this Reve-
nue Procedure (the 2017 QI Agreement),
including changes made in response to
certain of the comments received to the
Proposed QI Agreement.

.01 Provisions Applicable to Qualified
Derivatives Dealers. On September 18,

2015, final and temporary regulations un-
der section 871(m) and sections 1441,
1461, and 1473 (collectively, the 871(m)
regulations) were published in T.D. 9734,
which addressed the treatment of dividend
equivalents from U.S. sources. On July 1,
2016, the Treasury Department and the
IRS released Notice 2016-42, containing
the Proposed QI Agreement that describes
requirements and obligations that were
proposed to be applicable to QDDs and
that requested comments. On December 2,
2016, the Treasury Department and the
IRS released Notice 2016-76, 2016-51
I.R.B. 834, providing guidance for com-
plying with the section 871(m) regulations
in 2017 and 2018 and explaining how the
IRS intends to administer those regula-
tions in 2017 and 2018. The QDD provi-
sions of the 2017 QI Agreement reflect
anticipated changes to the 871(m) regula-
tions, which are discussed below.

(1) Updates to reflect Notice 2016-76.
The Proposed QI Agreement provided
rules for how a QDD calculates its section
871(m) amount and determines its QDD
tax liability. Based on comments received
on the Proposed QI Agreement, Notice
2016-76 revised the methodology for de-
termining the section 871(m) amount to
use a net delta approach and announced
that the regulations under §1.871-15(q)
(1) would be revised to provide that a
QDD will remain liable for tax under sec-
tion 881(a)(1) and subject to withholding
under chapters 3 and 4 on dividends on
physical shares and deemed dividends re-
ceived. Notice 2016-76 also makes calen-
dar year 2017 a phase-in year for QDDs,
as it provides that, in enforcing and ad-
ministering the QDD rules in the section
871(m) regulations and the relevant pro-
visions of the QI agreement for 2017, the
IRS will take into account the extent to
which the QDD made a good faith effort
to comply with the section 871(m) regu-
lations and the relevant provisions of the
QI agreement.

The 2017 QI Agreement further modi-
fies the computation of a QDD's section
871(m) amount for 2017 and describes
certain anticipated changes to the 871(m)
regulations, which are expected to be re-
leased in January 2017. To provide QDDs
with the time necessary to implement
the computation of the section 871(m)
amount announced in Notice 2016-76, a

QDD will not be liable for tax under sec-
tion 881(a)(1) on dividends on physical
shares (including deemed dividends) or on
dividend equivalents that the QDD re-
ceives in its capacity as an equity deriva-
tives dealer in calendar year 2017. Both
the Proposed QI Agreement and Notice
2016-76 provided that a QDD will remain
liable for tax under section 881(a)(1) on
dividends and dividend equivalents that a
QDD receives in any capacity other than
as an equity derivatives dealer. The 2017
QI Agreement does not change this result.
In addition, a QDD is responsible for
withholding on dividend equivalents it
pays to a foreign person on a section
871(m) transaction, whether in its capac-
ity as an equity derivatives dealer or oth-
erwise.

The 2017 QI Agreement provides that
a QDD will be required to compute its
section 871(m) amount using the net delta
approach (as defined in section 2.47 of the
2017 QI Agreement) beginning in 2018,
and will be subject to withholding on div-
idends (including deemed dividends) re-
ceived on or after January 1, 2018. The
Treasury Department and the IRS will
consider comments recommending ap-
proaches for alleviating any overwith-
holding (and preventing any underwith-
holding) that might occur on dealer
transactions with customers and on posi-
tions that hedge customer transactions
when withholding on dividends (including
deemed dividends) begins in 2018.

(2) Eligible entity. The Proposed QI
Agreement provided that an entity must
enter into a QI agreement and be an eli-
gible entity to be a QDD. Comments to
the Proposed QI Agreement requested that
the definition of an eligible entity be ex-
panded.

In response to comments regarding the
application of the QDD rules to branches,
the 2017 QI Agreement clarifies the treat-
ment of branches. The 2017 QI Agree-
ment provides that the home office (as
defined in section 2.43 of the 2017 QI
Agreement) and each branch of the person
that is applying for the QI agreement must
separately qualify and be approved for
QDD status. The home office and any
branch that wants to be a QDD must each
separately meet the eligible entity require-
ments as if it were a separate entity. When
approved as a QDD, the home office and

each branch are treated as a separate QDD
and must apply the QDD provisions as if
each home office and branch were sepa-
rate entities. If a foreign person has one or
more branches, the home office is the for-
eign person, excluding any branches of
the foreign person.

As provided in section 1.02 of the 2017
QI Agreement, if a QI is an FFI, it can
only have a branch also act as a QI if that
branch is located in a jurisdiction identi-
fied on the IRS's Approved KYC List.
This rule applies to QIs that are FFIs and
are applying for QDD status on behalf of
the home office or any branch. The QI
agreement does not require NFFEs apply-
ing for QI status to be located or operating
in an approved KYC jurisdiction (because
NFFEs under the QI agreement are re-
quired to document their account holders
by collecting withholding certificates and
are not allowed to document their account
holders solely with documentary evi-
dence). Similarly, a branch of a NFFE is
not required to be located in a jurisdiction
identified on the IRS's Approved KYC
List (and must document its account hold-
ers with withholding certificates) to be
able to act as a QI, including a branch
acting as a QDD.

Comments also requested that the def-
inition of an eligible entity be expanded to
include bank holding companies and their
subsidiaries. The comments noted that
bank holding companies are subject to
extensive regulation, including compli-
ance with risk management standards. In
response to comments, the 2017 QI
Agreement expands the eligible entity
definition to include a bank holding com-
pany that is subject to regulatory supervi-
sion as a bank holding company by the
governmental authority in the jurisdiction
in which it is organized or operates. The
eligible entity definitions is also expanded
in the 2017 QI Agreement to include an
entity that is wholly-owned (directly or
indirectly) by a bank holding company
subject to regulatory supervision as a bank
holding company by a governmental au-
thority in the jurisdiction in which the
bank holding company is organized or
operates. To qualify as a QDD, any bank
holding company or wholly-owned sub-
sidiary of a bank holding company must
satisfy the other requirements of the eligi-
ble entity definition. Finally, to provide

the IRS with flexibility to administer the
QDD regime, an eligible entity will be
defined to include any other person ac-
ceptable to the IRS, which is similar to
the allowance provided to the IRS in
defining persons eligible to enter into QI
agreement as provided in §1.1441-
1(e)(5)(ii)(D).

(3) Section 871(m) amount. The Pro-
posed QI Agreement described the section
871(m) amount as the sum of the amounts
by which, for each dividend on each un-
derlying security, (A) the dividends on
underlying securities associated with po-
tential section 871(m) transactions and
dividend equivalent payments that a QDD
receives in its dealer capacity exceed (B)
the dividend equivalent payments and the
qualifying dividend equivalent offsetting
payments that a QDD makes with respect
to the same dividend in its dealer capacity.
Comments requested that a QDD calcu-
late its section 871(m) amount based on
its net delta exposure to an underlying
security. Comments noted that the net
delta exposure is used for business or non-
tax regulatory purposes. The net delta ex-
posure is calculated by multiplying the
relevant dividend amount per share by the
net delta exposure (measured in number
of shares) of the QDD in its dealer capac-
ity generally as of the close of the day
before the ex-dividend date for the under-
lying security.

In response to comments, the 2017 QI
Agreement provides that the section
871(m) amount is determined for each
dividend on each underlying security by
multiplying (A) the QDD's net delta ex-
posure to the underlying security for the
applicable dividend by (B) the applicable
dividend amount per share. The net delta
exposure to an underlying security for an
applicable dividend is the amount (mea-
sured in number of shares) by which (A)
the aggregate number of shares in the un-
derlying security that the QDD has expo-
sure to as a result of positions in the
underlying security (including as a result
of owning the underlying security) with
values that move in the same direction as
the value of the underlying security (the
long positions) exceeds (B) the aggregate
number of shares of in the underlying
security that the QDD has exposure to as
a result of positions in the underlying se-
curity with values that move in the oppo-

site direction from the value of the under-
lying security (the short positions). The
net delta exposure calculation only in-
cludes long positions and short positions
that the QDD holds in its equity deriva-
tives dealer business. Any long positions
or short positions that are treated as effec-
tively connected with the QDD's conduct
of a trade or business in the United States
for U.S. federal income tax purposes are
excluded from the net delta exposure
computation. The net delta exposure to an
underlying security is determined at the
end of the day on the date provided in
§1.871-15(j)(2) for the applicable divi-
dend. If a QDD calculates net delta for
non-tax business purposes, that net delta
ordinarily will be used for this purpose,
subject to the modifications required by
the net delta exposure definition. Each
QDD must determine its net delta expo-
sure separately only taking into account
transactions that exist and are attributable
to that QDD for federal income tax pur-
poses.

(4) QDD tax liability. Under the Pro-
posed QI Agreement, the QDD tax liabil-
ity was the sum of a QDD's section 881
tax liability for (A) its section 871(m)
amount, (B) its dividends that are not on
underlying securities associated with po-
tential section 871(m) transactions and its
dividend equivalent payments received as
a QDD in its non-dealer capacity, and (C)
any payments, such as interest, received
as a QDD with respect to potential section
871(m) transactions or underlying securi-
ties that are not dividend or dividend
equivalent payments.

As a result of the changes announced in
Notice 2016-76 to modify the section
871(m) amount and to require withhold-
ing on dividends paid to a QDD, the 2017
QI Agreement makes corresponding
changes to the QDD tax liability. The
2017 QI Agreement revises the section
871(m) amount to reflect the net delta
exposure computation and permit a QDD
to reduce the tax liability on its section
871(m) amount by taking into account
withholding taxes paid on that same div-
idend. While the section 871(m) amount
computation was expanded to permit off-
sets for amounts that do not give rise to
withholding tax payments under the 2017
QI Agreement, the QDD is liable for tax
on any dividends received, without offset

or credit forward to address concerns
raised by the expansion of offsets in the
section 871(m) amount computation. The
2017 QI Agreement is also revised to re-
flect that QDDs are subject to withholding
on all U.S. source FDAP payments made
to a QDD on underlying securities, other
than dividend equivalents.

Under the 2017 QI Agreement, a
QDD's QDD tax liability is the sum of
(A) for each dividend on each underlying
security, the amount by which its tax lia-
bility under section 881 for its section
871(m) amount exceeds the amount of tax
paid by the QDD in its capacity as an
equity derivatives dealer under section
881(a)(1) on that dividend, (B) its tax
liability under section 881 for dividend
equivalent payments received as a QDD
in its non-equity derivatives dealer capac-
ity, and (C) its tax liability under section
881 for any payments, such as dividends
or interest, received as a QDD with re-
spect to potential section 871(m) transac-
tions that are not dividend or dividend
equivalent payments to the extent the full
liability was not satisfied by withholding.

Under the Proposed QI Agreement, a
QDD was required to pay its QDD tax
liability based on the withholding timing
and deposit rules for those payments.
Comments requested that the timing for
QDD tax liability payments be changed.
After considering the comments, the 2017
QI Agreement removes the requirement
that the QDD tax liability be paid in the
same time and manner as would have
been required for withholding on the ap-
plicable payments. Instead, the general
rules regarding the time for a taxpayer to
pay its tax liability will apply, which will
typically require a QDD to make quarterly
estimates of its QDD tax liability that will
be added to the QI's tax liability and filing
an appropriate U.S. tax return.

(5) QDD withholding and reporting of
payments. A QDD must assume primary
withholding responsibility for purposes of
chapters 3 and 4 for all payments it makes
as a QDD. The amount subject to with-
holding is determined under the Internal
Revenue Code and the regulations pro-
mulgated thereunder and is not reduced by
any taxes paid by the QDD, including any
tax paid as part of its QDD tax liability. A
QI can elect whether or not to assume
primary withholding responsibility for

purposes of chapters 3 and 4 for payments
for which it is not required to act as a
QDD. Comments requested that the Pro-
posed QI Agreement be revised to clarify
that a QI that is not acting as a QDD may
elect whether to assume primary with-
holding responsibility for payments that
are not related to its QDD activities.
While the Proposed QI Agreement al-
ready contained a rule that allowed a QI to
elect whether or not to assume primary
withholding responsibility for payments
for which it was not required to act as a
QDD, the 2017 QI Agreement further
clarifies this rule.

The Proposed QI Agreement provided
that there would be no withholding or
reporting on payments made to a QDD
with respect to potential section 871(m)
transactions and underlying securities,
other than reporting for dividends and
substitute dividends. A comment re-
quested that the exclusion be limited to
dividends and dividend equivalents. As a
result of changes to the section 871(m)
amount in the 2017 QI Agreement, all
payments (other than dividend equivalent
payments) made to a QDD with respect to
underlying securities will be subject to
withholding and reporting if the payments
would be subject to withholding and re-
porting to a non-QDD. As described in
section 4.01(1) of the preamble to the
2017 QI Agreement, however, a QDD
will be subject to withholding on divi-
dends (including deemed dividends) be-
ginning with those payments received on
or after January 1, 2018. The 2017 QI
Agreement retains the same withholding
and reporting rules for payments made to
a QDD with respect to potential section
871(m) transactions as in the Proposed QI
Agreement.

The Proposed QI Agreement expanded
the scope of payments that QDDs would
receive without withholding to include
any payments on underlying securities or
potential section 871(m) transactions. A
comment requested that the withholding
exclusion be limited to dividends and div-
idend equivalents. The 2017 QI Agree-
ment provides that a QDD will be subject
to withholding on all payments, other than
dividend equivalents, received by the
QDD with respect to underlying securi-
ties. In addition, the 2017 QI Agreement

removes the withholding timing and de-
posit rules for these payments.

(6) Securities lending and sale-
repurchase transactions. The Proposed
QI Agreement provided that a QI must
act as a QDD for any securities lending or
sale-repurchase transaction it enters into
that is a section 871(m) transaction, and
that for purposes of the agreement, a QDD
is deemed to make and receive payments
pursuant to those securities lending and
sale-repurchase transactions as a princi-
pal. Comments requested that this provi-
sion be revised to permit entities acting as
agents of lenders in securities lending or
sale-repurchase transactions to act as in-
termediaries and not be required to obtain
QDD status. In response to that comment,
the 2017 QI Agreement provides that to
the extent a QI determines that it is acting
as an intermediary with respect to a secu-
rities lending or sale-repurchase transac-
tion that is a section 871(m) transaction, it
will not be treated as entered into by the
QI as a principal; therefore, those transac-
tions will not be treated as entered into by
the QI in its QDD capacity.

Pursuant to Notice 2016-76, taxpayers
may continue to rely on Notice 2010-46,
2010-24 I.R.B. 757, during calendar year
2017. As a result, the 2017 QI Agreement
addresses QIs who are qualified securities
lenders (QSLs) during 2017. If a QI is
acting as a QDD, the QI must act as a
QDD for all payments made as a principal
with respect to potential section 871(m)
transactions and all payments received as
a principal with respect to potential sec-
tion 871(m) transactions and underlying
securities. Therefore, a QI cannot be both
a QSL and a QDD, except with respect to
a securities lending or sale-repurchase
transaction for which the QI has deter-
mined that it is acting as an intermediary.

(7) Form 1042-S reporting. Comments
to the Proposed QI Agreement requested
that a QI that is also acting as a QDD be
allowed to separate its Form 1042-S re-
porting and report payments separately
when acting as a QI and when acting as a
QDD. Consistent with the 2017 Form
1042-S and the box 12b requirement on
Form 1042-S that a withholding agent
provide its chapter 3 status code, a QI that
is also acting as a QDD is required to file
separate Forms 1042-S to report payments
made in each capacity by identifying its

specific chapter 3 status code as a QI or
QDD. Section 8.01 of the 2017 QI Agree-
ment has been updated to reflect this re-
quirement. In addition, when a withhold-
ing agent makes a payment to a QDD that
is subject to reporting under chapter 3 or
4, a separate Form 1042-S is required for
each QDD, identifying the QDD by its
home office or branch, if applicable.

(8) Responsible officer and scope of
certification. A comment to the Proposed
QI Agreement requested that QIs that also
act as QDDs be able to designate different
responsible officers for purposes of their
QDD compliance. Because there is al-
ready flexibility for a QI's responsible of-
ficer to rely on any process, procedure,
review, or certification in making its cer-
tification and for a QI's responsible officer
to delegate its responsibilities as appropri-
ate, this request was not adopted. A QI's
responsible officer may designate a spe-
cific person to be responsible for QDD
compliance, but only the responsible offi-
cer may make the certification to the IRS.

.02 Periodic Review and Certifications
of Compliance. The 2014 QI Agreement
replaced the previous external audit re-
quirement applicable to a QI with an in-
ternal compliance and review program. As
part of this compliance program, the re-
sponsible officer is required to make pe-
riodic compliance certifications and
provide, with the certifications, certain
factual information to the IRS based, in
part, on the results of a periodic review.
After the 2014 QI Agreement was pub-
lished, comments raised concerns about
the administration of the compliance pro-
cedures, including potential costs of im-
plementing and conducting a compliance
program, difficulties in allocating re-
sources to conduct the periodic review in
the last year of the certification period (as
required by the 2014 QI Agreement), and
the lack of detailed standards for perfor-
mance of the QI's periodic review similar
to those provided in Rev. Proc. 2002-55,
2002-2 C.B. 435. To address these com-
ments, the Proposed QI Agreement mod-
ified and expanded upon the compliance
provisions in section 10 and included, in
Appendix I, the factual information to be
provided by the QI, and, in Appendix II, a
statistical sampling procedure that a QI's
reviewer may use for conducting the pe-
riodic review.

(1) Certification of internal controls.
The 2017 QI Agreement requires the QI's
responsible officer to make a periodic cer-
tification of internal controls provided in
Appendix I, as previewed in the Proposed
QI Agreement. The Proposed QI Agree-
ment also listed the elements of the certi-
fication both in section 10.03 and in Ap-
pendix I. The 2017 QI Agreement retains
the specified list of elements but eliminates
the duplication by only listing the elements
of the certification in Appendix I.

In making the periodic certification of
internal controls, the responsible officer
may rely on, in addition to the results of
the periodic review (if required), any other
processes, procedures, reviews, or certifi-
cations made by other persons that the
responsible officer has determined are
necessary in order to make the certifica-
tion. This flexibility allows the responsi-
ble officer to decide, for example, whether
to hire an external reviewer (for example,
a law firm or accounting firm) and what
the scope of the engagement should be
(for example, whether the external re-
viewer will conduct a review of the suffi-
ciency of the QI's internal controls or
whether the review will be limited to the
periodic review, if required). A responsi-
ble officer may also rely on a review,
report, or certification made by another
officer or employee who may, for exam-
ple, have greater subject matter expertise
in a particular area (including a responsi-
ble officer for FATCA purposes). The re-
sponsible officer must, however, docu-
ment what he or she has relied on in
making the certification and retain such
documentation for the same period of time
for which the compliance review report
and certifications are required to be re-
tained pursuant to section 10.06(D) of the
2017 QI Agreement. For example, if the
responsible officer relies on an internal or
external reviewer to conduct a review of
the QI's internal controls, the responsible
officer must retain any report delivered by
the reviewer.

Comments to the Proposed QI Agree-
ment requested further clarification re-
garding the certification of internal con-
trols, including what a responsible officer
should rely on if the QI requests and ob-
tains a waiver of the periodic review re-
quirement. When a QI does not request, or
does not obtain, a waiver, the responsible

officer must take into account the results
of the periodic review in making the cer-
tification of internal controls and must
also use any other process, certification, or
review necessary in order to be able to
certify to the QI's internal controls. When
a QI does request and obtain a waiver and
does not conduct a periodic review, the
responsible officer must use the other pro-
cesses, certifications, or reviews that he or
she determines are necessary in order to
be able to make the required certification.

Generally, regardless of whether a
waiver is applied for and obtained, the
2017 QI Agreement does not provide fur-
ther prescriptive requirements about what
process or documentation the responsible
officer must rely on to make the certifica-
tion of internal controls because such pre-
scriptive guidance may unnecessarily
limit a responsible officer's discretion to
structure a compliance program that, in
his or her judgment, is necessary for the
responsible officer to make the certifica-
tion of internal controls.

A comment to the Proposed QI Agree-
ment also requested that a QI be able to
designate different responsible officers
based on lines of business (such as for
making the certification when the QI acts
as a nonqualified intermediary for pay-
ments). Because there is already flexibility
allowing a responsible officer to rely on
others in making his or her certification of
internal controls to the IRS, as noted
above with respect to requests for separate
responsible officers for QDD purposes,
this comment was not adopted.

(2) Certification period. Under the
2014 QI Agreement and the Proposed QI
Agreement, the initial certification period
ends at the end of the third full calendar
year that the agreement is in effect. Each
subsequent certification period is three
full calendar years thereafter. A comment
to the Proposed QI Agreement requested
that the initial certification period be
shortened and/or the second certification
period be extended, so that the initial cer-
tification period would end on December
31, 2016, the termination date of the 2014
QI Agreement. Because the certification
periods include any renewals of the QI
agreement, it is not necessary that the
certification period and an interim termi-
nation date be the same. In addition, the
proposed solution fails to address cases of

those QIs that had QI agreements with
effective dates in 2015 and 2016. As a
result, the 2017 QI Agreement does not
incorporate this change.

Another comment to the Proposed QI
Agreement requested that a QI be allowed
to apply the provisions of the 2014 QI
Agreement to its initial certification pe-
riod for purposes of making the initial
periodic certification of compliance and
providing the factual information re-
quired. This comment was not adopted
because the 2014 QI Agreement, unlike
the 2017 QI Agreement, does not contain
compliance provisions and requirements
specific enough for a QI to apply that
agreement to its initial compliance period
and provide the factual information re-
quired with the periodic certification.

With respect to the requirement in Part
II.F of Appendix I of the Proposed QI
Agreement that a QI certify to its FATCA
status, a comment requested clarification
whether the requirement that the QI cer-
tify to its FATCA status over the certifi-
cation period meant certification period or
calendar year. As having an appropriate
FATCA status is a prerequisite to enter
into a QI agreement and to maintain the
agreement, a QI is required to certify to its
FATCA status for the entire certification
period and not just the calendar year se-
lected for the periodic review.

(3) Periodic review. In addition to
making the periodic certification of inter-
nal controls, a QI is required to report
certain factual information regarding its
documentation, withholding, reporting,
and other obligations under the QI agree-
ment. This factual information will be
gathered, in part, through the testing of
accounts and transactions required as part
of the periodic review, as described in
sections 10.04 and 10.05 of the 2017 QI
Agreement. This review is focused on the
testing of accounts and transactions rather
than a substantive evaluation of the suffi-
ciency of a QI's policies and procedures.
Section 10.05(A) through (E) of the 2017
QI Agreement provides the objectives for
performing the review, and Appendix I to
the 2017 QI Agreement describes the fac-
tual information that will be required to be
reported to the IRS following the review
when making the periodic certification.

The 2014 QI Agreement required that
the periodic review be conducted for the

last year of the certification period. In
response to comments regarding potential
difficulties with this requirement, includ-
ing resource constraints, the Proposed QI
Agreement allowed a QI to choose any
year within the certification period to se-
lect for its periodic review. The 2017 QI
Agreement retains this allowance.

Comments to the Proposed QI Agree-
ment requested that QIs that are also act-
ing as QDDs be allowed to select different
years within the certification period for
the QI and QDD portions of their periodic
reviews. Requiring a QI to use the same
year for both the QI and QDD portions of
the periodic review (when required) im-
proves the efficiency of the IRS review
process and assists the IRS with its com-
pliance and administration of the QI pro-
gram. As a result, the request was not
adopted.

(4) Certification date. The 2014 QI
Agreement provides that the initial certi-
fication period ends at the end of the third
full calendar year that the 2014 QI Agree-
ment (and any superseding agreement) is
in effect. Therefore, for a QI with a 2014
QI Agreement with an effective date of
June 30, 2014 through December 31,
2016, the initial certification period would
end December 31, 2017, and the certifica-
tion would be required to be provided to
the IRS on or before July 1, 2018. The
Proposed QI Agreement included these
provisions without modification. Com-
ments to the Proposed QI Agreement re-
quested a six-month extension of the July
1 certification due date, and some com-
ments also requested an additional, auto-
matic six-month extension. Because it
would be difficult for QIs that choose the
last year of the certification period for
their periodic reviews to make the certifi-
cation on July 1 of the following year, the
2017 QI Agreement provides QIs using
the third year of the certification period
for their periodic review an additional six
months to make the certification. In such
cases, the certification will be due Decem-
ber 31 of the year following the end of the
certification period (for example, Decem-
ber 31, 2018 for a certification period end-
ing December 31, 2017). For QIs that
choose either the first or second year for
their periodic review, the same concerns
are not present, and the certification will

continue to be due on July 1 following the
end of the certification period.

(5) Consolidated Compliance Pro-
gram. Comments raised questions regard-
ing the consolidated compliance program,
specifically what is required to apply for
a consolidated compliance program and
whether NFFEs are allowed to be in consol-
idated compliance programs. There is no
restriction against NFFEs participating in
consolidated compliance programs. For
more information about consolidated com-
pliance programs or to apply to operate a
consolidated compliance program, contact
the Foreign Intermediaries Program by
e-mail at: lbi.fi.qiwpissues@irs.gov.

A comment also requested that, in a
consolidated compliance program, the re-
sponsible officer of the compliance QI be
allowed to rely on certifications by other
responsible officers of the other QIs in the
group. A responsible officer (of a QI or a
compliance QI) may rely on any process,
procedure, review, or certification that he
or she determines is appropriate in making
the periodic certification of compliance.
Therefore, the responsible officer of a
compliance QI may rely on certifications
made by other officers or individuals in
the QI compliance group. Notwithstand-
ing that the responsible officer may rely
on certifications made by other officers or
individuals within the group, the periodic
certification of compliance for the group
may only be made by the responsible of-
ficer of the compliance QI.

(6) FATCA requirements. A QI that is
an FFI is required to comply with the
FATCA requirements applicable to its
chapter 4 status as a participating FFI,
registered deemed-compliant FFI, or reg-
istered deemed-compliant Model 1 IGA
FFI. In response to concerns raised fol-
lowing the 2014 QI Agreement, the Pro-
posed QI Agreement clarified that a QI's
responsible officer may rely on other per-
sonnel with oversight or responsibility for
the QI's FATCA compliance in making
its certifications relating the QI's compli-
ance with its FATCA obligations. The
Proposed QI Agreement also clarified that
in conducting the periodic review relating
to its FATCA compliance, a QI is only
required to review those accounts for
which it is acting as a QI. Comments to
the Proposed QI Agreement raised this
question again, so further revisions were

made to the 2017 QI Agreement to clarify
the scope of QI's FATCA requirements
(and related certifications).

(7) Standards for internal and external
reviewers. A QI may use either an internal
or an external reviewer to conduct the
periodic review required by section 10.04
of the 2017 QI Agreement. In response to
comments to the 2014 QI Agreement and
as previewed in the Proposed QI Agree-
ment, section 10 of 2017 QI Agreement
has been clarified to prevent unintended
inferences in the 2014 QI Agreement that
the periodic review must satisfy the stan-
dards of a financial audit or other attesta-
tion engagement of a certified public ac-
countant. References to an "auditor"
(whether internal or external) in the 2014
QI Agreement have been replaced with
"reviewer" in the Proposed QI Agreement
and the 2017 QI Agreement.

The Proposed QI Agreement also clar-
ified the description of the standard of
independence required of a reviewer.
Whether the reviewer is an internal or
external reviewer, the reviewer must have
sufficient independence to objectively
conduct the review and cannot review his
or her own work (for example, systems
that the reviewer designed, or documenta-
tion that the reviewer validated in assist-
ing a QI in its account opening processes).

Comments to the Proposed QI Agree-
ment have requested further clarification
of the independence standard, particularly
as applicable to external reviewers. Many
of these comments requested that this
standard, which is described differently
for internal and external reviewers, be re-
laxed to allow a wider range of external
reviewers who have connections to, or
experience with, the QI's systems or com-
pliance. For example, comments re-
quested that independence for external re-
viewers be determined based on an
individual or team basis (that is, even if an
individual or team had established a QI's
compliance program, another individual
or team in the same company or firm
could review the first individual's or
team's work). One comment suggested
that the independence standard be clari-
fied so that any individual with manage-
ment responsibility for implementation of
the QI agreement would not be allowed to
have significant involvement with the re-
view. The comment also proposed that

people who review client tax forms, per-
form withholding for clients, and calculate
amounts required to be reported be dis-
qualified from performing the review. Un-
der this proposal, people who advise on
what the FATCA and QI rules are and
how they are applied to a particular situ-
ation, provide advice on how the with-
holding rules apply to a particular fact
pattern, assist in reporting by physical
submission of data to a tax authority
(without responsibility for the underlying
data), or provide quality assurance review
services would be permitted to conduct
the review.

The provisions of the 2017 QI Agree-
ment regarding the independence of the
reviewer are unchanged from the Pro-
posed QI Agreement. The independence
of a reviewer necessarily depends on spe-
cific facts and circumstances, and, as a
result, providing more prescriptive rules
than what is in the 2017 QI Agreement
would likely be both over and under-
inclusive. Even though the 2017 QI
Agreement does not contain comprehen-
sive rules regarding what constitutes inde-
pendence, the independence standard, as
applied to external reviewers, should not
be applied on an individual or team basis
but should be applied on a company or
firm-wide basis when the firm has devel-
oped or assisted in the development of
policies and procedures relevant to a QI's
compliance with the agreement. To main-
tain an appropriate level of independence
and integrity in the review process, re-
viewers should not be reviewing their own
work and should be in a position where
they would be able to make a negative
assessment of the QI's practices and pro-
cedures without concern about any nega-
tive impact for themselves or their em-
ployers. With respect to the comment that
requested a specific allowance for a re-
viewer that also assisted with physical
submission of client data, it is unclear why
that activity would raise questions about
independence with respect to a QI's com-
pliance with the QI Agreement.

A comment also requested the QI
agreement not reference a reviewer's "in-
dependence" because that term might
have a particular meaning for public ac-
counting firms that may not be relevant
for this purpose, however, no suggestions
for alternative language were offered.

This comment was not accepted as the
term "independent" or "independence" is
appropriate in this context, and it is ap-
propriate for a reviewer to consider the
standards of independence applicable to a
public accounting firm to the extent they
apply to a review it is engaged to conduct
for a QI.

The terms of the Proposed QI Agree-
ment also required that an internal re-
viewer be "competent" to perform the re-
view. A comment requested that the
definition of "competence" in this context
be clarified, particularly with respect to an
internal reviewer. A reviewer must have
enough knowledge and experience (in-
cluding that received by training) to con-
duct the required review in order to pro-
vide the necessary information to the IRS,
as required by Appendix I to the 2017 QI
Agreement, and to enable the responsible
officer to make the required certification.

(8) Waiver. Section 10.07 of the Pro-
posed QI Agreement allowed, under cer-
tain circumstances, a QI that is an FFI that
is not acting as a QDD and that is not part
of a consolidated compliance group to ap-
ply for a waiver of the requirement to
conduct the periodic review. In cases
where a QI applies for a waiver, it is
required to provide certain factual infor-
mation along with its periodic certifica-
tion, as specified in Parts I and III of
Appendix I. Comments to the Proposed
QI Agreement requested that the informa-
tion required to be provided with a waiver
request be reduced. In order to obtain the
necessary information to approve a waiver
request, it is important for the IRS to
receive information regarding the QI's ac-
count population that is specified in Part
III of Appendix I (information that is gen-
erally consistent with the information that
was required for a waiver of a QI audit
under the QI agreement that was in effect
prior to the 2014 QI Agreement). As a
result, this request was not adopted, and
the information required to be provided
with a waiver request remains unchanged
from the Proposed QI Agreement. How-
ever, in response to comments, Part III of
Appendix I of the 2017 QI Agreement
clarifies that a QI is not required to con-
duct a periodic review in order to provide
the factual information required for the
waiver request.

In addition, a comment to the Proposed
QI Agreement requested that QIs in a con-
solidated compliance group also be al-
lowed to apply for a waiver of the periodic
review. This request was not adopted due
to concerns that allowing a waiver for QIs
that participate in a consolidated compli-
ance program would reduce the effective-
ness of the consolidated compliance pro-
gram. Thus, the 2017 QI Agreement
retains this prohibition, consistent with
the terms of the QI agreements prior to the
2014 QI Agreement.

(9) Statistical sampling for periodic re-
view. The Proposed QI Agreement al-
lowed for the use of statistical sampling of
a QI's accounts for purposes of the peri-
odic review (rather than requiring a re-
view of all accounts) provided that the QI
has 50 or more accounts to review. The
Proposed QI Agreement also included, in
Appendix II, a safe harbor method for
determining a statistical sample of ac-
counts for the periodic review.

Comments were received on Appendix
II to the Proposed QI Agreement, and
changes in response to certain of those
comments are reflected in Appendix II to
the 2017 QI Agreement. One comment
requested that a QI's reviewer be permit-
ted to perform a "spot check" (rather than
take a statistical sample) for certain parts
of the review to the extent that spot check
procedures were permitted for a QI's audit
under the former QI agreement audit
guidelines in Rev. Proc. 2002-55. In re-
sponse to this comment, Appendix II has
been revised to permit the use of spot
check procedures with respect to the re-
view procedures performed pursuant to
sections 10.05(B) through (D) of the 2017
QI Agreement and to specify the require-
ments for these procedures.

Other comments requested that a QI's
reviewer not be required to project an
amount of underwithholding determined
as a result of a sample tested for the pe-
riodic review unless specifically requested
to do so by the IRS during its review of a
QI's compliance. One comment also re-
quested that projection not be required as
a result of a single error. In response to
these comments, Appendix II to the 2017
QI Agreement provides that a QI will pay
any underwithheld tax without regard to
projection and that the IRS will determine
if a projection of any underwithholding

from a sample is required at the time of
the IRS's review of the QI's periodic cer-
tification (and, if so, will direct the re-
viewer in performing the projection). Ap-
pendix II to the 2017 QI Agreement was
also revised to indicate that when a re-
viewer determines an amount of under-
withholding, the QI should pay the
amount determined and report both the
underwithholding determined by the re-
view and any amount of underwithholding
that was cured (that is, for which valid
documentation to support a reduced rate
of withholding applied by the QI was ob-
tained after the selection of the sample)
following the review.

Another comment requested that the
U.S. account population used for the sam-
ple be limited to accounts that received a
reportable amount (rather than a report-
able payment, as required by the Proposed
QI Agreement) given the additional re-
quirements for a QI that is a non-U.S.
payor to determine reportable payments
made to an account that are not reportable
amounts. The comment was not accepted
because sampling of U.S. accounts receiv-
ing reportable payments (not just report-
able amounts) is useful for determining
whether such payments have been prop-
erly reflected on Forms 1099 or identified
on Forms 8966 for purposes of the review
steps under section 10.05(D) of the 2017
QI Agreement. Additionally, this require-
ment imposes minimal additional burden
on a QI's review as the reviewer may
determine such payments based on the
determinations made by the QI for pur-
poses of identifying the population of U.S.
accounts for the sample.

Other changes were made to Appendix
II to the 2017 QI Agreement upon further
consideration by the IRS. Appendix II to
the 2017 QI Agreement does not include a
sample of QDD accounts, which will be
added in 2017 for use by QIs that act as
QDDs to conduct a periodic review when
the QI's certification period ends after De-
cember 31, 2017. Appendix II to the 2017
QI Agreement specifies that a reviewer,
when applying statistical sampling based
on the Appendix, is required to take into
account the principles of Notice 2011-42,
2011 I.R.B. 318 (providing guidance on
taxpayers applying statistical sampling).
To better target circumstances where the
statistical sampling approach is appropri-

ate, the 2017 QI Agreement has been re-
vised to permit statistical sampling to be
used for purposes of the periodic review
only when there are 60 or more accounts
to review (rather than 50, as in the Pro-
posed QI Agreement). This requirement
applies regardless of whether the QI's re-
viewer applies the provisions of Appendix
II in determining a statistical sample.

The strata required for determining the
sample have been consolidated in Appen-
dix II to the 2017 QI Agreement, and the
separate stratum for those accounts for
which the QI has assumed primary with-
holding responsibilities for substitute in-
terest has been removed (that is, such ac-
counts are now included in the population
of QI accounts). This consolidation will
reduce the number of transactions re-
quired to be reviewed for purposes of the
spot check procedures.

Appendix II to the 2017 QI Agreement
has also been revised to address how ac-
counts of those partnerships and trusts to
which a QI applies the agency option are
to be included in the sample for cases in
which the partnership or trust did not ar-
range for the performance of its own pe-
riodic review. These accounts, similar to
accounts held by private arrangement in-
termediaries (PAIs), are to be included in
separate strata in addition to the strata
already applicable to the sample of QI
accounts, and the number of sample units
required has been specified.

(10) Information and certifications in
Appendix I. The Proposed QI Agreement
required a QDD to report certain factual
information (described in Appendix I) re-
lated to the determination of its QDD tax
liability (as described in section 3.09 of
the Proposed QI Agreement). The factual
information relating to a QDD's tax lia-
bility in Appendix I of the 2017 QI Agree-
ment is reserved and will be added in
2017. In addition, Appendix I to the 2017
QI Agreement was also revised to include
a limited number of changes and minor
corrections to conform to the changes to
Appendix II and in response to comments.

(11) Form 8966 XML schema. Com-
ments to the Proposed QI Agreement
noted that section 10.05(D)(3) requires re-
view of Form 8966 reporting and re-
quested clarification of whether review of
the Form 8966 XML schema rather than
paper forms would be sufficient. Although

no change is being made to the 2017 QI
Agreement, in this context an "original"
Form 8966 does not refer exclusively to a
paper form, and review of the Form 8966
XML schema would be appropriate. In
addition, for purposes of the review, a QI
that is a reporting Model 1 FFI should
include in its review any analogous forms
used for reporting account information
pursuant to the applicable Model 1 IGA.

.03 Limited FFIs and Limited Branches.
As noted in the preamble to the Proposed QI
Agreement, because limited FFI (and lim-
ited branch) status will no longer be avail-
able as of January 1, 2017 (pursuant to the
regulations under chapter 4), and, as pre-
viewed in the Proposed QI Agreement, the
2017 QI Agreement removes limited FFI as
a category of entity eligible to enter into a
QI agreement.

.04 Entities Eligible for QI Agreements.
Pursuant to §1.1441-1(e)(5)(ii) and the
2014 QI Agreement, the QI Agreement may
be entered into by (1) FFIs that are partici-
pating FFIs, registered deemed-compliant
FFIs, or registered deemed-compliant
Model 1 IGA FFIs, (2) foreign branches of
U.S. financial institutions or clearing orga-
nizations that are either reporting Model 1
FFIs or agree to the reporting requirements
of a PFFI; (3) foreign corporations (that is,
NFFEs) for purposes of presenting claims of
benefits under an income tax treaty on be-
half of their shareholders, and (4) any other
persons acceptable to the IRS. In the pream-
ble to the Proposed QI Agreement, the Trea-
sury Department and the IRS requested
comments on the types of entities where an
NFFE would be acting as a QI on behalf of
its shareholders rather than entering into a
withholding foreign partnership agreement
as a reverse hybrid. No comments were
received. As a result, and consistent with
revisions to the chapter 3 regulations, this
category of NFFE is removed from the 2017
QI Agreement as an entity eligible to enter
into the QI agreement, together with the
related requirement for such QIs to also act
as direct reporting NFFEs for purposes of
chapter 4.

.05 Assumption of Withholding on
Substitute Interest. As noted in the pream-
ble to the Proposed QI Agreement, com-
ments requested that, as the QSL regime is
incorporated into the QDD regime, con-
sideration be given to covering payments
of substitute interest on debt securities

under the QI agreement in addition to
substitute dividend payments. The Pro-
posed QI Agreement previewed this al-
lowance for a QI to assume primary chap-
ters 3 and 4 withholding responsibility
and primary Form 1099 reporting and sec-
tion 3406 backup withholding responsibil-
ity for payments of interest and substitute
interest it receives in connection with a
sale-repurchase or similar agreement, a
securities lending transaction, or collateral
that it holds in connection with its activi-
ties as a securities dealer. The 2017 QI
Agreement retains this allowance.

Enabling a QI to assume primary with-
holding responsibility for payments of in-
terest and substitute interest will allow a
QI to provide a Form W-8IMY, Certifi-
cate of Foreign Intermediary, Foreign
Flow-Through Entity, or Certain U.S.
Branches for United States Tax Withhold-
ing and Reporting, to a withholding agent
to certify that the QI is a QI assuming
primary withholding responsibility with-
out requiring the QI to distinguish be-
tween payments of interest and substitute
interest the QI receives as a principal and
those that it receives as an intermediary.
QIs that assume primary withholding re-
sponsibility for payments of interest and
substitute interest as described in this
paragraph will be required to assume pri-
mary withholding responsibility for all
such payments.

Some comments to the Proposed QI
Agreement asked for more clarity as to
whether the allowance for a QI to assume
primary withholding responsibility for
payments of interest and substitute inter-
est required a QI to be a QDD. A QI's
assumption of primary withholding re-
sponsibility for payments of interest and
substitute interest is independent from re-
sponsibilities the QI has when it acts as
QDD or whether a QI is eligible to act as
a QDD, and thus a QI is permitted to
assume primary withholding responsibil-
ity for such payments without having to
act as a QDD and without regard to
whether the QI is eligible to act as a QDD.

.06 Partnerships or Trusts Applying the
Joint Account or Agency Options. The
Proposed QI Agreement previewed two
changes to the application of the joint
account and agency options. Comments
were received on the 2014 QI Agreement
regarding the chapter 4 statuses required

of a partnership or trust to which a QI may
apply these options. As previewed in
the Proposed QI Agreement, sections
4.05(A)(1) and 4.06(A)(2) of the 2017 QI
Agreement have been modified to allow a
QI to apply the joint account or agency
option to partnerships or trusts that are
covered as accounts that are excluded
from the definition of financial accounts
under Annex II of an applicable IGA or
under §1.1471-5(a). In addition, consis-
tent with the withholding foreign partner-
ship and withholding foreign trust agree-
ments, a QI can apply the joint account or
agency option to partnerships or trusts that
are owner-documented FFIs with respect
to the QI.

Comments to the Proposed QI Agree-
ment noted an inconsistency between sec-
tion 4.05(B)(3) of the Proposed QI Agree-
ment and section 8.02(E) and Appendix I
to the Proposed QI Agreement with re-
spect to whether a QI would be required to
specifically report and provide the names
of partnerships or trusts to which it applies
the joint account option. Consistent with
the obligations described in section
4.05(B)(3) that do not require specific re-
porting for a partnership or trust to which
a QI applies the joint account option, the
2017 QI Agreement does not require that
the partnership or trust be identified on a
Form 1042-S; accordingly, section
8.02(E) was removed, and Appendix I
was modified to remove the requirement
that a QI disclose to the IRS the names
of these partnerships and trusts.

Similarly, comments requested that
Appendix I be modified to remove the
requirement that QIs provide the names of
partnerships or trusts to which they apply
the agency option. This requirement has
been removed from Appendix I to the
2017 QI Agreement, except for cases in
which the QI reports a material failure
with respect to the partnership or trust.

A comment to the Proposed QI Agree-
ment requested clarification regarding the
requirement in section 4.05(A)(1) that a
partnership or trust to which a QI applies
the joint account option is required to pro-
vide the QI with a certification regarding
its chapter 4 status. This certification re-
quirement was a new requirement in the
Proposed QI Agreement and is maintained
in the 2017 QI Agreement, although the
partnership or trust to which a QI applies

the joint account or agency option, even
prior to this change, was required to main-
tain a certain chapter 4 status and to cer-
tify to that status on the Form W-8IMY it
provided to the QI.

The Proposed QI Agreement did not
allow QIs that are QDDs to enter into a
private arrangement intermediary (PAI)
agreement or to apply the joint account or
agency options with respect to accounts or
transactions in their QDD capacities.
Comments requested that QIs acting as
QDDs be allowed to use the joint account
option. This request was adopted, and ac-
cordingly the 2017 QI Agreement allows
QIs to use the joint account option when
making payments in its capacity as a
QDD. The 2017 QI Agreement does not
allow a QDD to apply the agency option
with respect to an account or transaction
in its QDD capacity due to concerns about
the administration of the QDD rules and
the calculation of the QDD tax liability.

.07 Limitation on Benefits for Treaty
Claims. Form W-8BEN-E, Certificate of
Status of Beneficial Owner for United
States Tax Withholding and Reporting
(Entities), was revised in April 2016 to
include checkboxes for a beneficial owner
to provide information regarding the lim-
itation on benefits provision of an appli-
cable treaty that it satisfies, and Form
1042-S was revised in 2016 to include a
line for a withholding agent to report the
corresponding limitation on benefits pro-
vision code, when required. The Proposed
QI Agreement previewed the standard of
knowledge required by a withholding
agent with respect to an applicable limi-
tation on benefits claim associated with a
claim for treaty benefits. Consistent with
revisions to the chapter 3 regulations, the
Proposed QI Agreement modified the re-
quirements for a QI using documentary
evidence to document an entity account
holder claiming a reduced rate of with-
holding under an income tax treaty to re-
quire the collection of information regard-
ing limitation on benefits on the treaty
statement provided by the account holder,
and the 2017 QI Agreement includes this
revision. A QI opening an account for an
entity account holder on or after January
1, 2017, will be required to collect this
limitation on benefits information. For
QIs with pre-existing entity accounts (as
described in section 5.10(A) of the 2017

QI Agreement) that were documented
with documentary evidence, there will be
a two-year transition period provided for
the collection of the appropriate limitation
on benefits information (unless there is a
change in circumstances that requires the
QI to obtain corrected information sooner
than the two-year period). For QIs that
documented entity accounts with Forms
W-8, those forms may be relied up on
until their normal expiration period (un-
less there is a change in circumstances
that requires a QI to obtain corrected in-
formation sooner than the expiration pe-
riod). Comments to the Proposed QI
Agreement requested a three-year transi-
tion period for accounts documented
with documentary evidence, consistent
with the validity period for a Form W-8
with respect to a claim for reduced with-
holding under an income tax treaty. This
request was not adopted because a QI that
documents account holders making a
treaty claim on a withholding certificate
would not in all cases have a full three-
year period starting in 2017 to obtain a
new withholding certificate containing the
limitation on benefits information. Addi-
tionally, the Treasury Department and the
IRS believe that two years is a reasonable
period for a QI to obtain the limitation on
benefits information from these account
holders, especially considering that the re-
quirement is intended to enhance compli-
ance of persons claiming treaty benefits.

The standard of knowledge for the lim-
itation on benefits claims under the Pro-
posed QI Agreement was actual knowl-
edge. The chapter 3 regulations are also
amended to apply an actual knowledge
standard for limitation on benefits claims.
The 2017 QI Agreement removes the dis-
cussion of the actual knowledge standard
from section 5.10(A) and replaces it with
a citation to the chapter 3 regulations in
§1.1441-6(b)(1) that include this stan-
dard.

.08 Validity Period for Documentary
Evidence and Treaty Statements. In con-
nection with the revisions to the chapter 3
regulations requiring limitation on bene-
fits information, the chapter 3 regulations
are also amended to provide that treaty
statements associated with documentary
evidence for establishing residence in a
treaty country have a three-year validity
period, consistent with the validity period

for withholding certificates that contain a
claim for treaty benefits. Section 5.11(A)
of the 2017 QI Agreement provides that a
treaty statement (including a statement
provided in section 5.03 of the 2017 QI
Agreement) will be subject to the same
validity period as prescribed in the chapter
3 regulations. The 2017 QI Agreement
does not, however, change the existing
rule for the validity period of documen-
tary evidence that was included in prior
versions of the QI agreement, including
documentary evidence supporting a claim
for treaty benefits. The Treasury Depart-
ment and the IRS are considering apply-
ing the same three-year validity period to
documentary evidence obtained QIs sup-
porting an account holder's claim for
treaty benefits to align with the validity
period of the treaty statement.

.09 Validation of Treaty Claims. In ad-
dition to the standard of knowledge for lim-
itation on benefits claims, the Proposed QI
Agreement provided that a QI will be con-
sidered to have reason to know that a claim
for treaty benefits is unreliable or incorrect
if, among other requirements, the account
holder claims benefits under a treaty that
does not exist or is not in force. QIs may
determine this, for example, by checking
whether a jurisdiction is included on the
list maintained at https://www.irs.gov/
businesses/international-businesses/united-
states-income-tax-treaties-a-to-z. This rea-
son to know rule will generally apply to
pre-existing accounts for which the QI
already holds valid documentation only
upon a change in circumstances. For a
pre-existing entity account, this reason to
know rule will also apply when the QI
obtains a written limitation on benefits
statement. For purposes of applying this
rule, a "pre-existing account" or "pre-
existing entity account" is an account for
which QI holds valid documentation prior
to January 1, 2017, for a QI with a QI
agreement in effect prior to that date. For
a QI that did not have a QI agreement in
effect prior to January 1, 2017, a pre-
existing account means an account main-
tained (and for which QI has valid docu-
mentation) prior to the effective date of its
QI agreement. For all new accounts, the
reason-to-know rule will apply upon ac-
count opening. The chapter 3 regulations
are also revised to include this reason to
know rule for all withholding agents, and

the 2017 QI Agreement removes the ref-
erence to this standard from section
5.10(A) of the Proposed QI Agreement
and replaces it with a citation to this same
general rule in the chapter 3 regulations.

.10 Term of Agreement. The Proposed
QI Agreement specified a term of three
full calendar years following the effective
date of the QI agreement. Comments re-
quested that the three year term be ex-
tended, with suggestions of a six year
agreement or an agreement that was valid
indefinitely. The 2017 QI Agreement has
been revised to include a six-year term.

.11 Effective Date. Notice 2016-42 and
the Proposed QI Agreement included ap-
plication procedures that provided that if a
prospective QI applies prior to March 31
of a given calendar year and its applica-
tion is approved, its QI agreement will
have an effective date as of January 1 of
that year. Similarly, if an existing QI re-
news its 2014 QI Agreement prior to
March 31, 2017, it will be considered to
have a January 1 effective date for its
2017 QI Agreement with no change in its
QI status. If a prospective QI applies after
March 31 of a calendar year but has not
received any reportable payments prior to
submitting its application and its applica-
tion is approved, its QI agreement will
have an effective date of January 1 of that
year. However, if a prospective QI applies
after March 31 of a calendar year and has
received a reportable payment prior to
submitting its application and its applica-
tion is approved, its QI agreement will
have an effective date of the first of the
month in which both its application is
approved and its QI-EIN is issued.

Comments to the Proposed QI Agree-
ment requested that prospective QIs be
allowed to apply for QI status at any point
during the calendar year and, if their ap-
plications are approved, have effective
dates retroactive to January 1 of that year.
This suggestion was not adopted. Al-
though comments noted potential incon-
venience with having two types of types
of reporting (QI and NQI) in a single year,
this inconvenience is outweighed by the
potential for underwithholding and misre-
porting for the period during which the
entity was not yet approved for QI status.
A prospective QI could wait until the next
year to apply for QI status (similar to the

process for withholding foreign partner-
ships and withholding foreign trusts).

.12 Documentation of Account Holders
and Presumption Rules.

(1) Interaction with Intergovernmental
Agreements (IGAs). Comments to the
2014 QI Agreement and the Proposed QI
Agreement noted an inconsistency in the
documentation requirements with an
FFI's requirements under an applicable
IGA. In response to these comments, sec-
tion 5 of the 2017 QI Agreement has been
modified to clarify that a QI that is an FFI
may document account holders for chap-
ter 4 purposes consistent with its applica-
ble requirements under Annex I of the
applicable IGA. In addition, section
5.10(B) was clarified and simplified by
replacing the parts of the text of the Pro-
posed QI Agreement that were identical to
the provisions of the chapter 3 regulations
with a cross-reference to the chapter 3
regulations.

In addition, a comment to the 2014 QI
Agreement raised the question of whether
the presumption rules under an applicable
IGA apply rather than the presumption
rules in the QI agreement or in the regu-
lations. A QI that is also a reporting
Model 1 or 2 FFI may apply the due
diligence procedures described in Annex I
to document the status of its account hold-
ers under the IGA as U.S. accounts, non-
participating FFIs, in the case of a report-
ing Model 2 FFI, non-consenting U.S.
accounts, or, in the case of a Model 1 FFI,
U.S. reportable accounts, and if such pro-
cedures are applied, cases in which an
entity account holder is undocumented
should not arise. If a QI that is a reporting
Model 1 FFI or reporting Model 2 FFI
does not have information in its posses-
sion or that is publicly available based on
which it can reasonably determine the
chapter 4 status of an entity account
holder, the FFI must obtain a self-
certification to establish the status of
such entity (or in some cases, a self-
certification to establish the status of the
controlling persons of a passive NFFE)
consistent with Annex I of the applica-
ble IGA. When the QI acts as an inter-
mediary for a withholdable payment
made to an entity account and is unable
to document the account by obtaining
information or a self-certification con-
sistent with the procedures described in

Annex I of the applicable IGA, the chap-
ter 4 regulations and the 2017 QI Agree-
ment provide that the QI must apply the
presumption rules in §1.1471-3(f) to
treat such entity account as a nonpartic-
ipating FFI. Additionally, because there
typically should not be undocumented
accounts pursuant to the IGA, if an FFI
has many such undocumented accounts,
the U.S. Competent Authority may de-
termine that there is significant non-
compliance with respect to the FFI.

(2) FFIs not using documentary evi-
dence. A comment to the Proposed QI
Agreement requested that QIs that are
FFIs and that document their account
holders using withholding certificates
rather than documentary evidence be al-
lowed to operate as QIs in jurisdictions
without KYC rules approved by the IRS.
This request was not adopted because af-
ter a QI enters into the agreement, there is
no further distinction between whether an
FFI documents with withholding certifi-
cates or documentary evidence (that is,
nothing in the agreement prevents an FFI
from documenting with documentary ev-
idence, notwithstanding an intent not to do
so). Allowing this could also create ad-
ministration and compliance issues for the
IRS.

.13 Collective Refunds. Section 9.04 of
the Proposed QI Agreement provided that
if there has been overwithholding and a
QI does not apply for a collective refund,
it must provide a specific Form 1042-S for
the payment subject to the overwithhold-
ing if requested by an account holder.
Comments to the Proposed QI Agreement
asked that this provision be removed be-
cause of potential administrative difficul-
ties. This request was not adopted because
an account holder can only get a refund
for overwithholding through a QI's col-
lective refund or by having a Form 1042-S
to substantiate the withholding (see
§301.6402-3(e)), and a QI should not pre-
vent its account holders from obtaining
refunds by declining to apply the collec-
tive refund procedures or by refusing to
issue a specific Form 1042-S if it declines
to apply the collective refund procedures.

.14 Correction of Errors. In addition to
the minor changes and corrections that
were previewed in the Proposed QI
Agreement, the 2017 QI Agreement in-
cludes additional minor changes and cor-

rections. For example, references to the
"KYC attachment" or other attachments
were deleted because printed and signed
agreements are no longer used. In addi-
tion, in response to comments regarding
the length and complexity of the agree-
ment, certain nonsubstantive clarifications
and deletions were made to remove repet-
itive references and generally simplify the
agreement (including with respect to the
standard of knowledge for limitation on
benefits claims and reason to know for
treaty claims, as discussed previously in
this section).

.15 Revised Chapter 3 and 61 Regula-
tions and Revised Chapter 4 Regulations.
The 2017 QI agreement also incorporates
and references certain provisions in final
and temporary regulations issued under
chapters 3 and 61 of the Code (T.D. 9808)
and under chapter 4 of the Code (T.D.
9809), both of which are to be published
shortly after the publication date of the
2017 QI Agreement.

## SECTION 5. APPLICATION FOR QI STATUS

.01 Prospective QI (Including a QI
Acting as a QDD). Prior to submitting the
information specified in Form 14345,
Application for Qualified Intermediary,
Withholding Foreign Partnership, or
Withholding Foreign Trust Status, a pro-
spective QI (other than an NFFE that is
acting as an intermediary on behalf of
persons other than its shareholders and
certain foreign central banks of issue)
must have submitted the information
specified in Form 8957, Foreign Account
Tax Compliance Act (FATCA) Registra-
tion, through the FATCA registration
website available at www.irs.gov/FATCA,
and obtained its chapter 4 status as a
participating FFI (including a reporting
Model 2 FFI), registered deemed-
compliant FFI (including a reporting
Model 1 FFI and a nonreporting Model 2
FFI treated as registered deemed-
compliant), registered deemed-compliant
Model 1 IGA FFI, or sponsoring entity of
a direct reporting NFFE, as applicable,
along with a global intermediary identifi-
cation number (GIIN) to be used to iden-
tify itself to withholding agents and to tax
administrators for FATCA reporting (the
GIIN is separate from the QI-EIN).

The IRS will not enter into a QI agree-
ment with an FFI if the IRS has not ap-
proved the know-your-customer practices
and procedures for opening accounts of
the jurisdiction where the FFI is located
because the QI agreement as applicable to
an FFI allows for the use of documentary
evidence obtained under a jurisdiction's
know-your-customer practices. A list of ju-
risdictions for which the IRS has received
know-your-customer information and for
which the know-your-customer rules have
been approved is available at: http://www.
irs.gov/Businesses/International-Businesses/
List-of-Approved-KYC-Rules. To request
approval of a jurisdiction's know-your-
customer rules, contact the KYC coor-
dinator in the Foreign Intermediaries
Program at lbi.fi.qiwpissues@irs.gov.

A QI that is an NFFE generally is not
required to be located in an approved
KYC jurisdiction because an NFFE is re-
quired to collect Forms W-8 and W-9 and
may not use KYC documentation. See
section 5.01(B)(2) of the 2017 QI Agree-
ment for the documentation requirements
applicable to a QI that is an NFFE.

To become a QI, a prospective QI
must submit the information specified in
Form 14345 through the QI/WP/WT Appli-
cation and Accounts Management System
accessible through the QI landing page
available at: https://www.irs.gov/businesses/
corporations/qualified-intermediary-system.
An application must also include any addi-
tional information and documentation re-
quested by the IRS. The application must
establish to the satisfaction of the IRS that
the applicant has adequate resources and
procedures to comply with the terms of the
agreement. An entity that would like to be-
come a QI to act as a QDD must apply to
enter into a QI agreement and include the
information on the application relating to
QDDs.

If the IRS approves the QI application,
it will notify the QI of its approval. The
approval notice will include a QI-EIN for
fulfilling the requirements of a QI (includ-
ing a QI acting as a QDD if approved for
such purpose) under the QI Agreement.

.02 Existing QI. An FFI that seeks to
renew its QI agreement must do so
through the QI/WP/WT Application and
Accounts Management System. The QI
will retain its QI-EIN to fulfill the require-
ments of a QI under chapters 3, 4, and 61

and sections 871, 881, and 3406, includ-
ing making tax deposits and filing Forms
945, 1042, 1042-S, 1099, and 8966.

A QI that seeks to renew its QI agree-
ment and also seeks to act as a QDD must
supplement the renewal request by pro-
viding all of the information required by
the application relating to a QDD.

.03 Effective Date. The QI agreement
provided in section 6 of this Revenue Pro-
cedure is effective on or after January 1,
2017. The effective date of the QI agree-
ment for a new QI applicant will depend
on when the QI submits its application
and whether the QI has received any re-
portable payments prior to when it sub-
mits its application. Beginning on January
1, 2017, a prospective QI that applies for
QI status on or before March 31 of a
calendar year and is approved will have a
QI agreement with an effective date of
January 1 of that year. If a prospective QI
applies for QI status after March 31 of a
calendar year and has not received a re-
portable payment prior to the date it ap-
plies for QI status and is approved, it will
have a QI agreement with an effective
date of January 1 of that year. If a pro-
spective QI applies for QI status after
March 31 and has received a reportable
payment prior to the date it applies and is
approved, it will have a QI agreement
with an effective date of the first of the
month in which its QI application is ap-
proved and the prospective QI is issued a
QI-EIN. A QI that seeks to renew its QI
agreement must renew prior to March 31,
2017 for its renewed QI agreement to
have an effective date of January 1, 2017.

.04 Contact Information. For questions
regarding the QI application process, con-
tact the Foreign Intermediaries Program at
lbi.fi.qiwpissues@irs.gov.

## SECTION 6. QUALIFIED INTERMEDIARY AGREEMENT

The text of the QI agreement is set
forth below. The IRS will not provide
signed copies of the QI agreement. A re-
porting Model 2 FFI should apply this
Agreement by substituting the term "re-
porting Model 2 FFI" for "participating
FFI" throughout this Agreement, except in
cases where this Agreement explicitly re-
fers to a reporting Model 2 FFI. A report-
ing Model 1 FFI and nonreporting Model
2 FFI treated as a registered deemed-

compliant FFI should apply this Agree-
ment by substituting the term "reporting
Model 1 FFI" or "nonreporting Model 2
FFI" (as applicable) for "registered
deemed-compliant FFI" throughout this
Agreement, except in cases where this
Agreement explicitly refers to a reporting
Model 1 FFI or nonreporting Model 2 FFI
treated as a registered deemed-compliant
FFI.

THIS AGREEMENT is made under and
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 Revenue Pro-
cedure 2017-15 to be a qualified interme-
diary;

WHEREAS, QI and the IRS desire to
enter into an agreement to establish QI's
rights and obligations regarding documen-
tation, withholding, information report-
ing, tax return filing, deposit, and refund
procedures under sections 1441, 1442,
1443, 1461, 1471, 1472, 1474, 3406,
6041, 6042, 6045, 6049, 6050N, 6302,
6402, and 6414, and tax liability under
sections 871(a) and 881 for a QI that is
acting as a qualified derivatives dealer
(QDD), with respect to certain types of
payments;

WHEREAS, QI represents that there
are no legal restrictions that prohibit it
from complying with the requirements of
this Agreement; and

WHEREAS, if QI is a foreign finan-
cial institution (FFI), QI represents that, as
of the effective date of this Agreement, it
has agreed to comply with the require-
ments of the FFI agreement, in the case of
a participating FFI (including a reporting
Model 2 FFI); §1.1471-5(f)(1) or the ap-
plicable Model 2 IGA, in the case of a
registered deemed-compliant FFI (other
than a reporting Model 1 FFI); or the
applicable Model 1 IGA, in the case of a
reporting Model 1 FFI or a registered
deemed-compliant Model 1 IGA FFI;

NOW, THEREFORE, in consider-
ation of the following terms, representa-
tions, and conditions, the parties agree as
follows:

SECTION 1. PURPOSE AND SCOPE

Sec. 1.01. General Obligations. When
the IRS enters into a QI Agreement with a
foreign person or a foreign branch of a

U.S. person, that foreign person (or for-
eign branch) becomes a QI. QI is a with-
holding agent under chapters 3 and 4, and
a payor under chapter 61 and section
3406, for amounts that it pays to its ac-
count holders.

If QI is an FFI, the requirements QI has
agreed to as a participating FFI, registered
deemed-compliant FFI, or registered
deemed-compliant Model 1 IGA FFI ap-
ply in addition to the requirements under
this Agreement. If QI acts as a QI with
respect to an account, this Agreement will
reference QI's chapter 4 obligations when
necessary to facilitate coordination with
the QI's obligations under chapters 3, 4,
and 61 and section 3406 with respect to
such account holders. A participating
FFI's (including a reporting Model 2 FFI)
obligations are provided in the FFI agree-
ment, a registered deemed-compliant
FFI's (other than a reporting Model 1 FFI)
obligations are provided in §1.1471-
5(f)(1) or the applicable Model 2 IGA,
and the obligations of a reporting Model 1
FFI or a registered deemed-compliant
Model 1 IGA FFI are provided in the
applicable Model 1 IGA. For purposes of
chapter 4, QI must comply with its
FATCA requirements as a participating
FFI, registered deemed-compliant FFI, or
registered deemed-compliant Model 1
IGA FFI (as applicable) in order to main-
tain its required chapter 4 status, as well as
the requirements of a withholding agent
for any payee that is a nonparticipating
FFI or NFFE that is not an account holder.
If QI is an FFI, QI must also, pursuant to
this Agreement, assume primary reporting
responsibility for purposes of section
1472, for certain indirect account holders
for which it acts as a QI. If QI is an NFFE
acting on behalf of persons other than its
shareholders, QI must assume primary re-
porting responsibility for purposes of sec-
tion 1472 for any person for which it acts
as a QI.

If QI acts as a sponsoring entity on
behalf of a sponsored FFI (as defined in
§1.1471-1(b)(121)) or sponsored direct
reporting NFFE (as defined in §1.1471-
1(b)(123)), it must comply with the due
diligence, withholding, reporting, and
compliance requirements of a sponsoring
entity in addition to its requirements under
this Agreement.

For purposes of chapters 3 and 61 and
section 3406, QI must act in its capacity as
a QI pursuant to this Agreement for those
accounts that QI holds with a withholding
agent and that QI has identified as ac-
counts for which it acts as a QI. QI is not
required to act as a QI for all accounts that
it holds with a withholding agent. How-
ever, QI must, as part of its QI Agreement,
materially comply with the requirements
of a withholding agent or payor, as appli-
cable to a nonqualified intermediary
(NQI) under chapters 3 and 61 and section
3406, for any account for which it does
not (or cannot) act as a QI and for any
payee that is not an account holder. If QI
identifies an account as one for which it
will act as a QI, it must act as a QI for all
payments made to that account and obtain
the documentation required under section
5 of this Agreement for such account.

When QI acts as a QI for an account
and assumes primary chapter 3 withhold-
ing responsibility for payments to the ac-
count, QI must also assume primary with-
holding responsibility for withholdable
payments made to such account for chap-
ter 4 purposes.

If QI acts as a QI with respect to pay-
ments of substitute interest, as described
in section 3.03(A) of this Agreement, it
must act as a QI and assume primary
withholding responsibility for all such
payments of substitute interest.

If QI acts as a qualified securities
lender (QSL) with respect to substitute
dividend payments (as defined in §1.861-
3(a)(6)), QI is required to act as a QSL
and assume primary withholding respon-
sibility for all substitute dividends re-
ceived and paid by QI when acting as an
intermediary or dealer with respect to se-
curities lending and similar transactions.
A QI that acts as a QDD may not act as a
QSL, except with respect to a payment on
a securities lending or sale-repurchase
transaction for which the QI has deter-
mined that it is acting as an intermediary
for the payment.

The home office (as defined in section
2.43 of this Agreement) and each branch
of a foreign person that intends to act as a
QDD must each separately qualify and be
approved for QDD status, as provided in
section 1.02 of this Agreement. A foreign
branch of a U.S. financial institution may
also apply for QI and QDD status pro-

vided it separately qualifies as an eligible
entity. If QI acts as a QDD with respect to
the home office or branch, the home office
or branch, as applicable, must act as a
QDD for all payments made as a principal
with respect to potential section 871(m)
transactions and all payments received as
a principal with respect to potential sec-
tion 871(m) transactions and underlying
securities, excluding any payments made
or received by the QDD to the extent the
payment is treated as effectively con-
nected with the conduct of a trade or busi-
ness within the United States within the
meaning of section 864. For purposes of
this Agreement, any securities lending or
sale-repurchase transaction (as defined in
§1.871-15(a)(13)) QI enters into that is a
section 871(m) transaction is treated as
entered into by QI as a principal unless QI
determines that it is acting as an interme-
diary with respect to that transaction. A QI
may not act as a QDD when it receives or
makes payments as an intermediary and
must act as either a QI or NQI for the
payment. A QI acting as a QDD must
assume primary chapter 3 and chapter 4
withholding responsibility and primary
Form 1099 reporting and backup with-
holding responsibility under section 3406
for payments made as a QDD with respect
to any potential section 871(m) transac-
tion provided the amount paid is an
amount subject to chapter 3 or 4 withhold-
ing or a reportable payment under chapter
61. A QI acting as a QDD (other than a
QDD that is a foreign branch of a U.S.
financial institution) also must satisfy its
QDD tax liability as determined under
section 3.09 of this Agreement. The QDD
(other than a QDD that is a foreign branch
of a U.S. financial institution) must report
its withholding tax liability under chapters
3 and 4 on Form 1042 and must report its
QDD tax liability on the appropriate U.S.
tax return (as prescribed by the IRS). A
U.S. financial institution with a foreign
branch that acts as a QDD must file the
appropriate U.S. income tax return (e.g.,
Form 1120, U.S. Corporation Income Tax
Return) for the tax year covered by this
Agreement to report and pay its tax liabil-
ity under chapter 1 and would not have a
separate QDD tax liability.

A dividend or dividend equivalent is
treated as received by a QDD acting in its
non-equity derivatives dealer capacity if

the dividend or dividend equivalent is re-
ceived by a QDD acting as a proprietary
trader. Transactions properly reflected in a
QDD's equity derivatives dealer book are
presumed to be held by a dealer in its
equity derivatives dealer capacity for pur-
poses of determining the QDD tax liabil-
ity. In addition, for purposes of determin-
ing whether a dealer is acting in its equity
derivatives dealer capacity, only the deal-
er's activities as an equity derivatives
dealer are taken into account.

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 act as a QI
for an account if the branch of QI that
holds the account operates in a KYC ju-
risdiction identified on the IRS's Ap-
proved KYC List. QI may add any juris-
diction in which it operates a branch that
is not initially included in its QI applica-
tion without prior IRS approval if the ju-
risdiction is identified on the IRS's Ap-
proved KYC List and QI updates its
information on the QI/WP/WT Applica-
tion and Accounts Management System
with respect to such branch prior to treat-
ing such branch as a QI. Notwithstanding
the preceding sentence, a QI may not add
a branch that will act as a QDD through
the QI/WP/WT Application and Accounts
Management System. Instead, the branch
must separately qualify and be approved
for QDD status in accordance with the
procedures to be prescribed by the IRS. A
branch of a QI that is not subject to the
provisions of this Agreement remains sub-
ject to the rules of chapters 3, 4, and 61
and section 3406, as provided in section
1.01 of this Agreement.

## SECTION 2. DEFINITIONS

For purposes of this Agreement, except
as 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 given
to that term in §1.1471-1(b) with respect
to QI's obligations for chapter 4 purposes.
For other purposes under this Agreement,
"account" or "financial account" means
any account for which QI acts as a QI.
With respect to a QI acting as a QDD,
"account" means any potential section

871(m) transaction or underlying security
where QDD receives payments as a prin-
cipal and any potential section 871(m)
transaction where QDD makes payments
as a principal.

Sec. 2.02. Account Holder. If QI is an
FFI, an "account holder" means any per-
son that is a direct account holder or an
indirect account holder of an account that
QI has identified to a withholding agent as
an account for which it is acting as a QI
and also includes any person that receives
a U.S. source substitute dividend payment
from a QI that is a QSL for the payment.
"Account holder" also means any person
that enters into or holds a potential section
871(m) transaction with a QI acting as a
QDD. If QI is an NFFE acting as a QI on
behalf of persons other than its sharehold-
ers, an "account holder" means any person
for whom QI is acting as an intermediary
with respect to a reportable payment or
withholdable payment. With respect to a
QI that assumes primary withholding re-
sponsibility for a substitute interest pay-
ment as described in section 3.03(A) of
this Agreement, an "account holder" in-
cludes any person that receives such a
payment from the QI.

(A) Direct Account Holder. A direct
account holder is any account holder who
has a direct relationship with QI. In the
case of an NFFE acting as a QI on behalf
of persons other than its shareholders, a
direct account holder is any person for
whom QI is acting with respect to a re-
portable payment regardless of whether
such person is the beneficial owner.

(B) Indirect Account Holder. An in-
direct account holder is any account
holder who does not have a direct rela-
tionship with QI. For example, a person
that holds an account with a foreign inter-
mediary or an interest in a foreign flow-
through entity which, in turn, has a direct
relationship with QI is an indirect account
holder of QI. A person is an indirect ac-
count holder even if there are multiple
tiers of intermediaries or flow-through en-
tities between the person and QI.

Sec. 2.03. Agreement. "Agreement"
means this Agreement, the Appendices to
this Agreement, and QI's application to
become a QI. The Appendices and QI's
application are incorporated into this
Agreement by reference.

Sec. 2.04. Amount Subject to Chap-
ter 3 Withholding. An "amount subject
to chapter 3 withholding" is an amount
described in §1.1441-2(a) regardless of
whether such amount is withheld upon.

Sec. 2.05. Amount Subject to Chap-
ter 4 Withholding. An "amount subject
to chapter 4 withholding" is a withhhold-
able payment (as defined in §1.1473-
1(a)) for which withholding is required
under chapter 4 or an amount for which
withholding was otherwise applied under
chapter 4.

Sec. 2.06. Assuming Primary With-
holding Responsibility. "Assuming pri-
mary withholding responsibility" refers to
when a QI assumes primary chapters 3
and 4 withholding responsibility with re-
spect to payments of U.S. source FDAP
income or assumes primary Form 1099
reporting and backup withholding respon-
sibility. A QI that assumes primary
withholding responsibility assumes the
primary responsibility for deducting,
withholding, and depositing the appropri-
ate amount from a payment. Generally, a
QI assuming primary chapters 3 and 4
withholding responsibility or assuming
primary backup withholding responsibil-
ity relieves the person who makes a pay-
ment to the QI from the responsibility to
withhold. Notwithstanding the preceding
sentence, a QI acting as a QDD (that as-
sumes primary withholding responsibility
as required by section 3 of this Agree-
ment) remains liable for the tax under
section 881 and therefore remains subject
to withholding on all U.S. source FDAP
payments with respect to underlying secu-
rities, other than dividend equivalents;
however, with respect to dividends (in-
cluding deemed dividends), a QDD will
not be subject to withholding on those
payments until January 1, 2018.

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 to
that term in §1.1441-1(c)(6).

Sec. 2.09. Broker Proceeds. "Broker
proceeds" means gross proceeds (as de-
fined in §1.6045-1(d)(5)) from a sale that
is 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. "Chapter
4 status" means the status of a person as a
U.S. person, a specified U.S. person, an
individual that is a foreign person, a par-
ticipating FFI, a deemed-compliant FFI, a
restricted distributor, an exempt beneficial
owner, a nonparticipating FFI, a territory
financial institution, an excepted NFFE, or
a passive NFFE.

Sec. 2.15. Chapter 61. Any reference
to "chapter 61" means sections 6041,
6042, 6045, 6049, and 6050N.

Sec. 2.16. Dealer. A "dealer" has the
meaning given to the term dealer in
§1.871-15(a)(2) (i.e., a dealer in securities
within the meaning of section 475(c)(1)).

Sec. 2.17. Deemed-Compliant FFI.
"Deemed-compliant FFI" means an FFI
that is treated, pursuant to section
1471(b)(2) and §1.1471-5(f), as meeting
the requirements of section 1471(b).

(A) Certified Deemed-Compliant FFI.
"Certified deemed-compliant FFI" means
an FFI described in §1.1471-5(f)(2) and in-
cludes a nonreporting IGA FFI but excludes
a nonreporting Model 2 FFI that is treated as
a registered deemed-compliant FFI.

(B) Registered Deemed-Compliant
FFI. "Registered deemed-compliant FFI"
means an FFI described in §1.1471-
5(f)(1) and includes a reporting Model 1
FFI and a nonreporting Model 2 FFI that
is treated as registered deemed-compliant
FFI. For purposes of this Agreement, a ref-
erence to a registered deemed-compliant
FFI that is providing a chapter 4 withhold-
ing rate pool of U.S. payees includes a reg-
istered deemed-compliant Model 1 IGA
FFI.

(C) Registered Deemed-Compliant
Model 1 IGA FFI. "Registered deemed-
compliant Model 1 IGA FFI" means an
FFI treated as a deemed-compliant FFI
under an applicable Model 1 IGA that is
subject to similar due diligence and
reporting requirements with respect to

U.S. accounts as those applicable to a
registered deemed-compliant FFI under
§1.1471-5(f)(1), including the require-
ment to register with the IRS.

Sec. 2.18. Deposit Interest. "Deposit
interest" means interest described in sec-
tion 871(i)(2)(A).

Sec. 2.19. Dividend Equivalent. A
"dividend equivalent" has the meaning
given to that term in §1.871-15(c).

Sec. 2.20. Documentary Evidence.
"Documentary evidence" means any doc-
umentation obtained under the appropriate
know-your-customer rules, any documen-
tary evidence described in §1.1441-6 suf-
ficient to establish entitlement to a re-
duced rate of withholding under an
income tax treaty, or any documentary
evidence described in §1.6049-5(c) suffi-
cient to establish an account holder's sta-
tus as a foreign person for purposes of
chapter 61. Documentary evidence does
not include a Form W-8 or Form W-9 (or
an acceptable substitute Form W-8 or
Form W-9).

Sec. 2.21. Documentation. "Docu-
mentation" means any valid Form W-8,
Form W-9 (or an acceptable substitute
Form W-8 or Form W-9), or documentary
evidence as defined in section 2.20 of this
Agreement, including all statements or
other information required to be associ-
ated with the form or documentary evi-
dence.

Sec. 2.22. Effective Date. For a pro-
spective QI that applies to be a QI on or
before to March 31 of a given calendar
year, the effective date of this Agreement
will be January 1 of that year. For a pro-
spective QI that applies after March 31 of
a given calendar year and that has not
received any reportable payments prior to
the date the application is submitted, the
effective date of this Agreement will be
January 1 of that year. For a prospective
QI that applies after March 31 of a given
calendar year and that has received a re-
portable payment in the calendar year
prior to the date the application is submit-
ted, the effective date of this Agreement
will be the first of the month in which the
QI application is complete and the QI has
received its QI-EIN.

Sec. 2.23. Eligible Entity. "Eligible
entity" for QDD status means a home
office or branch that is a QI and that is-

(A) An equity derivatives dealer sub-
ject to regulatory supervision as a dealer
by a governmental authority in the juris-
diction in which it was organized or op-
erates;

(B) A bank or bank holding company
subject to regulatory supervision as a bank
or bank holding company, as applicable,
by a governmental authority in the juris-
diction in which it was organized or op-
erates and that, in its equity derivatives
dealer capacity, (1) issues potential sec-
tion 871(m) transactions to customers, and
(2) receives dividends with respect to
stock or dividend equivalent payments
pursuant to potential section 871(m)
transactions that hedge potential section
871(m) transactions that it issued;

(C) An entity that is wholly-owned (di-
rectly or indirectly) by a bank or bank
holding company subject to regulatory su-
pervision as a bank or bank holding com-
pany, as applicable, by a governmental
authority in the jurisdiction in which the
bank or bank holding company was orga-
nized or operates and that, in its equity
derivatives dealer capacity, (1) issues po-
tential section 871(m) transactions to cus-
tomers, and (2) receives dividends with
respect to stock or dividend equivalent
payments pursuant to potential section
871(m) transactions that hedge potential
section 871(m) transactions that it issued;
or

(D) A foreign branch of a U.S. finan-
cial institution, if the foreign branch
would meet the requirements of paragraph
(A), (B), or (C), if it were a separate
entity.

The home office or any branch that
wants to be a QDD must separately meet
the requirements of paragraph (A), (B), or
(C) as if it were a separate entity.

Sec. 2.24. Excepted NFFE. "Excepted
NFFE" means a person described in
§1.1471-1(b)(41).

Sec. 2.25. Exempt Beneficial Owner.
"Exempt beneficial owner" means a per-
son described in §1.1471-1(b)(42) and in-
cludes any person that is treated as an
exempt beneficial owner under an appli-
cable Model 1 or Model 2 IGA.

Sec. 2.26. Exempt Recipient. For pur-
poses of Form 1099 reporting and backup
withholding, an "exempt recipient" means
a person described in §1.6049-4(c)(1)
(ii) (for interest, dividends, and royalties),

a person described in §1.6045-2(b)(2)
(i) (for broker proceeds), and a person
described 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 reporting
is required. Exempt recipients are not ex-
empt from reporting or withholding under
chapter 3 or 4.

Sec. 2.27. FATCA Requirements as a
Participating FFI, Registered Deemed-
Compliant FFI, or Registered Deemed-
Compliant Model 1 IGA FFI. "FATCA
requirements as a participating FFI, regis-
tered deemed-compliant FFI, or registered
deemed-compliant Model 1 IGA FFI"
means-

(A) For a participating FFI or an FFI
that agrees to be treated as a participating
FFI, the requirements set forth in the FFI
agreement;

(B) For a registered deemed-compliant
FFI (other than a reporting Model 1 FFI)
or an FFI that agrees to be treated as a
registered deemed-compliant FFI, the re-
quirements under §1.1471-5(f)(1) or an
applicable Model 2 IGA; or

(C) For a registered deemed-compliant
Model 1 IGA FFI, reporting Model 1 FFI,
or an FFI that agrees to be treated as a
registered deemed-compliant Model 1
IGA FFI or reporting Model 1 FFI, the
requirements under an applicable Model 1
IGA.

Sec. 2.28. Financial Institution (FI).
"Financial institution" or "FI" is defined
in §1.1471-5(d) and includes a financial
institution as defined under an applicable
Model 1 or Model 2 IGA.

Sec. 2.29. Foreign Financial Institu-
tion (FFI). "Foreign Financial Institu-
tion" or "FFI" means a foreign entity (as
defined in §1.1473-1(e)) that is a financial
institution.

Sec. 2.30. FFI Agreement. "FFI
Agreement" means an agreement de-
scribed in §1.1471-4(a) and provided in
Rev. Proc. 2014-3, 2014-3 I.R.B. 419, as
revised by Rev. Proc. 2014-38, 2014-29
I.R.B. 131 (and any superseding revenue
procedure).

Sec. 2.31. Flow-Through Entity. A
flow-through entity is a foreign partner-
ship described in §301.7701-2 or 3 (other
than a withholding foreign partnership), a
foreign trust (other than a withholding for-
eign trust) that is described in section

651(a), or a foreign trust if all or a portion
of such trust is treated as owned by the
grantor or other person under sections 671
through 679. For an item of income for
which a treaty benefit is claimed, an entity
is also a flow-through entity to the extent
it is treated as fiscally transparent under
section 894 and the regulations thereun-
der.

Sec. 2.32. Foreign Person. A "foreign
person" is any person that is not a "United
States person" and includes a "nonresi-
dent alien individual," a "foreign corpora-
tion," a "foreign partnership," a "foreign
trust," and a "foreign estate," as those
terms are defined in section 7701. For
purposes of chapters 3 and 4, the term
foreign person also means, with respect to
a payment by a withholding agent, a for-
eign branch (including a foreign disre-
garded entity) of a U.S. person that pro-
vides a valid Form W-8IMY on which it
represents that it is a QI. A foreign branch
of a U.S. person that is a QI is, however,
a U.S. payor for purposes of chapter 61
and section 3406.

Sec. 2.33. Foreign TIN. A "foreign
TIN" is a taxpayer identification number
issued by a foreign person's country of
residence.

Sec. 2.34. Form W-8. "Form W-8"
means IRS Form W-8BEN, Certificate of
Foreign Status of Beneficial Owner for
United States Tax Withholding (Individu-
als); IRS Form W-8BEN-E, Certificate of
Status of Beneficial Owner for United
States Tax Withholding and Reporting
(Entities); IRS Form W-8ECI, Certificate
of Foreign Person's Claim That Income is
Effectively Connected With the Conduct of
a 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 Form
W-8IMY, Certificate of Foreign Interme-
diary, Foreign Flow-Through Entity, or
Certain U.S. Branches for United States
Tax Withholding and Reporting, as appro-
priate. It also includes any acceptable sub-
stitute Form W-8.

Sec. 2.35. Form W-9. "Form W-9"
means IRS Form W-9, Request for Tax-
payer Identification Number and Certifi-
cation, or any acceptable substitute Form
W-9.

Sec. 2.36. Form 945. "Form 945"
means IRS Form 945, Annual Return of
Withheld Federal Income Tax.

Sec. 2.37. Form 1042. "Form 1042"
means IRS Form 1042, Annual Withhold-
ing Tax Return for U.S. Source Income of
Foreign Persons.

Sec. 2.38. Form 1042-S. "Form 1042-S"
means IRS Form 1042-S, Foreign Person's
U.S. Source Income Subject to Withholding.

Sec. 2.39. Form 1099. "Form 1099"
means IRS Form 1099-B, Proceeds From
Broker and Barter Exchange Transac-
tions; IRS Form 1099-DIV, Dividends
and Distributions; IRS Form 1099-INT,
Interest Income; IRS Form 1099-MISC,
Miscellaneous Income; IRS Form 1099-
OID, Original Issue Discount; and any
other form in the IRS Form 1099 series
appropriate to the type of payment re-
quired to be reported.

Sec. 2.40. Form 8966. "Form 8966"
means IRS Form 8966, FATCA Report.

Sec. 2.41. Form 1099 Reporting.
"Form 1099 reporting" means the report-
ing required on Form 1099.

Sec. 2.42. Global Intermediary Iden-
tification Number (GIIN). "Global inter-
mediary identification number" or "GIIN"
means the identification number that is
assigned to a participating FFI, registered
deemed-compliant FFI, direct reporting
NFFE, or sponsoring entity of a direct re-
porting NFFE. The term also includes the
identification number assigned to a report-
ing Model 1 FFI or registered deemed-
compliant Model 1 IGA FFI that is a QI for
the purpose of identifying itself to withhold-
ing agents.

Sec. 2.43. Home Office. "Home of-
fice" means a foreign person, excluding
any branches of the foreign person, that
applies for QDD status.

Sec. 2.44. Intermediary. An "interme-
diary" means any person that acts on be-
half of another person such as a custodian,
broker, nominee, or other agent or a per-
son that acts as a QSL with respect to a
substitute dividend payment.

Sec. 2.45. Know-Your-Customer
Rules. "Know-your-customer rules" re-
fers to the applicable laws, regulations,
rules, and administrative practices and
procedures governing the requirements
of QI to obtain documentation confirm-
ing the identity of QI's account holders.

Sec. 2.46. Marketable Securities. For
purposes of this Agreement, the term
"marketable securities" means those secu-
rities described in §1.1441-6 for which a
U.S. TIN (or foreign TIN) is not required
to obtain treaty benefits.

Sec. 2.47. Net Delta Exposure. Net
delta exposure to an underlying security is
the amount (measured in number of
shares) by which (A) the aggregate num-
ber of shares in an underlying security that
the QDD has exposure to as a result of
positions in the underlying security (in-
cluding as a result of owning the underly-
ing security) with values that move in the
same direction as the underlying security
(the "long positions") exceeds (B) the ag-
gregate number of shares of in an under-
lying security that the QDD has exposure
to as a result of positions in the underlying
security with values that move in the op-
posite direction from the underlying secu-
rity (the "short positions"). The net delta
exposure calculation only includes long
positions and short positions that the QDD
holds in its equity derivatives dealer busi-
ness. Any long positions or short positions
that are treated as effectively connected
with the QDD's conduct of a trade or
business in the United States for U.S. fed-
eral income tax purposes are excluded
from the net delta exposure computation.
The net delta exposure to an underlying
security is determined at the end of the
day on the date provided in §1.871-
15(j)(2) for the applicable dividend. For
purposes of this calculation, net delta must
be determined in a commercially reason-
able manner. If a QDD calculates net delta
for non-tax business purposes, the net
delta ordinary will be the delta used for
this purpose, subject to the modifications
required by this definition. Each QDD
must determine its net delta exposure sep-
arately only taking into account transac-
tions that exist and are attributable to that
QDD for U.S. federal income tax pur-
poses.

Sec. 2.48. Non-Consenting U.S. Ac-
count. For purposes of a reporting Model
2 FFI, "non-consenting U.S. account" has
the meaning that such term has under an
applicable Model 2 IGA.

Sec. 2.49. Non-Exempt Recipient. A
"non-exempt recipient" means a person
that is not an exempt recipient under the

definition in section 2.26 of this Agree-
ment.

Sec. 2.50. Non-Financial Foreign En-
tity (NFFE). A "non-financial foreign en-
tity" or "NFFE" means a foreign entity
that is not a financial institution (including
an entity that is incorporated or organized
under the laws of any U.S. territory and
that is not a financial institution). The term
also means a foreign entity treated as an
NFFE pursuant to a Model 1 or Model 2
IGA.

Sec. 2.51. Nonparticipating FFI. A
"nonparticipating FFI" means an FFI
other than a participating FFI, a deemed-
compliant FFI, or an exempt beneficial
owner.

Sec. 2.52. Nonqualified Intermediary
(NQI). A "nonqualified intermediary" or
"NQI" is any intermediary that is not a
qualified intermediary. An NQI includes
any intermediary that is a foreign person
unless such person enters an agreement to
be a QI and acts in such capacity. An NQI
also includes an intermediary that is a
territory FI unless such institution agrees
to be treated as a U.S. person.

Sec. 2.53. Non-U.S. Payor. A "non-
U.S. payor" means a payor other than a
U.S. payor as defined in this section 2.81
of this Agreement.

Sec. 2.54. Nonwithholding Foreign
Partnership. A "nonwithholding foreign
partnership" means a foreign partnership
other than a withholding foreign partner-
ship as defined in §1.1441-5(c)(2)(i).

Sec. 2.55. Nonwithholding Foreign
Trust. 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 that
is not a withholding foreign trust.

Sec. 2.56. 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 payment
that is in excess of:

(A) The amount required to be with-
held under chapter 4 with respect to such
item of income or other payment, if appli-
cable, and,

(B) In the case of an amount subject to
chapter 3 withholding, the actual tax lia-
bility of the beneficial owner of the in-
come or payment to which the withheld

amount is attributable, regardless of
whether such overwithholding was in er-
ror or appeared correct at the time it oc-
curred.

For purposes of section 3406, the term
"overwithholding" means the excess of
the amount actually withheld under sec-
tion 3406 over the amount required to be
withheld.

Sec. 2.57. Participating FFI. A "par-
ticipating FFI" means an FFI described in
§1.1471-1(b)(91). The term participating
FFI also includes a QI branch of a U.S.
financial institution, unless such branch is
a reporting Model 1 FFI.

Sec. 2.58. Payee. For chapter 4 pur-
poses, a "payee" means a person de-
scribed in §1.1471-3(a). For purposes of
chapter 61, a "payee" means the person to
whom a payment is made. For purposes of
chapter 3, a "payee" means a person de-
scribed in §1.1441-1(c)(12).

Sec. 2.59. Payment. A "payment" is
considered made to a person if that person
realizes income, whether or not such in-
come results from an actual transfer of
cash or other property. See §1.1441-
2(e). For example, a payment includes
crediting an amount to an account. For
any payment of a dividend equivalent, a
"payment" has the meaning provided in
§1.871-15(i).

Sec. 2.60. Payor. A "payor" is defined
in §31.3406(a)-2 and §1.6049-4(a)
(2) and generally means any person re-
quired to make an information return un-
der chapter 61. The term includes any
person that makes a payment, directly or
indirectly, to QI and to whom QI provides
information, pursuant to this Agreement,
so that such person can report a payment
on Form 1099 and, if appropriate, backup
withhold. See also sections 2.81 and 2.53
of this Agreement for the definition of
U.S. payor and non-U.S. payor.

Sec. 2.61. Potential Section 871(m)
Transaction. A "potential section 871(m)
transaction" is any securities lending or
sale-repurchase transaction, notional prin-
cipal contract (NPC), or equity linked in-
strument (ELI) that references one or
more underlying securities. For purposes
of this definition, securities lending or
sale-repurchase transaction, NPC, ELI,
reference, and underlying security have
the meaning given to the terms in

§§1.871-15(a)(13), (7), (4), (11), and
(15), respectively.

Sec. 2.62. Private Arrangement In-
termediary (PAI). A "private arrange-
ment intermediary" or "PAI" is an inter-
mediary described in section 4 of this
Agreement.

Sec. 2.63. Qualified Derivatives
Dealer (QDD). A "qualified derivatives
dealer" or "QDD" is an eligible entity
that agrees to meet the requirements of
§1.1441-1(e)(6)(i) and of this Agree-
ment with respect to payments on po-
tential section 871(m) transactions and
underlying securities that it receives or
makes as a principal. In order to act as a
QDD, the home office or branch, as ap-
plicable, must qualify and be approved
for QDD status and must represent itself
as a QDD on its Form W-8IMY and
separately identify the home office or
branch as the recipient on a withholding
statement (if necessary). Each home of-
fice or branch that obtains QDD status is
treated as a separate QDD.

Sec. 2.64. QDD Tax Liability. A
"QDD tax liability" is the amount de-
scribed in section 3.09 of this Agreement.
Sec. 2.65. Qualified Intermediary
(QI). A "qualified intermediary" or "QI"
is a person (or branch) described in
§1.1441-1(e)(5)(ii) that has in effect an
agreement with the IRS to be treated as a
QI and acts as a QI.

Sec. 2.66. QI-EIN. A "QI-EIN" means
the employer identification number as-
signed by the IRS to a QI. QI's QI-EIN is
only to be used when QI is acting as a QI.
For example, QI must give a withholding
agent its EIN (other than its QI-EIN), if
any, if it is receiving income as a benefi-
cial owner (excluding when it receives
income as a principal when acting as a
QDD or as a QI assuming primary with-
holding responsibility for a substitute in-
terest payment). QI must also use its
non-QI EIN, if any, when acting as an
NQI. Each signatory to this Agreement
must have its own QI-EIN.

Sec. 2.67. Qualified Securities
Lender (QSL). A "qualified securities
lender" or "QSL" is a person described
as a qualified securities lender in Notice
2010-46, 2010-24 I.R.B. 757. A QI that
acts as a QSL with respect to a substi-
tute dividend payment (as defined in
§1.861-3(a)(6)) is required to act as a

QSL for all U.S. source substitute divi-
dends received by the QI when acting as
an intermediary or dealer with respect to
securities lending and similar transac-
tions. A QI is only permitted to act as a
QSL until December 31, 2017.

Sec. 2.68. Reportable Amount. A "re-
portable amount" means U.S. source
FDAP income that is an amount subject to
chapter 3 withholding, U.S. source deposit
interest, and U.S. source interest or origi-
nal issue discount paid on the redemption
of short-term obligations. The term does
not include payments on deposits with
banks and other financial institutions that
remain on deposit for two weeks or less. It
also does not include amounts of original
issue discount arising from a sale and re-
purchase transaction completed within a
period of two weeks or less, or amounts
described in §1.6049-5(b)(7), (10), or
(11) (relating to certain foreign targeted
registered obligations and certain obliga-
tions issued in bearer form).

Sec. 2.69. Reportable Payment. For
purposes of this Agreement, a "reportable
payment" means an amount described in
section 2.69(A) of this Agreement, in the
case of a U.S. payor, and an amount de-
scribed in section 2.69(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 an
exception 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 and
determinable income.

(B) Non-U.S. Payor. If QI is a non-
U.S. payor, a "reportable payment"
means, unless an exception to reporting
applies under chapter 61, -

(1) Any reportable amount;

(2) Any broker proceeds from a sale
effected at an office inside the United
States, as defined in §1.6045-1(g)(3)(iii);
and

(3) Any foreign source interest, divi-
dends, rents, royalties, or other fixed and
determinable income if such income is not
paid outside the United States as de-
scribed under section 5.13(C)(1) of this
Agreement.

Sec. 2.70. Reporting Model 1 FFI. A
"reporting Model 1 FFI" means an FFI
with respect to which a foreign govern-
ment or agency thereof agrees to obtain
and exchange information pursuant to a
Model 1 IGA, other than an FFI that is
treated as a nonreporting Model 1 FFI
(including a registered deemed-compliant
Model 1 IGA FFI) or a nonparticipating
FFI under an applicable Model 1 IGA.

Sec. 2.71. Reporting Pool. A "report-
ing pool" is defined in section 8 of this
Agreement.

Sec. 2.72. Responsible Officer. A "re-
sponsible officer" of a QI means an officer
of the QI with sufficient authority to fulfill
the duties of a responsible officer as de-
scribed in section 10 of this Agreement,
including the requirements to periodically
certify and to respond to requests by the
IRS for additional information to review
the QI's compliance.

Sec. 2.73. Section 871(m) Amount.
For each dividend on each underlying se-
curity, the "section 871(m) amount" is (A)
the QDD's net delta exposure to the un-
derlying security for the applicable divi-
dend multiplied by (B) the applicable div-
idend amount per share.

Sec. 2.74. Section 871(m) Transac-
tion. A "section 871(m) transaction" is
any securities lending or sale-repurchase
transaction, specified NPC, or specified
ELI described in §1.871-15(a)(13), (d),
and (e), respectively.

Sec. 2.75. Short-Term Obligation. A
"short-term obligation" is any obligation
described in section 871(g)(1)(B)(i).

Sec. 2.76. Substitute Interest. "Sub-
stitute interest" means a substitute interest
payment described in §1.861-2(a)(7).

Sec. 2.77. Underlying Security. For
purposes of a QI acting as a QDD or any
determination relating to section 871(m),
"underlying security" has the meaning
provided in §1.871-15(a)(15).

Sec. 2.78. Underwithholding. “Un-
derwithholding" means the excess of the
amount required to be withheld under
chapter 3 or 4 or section 3406 over the
amount actually withheld.

Sec. 2.79. Undocumented Account
Holder. An "undocumented account
holder" is an account holder for whom
QI does not hold valid documentation.

Sec. 2.80. U.S. Account. A "U.S. ac-
count" is any financial account maintained

by an FFI that is held by one or more
specified U.S. persons or U.S .- owned for-
eign entities that such FFI reports or elects
to report under the FFI Agreement or
§1.1471-5(f), as applicable.

Sec. 2.81. U.S. Payor. The term "U.S.
payor" has the same meaning as in
§1.6049-5(c)(5).

Sec. 2.82. U.S. Person. A "U.S. per-
son" (or "United States person") is a per-
son described in section 7701(a)(30), the
U.S. government (including an agency or
instrumentality thereof), a State of the
United States (including an agency or in-
strumentality thereof), or the District of
Columbia (including an agency or instru-
mentality thereof). An individual will not
be treated as a U.S. person for purposes of
this section for a taxable year or any por-
tion of a taxable year that the individual is
a dual resident taxpayer (within the mean-
ing of §301.7701(b)-7(a)(1)) who is
treated 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 company
that has made an election under section
953(d), provided that either the foreign
insurance company is not a specified
insurance company (as described in
§1.1471-5(e)(1)(iv)), or the foreign insur-
ance company is a specified insurance
company and is licensed to do business in
any State of the United States.

Sec. 2.83. U.S. Reportable Account.
A "U.S. reportable account" means a fi-
nancial account maintained by a reporting
Model 1 FFI or registered deemed-
compliant Model 1 IGA FFI that such FFI
reports or elects to report under the appli-
cable domestic law for compliance with
and implementation of FATCA.

Sec. 2.84. U.S. Source FDAP. "U.S.
source FDAP" means amounts from
sources within the United States that con-
stitute fixed or determinable annual or pe-
riodical income, as defined in §1.1441-
2(b)(1).

Sec. 2.85. U.S. TIN. A "U.S. TIN"
means a U.S. taxpayer identification num-
ber assigned under section 6109.

Sec. 2.86. 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 section
2.60 of this Agreement).

Sec. 2.87. Withholding Foreign Part-
nership (WP). A "withholding foreign
partnership" or "WP" means a partner-
ship, described in §1.1441-5(c)(2), that
has entered into a withholding agreement
with the IRS to be treated as a withholding
foreign partnership.

Sec. 2.88. Withholding Foreign Trust
(WT). A "withholding foreign trust" or
"WT" means a trust, described in
§1.1441-5(e)(5)(v), that has entered into a
withholding agreement with the IRS to be
treated as a withholding foreign trust.

Sec. 2.89. Withholdable Payment. A
"withholdable payment" means an
amount described in §1.1473-1(a).

Sec. 2.90. Withholding Rate Pool. A
"withholding rate pool" is defined in sec-
tion 6.03 of this Agreement and includes a
chapter 3 withholding rate pool and a
chapter 4 withholding rate pool.

Sec. 2.91. Other Terms. Any term not
defined in this section has the same mean-
ing that it has under the Code, including
the income tax regulations under the
Code, any applicable income tax treaty, or
any applicable Model 1 or Model 2 IGA
with respect to a QI's FATCA require-
ments as a participating FFI, registered
deemed-compliant FFI, or registered
deemed-compliant Model 1 IGA FFI. Ex-
cept as expressly provided in this Agree-
ment, any term relating to a QDD or sec-
tion 871(m) has the same meaning given
to the term in §1.871-15.

## SECTION 3. WITHHOLDING RESPONSIBILITY AND QDD TAX LIABILITY

### Sec. 3.01. Chapters 3 and 4 Withholding Responsibilities.

(A) Chapter 4 Withholding. QI is a
withholding agent for purposes of chapter
4 and subject to the withholding and re-
porting provisions applicable to withhold-
ing agents under sections 1471 and 1472
with respect to its accounts. QI is required
to withhold 30 percent of any withhold-
able payment made after June 30, 2014, to
an account holder that is an FFI unless
either QI can reliably associate the pay-
ment (or portion of the payment) with
documentation upon which it is permitted
to rely to treat the payment as exempt

from withholding under §1.1471-2(a)
(4) or the payment is made under a grand-
fathered obligation described in §1.1471-
2(b). See §1.1471-2(b)(2)(i)(A)(2) for the
definition of grandfathered obligation
with respect to an obligation giving rise to
a dividend equivalent. QI is also required
to withhold 30 percent of any withhold-
able payment made after June 30, 2014, to
an account holder that is an NFFE unless
either QI can reliably associate the pay-
ment (or portion of the payment) with a
certification described in §1.1472-1(b)
(1)(ii) or an exception to withholding un-
der §1.1472-1 otherwise applies.

If QI is a participating FFI or registered
deemed-compliant FFI (other than a re-
porting Model 1 FFI), QI will satisfy its
requirement to withhold under sections
1471(a) and 1472(a) with respect to direct
account holders that are entities by with-
holding on withholdable payments made
to nonparticipating FFIs and recalcitrant
account 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 Model
2 IGA for the withholding requirements
that apply to withholdable payments made
to account holders of the FFI that are
individuals treated as recalcitrant account
holders or non-consenting U.S. accounts.
If QI is a reporting Model 1 FFI or a
registered deemed-compliant Model 1
IGA FFI, QI will satisfy its requirement to
withhold under section 1471(a) with re-
spect to direct account holders by with-
holding on withholdable payments made
to nonparticipating FFIs to the extent re-
quired under its FATCA requirements as a
registered deemed-compliant FFI or reg-
istered deemed-compliant Model 1 IGA
FFI. QI must, however, withhold in the
manner described in sections 3.02 and
3.03 of this Agreement for when QI as-
sumes or does not assume primary with-
holding responsibility for purposes of
chapters 3 and 4 regardless of its chapter 4
status.

(B) Chapter 3 Withholding. To the
extent that QI makes a payment of an
amount subject to chapter 3 withholding,
QI is required to withhold 30 percent of
the gross amount of any such payment
made to an account holder that is (or is
presumed) a foreign person unless QI can

reliably associate the payment with docu-
mentation upon which it can rely to treat
the payment as made to a payee that is a
U.S. person or as made to a beneficial
owner that is a foreign person entitled to a
reduced rate of withholding. See section 5
of this Agreement regarding documenta-
tion requirements. With respect an amount
subject to chapter 4 withholding that is
also an amount subject to chapter 3 with-
holding, QI may credit any tax withheld
under chapter 4 against its liability for any
tax due under chapter 3 with respect to the
payment so that no additional withholding
is required on the payment for purposes of
chapter 3. Nothing in chapter 4 or the
regulations thereunder (including the FFI
Agreement) or any applicable IGA re-
lieves QI of its requirements to withhold
under chapter 3 to the extent required in
this Agreement.

### Sec. 3.02. Primary Chapters 3 and 4 Withholding Responsibility Not Assumed.

Notwithstanding sections 1.01 and
3.01 of this Agreement, QI is not be re-
quired 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 this
Agreement by electing to be withheld
upon under §1.1471-2(a)(2)(iii) for pur-
poses of chapter 4, (b) provides the with-
holding agent from which QI receives the
payment with a valid withholding certifi-
cate that indicates that QI does not assume
primary withholding responsibility for
chapters 3 and 4 purposes, and (c) pro-
vides correct withholding statements (in-
cluding information regarding any ac-
count holders or interest holders of an
intermediary or flow-through entity that
holds an account with QI, other than a QI
that assumes primary withholding respon-
sibility, WP, or WT) as described in sec-
tion 6.02 of this Agreement. Notwith-
standing its election not to assume
primary withholding responsibility under
chapters 3 and 4, QI shall, however, with-
hold the difference between the amount of
withholding required under chapter 3 or 4
and the amount actually withheld by an-
other withholding 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 the
withholding agent's failure to withhold
the correct amount due (e.g., QI fails to
provide an accurate withholding statement
with respect to the payment, including a
failure to provide information regarding
any account holders or interest holders of
an intermediary or flow-through entity
that holds an account with QI to the extent
required in section 6 of this Agreement),
and QI has not corrected the underwith-
holding under section 9.05 of this Agree-
ment.

### Sec. 3.03. Primary Chapters 3 and 4 Withholding Responsibility Assumed.

(A) In General. QI may assume pri-
mary withholding responsibility for pur-
poses of chapters 3 and 4 by providing a
valid withholding certificate described in
section 6 of this Agreement to a withhold-
ing agent that makes a payment of U.S.
source FDAP income to QI and by desig-
nating on the withholding statement asso-
ciated with such certificate the account(s)
for which QI assumes primary withhold-
ing responsibility (if required). QI is not
required to assume primary withholding
responsibility for all accounts it holds
with a withholding agent. If QI assumes
primary withholding responsibility for
any account, it must assume that respon-
sibility under chapters 3 and 4 for all
withholdable payments and amounts sub-
ject to chapter 3 withholding made by the
withholding agent to that account.

If QI is acting as a QSL for a substitute
dividend payment, QI must assume pri-
mary withholding responsibility for any
such payment made to any account holder
receiving a substitute dividend payment.

QI may assume primary withholding
responsibility for U.S. source FDAP pay-
ments of substitute interest as described in
§1.861-2(a)(7). If QI assumes primary
withholding responsibility for payments
of substitute interest (as described in this
paragraph), it must assume primary with-
holding responsibility with respect to all
such payments. QI assumes primary with-
holding responsibility for payments of
substitute interest for purposes of this
Agreement when it assumes such respon-
sibility for payments of interest and sub-
stitute interest it receives in connection
with a sale-repurchase or similar agree-
ment, a securities lending transaction, or

collateral that it holds in connection with
its activities as a dealer in securities. As a
result, QI may represent its status as a QI
on the withholding certificate described in
section 6.01 of this Agreement with re-
spect to payments it receives of interest
and substitute interest described in the
preceding sentence regardless of whether
it acts as an intermediary or as a principal
with respect to these payments.

To the extent that QI assumes primary
withholding responsibility, QI shall with-
hold as described in section 3.01 of this
Agreement. QI is not required to withhold
on amounts it pays to another QI that has
assumed primary withholding responsibil-
ity with respect to the payment (including
a QI acting as a QDD except for all pay-
ments with respect to underlying securi-
ties, other than dividend equivalents, paid
to a QDD for which withholding is re-
quired) or to a WP or a WT.

(B) Assumption of Withholding Re-
sponsibility by a QDD. If QI is acting as
a QDD, it must assume primary chapters 3
and 4 withholding responsibility for any
dividend equivalent payment that it makes
and must withhold with respect to a divi-
dend equivalent payment on the dividend
payment date for the applicable dividend
(as determined in §1.1441-2(e)(4)). Not-
withstanding the preceding sentence, a
QDD remains liable for tax under section
881 and subject to withholding on all U.S.
source FDAP payments with respect to
underlying securities, other than dividend
equivalents; however, with respect to div-
idends (including deemed dividends), a
QDD will not be subject to withholding
on those payments until January 1, 2018.
A QDD must treat any dividend equiva-
lent as a dividend from sources within the
United States for purposes of section 881
and chapter 3 and chapter 4 consistent
with section 871(m) and the regulations
thereunder. A QDD may reduce the rate of
withholding under chapter 3 only based
on a beneficial owner's claim of treaty-
reduced withholding for portfolio divi-
dends under the dividends article of an
applicable income tax treaty. A QDD
must also assume primary chapter 3 and
chapter 4 withholding responsibility for
payments made with respect to a potential
section 871(m) transaction even if the
payment is not a dividend equivalent if the
amount paid is an amount subject to chap-

ter 3 or 4 withholding. A QDD is not
required to withhold under chapter 3 or 4
on amounts it pays to another QI that has
assumed primary withholding responsibil-
ity with respect to the payment or to a WP
or a WT. In addition, the QDD must no-
tify each payee in writing that it will with-
hold on the dividend payment date before
the time for determining the payee's first
dividend equivalent payment (as deter-
mined under §1.871-15(j)(2)).

Sec. 3.04. Backup Withholding Under
Section 3406 and Form 1099
Reporting Responsibility.

(A) Backup Withholding. QI is a
payor under section 3406 with respect to
reportable payments. Under section 3406,
unless an exception to backup withhold-
ing applies, a payor is required to deduct
and withhold 285 percent from a report-
able payment to an account holder that is
a U.S. non-exempt recipient if the U.S.
non-exempt recipient has not provided its
U.S. TIN in the manner required under
that section; the IRS notifies the payor that
the U.S. TIN furnished by the payee is
incorrect; there has been a notified payee
under-reporting described in section
3406(c); or there has been a payee certi-
fication failure described in section
3406(d).

(B) Coordination of Chapter 4 With-
holding and Backup Withholding. With
respect to a withholdable payment that is
also a reportable payment subject to
backup withholding under section 3406,
QI is not required to withhold under sec-
tion 3406 if QI withheld on such payment
under chapter 4. See §31.3406(g)-
1(e). Alternatively, if QI is a participating
FFI or a registered deemed-compliant FFI
(other than a reporting Model 1 FFI), it
may elect to satisfy its obligation to with-
hold under chapter 4 (or the FFI Agree-
ment) on a withholdable payment made to
a recalcitrant account holder that is a U.S.
non-exempt recipient by satisfying its
backup withholding obligation under sec-
tion 3406 provided that the payment is
also a reportable payment. See section 4
of the FFI Agreement. Nothing in chapter
4 (including the FFI Agreement) or any
applicable IGA relieves QI of its require-

ments to backup withhold under section
3406 to the extent required by this Agree-
ment.

(C) Form 1099 Reporting. If QI ap-
plies backup withholding (as described in
section 3.04(B) of this Agreement), it
must report the amount subject to backup
withholding on Form 1099 and not on
Form 1042-S.

Sec. 3.05. Primary Form 1099 Re-
porting and Backup Withholding Re-
sponsibility for Reportable Payments
Other Than Reportable Amounts. QI is
responsible for Form 1099 reporting and
backup withholding on reportable pay-
ments other than reportable amounts to
the extent required under this section 3.05
and section 8.06 of this Agreement,
whether or not QI assumes primary Form
1099 reporting and backup withholding
responsibility with respect to reportable
amounts under section 3.07 of this Agree-
ment. Further, no provision of this Agree-
ment which requires QI to provide another
withholding agent with information re-
garding reportable amounts shall be con-
strued as relieving QI of its Form 1099
reporting and backup withholding obliga-
tions with respect to reportable payments
that are not reportable amounts. See, how-
ever, §31.3406(g)-1(e) providing that a
payor (irrespective of whether the payor is
a U.S. or non-U.S. payor) is not required
to backup withhold under section 3406 on
a reportable payment that is paid and re-
ceived outside the United States with re-
spect to an offshore obligation or on gross
proceeds from a sale effected outside the
United States, unless the payor has actual
knowledge that the payee is a U.S. person.

(A) U.S. Payor. Except as provided in
section 3.05(C) of this Agreement, if QI is
a U.S. payor, QI has primary Form 1099
reporting and backup withholding respon-
sibility for reportable payments other than
reportable amounts. For example, if QI is
a U.S. payor, it has primary Form 1099
reporting and backup withholding respon-
sibility for payments of foreign source
income as well as all broker proceeds paid
to 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 1099
reporting and backup withholding respon-

sibility for broker proceeds described in
section 2.69(B)(2) of this Agreement and
foreign source fixed and determinable in-
come other than income paid and received
outside United States as described in sec-
tion 2.69(B)(3) of this Agreement, if such
payments are made (or presumed made) to
U.S. non-exempt recipients.

(C) Special Procedure for Broker
Proceeds. If QI is a U.S. payor, QI may
request another payor that is either a U.S.
financial institution or another QI to report
on Form 1099 and, if required, backup
withhold with respect to broker proceeds
from a sale that is effected at an office
outside the United States (as defined in
§1.6045-1(g)(3)(iii)) that QI is otherwise
required to report under section 3.05(A)
and section 8.05 of this Agreement, pro-
vided the other payor actually receives the
broker proceeds. In such a case, QI will
not be responsible for primary Form 1099
reporting and backup withholding with re-
spect to broker proceeds, provided that the
other payor agrees to do the reporting and
backup withholding and QI provides all of
the information necessary for the other
payor to properly report and backup with-
hold. QI, however, remains responsible
for primary Form 1099 reporting and
backup withholding if the other payor
does not agree to report and backup with-
hold, or if QI knows that the other payor
failed to do so. If, however, QI is a par-
ticipating FFI or registered deemed-
compliant FFI (other than a reporting
Model 1 FFI) that reports an account on
Form 1099 in order to satisfy its U.S.
account reporting requirement under
chapter 4, as described in section 8.04 of
this Agreement, QI is responsible for re-
porting on Form 1099 with respect to re-
portable payments made to such U.S. ac-
count and must report in the manner
described in the FFI Agreement.

Sec. 3.06. Primary Form 1099 Re-
porting and Backup Withholding Re-
sponsibility For Reportable Amounts
Not Assumed. Notwithstanding sections
1.01 and 3.04 of this Agreement, QI shall
not be required to report on Form 1099
and backup withhold with respect to a
reportable amount if QI does not assume
primary Form 1099 reporting and backup
withholding responsibility and it provides

5See section 3406(a) providing that the current applicable rate of backup withholding is the fourth lowest rate of tax applicable under section 1(c).

a payor from which it receives a report-
able amount the Forms W-9 of its U.S.
non-exempt recipient account holders (or,
if a U.S. non-exempt recipient fails to
provide a Form W-9, information regard-
ing the account holder's name, address,
and U.S. TIN, if a U.S. TIN is available)
together with the withholding rate pools
attributable to U.S. non-exempt recipient
account holders so that such payor may
report on Form 1099 and, if required,
backup withhold. If QI elects to backup
withhold on withholdable payments that
are also reportable amounts made to re-
calcitrant account holders that are also
U.S. non-exempt recipients, QI shall not
be required to report on Form 1099 and
backup withhold with respect to a report-
able amount if it provides a payor from
which it receives a reportable amount
information regarding such recalcitrant
account holders. See section 6.03 of this
Agreement and section 4 of the FFI
Agreement. If QI reports its U.S. ac-
counts on Forms 1099 under its FATCA
requirements as a participating FFI or
registered deemed-compliant FFI, see
section 8.04(A) of this Agreement pro-
viding that QI cannot delegate to a with-
holding agent its requirement to report
its U.S. accounts. If QI elects not to
assume primary Form 1099 reporting
and backup withholding responsibility,
QI must provide the withholding agent
with such information regarding any ac-
count holders or interest holders of an
intermediary or flow-through entity that
holds an account with QI. Notwithstand-
ing its election not to assume primary
Form 1099 reporting and backup with-
holding responsibility, QI shall backup
withhold and report a reportable amount
to the extent required under sections
3.04 and 8.06 of this Agreement if-

(A) QI actually knows that a reportable
amount is subject to backup withholding
and that another payor failed to apply
backup withholding, or

(B) Another payor has not applied
backup withholding to a reportable
amount because of an error made by QI
(e.g., QI failed to provide the other payor
with information regarding the name, ad-
dress, U.S. TIN (if available), and with-
holding rate pool for a U.S. non-exempt
recipient account holder subject to backup
withholding, including a failure to provide

information regarding any account hold-
ers or interest holders of an intermediary
or flow-through entity that holds an ac-
count with QI to the extent required in
section 6 of this Agreement).

Sec. 3.07. Primary Form 1099 Re-
porting and Backup Withholding Re-
sponsibility Assumed. QI may assume
primary Form 1099 reporting backup
withholding responsibility with respect to
reportable amounts without obtaining ap-
proval from the IRS. QI that assumes such
responsibility is subject to all of the obli-
gations imposed by chapter 61 and section
3406, as modified by this Agreement, and
QI shall be subject to any applicable pen-
alties for failure to meet those obligations.
QI shall inform a payor from which it
receives a reportable amount that it has
assumed primary Form 1099 reporting
and backup withholding responsibility by
providing the payor with a valid withhold-
ing certificate described in section 6 of
this Agreement and by identifying on the
withholding statement associated with
such certificate the account(s) for which
QI assumes primary Form 1099 reporting
and backup withholding responsibility (if
required).

QI is not required to assume primary
Form 1099 reporting and backup with-
holding responsibility for all accounts it
holds with a payor. However, if QI as-
sumes primary Form 1099 reporting and
backup withholding responsibility for any
account, it must assume that responsibility
for all reportable amounts made by a
payor to that account.

If QI is acting as a QDD, it must as-
sume primary Form 1099 reporting and
backup withholding responsibility for any
reportable payments that are made with
respect to a potential section 871(m)
transaction. Thus, for example, if QI acts
as a QDD with respect to an NPC that is a
potential section 871(m) transaction and
makes a payment pursuant to the NPC to
a U.S. person that is a U.S. non-exempt
recipient, QI must backup withhold and
report any amount paid to the U.S. person
to the extent required under section 3406
and §1.6041-1(d)(5).

In addition, if QI is assuming primary
withholding responsibility for payments
of substitute interest (as described in sec-
tion 3.03(A) of this Agreement), it must
assume primary Form 1099 reporting and

backup withholding responsibility with
respect to all such payments.

QI is not required to backup withhold
on a reportable amount it makes to a WP,
WT, or another QI that has assumed pri-
mary Form 1099 reporting and backup
withholding responsibility with respect to
the reportable amount. QI is also not re-
quired to backup withhold on a reportable
amount that QI makes to an intermediary
or flow-through entity that is a participat-
ing FFI, registered deemed-compliant
FFI, or another QI that does not assume
primary Form 1099 reporting and backup
withholding responsibility with respect to
the payment provided that such interme-
diary or flow-through entity allocates the
payment on its withholding statement to a
chapter 4 withholding rate pool of U.S.
payees and the withholding statement is
associated with a valid Form W-8IMY
that provides the applicable certifica-
tion(s) for allocating the payment to this
pool or allocates the payment on its with-
holding statement to a chapter 4 withhold-
ing rate pool of recalcitrant account hold-
ers.

Sec. 3.08. Deposit Requirements. If
QI assumes primary withholding respon-
sibility under chapters 3 and 4 or primary
Form 1099 reporting and backup with-
holding responsibility, it must deposit
amounts withheld under chapter 3 or 4
or section 3406 at the time and in the
manner provided under section 6302 (see
§1.6302-2) by electronic funds transfer as
provided under §31.6302-1(h). If QI is a
non-U.S. payor that does not assume pri-
mary withholding responsibility under
chapters 3 and 4 or primary Form 1099
reporting and backup withholding respon-
sibility, QI must deposit amounts with-
held by the 15th day following the month
in which the withholding occurred.

Sec. 3.09. QDD Tax Liability. In ad-
dition to satisfying its withholding tax li-
ability as described in this Agreement and
its section 881 tax on dividends received
as a QDD, a QDD must satisfy its QDD
tax liability. The QDD's QDD tax liability
is the sum of:

(A) its tax liability under section 881
for its section 871(m) amount (as defined
in section 2.73 of this Agreement) for
each dividend on each underlying security
reduced (but not below zero) by the
amount of tax paid by the QDD under

section 881(a)(1) on dividends received
with respect to that underlying security on
that same dividend in its capacity as an
equity derivatives dealer;

(B) its tax liability under section 881
for dividend equivalent payments re-
ceived as a QDD in its non-equity deriv-
atives dealer capacity; and

(C) its tax liability under section 881
for any payments, such as dividends or
interest, received as a QDD with respect
to potential section 871(m) transactions or
underlying securities that are not dividend
equivalent payments, to the extent the full
liability was not satisfied by withholding.

A QDD that is a foreign branch of a U.S.
financial institution does not have a QDD
tax liability. Instead, such a QDD must de-
termine and report its tax liability in accor-
dance with chapter 1 and the appropriate
U.S. tax return for the U.S. corporation.

For calendar year 2017, the QDD will
not be liable for tax under section
881(a)(1) on actual dividends on physical
shares or deemed dividends or dividend
equivalents that the QDD receives in its
equity derivatives dealer capacity. The
QDD is liable for tax on actual dividends
on physical shares or deemed dividends or
dividend equivalents received in its non-
equity derivatives dealer capacity and on
any other U.S. source FDAP payments
received by the QDD.

(D) Timing for Determining QDD
Tax Liability. A QDD must determine its
QDD tax liability due under sections
3.09(A) and (B) on the date provided in
§1.871-15(j)(2) for the applicable divi-
dend. A QDD must determine its QDD tax
liability due under section 3.09(C) at the
time the payments are treated as received
under the Code and the regulations pro-
mulgated thereunder.

See section 7.01(C) of this Agreement
regarding a QI that is acting as a QDD's
responsibility to report QDD tax liability
on the appropriate U.S. tax return and to
maintain a reconciliation schedule for its
section 871(m) amount and other amounts
related to its QDD tax liability.

## SECTION 4. PRIVATE ARRANGEMENT INTERMEDIARIES AND CERTAIN PARTNERSHIPS AND TRUSTS

Sec. 4.01. Private Arrangement In-
termediaries-In General. If QI is an FFI,

QI may enter into a private arrangement
with another intermediary under which
the other intermediary agrees to perform
all of the obligations of QI under this
Agreement, except as modified in section
4.02 of this Agreement. QI, however, may
not enter into a private arrangement under
this section 4.01 with any account holder
for which it acts as a QDD. The agreement
between QI and the other intermediary
shall be between QI and all the offices of
the other intermediary located in a partic-
ular jurisdiction, which must be one for
which the IRS has approved the know-
your-customer rules. Such an intermedi-
ary is referred to in this Agreement as a
private arrangement intermediary (PAI).
By entering into a PAI agreement, QI is
not assigning its liability for the perfor-
mance of any of its obligations under this
Agreement. Therefore, QI shall remain li-
able for any tax, penalties, interest, and
any other sanctions that may result from
the failure of the PAI to meet any of the
obligations imposed by its agreement with
QI. QI agrees not to assert any defenses
against the IRS for the failures of the PAI
or any defenses that the PAI may assert
against QI. For purposes of this Agree-
ment, the PAI's actual knowledge or rea-
son to know of facts relevant to withhold-
ing or reporting shall be imputed to QI.
QI's liability for the failures of the PAI
shall apply even though the PAI is itself a
withholding agent under chapters 3 and 4
and a payor under chapter 61 and section
3406 and is itself separately liable for its
failure to meet its obligations under the
Code. Notwithstanding the foregoing, QI
shall not be liable for tax, interest, or
penalties for failure to withhold and report
under chapters 3, 4, and 61 and section
3406 unless the underwithholding or the
failure to report amounts correctly on
Forms 945, 1042, 1042-S, 1099, or 8966
is due to QI's or its PAI's failure to prop-
erly perform its obligations under this
Agreement. The PAI is not required to
enter into an agreement with the IRS but
must respond (either directly or through
QI) to IRS inquiries related to its compli-
ance, as described in section 10.08 of this
Agreement. The IRS may, however, in its
sole discretion, refuse to permit an inter-
mediary to operate as a PAI by providing
notice to QI. QI may, however, appeal the
IRS's determination by following the no-

tice and cure provisions in section 11.06
of this Agreement. For purposes of this
Agreement, an intermediary shall be con-
sidered a PAI only if the following con-
ditions are met:

(A) The PAI is a certified deemed-
compliant FFI (other than a registered
deemed-compliant Model 1 IGA FFI)
that acts as an intermediary with respect
to reportable amounts and has provided
QI with a certification that it has main-
tained such certified deemed-compliant
FFI status during each certification
period;

(B) The PAI does not act as an inter-
mediary for a direct account holder that is
a QI, WP, WT, participating FFI, regis-
tered deemed-compliant FFI, or a regis-
tered deemed-compliant Model 1 IGA
FFI;

(C) The PAI is, pursuant to a written
agreement between QI and the PAI (PAI
agreement), subject to all the obligations
of QI under this Agreement, except to the
extent modified by sections 4.02 and 4.03
of this Agreement;

(D) For purposes of chapter 4, the PAI
agrees to comply with the FATCA require-
ments applicable to its chapter 4 status as a
certified deemed-compliant FFI, as modi-
fied by sections 4.02 and 4.03 of this
Agreement, and is not required to fulfill
QI's FATCA requirements as a participat-
ing FFI, registered deemed-compliant
FFI, or registered deemed-compliant
Model 1 IGA FFI;

(E) QI identifies the PAI on the QI/
WP/WT Application and Accounts Man-
agement System before the first payment
for which the PAI is operating under the
PAI agreement;

(F) The PAI agrees, to the extent nec-
essary for QI to satisfy its compliance
obligations (i.e., if QI does not receive a
waiver described in section 10.07 of this
Agreement), either to provide its docu-
mentation and other information to QI for
inclusion in QI's periodic review de-
scribed in section 10.04 of this Agreement
or to conduct an independent periodic re-
view in accordance with the procedures
described in section 10.05 of this Agree-
ment and provide QI with the same certi-
fication as is required for QI's responsible
officer under section 10.03 of this Agree-
ment for each certification period in order
to allow the responsible officer of QI to

make a certification to the IRS regarding
PAI's compliance. The PAI agrees to re-
spond (either directly or through QI) to
IRS inquiries regarding its periodic re-
view and agrees to provide QI (and the
IRS, upon request) with a periodic review
report (as described in section 10.06 of
this Agreement);

(G) The PAI furnishes QI with a Form
W-8IMY and withholding statement de-
scribed in section 6 of this Agreement as
modified by this section 4.01(G). The PAI
is required to provide QI with Forms W-9
(or, in absence of the form, the name,
address, and U.S. TIN (if available)) of
the PAI's U.S. non-exempt recipient ac-
count holders and the withholding rate
pool information for those account hold-
ers as required by section 6.03(D) of this
Agreement so that the QI (or the payor)
may report on Form 1099 and, if required,
backup withhold. In addition, the PAI is
required to disclose to QI any account
holder of PAI that is a passive NFFE with
one or more substantial U.S. owners (or
one or more controlling persons that is a
specified U.S. person) as defined in
§§1.1471-1(b)(74) and 1.1473-1(b), re-
spectively (or in the applicable IGA), and
the account holders or interest holders of
any nonqualified intermediary or flow-
through entity, respectively, which has an
account with the PAI, and provide all of
the documentation and other information
relating to those account holders and in-
terest holders that is required for the QI, or
another withholding agent, to report the
payments made to those account holders
and interest holders to the extent required
by sections 8.02(B) and 8.05 of this
Agreement. Except to the extent the PAI
provides 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 direct
account holders that are foreign persons
other than a passive NFFE with one or
more substantial U.S. owners (or one or
more controlling persons that is a speci-
fied U.S. person); and

(H) The PAI agrees to notify QI if the
PAI no longer meets the requirements
for certified deemed-compliant status,
and upon such notification, the agree-
ment between the PAI and QI will
terminate.

Sec. 4.02. Modification of Obligations
for PAI Agreements.

(A) Payments Reportable under
Chapters 3 and 4. The agreement be-
tween QI and a PAI must provide that QI
shall report all payments of amounts sub-
ject to chapter 3 or 4 withholding made by
the PAI on QI's Forms 1042 and 1042-S
as if QI had made the payments directly to
the PAI's account holders. Therefore, QI
shall report payments made to each of the
following types of a PAI's account hold-
ers as follows:

(1) A direct account holder of the PAI
that is a nonparticipating FFI, QI shall
report an amount subject to chapter 4
withholding using the chapter 4 reporting
pool described in section 8.03 of this
Agreement with the PAI reported as the
recipient with respect to the pool.

(2) A direct foreign account holder of
the PAI for which no withholding is re-
quired under chapter 4 (other than an in-
termediary, custodian, nominee, agent, or
flow-through entity described below), QI
shall report an amount subject to chapter 3
withholding using the chapter 3 reporting
pools as described in section 8.03 of this
Agreement with the PAI reported as the
recipient.

(3) A direct foreign account holder of
the PAI that is a nonqualified intermediary
or flow-through entity, QI shall report
payments of amounts subject to chapter 4
withholding with respect to any indirect
account holders of the PAI that the non-
qualified intermediary or flow-through en-
tity includes in a chapter 4 withholding
rate pool of nonparticipating FFIs using
the chapter 4 reporting pool for such ac-
count holders described in section 8.03 of
this Agreement with the nonqualified in-
termediary or flow-through entity reported
as the recipient and shall report payments
of amounts subject to chapter 3 withhold-
ing made with respect to indirect foreign
account holders of the PAI that are not
subject to chapter 4 withholding by re-
porting the payments as made to specific
recipients under the rules of section 8.02
of this Agreement.

(B) Form 1099 Reporting and
Backup Withholding. The agreement be-
tween QI and a PAI must also provide that
QI shall report all reportable payments
made by the PAI on QI's Forms 945 and

1099 to the extent required under this sec-
tion 4.02(B). QI shall file Forms 1099 and
backup withhold, if required, on report-
able payments made by QI (including by a
PAI) to U.S. non-exempt recipients that
are direct or indirect account holders of a
PAI in accordance with the terms of this
Agreement.

(C) Form 8966 Reporting. The agree-
ment between QI and a PAI must also
provide that QI shall report all withhold-
able payments made by the PAI on Form
8966 to the extent required under this sec-
tion 4.02(C). QI shall file Forms 8966 to
report withholdable payments made by QI
(including by a PAI) to passive NFFEs
with one or more substantial U.S. owners
(or one or more controlling persons that is
a specified U.S. person) that are direct or
indirect account holders of a PAI in ac-
cordance with section 8.05 of this Agree-
ment.

Sec. 4.03. Other Requirements of
PAI Agreements. QI shall require a PAI
to provide QI with all the information
necessary for QI to meet its obligations
under this Agreement. No provisions shall
be contained in the agreement between QI
and a PAI that preclude, and no provisions
of this Agreement shall be construed to
preclude, the PAI's joint and several lia-
bility for tax, penalties, and interest under
chapters 3, 4, and 61 and section 3406 to
the extent that underwithholding, penal-
ties, and interest have not been collected
from QI and the underwithholding or fail-
ure to report amounts correctly on Forms
945, 1042, 1042-S, 1099, or Form 8966
are due to a PAI's failure to properly
perform its obligations under its agree-
ment with QI. Nothing in the agreement
between QI and a PAI shall be construed
to limit the PAI's requirements under
chapter 4 or an applicable IGA. Further,
nothing in the agreement between QI and
a PAI shall permit the PAI to assume
primary chapters 3 and 4 withholding re-
sponsibility or assume primary Form 1099
reporting and backup withholding respon-
sibility.

Sec. 4.04. Termination of Arrange-
ment. Except as otherwise provided in
section 4.01(H) of this Agreement, QI
shall cease to treat an intermediary as a
PAI within 90 days from the day QI
knows that the PAI is in default of its
agreement with QI unless the PAI has

cured the event of default prior to the
expiration of such 90-day period. QI must
provide the IRS with notice of any PAI
agreement that has been terminated within
30 days of the termination by removing
the intermediary as a PAI on the QI/
WP/WT Application and Accounts Man-
agement System.

### Sec. 4.05. Joint Account Treatment for Certain Partnerships and Trusts.

(A) In General. If QI is an FFI, QI
may enter an agreement with a nonwith-
holding foreign partnership or nonwith-
holding foreign trust that is either a simple
or grantor trust described in this section
4.05(A) to apply the simplified joint ac-
count documentation, reporting, and with-
holding procedures provided in section
4.05(B) of this Agreement. QI and a part-
nership or trust that apply this section 4.05
to any calendar year must apply these
rules to the calendar year in its entirety. QI
and the partnership or trust may not apply
this section 4.05 to any calendar year in
which the partnership or trust has failed to
make available to QI or QI's reviewer the
records described in this section 4.05(A)
within 90 days after these records are re-
quested, and the partnership or trust must
waive any legal prohibitions against pro-
viding such records to QI. If the partner-
ship or trust has failed to make these re-
cords available within the 90-day period,
or if QI and the partnership or trust fail to
comply with any other requirements of
this section 4.05, QI must apply the pro-
visions of §§1.1441-1(c) and 1.1441-5(e)
to the partnership or trust as a nonwith-
holding foreign partnership or nonwith-
holding foreign trust, must correct its
withholding for the period during which
the failure occurred in accordance with
section 9.05 of this Agreement, and can-
not apply this section 4.05 to subsequent
calendar years. QI and a partnership or
trust that apply this section 4.05 to any
calendar year are not required to apply
this section 4.05 to subsequent calendar
years.

A partnership or trust is described in
this section 4.05(A) of this Agreement if
the following conditions are met:

(1) The partnership or trust has a chap-
ter 4 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 exempt beneficial owner, or an
NFFE or is covered as an account that is
excluded from the definition of financial
account under Annex II of an applicable
IGA or under §1.1471-5(a) and has pro-
vided QI with a certification that it has
maintained such chapter 4 status at all
times during each certification period;

(2) The partnership or trust is a direct
account holder of QI;

(3) None of the partnership's or trust's
partners, beneficiaries, or owners is a
flow-through entity or is acting as inter-
mediary for a payment made by QI to the
partnership or trust;

(4) None of the partnership's or trust's
partners, 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 (e.g.,
a nonparticipating FFI and certain passive
NFFEs); and

(5) The partnership or trust agrees to
make available upon request to QI or QI's
reviewer for purposes of QI's periodic
review under section 10 of this Agreement
(including to respond to IRS inquiries re-
garding its compliance review) records
that establish that the partnership or trust
has provided QI with documentation for
purposes of chapters 3 and 4 for all of its
partners, beneficiaries, or owners.

### (B) Modification of Obligations for QI.

(1) QI may rely on a valid Form
W-8IMY provided by the partnership or
trust 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 is
a withholdable payment) and that pro-
vides information for all partners, benefi-
ciaries, or owners together with valid
Forms W-8 or, in the case of a partnership
or trust that is a certified deemed-
compliant FFI, documentary evidence
permitted under the applicable know-
your-customer rules from each partner,
beneficiary, or owner, and, for a withhold-
able payment, documentation that meets
the requirements of §1.1471-3(d) to es-
tablish the partner's, beneficiary's, or
owner's chapter 4 status. The withholding
statement need not provide any allocation
information.

(2) QI must treat payments to the part-
nership or trust as allocated solely to a
partner, beneficiary, or owner that is sub-
ject to the highest rate of withholding un-
der chapter 3 and must withhold at that
rate.

(3) QI may pool report amounts dis-
tributed to, or included in the distributive
share of, the partnership's or trust's direct
partners, beneficiaries, or owners in chap-
ter 3 reporting pools on Form 1042-S as
described in section 8.03(B) of this Agree-
ment.

(4) After QI has withheld in accor-
dance with section 4.05(B)(2) of this
Agreement, it may file a separate Form
1042-S for any partner, beneficiary, or
owner who requests that it do so. If QI
issues a separate Form 1042-S for any
partner, beneficiary, or owner, it cannot
include such partner, beneficiary, or
owner in its chapter 3 reporting pool. If QI
has already filed a Form 1042-S and in-
cluded the partner, beneficiary, or owner
in a chapter 3 reporting pool, it must file
an amended return to reduce the amount
of the payment reported to reflect the
amount allocated to the recipient on the
recipient's specific Form 1042-S. QI may
file 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 information
for the requesting partner, beneficiary, or
owner and only if the partnership or trust
has agreed in writing to make available to
QI or QI's reviewer the records that sub-
stantiate the allocation information in-
cluded in its withholding statement.

(5) QI may not include any payments
made to a partnership or trust to which QI
is applying the rules of this section 4.05 in
any collective refund claim made under
section 9.04 of this Agreement.

### Sec. 4.06. Agency Option for Certain Partnerships and Trusts.

(A) In General. QI may enter an
agreement with a nonwithholding foreign
partnership or nonwithholding foreign
trust that is either a simple or grantor trust
described in section 4.06(A) of this
Agreement under which the partnership or
trust agrees to act as an agent of QI with
respect to its partners, beneficiaries, or
owners, and, as QI's agent, to apply the
provisions of the QI Agreement to the

partners, beneficiaries, or owners. QI,
however, may not enter an agreement un-
der this section 4.06 with any account
holder for which it acts as a QDD. By
entering into an agreement with a partner-
ship or trust as described in this section
4.06, QI is not assigning its liability for
the performance of any of its obligations
under this Agreement. QI and the partner-
ship or trust to which QI applies the rules
of this section 4.06 are jointly and sever-
ally liable for any tax, penalties, and in-
terest that may result from the failure of
the partnership or trust to meet any of the
obligations imposed by its agreement with
QI. QI and a partnership or trust that ap-
plies the agency option to any calendar
year must apply these rules to the calendar
year in its entirety. Generally, QI and a
partnership or trust that applies the agency
option to any calendar year are not re-
quired to apply the agency option to sub-
sequent calendar years. If, however, QI
withholds and reports any adjustments re-
quired by corrected information in a sub-
sequent calendar year under section
4.06(B)(2) of this Agreement, QI must
apply the agency option to that calendar
year in its entirety. QI and a partnership or
trust may not apply the agency option to
any calendar year when the partnership or
trust has failed to make available to QI or
QI's reviewer the records described in
section 4.06 of this Agreement within 90
days after these records are requested, and
the partnership or trust must waive any
legal prohibitions against providing such
records to QI. If, for any calendar year, the
partnership or trust has failed to make
these records available within the 90-day
period, or if QI and the partnership or trust
fail to comply with any other requirement
of this section 4.06, QI must apply
§§1.1441-1(c) and 1.1441-5(e) to the
partnership or trust as a nonwithholding
foreign partnership or nonwithholding
foreign trust, must correct its withholding
for the period in which the failure oc-
curred in accordance with section 9.05 of
this Agreement, and cannot apply the
agency option to subsequent calendar
years.

A partnership or trust is described in
this section 4.06(A) of this Agreement if
the following conditions are met:

(1) The partnership or trust is either a
direct account holder of QI or an indirect

account holder of QI that is a direct part-
ner, beneficiary, or owner of a partnership
or trust to which QI also applies the
agency option.

(2) The partnership or trust has a chap-
ter 4 status as a certified deemed-
compliant FFI (other than a registered
deemed-compliant Model 1 IGA FFI), an
owner-documented FFI, an NFFE, an ex-
empt beneficial owner, or is covered as an
account that is excluded from the defini-
tion of financial account under Annex II
of an applicable IGA or under §1.1471-
5(a) and has provided QI with a certifica-
tion that it has maintained such chapter 4
status during each certification period;

(3) None of the partnership's or trust's
partners, beneficiaries, or owners is a WP,
WT, participating FFI, registered deemed-
compliant FFI, registered deemed-
compliant Model 1 IGA FFI, or another
QI acting as an intermediary for a pay-
ment made by QI to the partnership or
trust.

(4) The partnership or trust agrees to
permit QI to treat its direct partners, ben-
eficiaries, or owners as direct account
holders of QI under this Agreement and to
treat its indirect partners, beneficiaries, or
owners as indirect account holders of QI
under this Agreement.

(5) The partnership or trust agrees, to
the extent necessary for QI to satisfy its
compliance obligations (e.g., if the QI
does not receive a waiver described in
section 10.07 of this Agreement), either to
provide its documentation and other infor-
mation to QI for inclusion in QI's periodic
review described in section 10.04 of this
Agreement or to conduct an independent
periodic review in accordance with the
procedures described in section 10.05 of
this Agreement, provide QI with the cer-
tification required under section 10.03 of
this Agreement for each certification pe-
riod in order to allow the responsible of-
ficer of QI to make a certification to the
IRS regarding the partnership's or trust's
compliance with this section 4.06, and
respond (either directly or through QI) to
IRS inquiries regarding its compliance re-
view, as described in section 10.08 of this
Agreement, including providing the QI
and the IRS with the results of the review-
er's testing of transactions and accounts
described in section 10.06 of this Agree-
ment.

(B) Modification of Obligations for QI.

(1) QI may rely on a valid Form
W-8IMY provided by the partnership or
trust, 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) (if
the payment is a withholdable payment)
that includes all information necessary for
QI to fulfill its withholding, reporting, and
filing obligations under this Agreement.
The withholding statement may include
chapter 3 withholding rate pools for part-
ners, beneficiaries, or owners that are not
intermediaries, flow-through entities (or
persons holding interests in the partner-
ship or trust through such entities), U.S.
persons, or passive NFFEs with one or
more substantial U.S. owners (or one or
more controlling persons that is a speci-
fied U.S. person), and the partnership or
trust need not provide to QI documenta-
tion for these partners, beneficiaries, or
owners. The withholding statement may
also include a chapter 4 withholding rate
pool of nonparticipating FFIs described in
section 6.03 of this Agreement for pay-
ments of amounts subject to chapter 4
withholding. 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 a
passive 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 account
holders or interest holders of any non-
qualified intermediary or flow-through en-
tity, respectively, which has an interest in
the partnership or trust, and to provide all
of the documentation and other informa-
tion relating to those account holders and
interest holders that is required for the QI,
or another withholding agent, to report the
payments made to those account holders
and interest holders to the extent required
by sections 8.02(B) and 8.05 of this
Agreement.

(2) Timing of Withholding. QI must
withhold on the date it makes a payment
to the partnership or trust based on a with-
holding statement provided by the part-
nership or trust on which QI is permitted
to rely. The amount allocated to each part-
ner, beneficiary, or owner in the withholding
statement may be based on a reasonable
estimate of the partner's, beneficiary's, or

owner's distributive share of income subject
to withholding for the year. The partnership
or trust must correct the estimated alloca-
tions to reflect the partner's, beneficiary's,
or owner's actual distributive share and
must provide this corrected information to
QI on the earlier of the date that the state-
ment required under section 6031(b) (i.e.,
Schedule K-1) or the Beneficiary Statement
or Owner Statement is mailed or otherwise
provided to the partner, beneficiary, or
owner, or the due date for furnishing the
statement (whether or not the partnership or
trust is required to prepare and furnish the
statement). If that date is after the due date
(without regard to extensions) for QI's
Forms 1042 and 1042-S for the calendar
year, QI may withhold and report any ad-
justments required by the corrected informa-
tion in the following calendar year.

(3) Payments Reportable Under
Chapters 3 and 4. QI shall report on
Form 1042-S all amounts subject to chap-
ters 3 and 4 withholding distributed to, or
included in the distributive share of, the
partnership or trust as follows:

(a) For a direct partner, beneficiary, or
owner of the partnership or trust that is a
nonparticipating FFI, QI shall report an
amount subject to withholding using the
chapter 4 reporting pool described in sec-
tion 8.03(A) of this Agreement with the
partnership or trust reported as a recipient.

(b) For a direct partner, beneficiary, or
owner of the partnership or trust that is a
foreign person for which no withholding
is required under chapter 4 (other than an
intermediary, agent, or flow-through en-
tity described below), QI shall report an
amount subject to chapter 3 withholding
using the chapter 3 reporting pools de-
scribed in section 8.03(B) of this Agree-
ment with the partnership or trust reported
as a recipient.

(c) For a direct or indirect partner, ben-
eficiary, or owner of the partnership or
trust that is a nonqualified intermediary or
foreign flow-through entity, QI shall re-
port payments of amounts subject to chap-
ter 4 withholding in a chapter 4 withhold-
ing rate pool of nonparticipating FFIs
using the chapter 4 reporting pool for such
partner, beneficiary, or owner with the
nonqualified intermediary or foreign flow-
through entity reported as the recipient,
and QI shall report payments of amounts
subject to chapter 3 withholding for which

no chapter 4 withholding is required by
reporting the payments as made to specific
recipients as described in section 8.02 of
this Agreement.

(4) Form 1099 Reporting and
Backup Withholding. The agreement be-
tween QI and the partnership or trust must
also 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 section
4.06(B)(4). QI shall file Forms 1099 and
backup withhold, if required, on report-
able payments made by QI to U.S. non-
exempt recipient that are direct or indirect
partners, beneficiaries, or owners of the
partnership or trust in accordance with the
terms of this Agreement.

(5) Form 8966 Reporting Require-
ments. The agreement between QI and the
partnership or trust must also provide that
QI shall report all withholdable payments
made by the partnership or trust on Form
8966 to the extent required under this sec-
tion 4.06(B)(5). If the partnership or trust
is itself a passive NFFE and if any of its
partners, beneficiaries, or owners is a pas-
sive NFFE with one or more substantial
U.S. owners (or one or more controlling
persons that is a specified U.S. person), QI
shall file Forms 8966 to report all with-
holdable payments made by QI to any
such passive NFFE in accordance with
sections 8.04 and 8.05 of this Agreement.

(C) Other Requirements of Agency
Agreement. QI shall require the partner-
ship or trust to provide QI with all the
information necessary for QI to meet its
obligations under this Agreement. No pro-
visions shall be contained in the agree-
ment between QI and the partnership or
trust that preclude, and no provisions of
this Agreement shall be construed to pre-
clude, the partnership or trust's joint and
several liability for tax, penalties, and in-
terest under chapters 3, 4, and 61 and
section 3406, to the extent that the under-
withholding, penalties, and interest have
not been collected from QI and the under-
withholding or failure to report amounts
correctly on Forms 945, 1042, 1042-S,
1099, or 8966 is due to the partnership's
or trust's failure to properly perform its
obligations under its agreement with QI.
Nothing in the agreement between QI and
the partnership or trust shall be construed
to limit the partnership's or trust's

requirements under chapter 4 as a
certified deemed-compliant FFI, owner-
documented FFI, NFFE, or exempt bene-
ficial owner. Further, nothing in the agree-
ment between QI and the partnership or
trust shall permit the partnership or trust
to assume primary chapters 3 and 4 with-
holding responsibility or primary Form
1099 reporting and backup withholding
responsibility.

## SECTION 5. DOCUMENTATION REQUIREMENTS

### Sec. 5.01. Documentation Requirements.

(A) General Documentation Re-
quirements. QI agrees to use its best ef-
forts to obtain documentation from ac-
count holders that receive a reportable
payment to determine whether withhold-
ing applies or whether a payment is re-
portable under this Agreement. Under sec-
tion 11.06 of this Agreement, failure to
obtain documentation from a significant
number of direct account holders consti-
tutes an event of default. If QI is an FFI
obtaining documentary evidence, QI also
agrees to adhere to the know-your-
customer rules that apply to QI with re-
spect to the account holder from whom
the documentary evidence is obtained. If
QI cannot reliably associate a reportable
payment with valid documentation from
the account holder, it must apply the ap-
plicable presumption rules to determine if
withholding is required under chapter 3 or
4 or if backup withholding is required
under section 3406. QI agrees to review
and maintain documentation in accor-
dance with this section 5 and, in the case
of documentary evidence obtained from
direct account holders, in accordance with
the applicable know-your-customer rules.
QI also agrees, if the performance of an
external review is requested by IRS (as
described in section 10.08(D) of this
Agreement), to make documentation (to-
gether with any associated withholding
statements and other documents or infor-
mation) available upon request for inspec-
tion by QI's external reviewer. QI repre-
sents that none of the laws to which it is
subject prohibits disclosure of the identity
of any account holder or account informa-
tion to QI's reviewer.

If QI is acting as a QDD, QI is required
to apply the rules of this section 5 to each
account holder of an account for which it
is acting as a QDD and to which it makes
a reportable payment in accordance with
the applicable requirements in section
5.01(A) and (B) of this Agreement.

#### (B) Coordination of Chapter 3 and Chapter 4 Documentation Requirements.

(1) QI that is an FFI. If QI is an FFI,
for each account holder for whom QI is
acting under this Agreement, QI is re-
quired to perform the due diligence pro-
cedures under its FATCA requirements as
a participating FFI, registered deemed-
compliant FFI, or registered deemed-
compliant Model 1 IGA FFI to determine
if the account is a U.S. account (or U.S.
reportable account) and to determine each
account holder that is a nonparticipating
FFI and, if applicable, recalcitrant account
holder (or non-consenting U.S. account).
If an account holder receiving the pay-
ment is not the payee, QI is also required
to establish the chapter 4 status of the
payee or payees to determine whether
withholding applies under chapter 4. For
purposes of this section 5, with respect to
documenting an account holder for chap-
ter 4 purposes, documentary evidence also
includes any documentary evidence al-
lowed under an applicable IGA.

To the extent an account holder re-
ceives a payment with respect to which QI
has determined that withholding is not
required under chapter 4, QI shall obtain,
unless already collected, documentation
that meets the requirements of this section
5 to determine whether the account holder
is a foreign person for which QI is re-
quired to withhold under chapter 3 or a
U.S. payee for which QI is required to
backup withhold under section 3406 or
report on Form 1099 under chapter 61.
See, however, section 8.06 of this Agree-
ment providing the circumstances in
which 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 registered
deemed-compliant Model 1 IGA FFI sat-
isfies QI's Form 1099 reporting responsi-
bilities. See Notice 2014-33, 2014-21
I.R.B. 1033, modifying the time in which
QI is required to implement the applicable

due diligence procedures under its
FATCA requirements as a participating
FFI, registered deemed-compliant FFI, or
registered deemed-compliant Model 1
IGA FFI with respect to an obligation held
by an entity that is opened, issued, or
executed on or after July 1, 2014, and
before January 1, 2015.

(2) QI that is an NFFE. If QI is an
NFFE, QI is required to document the
chapter 4 status of each account holder for
whom QI is acting to determine if with-
holding and reporting apply under section
1471 or 1472 on withholdable payments
made to the account holder. QI is required
to obtain, unless already collected, a valid
Form W-8 or Form W-9 from each ac-
count holder to determine whether QI is
required to withhold under chapter 3 or 4
or report on Form 1099 under chapter 61
and backup withhold under section 3406.
The allowance in this section 5 for QI to
obtain documentary evidence does not ap-
ply if QI is an NFFE. QI may, however,
obtain appropriate documentary evidence
as additional documentation to establish
the foreign status of an account holder.

Sec. 5.02. Documentation for For-
eign Account Holders. QI may treat an
account holder as a foreign beneficial
owner of an amount if the account holder
provides a valid Form W-8 (other than
Form W-8IMY unless provided by a QI
that is acting as a QDD or assuming pri-
mary withholding responsibility for a sub-
stitute interest payment) or valid docu-
mentary evidence that supports the
account holder's status as a foreign per-
son. QI may not treat an account holder
that provides documentation indicating
that it is a bank, broker, intermediary, or
agent (such as an attorney) as a beneficial
owner unless QI receives a statement, in
writing and signed by a person with au-
thority to sign such a statement, stating
that such account holder is the beneficial
owner of the income. Further, QI may not
reduce the rate of withholding with re-
spect to an indirect account holder that is
a foreign beneficial owner unless the cer-
tification provided by the direct account
holder is a valid Form W-8IMY, and then
only to the extent that QI can reliably
associate the payment with valid docu-
mentation that establishes that withhold-
ing does not apply under chapter 4 in the
case of a withholdable payment made to

the account holder and establishes that the
indirect account holder is entitled to a re-
duced rate of withholding under chapter 3.

Sec. 5.03. Beneficial Owner's Claim
of Treaty Benefits. To the extent an ac-
count holder receives a payment that is
not subject to withholding under chapter
4, QI may not reduce the rate of withhold-
ing under chapter 3 based on a beneficial
owner's claim of treaty benefits unless QI
obtains the documentation required by
section 5.03(A) of this Agreement. In ad-
dition, QI agrees to establish procedures
to inform account holders of the terms of
limitation on benefits provisions of a
treaty (whether or not those provisions are
contained in a separate article entitled
Limitation on Benefits) under which the
account holder is claiming benefits. For
accounts held by an entity opened or doc-
umented on or after January 1, 2017, QI is
required to obtain a Form W-8BEN-E
with the appropriate limitation on benefits
certification or, if QI is allowed to and
obtains documentary evidence, the written
certification included in the treaty state-
ment as described in section 5.03(B) of
this Agreement. For accounts maintained
by QI prior to January 1, 2017, that were
documented with documentary evidence
and for which treaty benefits are being
claimed, QI is required to obtain the ap-
propriate limitation on benefits statement
prior to January 1, 2019.

(A) Treaty Documentation. The
documentation required by this section
5.03(A) is as follows:

(1) The account holder has provided a
properly completed Form W-8BEN or
Form W-8BEN-E on which a claim of
treaty benefits is made, including, for an
entity, 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 direct
account holder. An indirect account
holder is required to have a either a U.S.
TIN or foreign TIN to claim treaty bene-
fits unless it is claiming treaty benefits on
income from marketable securities;

(2) The account holder has provided
documentary evidence that has been ob-
tained pursuant to the know-your-customer
rules that apply to the account holder, and
the account holder, if it is an entity, has
made the treaty statement (if applicable) re-

quired by section 5.03(B) of this Agree-
ment; or

(3) The account holder provides the
type of documentary evidence required
under §1.1441-6 to establish entitlement
to a reduced rate of withholding under a
treaty, and the account holder, if it is an
entity, has made the treaty statement (if
applicable) required by section 5.03(B) of
this Agreement.

(B) Treaty Statement. The treaty
statement required by an entity account
holder under this section 5.03(B) is as
follows:

[Name of entity account holder] meets
all provisions of the applicable treaty that
are necessary to claim a reduced rate of
withholding, including any limitation on
benefits provisions, and derives the in-
come within the meaning of section 894,
and the regulations thereunder, as the ben-
eficial owner.

QI is only required to obtain the treaty
statement required by this section 5.03(B)
from an account holder that is an entity.
QI shall not be required to obtain a treaty
statement required by this section 5.03(B)
from an individual who is a resident of an
applicable treaty country or from the gov-
ernment, or its political subdivisions, of a
treaty country. QI is required to collect
and report (as required on Form 1042-S)
the specific category of limitation on ben-
efits provision from all of its entity ac-
count holders, including a government (or
its political subdivisions).

Sec. 5.04. Documentation for Inter-
national Organizations. To the extent an
account holder receives a payment that is
not subject to withholding under chapter
4, QI may not treat the account holder as
an international organization entitled to an
exemption from withholding under sec-
tion 892 unless the name provided on
the documentation (including a Form
W-8EXP) is the name of an entity desig-
nated as an international organization by
executive order pursuant to 22 United
States Code 288 through 288(f) and the
documentation is valid under section 5.10
of this Agreement. If an international or-
ganization is not claiming benefits under
section 892 but under another Code ex-
ception, the provisions of section 5.02 of
this Agreement shall apply rather than the
provisions of this section 5.04.

Sec. 5.05. Documentation for Foreign
Governments and Foreign Central
Banks of Issue.

(A) Documentation From a Foreign
Government or Foreign Central Bank
of Issue Claiming an Exemption From
Withholding Under Section 892 or Sec-
tion 895. To the extent an account holder
receives a payment that is not subject to
withholding under chapter 4, QI may not
treat an account holder as a foreign gov-
ernment or foreign central bank of issue
exempt from withholding under section
892 or 895 unless-

(1) QI receives from the account holder
a Form W-8EXP or documentary evi-
dence establishing that the account holder
is a foreign government or foreign central
bank of issue;

(2) The income paid to the account
holder is the type of income that qualifies
for an exemption from withholding under
section 892 or 895; and

(3) QI does not know, or have reason to
know, that the account holder is a con-
trolled commercial entity as described in
section 892, that the income owned by the
foreign government or foreign central
bank of issue is being received from a
controlled commercial entity, or that the
income is from the disposition of an in-
terest in a controlled commercial entity.

(B) Treaty Exemption. To the extent
an account holder receives a payment that
is not subject to withholding under chap-
ter 4, QI may treat an account holder as a
foreign government or foreign central
bank of issue entitled to a reduced rate of
withholding under an income tax treaty
for purposes of chapter 3 if it has valid
documentation that is sufficient to obtain a
reduced rate of withholding under a treaty
as described in section 5.03 of this Agree-
ment.

(C) Other Code Exception. If a for-
eign government or foreign central bank
of issue is not claiming benefits under
section 892 or under an income tax treaty
but under another Code exception (e.g.,
the portfolio interest exception under sec-
tion 871(h) or 881(c)), the provisions of
section 5.02 of this Agreement apply
rather than the provisions of this section
5.05.

Sec. 5.06. Documentation for For-
eign Tax-Exempt Organizations. To the

extent an account holder receives a pay-
ment that is not subject to withholding
under 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 withholding
for purposes of chapter 3 unless it satisfies
the requirements provided in section
5.06(A), (B), or (C) of this Agreement.

(A) Reduced Rate of Withholding
Under Section 501. QI may not treat an
account holder as a foreign organization
described under section 501(c), and there-
fore exempt from withholding under
chapter 3 (or, if the account holder is a
foreign private foundation, subject to
withholding at a 4-percent rate under sec-
tion 1443(b)) unless QI obtains a valid
Form W-8EXP on which Part IV of the
form is completed.

(B) Reduced Rate of Withholding
Under Treaty. QI may not treat an ac-
count holder as a foreign organization that
is tax-exempt on an item of income pur-
suant to an income tax treaty unless QI
obtains valid documentation as described
under section 5.03 of this Agreement that
is sufficient for obtaining a reduced rate of
withholding under the treaty and the doc-
umentation establishes that the account
holder is an organization exempt from tax
under the treaty on that item of income.

(C) Other Exceptions. If a tax-exempt
entity is not claiming a reduced rate of
withholding because it is a foreign orga-
nization described under section 501(c) or
under a treaty article that applies to ex-
empt certain foreign organizations from
tax, but is claiming a reduced rate of with-
holding under another Code or income tax
treaty exception, the provisions of section
5.02 or 5.03 (as applicable) of this Agree-
ment shall apply rather than the provisions
of this section 5.06.

Sec. 5.07. Documentation from In-
termediaries or Flow-Through Entities.
QI must apply the presumption rules to a
reportable payment made to a nonquali-
fied intermediary or flow-through entity
that is a direct account holder of QI to the
extent 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, QI must apply the rules of
this section 5 to determine the validity of
such documentation.

(A) Withholdable Payments Made to
Nonqualified Intermediaries and Flow-
Through Entities. With respect to a with-
holdable payment made to a nonqualified
intermediary or flow-through entity-

(1) QI receives a valid Form W-8IMY
provided by the nonqualified intermediary
or the flow-through entity receiving the
payment that establishes the chapter 4 sta-
tus of the intermediary or flow-through
entity; and

(2) If the payment is not subject to
withholding under chapter 4 based on
such entity's chapter 4 status (or to the
extent the payment is received on behalf
of exempt beneficial owners), QI can reli-
ably associate the payment with a withhold-
ing statement that meets the requirements of
§1.1471-3(c)(iii)(B) that includes the ac-
count holders or interest holders of the in-
termediary or flow-through entity in chapter
4 withholding rate pools to the extent per-
mitted or with valid documentation de-
scribed in this section 5 provided by account
holders or interest holders of the intermedi-
ary or flow-through entity that are not them-
selves nonqualified intermediaries or flow-
through entities and that QI can treat as not
subject to withholding under chapter 4.

(B) Reportable Payments Other than
Withholdable Payments Made to Non-
qualified Intermediaries and Flow-
Through Entities. With respect to a re-
portable payment that is not a
withholdable payment made to a non-
qualified intermediary or flow-through en-
tity-

(1) QI receives a valid Form W-8IMY
provided by the nonqualified intermediary
or the flow-through entity regardless of
whether the form includes a chapter 4
status of the nonqualified intermediary or
flow-through entity unless such entity pro-
vides a withholding statement allocating a
payment to a chapter 4 withholding rate
pool of U.S. payees; and

(2) QI can reliably associate the pay-
ment with a chapter 4 withholding rate
pool of U.S. payees or valid documenta-
tion described in this section 5 provided
by account holders or interest holders of
the nonqualified intermediary or flow-
through entity that are not themselves
nonqualified intermediaries or flow-
through entities.

reportable payment made to a QI, WP, or
WT, QI receives a valid Form W-8IMY
provided by the QI, WP, or WT that in-
cludes the entity's chapter 4 status for a
payment that is a withholdable payment
and, for those payments for which a QI
has not assumed primary chapters 3 and 4
withholding responsibility or primary
Form 1099 reporting and backup with-
holding responsibility, QI can reliably as-
sociate the payment with withholding rate
pools, as described in section 6.03 of this
Agreement.

(D) Payments Made to QIs Acting as
QDDs. For payments with respect to po-
tential section 871(m) transactions or un-
derlying securities made to a QI acting as
a QDD, if QI receives a valid Form
W-8IMY provided by the QI acting as a
QDD that includes the QI's chapter 4 sta-
tus and the required certification that the
QI is acting as a QDD and assumes pri-
mary withholding responsibility for pay-
ments it makes when the QI is acting as a
QDD, then QI can reliably associate the
payments as made to the QI acting as a
QDD.

(E) Private Arrangement Intermedi-
aries. If QI has an agreement with a PAI,
QI obtains from the PAI a Form W-8IMY
completed as if the PAI were a QI that is
an FFI (with the exception that the PAI
must not provide a QI-EIN on the Form
W-8IMY) and QI can reliably associate
the payment with a withholding state-
ment, as described in section 4.01(G) of
this 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 the
documentation for any passive NFFE with
one or more substantial U.S. owners (or
one or more controlling persons that is a
specified U.S. person if QI is a reporting
Model 1 or reporting Model 2 FFI).

(F) Partnerships or Trusts to which
QI Applies the Agency Option. If QI has
an agreement with a partnership or trust
under which the partnership or trust
agrees to act as an agent of QI, QI obtains
from the partnership or trust a Form
W-8IMY completed as if the partnership
or trust were a QI (with the exception that
the partnership or trust must not provide a
QI-EIN on the Form W-8IMY) and QI
can reliably associate the payment with a
withholding statement, as described in

section 4.06(B)(1) of this Agreement, and
the information described in this section
5.07 for any account holders that are in-
termediaries or flow-through entities and
the documentation for any passive NFFE
with one or more substantial U.S. owners
(or one or more controlling persons that is
a specified U.S. person if QI is a reporting
Model 1 or reporting Model 2 FFI).

Sec. 5.08. Documentation for U.S.
Exempt Recipients. QI shall not treat an
account holder as a U.S. exempt recipi-
ent unless QI obtains from the account
holder-

(A) A valid Form W-9 on which the
account holder includes an exempt payee
code to certify that the account holder is a
U.S. exempt recipient for purposes of
chapter 4 reporting;

(B) Documentary evidence that is suf-
ficient to establish that the account holder
is a U.S. exempt recipient; or

(C) Documentary evidence that is suf-
ficient to establish the account holder's
status as a U.S. person and QI can treat the
person as an exempt recipient under the
rules 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 not
treat an account holder as a U.S. non-
exempt recipient unless QI obtains a valid
Form W-9 or other similar agreed form
under its FATCA requirements as a
participating FFI, registered deemed-
compliant FFI, or registered deemed-
compliant Model 1 IGA FFI from the ac-
count holder, QI knows an account holder
is a U.S. non-exempt recipient, or QI must
presume a person is a U.S. non-exempt
recipient to the extent required under sec-
tion 5.13(C)(3) or (4) of this Agreement.

Sec. 5.10. Documentation Validity.

(A) In General. QI may not rely on
documentation if QI has actual knowl-
edge, or reason to know that the informa-
tion or certifications contained in the doc-
umentation are unreliable or incorrect or
that there is a change in circumstances
with respect to the information or state-
ments contained in the documentation or
account information that affects the reli-
ability of the account holder's claim. See
§1.1441-1(e)(4)(ii)(D) for the definition
of change in circumstances and a

withholding agent's obligation with re-
spect to a change in circumstances. See
§31.3406(h)-3(e) for rules regarding
when QI may rely on a Form W-9,
§1.1441-7(b)(4) through (6) for rules re-
garding when QI may rely on a Form
W-8, and §1.1441-7(b)(7) through (9) for
rules regarding documentary evidence (in-
cluding §1.1441-7(b)(8)(i) for rules re-
garding documentary evidence received
prior to January 1, 2001). A change in
circumstances affecting withholding in-
formation, including allocation informa-
tion or withholding rate pools contained in
a withholding statement, will also cause
the documentation provided with respect
to that information to no longer be reli-
able. Once QI knows, or has reason to
know, that documentation provided by an
account holder is unreliable or incorrect to
establish foreign status or residency for
purposes of claiming benefits under an
applicable income tax treaty, it can no
longer reliably associate a payment with
valid documentation unless QI obtains the
additional documentation described in
§1.1441-7(b)(5), (b)(6), (b)(8), or (b)(9)
(as applicable). With respect to a with-
holding agent's reason to know that a
claim for treaty benefits is unreliable or
incorrect based on the existence of a tax
treaty, the rule in §1.1441-6(b)(1)(ii) will
apply to pre-existing accounts for which
QI held valid documentation upon a
change in circumstances or, with respect
to a pre-existing entity account, when it
provides a written limitation on benefits
statement (as described in section 5.03(B)
of this Agreement). For all new accounts,
this rule will apply on account opening.
For purposes of this section 5.10(A), a
"pre-existing account" or "pre-existing
entity account" is an account documented
by QI prior to January 1, 2017, for a QI
with a QI Agreement in effect prior to that
date. For a QI that did not have a QI
Agreement in effect prior to January 1,
2017, a "pre-existing account" or "pre-
existing entity account" means an account
maintained (and for which QI has valid
documentation) prior to the effective date
of its QI Agreement.

In addition, if QI becomes aware of
information resulting in the documenta-
tion no longer being reliable or correct
and QI has not assumed primary with-
holding responsibility under chapters 3

and 4 or primary Form 1099 reporting and
backup withholding responsibility, QI
agrees that it will promptly provide a
withholding agent with corrected informa-
tion (e.g., corrected withholding rate
pools, corrected Forms W-9, or corrected
U.S. TINs) within 30 days after QI knows
or has reason to know that the documen-
tation upon which it has relied is unreli-
able or incorrect. If QI receives notifica-
tion from the IRS that documentation
provided by an account holder is unreli-
able or incorrect (e.g., that the U.S. TIN
provided by an account holder is incor-
rect), QI shall follow the procedures set
forth in §31.3406(d)-5. See also QI's
FATCA requirements as a participating
FFI, registered deemed-compliant FFI, or
registered deemed-compliant Model 1
IGA FFI or an NFFE's requirements as a
withholding agent under sections 1471
and 1472 following a change in circum-
stances.

(B) Reason to Know-Direct Account
Holders. If QI is a financial institution as
defined in §1.1471-5(e), an insurance
company (without regard to whether such
company is a specified insurance com-
pany), or a broker or dealer in securities,
QI shall be considered to have reason to
know that documentation provided by a
direct account holder is unreliable or in-
correct only as prescribed in §1.1441-
7(b)(3). If QI is an NFFE (other than a
NFFE described in the first sentence of
this paragraph), see §1.1441-7(b)(2) for
when QI shall be considered to have rea-
son to know that a withholding certificate
provided by a direct account holder is
unreliable or incorrect.

(C) Reason to Know-Indirect Ac-
count Holders. QI shall be considered to
have reason to know that relevant infor-
mation or statements contained in docu-
mentation provided by an indirect account
holder are unreliable or incorrect if a rea-
sonably prudent person in the position of a
QI would question the claims made. QI
shall have reason to know that documen-
tation provided by a nonqualified interme-
diary or a flow-through entity is unreliable
or incorrect if the nonqualified intermedi-
ary or flow-through entity does not pro-
vide QI with, to the extent required, the
names of the indirect account holders,
their addresses, allocation information al-
locating payments to each indirect ac-

count holder, and sufficient information
for QI to report payments on Forms
1042-S and 1099. In addition, QI shall
have reason to know that an indirect ac-
count holder is not entitled to a reduced
rate of withholding under an income tax
treaty if the nonqualified intermediary or
flow-through entity has not provided suf-
ficient information so that QI can verify
that the indirect account holder has pro-
vided a U.S. TIN or foreign TIN, if re-
quired, and made the necessary statements
regarding limitations on benefits provi-
sions and deriving the income under sec-
tion 894 and the regulations thereunder.
See §1.1441-7(b)(10) and section 5.03 of
this Agreement.

### Sec. 5.11. Documentation Validity Period.

(A) Documentation Other than
Form W-9. QI may rely on valid docu-
mentary evidence obtained from account
holders in accordance with applicable
know-your-customer rules as long as the
documentary evidence remains valid un-
der those rules or until QI knows, or has
reason to know, that the information con-
tained in the documentary evidence is in-
correct. However, QI may only rely on
statements regarding entitlement to treaty
benefits described in §1.1441-6(c)(5)
(i) or the representations described in sec-
tion 5.03 of this Agreement until the va-
lidity expires under §1.1441-1(e)(4)(ii)
(A)(2). For establishing an account hold-
er's chapter 3 status (as defined in
§1.1441-1(c)(45)) or foreign status for
chapter 61 purposes, QI may rely on a
Form W-8 until its validity expires un-
der §1.1441-1(e)(4)(ii) and may rely on
documentary evidence (other than doc-
umentary evidence obtained pursuant to
applicable know-your-customer rules)
until its validity expires under §1.6049-
5(c).

(B) Form W-9. QI may rely on a valid
Form W-9 as long as it has not been
informed by the IRS or another withhold-
ing agent that the form is unreliable or
incorrect. If QI has primary Form 1099
reporting and backup withholding respon-
sibility, it may rely on a Form W-9 unless
one of the conditions of §31.3406(h)-
3(e)(2)(i) through (v) applies.

Sec. 5.12. Maintenance and Retention
of Documentation.

(A) Maintaining Documentation. QI
shall maintain documentation by retaining
the original documentation, a certified
copy, a photocopy, a scanned copy, a mi-
crofiche, or other means that allow repro-
duction (provided that the QI has recorded
receipt of the documentation and is able to
produce a hard copy). For a direct ac-
count, if QI is not required to retain copies
of 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 documentation
was reviewed, the document's identifica-
tion number (if any, e.g., a passport num-
ber), and whether such documentation
contained any U.S. indicia. For direct ac-
counts opened prior to January 1, 2001, if
QI was not required under its know-your-
customer rules to maintain originals or
copies of documentation, QI may rely on
its account information if it has complied
with all other aspects of its know-your-
customer rules regarding establishment of
an 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 in
accordance with the know-your-customer
rules, and it has no information in its
possession that would require QI to treat
the documentation as invalid.

(B) Retention Period. QI shall retain a
record of the account holder's documen-
tation obtained under this section 5 for as
long as the documentation is relevant to
the determination of QI's tax liability or
reporting responsibilities under sections
871, 881, 1461, 1474(a), and 3406.

### Sec. 5.13. Application of Presumption Rules.

(A) In General. QI shall apply the
presumption rules of section 5.13(C) of
this Agreement if QI cannot reliably asso-
ciate a payment with valid documentation
from an account holder. The presumption
rules cannot be used to grant a reduced
rate of withholding. For example, the
portfolio interest exception of sections
871(h) and 881(c) shall not apply to a
person that is presumed to be foreign.
Further, QI must apply the presumption
rules when required and may not rely on

its actual knowledge regarding an account
holder's chapter 4 status or status as a
U.S. or foreign person to apply a reduced
rate of withholding. Failure to follow the
presumption rules may result in liability
for underwithholding, penalties, and inter-
est. Notwithstanding the preceding sen-
tences, QI must rely on its actual knowl-
edge regarding an account holder rather
than what is presumed if, based on such
knowledge, it should withhold an amount
greater than the withholding rate under the
presumption rules or it should report on
Form 1042-S or Form 1099 an amount
that would otherwise not be reported.

(B) Reliably Associating a Payment
with Documentation. Generally, QI can
reliably associate a payment with docu-
mentation if, for that payment, it holds
valid documentation from the account
holder; it can reliably determine how
much of the payment relates to the valid
documentation provided by such account
holder; and it has no actual knowledge or
reason to know that any of the informa-
tion, certifications, or statements in or as-
sociated with the documentation are in-
correct. See §1.1441-1(b)(2)(vii) or, for a
withholdable payment, §1.1471-3(c) for
rules regarding when a payment can be
reliably associated with documentation.
See also §1.1471-3(e)(4)(vi)(B) for when
a QI that is an FFI may rely on documen-
tation and information permitted in an
applicable IGA to document an account
holder's chapter 4 status. Sections
5.13(B)(1) through (5) of this Agreement
describe when a payment is reliably asso-
ciated with documentation if the payment
is made to an account holder that is an
intermediary or flow-through entity (other
than a nonparticipating FFI that is not
acting on behalf of exempt beneficial
owners).

(1) Reliably Associating a Payment
with Documentation Provided by a
Nonqualified Intermediary or Flow-
Through Entity. Generally, QI can
reliably associate a payment with docu-
mentation provided by a nonqualified in-
termediary or flow-through entity if it can
reliably associate the payment with a valid
Form W-8IMY provided by the nonquali-
fied intermediary or flow-through entity,
and it can determine the portion of the
payment that relates to valid documenta-
tion associated with the Form W-8IMY

for an account holder or interest holder of
the 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 on
Form 1042-S, Form 1099, or Form 8966 if
reporting is required.

If the payment is a withholdable pay-
ment, the Form W-8IMY must provide the
nonqualified intermediary's or flow-
through entity's chapter 4 status to the
extent required for chapter 4 purposes. In
lieu of the nonqualified intermediary or
flow-through entity providing documenta-
tion for an account holder that is subject to
chapter 4 withholding, QI can reliably as-
sociate a withholdable payment with valid
documentation associated with the Form
W-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 payment
with valid documentation provided by a
nonqualified intermediary or a flow-
through entity that is a participating FFI or
registered deemed-compliant FFI if, in
lieu of providing documentation for its
account holders that are U.S. persons,
such nonqualified intermediary or flow-
through entity allocates the payment to a
chapter 4 withholding rate pool of U.S.
payees and also certifies on a valid Form
W-8IMY that it meets the requirements of
§1.6049-4(c)(4)(iii) with respect to any
account holder of an account it maintains
within the meaning of §1.1471-5(d)
(5) (i.e., a direct account holder) that re-
ceives a payment included in this pool or
allocates a payment that is a withholdable
payment to a chapter 4 withholding rate
pool of recalcitrant account holders.

Notwithstanding the preceding sen-
tences in this section 5.13(B)(1), to the
extent a payment is not subject to report-
ing on Form 1042-S, Form 1099, or Form
8966, QI can reliably associate the pay-
ment with valid documentation if it can
determine the portion of the payment that
is allocable to a group of account holders
for whom QI holds valid documentation
(other than nonqualified intermediaries or

flow-through entities) for whom withhold-
ing and reporting is not required. For ex-
ample, QI can treat a payment of short
term OID allocable to a group of docu-
mented foreign account holders as reliably
associated with valid documentation. Fur-
ther, if the documentation attached to a
nonqualified intermediary's or flow-
through entity's Form W-8IMY is docu-
mentation from another nonqualified in-
termediary or flow-through entity, then QI
must apply the rules of this paragraph to
that other nonqualified intermediary or
flow-through entity.

(2) Reliably Associating a Payment
with a Withholding Certificate Pro-
vided by Another QI that Does not
Assume Primary Chapters 3 and 4
Withholding or Primary Form 1099
Reporting and Backup Withholding
Responsibility. Generally, QI can reli-
ably associate a payment with documen-
tation provided by another QI that does
not assume either primary chapters 3
and 4 withholding responsibility or pri-
mary Form 1099 reporting and backup
withholding responsibility if it can reli-
ably associate the payment with a valid
Form W-8IMY and, if the form is asso-
ciated with a withholdable payment, it
includes the QI's chapter 4 status to the
extent required for chapter 4 purposes.
Additionally, the Form W-8IMY must
be associated with a withholding state-
ment that allocates the withholdable
payment among the chapter 4 withhold-
ing rate pools (to the extent permissible
under §1.1471-3(c)(3)(iii)(B)), and with
respect to a payment of an amount sub-
ject to chapter 3 withholding that is ei-
ther not a withholdable payment or a
withholdable payment for which no
chapter 4 withholding is required, that
allocates such payment among chapter 3
withholding rate pools for foreign ac-
count holders as described in section
6.03(C) of this Agreement.

If the payment is a reportable amount,
QI can reliably associate the payment with
documentation provided by another QI if
the withholding statement allocates the
payment to withholding rate pools attrib-
utable to U.S. non-exempt recipients and
the documentation includes a valid Form
W-9 for each U.S. non-exempt recipient
account holder for which the other QI is
required to report on Form 1099 and, if

required, backup withhold. QI can also
reliably associate a reportable amount
with valid documentation provided by an-
other QI that is a participating FFI or
registered deemed-compliant FFI if, in
lieu of providing documentation for each
U.S. non-exempt recipient account holder,
the QI allocates the payment to a chapter
4 withholding rate pool of U.S. payees
and provides the applicable certifica-
tion(s) on a valid Form W-8IMY for allo-
cating the payment to this pool or allo-
cates a payment that is a withholdable
payment to a chapter 4 withholding rate
pool of recalcitrant account holders. Not-
withstanding the preceding sentences in
this section 5.13(B)(2), the presumption
rules shall not apply if a payment cannot
be allocated to each U.S. non-exempt re-
cipient account holder or to a chapter 4
withholding rate pool of U.S. payees to
the extent the alternative procedures of
section 6.03(D) of this Agreement apply.

(3) Reliably Associating a Payment
with Documentation Provided by a QI
that Assumes Primary Chapters 3 and
4 Withholding Responsibility and Does
not Assume Primary Form 1099 Re-
porting and Backup Withholding Re-
sponsibility. Generally, QI can reliably
associate a payment with valid documen-
tation provided by another QI that as-
sumes primary chapters 3 and 4 withhold-
ing responsibility, but not primary Form
1099 reporting and backup withholding
responsibility, if it can associate the pay-
ment with a valid Form W-8IMY from the
QI and, if the form is associated with a
withholdable payment, it includes the QI's
chapter 4 status to the extent required for
chapter 4 purposes. Additionally, the
Form W-8IMY must be associated with a
withholding statement that allocates a
payment that is a withholdable payment or
an amount subject to chapter 3 withhold-
ing that is not a withholdable payment
among a single withholding rate pool for
all account holders with respect to which
the QI assumes primary chapters 3 and 4
withholding responsibility.

If the payment is a reportable amount,
QI can reliably associate the payment with
documentation provided by another QI if
the withholding statement allocates the
payment to withholding rate pools attrib-
utable to each U.S. non-exempt recipient,
as described in section 6.03(D), and the

documentation includes a valid Form W-9
for each U.S. non-exempt recipient ac-
count holder for which the other QI is
required to report on Form 1099 and, if
required, backup withhold. QI can also
reliably associate such payment with valid
documentation provided by another QI
that is a participating FFI or registered
deemed-compliant FFI if, in lieu of pro-
viding documentation for each U.S. non-
exempt recipient account holder, the QI
allocates the payment made to the U.S.
non-exempt recipient to a chapter 4 with-
holding rate pool of U.S. payees and pro-
vides the applicable certifications on a
valid Form W-8IMY for allocating the
payment to this pool or allocates a pay-
ment that is a withholdable payment to a
chapter 4 withholding rate pool of recal-
citrant account holders. Notwithstanding
the preceding sentences in this section
5.13(B)(3), the presumption rules shall
not apply if a payment cannot be allocated
to each U.S. non-exempt recipient account
holder or to a chapter 4 withholding rate
pool of U.S. payees to the extent the al-
ternative procedures of section 6.03(D) of
this Agreement apply.

(4) Reliably Associating a Payment
With Documentation Provided by a QI
that Assumes Primary Form 1099 Re-
porting and Backup Withholding Re-
sponsibility. Generally, QI can reliably
associate a payment with valid documen-
tation provided by another QI that as-
sumes primary Form 1099 reporting and
backup withholding responsibility, but not
primary chapters 3 and 4 withholding re-
sponsibility, to the extent it can associate
the payment with a valid Form W-8IMY
from the QI that, if the payment is a with-
holdable payment, includes the QI's chap-
ter 4 status to the extent required for chap-
ter 4 purposes. Additionally, the Form
W-8IMY must be associated with a with-
holding statement that allocates a payment
that is a withholdable payment among
chapter 4 withholding rate pools (other
than a pool of U.S. payees and to the
extent permissible under §1.1471-3(c)
(3)(iii)(B)) and, with respect to a payment
that is an amount subject to chapter 3
withholding but is either not a withhold-
able payment or a withholdable payment
for which no chapter 4 withholding is
required, allocates the payment among
chapter 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 which
QI assumes primary Form 1099 reporting
and backup withholding responsibility.

(5) Reliably Associating a Payment
with Documentation Provided by a QI
that Assumes Both Primary Chapters 3
and 4 Withholding Responsibility and
Primary Form 1099 Reporting and
Backup Withholding Responsibility.
Generally, QI can reliably associate a pay-
ment with valid documentation provided
by another QI that assumes both primary
chapters 3 and 4 withholding responsibil-
ity and primary Form 1099 reporting and
backup withholding responsibility if QI
can associate the payment with a valid
Form W-8IMY from the QI that, if the
payment is a withholdable payment, in-
cludes the QI's chapter 4 status. Addition-
ally, the Form W-8IMY must also desig-
nate the accounts for which the other QI is
acting as a QI and is assuming primary
chapters 3 and 4 withholding and primary
Form 1099 reporting and backup with-
holding responsibility. If the other QI is
acting as a QDD, the Form W-8IMY (or
withholding statement) must also desig-
nate those accounts (1) for which the
QDD is receiving payments with respect
to potential section 871(m) transactions or
underlying securities as a QDD, (2) for
which the QDD is receiving payments
with respect to potential section 871(m)
transactions (and that are not also under-
lying securities) for which withholding is
not required, and (3) for which the QDD is
receiving payments with respect to under-
lying securities for which withholding is
required. If the other QI is acting as a
QDD, the Form W-8IMY (or withholding
statement) must also identify the home
office or branch acting as a QDD that is
receiving the payment. If the QI receiving
a payment assumes both primary chapters
3 and 4 withholding responsibility and
primary Form 1099 reporting and backup
withholding responsibility for substitute
interest payments as described in section
3.03(A), the Form W-8IMY must indicate
that the QI is assuming primary withhold-
ing responsibility for all such payments.

(C) Presumption Rules. With respect
to a withholdable payment made to a for-
eign entity, if QI is an NFFE, it must
follow the presumption rules of §1.1471-

3(f) when it cannot reliably associate a
withholdable payment with valid docu-
mentation.

With respect to a payment that is an
amount subject to chapter 3 withholding
that is either not a withholdable payment
or a withholdable payment for which no
chapter 4 withholding is required, the pre-
sumption rules are the rules under
§1.1441-1(b)(3) that a withholding agent
must follow to determine the status of a
beneficial owner (i.e., as a U.S. person or
foreign person and as an individual or
entity (and the entity's classification))
when it cannot reliably associate a pay-
ment with valid documentation. With re-
spect to a reportable payment (including a
withholdable payment made to an entity)
that is not an amount subject to chapter 3
withholding, the presumption rules are the
rules of §1.6049-5(d) that a payor must
follow to determine the status of a payee
(e.g., as a non-exempt recipient) when it
cannot reliably associate a payment with
valid documentation. The presumption
rules are as follows:

(1) Certain Withholdable Payments
Made with Respect to an Offshore Ob-
ligation. A withholdable payment paid
outside of the United States as defined
under §1.6049-5(e) with respect to an
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 amount
subject to chapter 3 withholding, that is
paid outside the U.S. with respect to an
offshore obligation, and that is treated as
made to a payee that is an individual is
presumed made to a U.S. person when the
payee has any of the indicia of U.S. status
that are described in §1.1441-7(b)(5). If
QI is a participating FFI or registered
deemed-compliant FFI (other than a re-
porting Model 1 FFI), see the rules under
its FATCA requirements as a participating
FFI or registered deemed-compliant FFI
for classifying account holders as recalci-
trant account holders. If QI is an FFI, see
also section 8.06 of this Agreement for
whether QI is required to report such pay-
ments on Form 1099.

(2) Amounts Subject to Withholding
under Chapter 3 that are Paid with
Respect to an Offshore Obligation. An
amount 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 the
payment is made outside of the United
States with respect to an offshore obliga-
tion. If QI is an NFFE or an FFI that is not
required to withhold on recalcitrant ac-
count holders pursuant to the terms of an
applicable Model 1 or Model 2 IGA, an
amount subject to chapter 3 withholding
that is a withholdable payment and that is
treated as made to a payee that is an
individual is also presumed made to an
undocumented foreign account holder if
the payment is made outside of the United
States with respect to an offshore obliga-
tion. QI must treat an amount described in
this section 5.13(C)(2) as subject to with-
holding under chapter 3 at a rate of 30
percent on the gross amount of the pay-
ment and must report the payment as
made to an unknown recipient on Form
1042-S.

(3) Payments on Certain Short-Term
Obligations and Bank Deposit Interest.
An amount of U.S. source original issue
discount on the redemption of a short-
term obligation or U.S. source bank de-
posit interest not subject to chapter 4
withholding is presumed made to an un-
documented U.S. non-exempt recipient
account holder regardless of whether paid
to an individual or entity. QI must report
an amount described in this section
5.13(C)(3) on Form 1099. QI must backup
withhold and report such amounts on
Form 1099 unless it provides sufficient
information to another payor from which
it receives such amounts to backup with-
hold and report the payments and QI does
not know that the other payor has failed to
backup withhold or report.

(4) Foreign Source Income, Broker
Proceeds, and Certain Other Amounts
Made with Respect to an Offshore Ob-
ligation. A payment of an amount that is
not a withholdable payment and is not an
amount subject to chapter 3 withholding
(other than payments of short-term OID
and bank deposit interest described in sec-
tion 5.13(C) of this Agreement) that is
paid outside the United States with respect
to an offshore obligation and that is made
to 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 indicia
of U.S. status that are described in section

5.10(B) of this Agreement. If the payment
is made to a payee that is an entity, QI
must 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 of
this paragraph 5.13(C)(4). For a payment
of gross proceeds for which QI is a broker
under §1.6045-1, similar rules apply to a
payment made with respect to a sale that
is effected at an office outside the United
States under §1.6045-1(g)(1)(ii). QI must
report an amount described in this section
5.13(C)(3) as paid to a presumed U.S.
non-exempt recipient on Form 1099 to the
extent required under section 8.06 of this
Agreement. Backup withholding shall not
be required, however, if the exception
provided in §31.3406(g)-1(e) applies.

(5) Other Payments. For any payment
not 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 applica-
ble).

## SECTION 6. QUALIFIED INTERMEDIARY WITHHOLDING CERTIFICATE AND DISCLOSURE OF ACCOUNT HOLDERS TO WITHHOLDING AGENT

Sec. 6.01. Qualified Intermediary
Withholding Certificate. QI agrees to
furnish a qualified intermediary withhold-
ing certificate to each withholding agent
from which it receives a reportable
amount as a QI. The qualified intermedi-
ary withholding certificate is a Form
W-8IMY (or acceptable substitute form)
that certifies that QI is acting as a QI,
contains QI's QI-EIN, and provides all
other information required by the form. If
QI receives a withholdable payment, QI
must certify to its chapter 4 status and
provide its GIIN (if applicable). QI must
also certify its chapter 4 status as a par-
ticipating FFI or registered deemed-
compliant FFI when QI provides a Form
W-8IMY that certifies that it meets the
requirements of §1.6049-4(c)(4)(iii) with
respect to any account holder of an ac-
count it maintains that is included in a
chapter 4 withholding rate pool of U.S.
payees on QI's withholding statement.

If QI is acting as a QSL for a substitute
dividend payment, QI must also certify
that it is acting as a qualified securities

lender and provide all other information
required by Form W-8IMY.

If QI is acting as a QDD for payments
with respect to potential section 871(m)
transactions or underlying securities, it
must certify that it is acting as a QDD for
those payments and assumes primary
chapters 3 and 4 withholding responsibil-
ity and primary Form 1099 reporting and
backup withholding responsibility for any
payments with respect to potential section
871(m) transactions that it makes as re-
quired by this Agreement, and it must
provide all other information required by
Form W-8IMY with respect to the certi-
fication.

If QI is acting with respect to payments
of substitute interest as described in sec-
tion 3.03(A) of this Agreement, it must
certify that it is assuming primary chap-
ters 3 and 4 withholding responsibility
and primary Form 1099 reporting and
backup withholding responsibility for all
such payments, in addition to the other
certifications it makes and information it
provides as a QI as required by this
Agreement.

Except as otherwise provided in sec-
tion 6.02 of this Agreement, QI also
agrees to furnish each withholding agent
to whom it provides a Form W-8IMY
with the withholding statement described
in section 6.02 of this Agreement. QI is
not required to disclose, as part of its
Form W-8IMY or its withholding state-
ment, any information regarding the iden-
tity of a direct or indirect account holder
that is a foreign person or a U.S. exempt
recipient or a holder of a U.S. account. To
the extent QI does not assume primary
Form 1099 reporting and backup with-
holding responsibility under section 3.04
of this Agreement or is not excepted from
reporting under section 8.06 of this Agree-
ment, for each U.S. non-exempt recipient
account holder on whose behalf QI re-
ceives a reportable amount, QI must pro-
vide to a withholding agent the Form W-9,
or if any such account holder has not
provided a Form W-9, the name, address,
and U.S. TIN (if available).

### Sec. 6.02. Withholding Statement.

(A) In General. QI agrees to provide
to each withholding agent from which QI
receives reportable amounts as a QI a
withholding statement described in this

section 6.02 and §1.1441-1(e)(3)(iv). A
withholding statement shall not be pro-
vided to a withholding agent if QI as-
sumes both primary chapters 3 and 4 with-
holding responsibility and primary Form
1099 reporting and backup withholding
responsibility for all of its accounts, un-
less QI is acting as a QDD. The withhold-
ing statement forms an integral part of the
Form W-8IMY. The withholding state-
ment shall be updated as often as neces-
sary for the withholding agent to meet its
reporting and withholding obligations un-
der chapters 3, 4, and 61 and section 3406.

(B) Content of Withholding State-
ment. The withholding statement must
contain sufficient information for a with-
holding agent to apply the correct rate of
withholding on payments allocable to the
accounts identified on the statement and to
properly report such payments on Forms
1042-S and Forms 1099, as applicable.
The withholding statement must-

(1) Designate those accounts for which
QI acts as a QI;

(2) Designate those accounts for which
QI assumes primary chapters 3 and 4
withholding responsibility or primary
Form 1099 reporting and backup with-
holding responsibility (including accounts
for which QI is acting with respect to
payments of U.S. source substitute inter-
est (as described in section 3.03(A) of this
Agreement));

(3) If QI is acting as a QDD, designate
the accounts (1) for which the QDD is
receiving payments with respect to poten-
tial section 871(m) transactions or under-
lying securities as a QDD, (2) for which
the QDD is receiving payments with re-
spect to potential section 871(m) transac-
tions (and that are not underlying securi-
ties) for which withholding is not
required, and (3) for which QDD is re-
ceiving payments with respect to underly-
ing securities for which withholding is
required, and, if applicable, identifying
the home office or branch that is treated as
the owner for U.S. income tax purposes;

(4) If applicable, designate the ac-
counts for which QI is acting as a QSL
with respect to any U.S. source substitute
dividend payments received from the
withholding agent; and

(5) Provide information regarding
withholding rate pools, as described in
section 6.03 of this Agreement.

### Sec. 6.03. Chapters 3 and 4 Withholding Rate Pools.

(A) In General. QI shall provide as
part of its withholding statement with-
holding rate pool information in a manner
sufficient for the withholding agent to
meet its chapters 3 and 4 and backup
withholding responsibilities and its Form
1042-S and Form 1099 reporting respon-
sibilities.

(B) Chapter 4 Withholding Rate
Pools. If QI receives a withholdable pay-
ment on behalf of its account holders, QI
may allocate the payment to a chapter 4
withholding rate pool. A chapter 4 with-
holding rate pool is a payment of a single
type of income (e.g., interest or dividends)
that is allocated to payees that are nonpar-
ticipating FFIs. If QI is a participating FFI
or registered deemed-compliant FFI
(other than reporting Model 1 FFI), it may
also allocate a witholdable payment to a
chapter 4 withholding rate pool of recal-
citrant account holders (if applicable). If
QI 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 withholding
and section 8.06(A)(4) of this Agree-
ment), QI may allocate the payment to a
chapter 4 withholding rate pool of U.S.
payees. See section 6.03(D) of this Agree-
ment for the alternative procedures that
may be used in this case. Except as oth-
erwise provided in this section 6.03(B), if
QI receives a withholdable payment, QI
must provide the information required un-
der §1.1471-3(c)(3)(iii)(B)(2).

Further, if QI elects under its FATCA
requirements as a participating FFI or reg-
istered deemed-compliant FFI to backup
withhold instead of withholding under
chapter 4 with respect to certain recalci-
trant account holders, QI's withholding
statement must indicate the portion of
such payment subject to backup withhold-
ing under section 3406 that is allocated to
such account holders and must provide all
other information relating to such account
holders that is required under chapter 61
for the withholding agent to report with
respect to the payment.

If QI has an account holder that is
another intermediary (whether a QI, NQI,
or PAI) or a flow-through entity, QI may
combine the account holder information
provided by the intermediary or flow-
through entity with QI's direct account
holder information to determine the
amounts allocable to each of QI's chapter
4 withholding rate pools described in this
section 6.03(B). If QI is an NFFE that has
an account holder that is another interme-
diary or flow-through entity that is a par-
ticipating FFI or registered deemed-
compliant FFI, QI may provide the
account holder's chapter 4 withholding
rate pools of recalcitrant account holders
and U.S. payees to the extent applicable.

(C) Chapter 3 Withholding Rate
Pools. With respect to any portion of the
payment that is attributable to payees for
which no chapter 4 withholding is re-
quired but is an amount subject to chapter
3 withholding, a chapter 3 withholding
rate pool is a payment of a single type of
income that is subject to a single rate of
withholding (e.g., 0%, 10%, 15%, or
30%) and that is reported under a single
chapter 4 exemption code on Form
1042-S. QI shall determine chapter 3
withholding rate pools based on valid doc-
umentation obtained under section 5 of
this Agreement or, if a payment cannot be
reliably associated with valid documenta-
tion, on the presumption rules of section
5.13(C) of this Agreement. If QI has an
account holder that is another intermedi-
ary (whether a QI, NQI, or PAI) or a
flow-through entity (other than a nonpar-
ticipating FFI that is not acting on behalf
of any exempt beneficial owners), QI may
combine the account holder information
provided by the intermediary or flow-
through entity with QI's direct account
holder information to determine the
amounts allocable to each of QI's chapter
3 withholding rate pools with respect to
the portion of the payment allocable to an
account holder to which chapter 4 with-
holding does not apply.

(D) U.S. Non-Exempt Recipients
Subject to Backup Withholding or
Form 1099 Reporting and Alternative
Procedures for Allocating Payments on
Withholding Statements. To the extent
QI does not assume primary Form 1099
reporting and backup withholding respon-
sibility and is not excepted from reporting

on Form 1099 under section 8.04 of this
Agreement, QI's withholding statement
must establish a separate withholding rate
pool for each U.S. non-exempt recipient
account holder that QI is required to re-
port on Form 1099 and has disclosed to
the withholding agent. QI may, by mutual
agreement with the withholding agent, es-
tablish a single withholding rate pool
(not subject to backup withholding) for
all U.S. non-exempt recipient account
holders for whom QI is required to re-
port on Form 1099 and has provided
Forms W-9 prior to the withholding
agent paying any reportable amounts or,
if applicable, designated broker proceeds to
which backup withholding does not apply.
QI must establish a separate withholding
rate pool for all U.S. non-exempt recipient
account holders subject to backup withhold-
ing prior to the withholding agent paying
any reportable amounts or, if applicable,
designated broker proceeds.

Alternatively, QI may include U.S.
non-exempt recipients in a zero rate
withholding pool that includes U.S. ex-
empt recipients and foreign persons for
which no withholding is required under
chapters 3 and 4 and section 3406 and
may include payments allocated to a
chapter 4 withholding rate pool of U.S.
payees in this pool to the extent permit-
ted to be provided by QI under section
6.03(B) of this Agreement. If QI
chooses the alternative procedure of this
paragraph, QI must provide sufficient
information to the withholding agent no
later than January 15 of the year following
the year in which the reportable amounts
and designated broker proceeds, if applica-
ble, are paid in order to allocate to each U.S.
non-exempt recipient account holder or to a
chapter 4 withholding rate pool of U.S. pay-
ees (when applicable). Failure to provide
such information will result in the applica-
tion of penalties to QI under sections 6721
and 6722 and shall constitute an event of
default under section 11.06 of this Agree-
ment.

## SECTION 7. TAX RETURN OBLIGATIONS

Sec. 7.01. Form 1042 (or Other Tax
Return) Filing Requirement.

(A) In general. QI shall file a return on
Form 1042, whether or not QI withheld

any amounts under chapter 3 or 4, on or
before March 15 of the year following any
calendar year in which QI acts as a QI and
makes a payment of an amount subject to
chapter 3 or 4 withholding. A separate
Form 1042 must be filed by each legal
entity that is a QI covered by this Agree-
ment. Form 1042 shall be filed at the
address indicated on the form, at the ad-
dress at which the IRS notifies QI to file
the return, or in accordance with the in-
structions to file Form 1042 electronically.
In addition to the information specifically
requested on Form 1042 and the accom-
panying instructions, if QI made any over-
withholding or underwithholding adjust-
ments under §§1.1461-2 and 1.1474-2
and sections 9.02 and 9.05 of this Agree-
ment, QI must attach a statement setting
forth the amounts of any overwithholding
or underwithholding adjustments and an
explanation of the circumstances that re-
sulted in the over- or underwithholding.

(B) Extensions for Filing Returns. QI
may request an extension of the time for
filing Form 1042, or any of the informa-
tion required to be attached to the form, by
submitting Form 7004, Application for
Automatic Extension of Time to File Cer-
tain Business Income Tax, Information,
and Other Returns, on or before the due
date of the return.

(C) QDD Tax Liability Require-
ments for QDDs. In addition to its re-
quirements under section 7.01(A) of this
Agreement, a QI that is acting as a QDD
(other than a foreign branch of a U.S.
financial institution) also must report its
QDD tax liability on the appropriate U.S.
tax return (to be prescribed by the IRS),
including separately identifying each part
of the QDD tax liability described in sec-
tion 3.09(A) through (C) of this Agree-
ment separately for the home office and
each branch that is acting as a QDD (if
applicable). A QDD must also report any
other information required by the appro-
priate return with respect to its QDD tax
liability (including any part thereof).

A QDD must also maintain, and make
available to the IRS upon request, a rec-
onciliation schedule that tracks across cal-
endar years the section 871(m) amount for
each dividend with respect to each under-
lying security referenced by a potential
section 871(m) transaction separately for
the home office and each branch that is a

QDD (if applicable). The reconciliation
schedule must separately state total
amounts received as a QDD, as well as the
dividends received in its equity deriva-
tives dealer capacity and the section 881
tax paid on those amounts, the amount of
dividends that were effectively connected
with the conduct of a trade or business in
the United States, the amount of stock
owned in its equity derivatives dealer ca-
pacity that was not effectively connected
with the conduct of a trade or business in
the United States, the amount of dividend
equivalent payments it received in its eq-
uity derivatives dealer capacity, its long
positions, its short positions, its net delta
for business purposes (if any), its adjust-
ments to the net delta used for business
purposes (if any, such as adjustments to
exclude transactions that, for federal in-
come tax purposes, are not treated as
transactions of a QDD, do not exist, or
that are effectively connected with the
conduct of a trade or business in the
United States), the dividend amount per
share, its tax liability under section 881
for its section 871(m) amount, its net delta
exposure, and the section 871(m) amount
for each dividend with respect to each
underlying security referenced by a poten-
tial section 871(m) transaction it received
as a QDD, and any adjustments thereto,
for transactions in its equity derivatives
dealer capacity. The reconciliation sched-
ule may be maintained in any manner or
format that permits the IRS to reconcile
the amount reported by the QDD for the
calendar year.

Sec. 7.02. Form 945 Filing Require-
ment. QI shall file a return on Form 945
on or before January 31 following the
calendar year in which QI backup with-
held an amount under section 3406. Sep-
arate Forms 945 must be filed by each
legal entity that is a QI covered by this
Agreement. The form must be filed at the
address specified in the instructions for
Form 945, at the address at which the IRS
notifies QI to file the return under the
provisions of section 12.06 of this Agree-
ment, or in accordance with the instruc-
tions to file Form 945 electronically.

Sec. 7.03. Retention of Returns. QI
shall retain Forms 945 and 1042 (includ-
ing, with respect to a QI acting as a QDD,
its reconciliation schedule) for the appli-

cable statute of limitations on assessment
under section 6501.

## SECTION 8. INFORMATION REPORTING OBLIGATIONS

Sec. 8.01. Form 1042-S Reporting.
Except as otherwise provided in section
8.02 of this Agreement, QI is not required
to file Forms 1042-S for amounts paid to
each separate account holder for whom
such reporting would otherwise be re-
quired. Instead, QI shall file a Form
1042-S reporting the pools of income (re-
porting pools) as determined in section
8.03 of this Agreement. QI must file its
Forms 1042-S in the manner required by
the regulations under chapters 3 and 4 (or
in the case of a participating FFI, in the
manner required under the FFI Agree-
ment) and the instructions to the form,
including any requirement to file the
forms magnetically or electronically. Sep-
arate Forms 1042-S must be filed by each
legal entity that is a QI covered by this
Agreement. A QI acting as a QDD that
also has QI activities must file separate
Forms 1042-S in its QDD capacity and its
QI capacity (i.e., other than when acting
as a QDD). Each QI covered by this
Agreement may also allow its individual
branches not acting as QDDs to file Forms
1042-S provided that all Forms 1042-S
contain the QI-EIN of the legal entity of
which the branch forms a part and, to the
extent required for chapter 4 purposes, the
GIIN of the branch. If QI is acting as a
QDD, the home office and each branch
acting as a QDD must file separate Forms
1042-S for payments made as a QDD.
Any Form 1042-S required by this section
8 shall be filed on or before March 15
following the calendar year in which the
payment reported on the form was made.
QI may request an extension of time to file
Forms 1042-S by submitting Form 8809,
Application for Extension of Time to File
Information Returns, by the due date of
Forms 1042-S in the manner required by
(and to the extent permitted on) Form
8809.

Sec. 8.02. Recipient Specific Report-
ing. QI (whether or not it assumes primary
chapters 3 and 4 withholding responsibil-
ity) is required to file separate Forms
1042-S for amounts paid to each separate
account holder as described in this section
8.02. QI must file separate Forms 1042-S

by income code, exemption code, recipi-
ent code, chapter 3 or 4 withholding rate
pool, and withholding rate. In the case of
a payment to a QDD, separate Forms
1042-S must be filed for each QDD, even
if a single legal entity.

(A) QI must file a separate Form
1042-S for each account holder that is a
QI (to the extent such payment is required
to be reported under §1.1461-1) WP, WT,
or QSL that receives from QI an amount
subject to withholding under chapter 3 or
4 (or, in the case of a QSL, that receives a
U.S. source substitute dividend payment),
regardless of whether such account holder
is a direct or indirect account holder of QI.

(B) QI must file a separate Form
1042-S for each account holder that is a
nonqualified intermediary or flow-through
entity that is a participating FFI, registered
deemed-compliant FFI, or registered
deemed-compliant Model 1 IGA FFI and
that receives an amount subject to chapter
4 withholding from QI that is allocable to
each of such FFI's chapter 4 withholding
rate pools of recalcitrant account holders,
nonparticipating FFIs, and pool of U.S.
payees, if applicable, regardless of
whether such FFI is a direct or indirect
account holder of QI.

(C) QI must file a separate Form
1042-S for each account holder that is a
nonqualified intermediary or flow-through
entity that is not described in section
8.02(B) of this Agreement (other than a
nonparticipating FFI) that receives from QI
an amount subject to chapter 4 withholding
allocable to such entity's chapter 4 with-
holding rate pool of payees that are nonpar-
ticipating FFIs, regardless of whether such
intermediary or flow-through entity is a di-
rect or indirect account holder of QI.

(D) QI must file a separate Form
1042-S for each account holder of QI that
is a PAI or a partnership or trust to which
QI applies the agency option that receives
from QI an amount subject to chapter 4
withholding allocable to such entity's
chapter 4 withholding rate pool of payees
that are nonparticipating FFIs or an
amount subject to chapter 3 withholding
that is either not a withholdable payment
or a withholdable payment for which no
chapter 4 withholding is required and that
is allocable to such entity's chapter 3
withholding rate pools.

(E) QI must file a separate Form
1042-S for each unknown recipient with
respect to an account holder that is a non-
qualified intermediary, flow-through en-
tity, or QI that does not assume primary
chapters 3 and 4 withholding responsibil-
ity and that receives an amount subject to
chapter 4 withholding from QI that QI
must presume is allocable to such entity's
chapter 4 withholding rate pool of payees
that are nonparticipating FFIs under the
presumption rule of §1.1471-3(f)(5).

(F) QI must file a separate Form
1042-S for each foreign account holder
(or interest holder) of a nonqualified in-
termediary or flow-through entity that is a
nonparticipating FFI that is receiving a
payment on behalf of an exempt beneficial
owner (regardless of whether the non-
qualified intermediary or flow-through en-
tity is a direct or indirect account holder of
QI) to the extent QI can reliably associate
such amounts with valid documentation
from such nonqualified intermediary or
flow-through entity as to the payment al-
locable to one or more exempt beneficial
owners. In addition, QI must file separate
Forms 1042-S in the same manner for
each foreign account holder (or interest
holder) of a nonqualified intermediary or
flow-through entity that is described in the
preceding sentence and that is a direct or
indirect account holder (or interest holder)
of a PAI of QI or a partnership or trust to
which QI applies the agency option.

(G) QI must file separate Forms
1042-S for each foreign account holder
(or interest holder) of a nonqualified in-
termediary or flow-through entity that is
receiving an amount subject to chapter 3
withholding that is either not a withhold-
able payment or a withholdable payment
for which no chapter 4 withholding is
required to the extent QI can reliably as-
sociate such amounts with valid documen-
tation from an account holder that is not
itself a nonqualified intermediary or flow-
through entity. In addition, QI must file
separate Forms 1042-S in the same man-
ner for each foreign account holder (or
interest holder) of a nonqualified interme-
diary or flow-through entity that is de-
scribed in the preceding sentence and that
is a direct or indirect account holder (or
interest holder) of a PAI of QI or a part-
nership or trust to which QI applies the
agency option.

(H) QI must file a separate Form
1042-S for each direct account holder that
establishes its status as a passive NFFE
but 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 withholding
agent.

(I) If QI is acting as a QDD, QI must
file a separate Form 1042-S for any
amount subject to chapter 3 withholding
with respect to a potential section 871(m)
transaction made to another QDD.

### Sec. 8.03. Reporting Pools for Form 1042-S Reporting.

(A) Chapter 4 Reporting Pools. Ex-
cept for amounts required to be reported
under section 8.02 of this Agreement, if
QI is an FFI, QI shall report all amounts
subject to chapter 4 withholding by re-
porting pools on a Form 1042-S if those
amounts are paid to direct account holders
of QI. A separate Form 1042-S shall be
filed for each type of reporting pool. A
chapter 4 reporting pool is a payment of a
single type of income, determined in ac-
cordance with the categories of income
reported on Form 1042-S, that is allocable
to a chapter 4 withholding rate pool con-
sisting of either recalcitrant account hold-
ers or payees that are nonparticipating
FFIs. QI must report recalcitrant account
holders in pools based upon a recalcitrant
account holder's particular status de-
scribed in §1.1471-4(d)(6), with a sepa-
rate Form 1042-S issued for each such
pool.

If QI is an FFI, it may report in a
chapter 4 withholding rate pool of U.S.
payees an account holder that is (or is
presumed) 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-compliant
FFI provided that QI is excepted from
Form 1099 reporting with respect to the
payment under section 8.06(A)(1) of this
Agreement or section 8.06(A)(2) and
(A)(3) of this Agreement if the payment is
both excepted from Form 1099 reporting
and not subject to withholding under
chapter 4.

If QI is an NFFE, QI shall report all
amounts subject to chapter 4 withholding
by reporting pools on a Form 1042-S if
those amounts are paid to direct account

holders that are nonparticipating FFIs in a
chapter 4 reporting pool of nonparticipat-
ing FFIs.

(B) Chapter 3 Reporting Pools. Ex-
cept for amounts required to be reported
under section 8.02 of this Agreement, QI
shall report an amount subject to chapter 3
withholding that is either not a withhold-
able payment or a withholdable payment
for which no chapter 4 withholding is
required and that is paid to a foreign ac-
count holder by reporting pools on a Form
1042-S if those amounts are paid to direct
account holders of QI or to direct account
holders of a PAI of QI or a partnership or
trust described in section 4 of this Agree-
ment. A separate Form 1042-S shall be
filed for each type of reporting pool. A
chapter 3 reporting pool is a payment of a
single type of income that falls within a
particular withholding rate, chapter 3 ex-
emption code, and, if the payment is a
withholdable 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 for
amounts paid to foreign tax-exempt recip-
ients, for which a separate chapter 3 pool
reporting code (e.g., QI- withholding rate
pool- exempt organization) must be used.
For this purpose, a foreign tax-exempt
recipient includes any organization that is
not subject to chapter 3 withholding and is
not liable to tax in its jurisdiction of res-
idence because it is a charitable organiza-
tion, a pension fund, or a foreign govern-
ment.

### Sec. 8.04. FATCA U.S. Account Reporting.

(A) QI that is an FFI. If QI is an FFI,
QI is required to report each U.S. account
(or, in the case of an FFI that is a reporting
Model 1 FFI or a registered deemed-
compliant Model 1 IGA FFI, each U.S.
reportable account) that it maintains and
for whom QI is acting consistent with its
FATCA requirements as a participating
FFI, registered deemed-compliant FFI, or
registered deemed-compliant Model 1
IGA FFI. If QI is a participating FFI or
registered deemed-compliant FFI (other
than a reporting Model 1 FFI or registered
deemed-compliant Model 1 IGA FFI), QI
must report its U.S. accounts on Form
8966 in the time and manner required

under its FATCA requirements as a par-
ticipating FFI or registered deemed-
compliant FFI except to the extent QI is
reporting under §1.1471-4(d)(5) on Form
1099 with respect to its U.S. accounts. If
QI is a reporting Model 1 FFI or regis-
tered deemed-compliant Model 1 IGA
FFI, QI must report each U.S. reportable
account on Form 8966 as required under
the applicable Model 1 IGA. QI cannot
delegate to its withholding agent its re-
quirements to report U.S. accounts (or
U.S. reportable accounts) regardless of
whether QI does or does not assume pri-
mary Form 1099 reporting and backup
withholding responsibility under section 3
of this Agreement. See section 8.06 of this
Agreement for when the reporting de-
scribed in this section 8.04 satisfies QI's
Form 1099 reporting responsibilities with
respect to reportable payments under
chapter 61.

(B) QI that is an NFFE. If QI is an
NFFE acting as a QI on behalf of persons
other than its shareholders, QI shall file
Form 8966 to report withholdable pay-
ments made to an account holder that is an
NFFE (other than an excepted NFFE)
with one or more substantial U.S. owners
if the NFFE is the beneficial owner of the
withholdable payment received by QI. See
§1.1471-1(b)(8) for the definition of ben-
eficial owner. QI must report on Form
8966 in accordance with the form and its
accompanying instructions. Such report
must include the name of the NFFE that is
owned by a substantial U.S. owner; the
name, 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 other
information as required by the form and
its accompanying instructions. If QI is
acting as a sponsoring entity on behalf of
an NFFE for chapter 4 purposes, QI is not
required to report as described in this
paragraph if QI reports the NFFE as part
of QI's requirements as a sponsoring en-
tity. See §1.1472-1(c)(5)(ii) for the re-
porting requirements of a sponsoring en-
tity.

Sec. 8.05. Form 8966 Reporting for
Payees that are NFFEs. QI shall file
Form 8966 to report withholdable pay-
ments made to an intermediary or flow-
through entity that provides information
regarding an account holder (or interest

holder) that is an NFFE other than an
excepted NFFE with one or more substan-
tial U.S. owners (or one or more control-
ling persons that is a specified U.S. person
under an applicable IGA). QI must report
on Form 8966 in the time and manner
provided in §1.1474-1(i)(2). Such report
must include the name of the NFFE that is
owned by a substantial U.S. owner (or
controlling 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 the
applicable IGA); and any other informa-
tion as required by the form and its ac-
companying instructions. QI is not re-
quired to report, however, to the extent
permitted under §1.1474-1(i)(2) on a
payment made to a participating FFI or
registered deemed-compliant FFI if such
information is reported pursuant to section
8.04 of this Agreement or if the interme-
diary or flow-through entity certifies on its
withholding statement that it is reporting
the account holder (or interest holder) as a
U.S. account pursuant to its FATCA re-
quirements as a participating FFI, regis-
tered deemed-compliant FFI, or registered
deemed-compliant Model 1 IGA FFI.

Sec. 8.06. Form 1099 Reporting Re-
sponsibility. QI shall file Forms 1099
and, unless filing magnetically, Form
1096, Annual Summary and Transmittal
of U.S. Information Returns, for report-
able payments made to persons described
in this section 8.06. Forms 1099 shall be
filed on or before the date prescribed for
the particular Form 1099 under chapter 61
and in the manner required by regulations
under chapter 61 and the instructions to
the forms (including the requirements for
filing the forms magnetically or electron-
ically). Extensions of the time to file
Forms 1099 may be requested by submit-
ting Form 8809 in the manner required by
the form. If QI is required to file Forms
1099, it must file the appropriate form for
the type of income paid (e.g., Form 1099-
DIV for dividends, Form 1099-INT for
interest, Form 1099-B for broker pro-
ceeds). QI must file Forms 1099 to report
a reportable payment other than in the
situations listed in sections 8.06(A) and
(B) of this Agreement.

(A) Reportable Amount. QI must file
a Form 1099 in accordance with the in-

structions to the form for the aggregate
amount of a particular type of reportable
amount paid to an account holder that is
(or is presumed) a U.S. non-exempt recip-
ient (whether a direct or indirect account
holder). However, QI is not required to
file a Form 1099 on a reportable amount
if-

(1) QI is a non-U.S. payor reporting the
account holder of a U.S. account under its
FATCA requirements as a participating
FFI or registered deemed-compliant FFI
(including a reporting Model 1 FFI) and
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 account
holder or, in the case of a QI that is a
reporting Model 2 FFI or nonreporting
Model 2 FFI treated as registered deemed-
compliant, as a non-consenting U.S. ac-
count under its FATCA requirements as a
participating 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 a
reporting Model 1 FFI or registered
deemed-compliant Model 1 IGA FFI and
determines that the account has U.S. indi-
cia for which appropriate documentation
sufficient to treat the account as held by a
specified 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 Form
1099 reporting and backup withholding
responsibility with respect to the account
holder's account and has provided a Form
W-9 to a withholding agent or has pro-
vided withholding rate pool information
with respect to such account holder to a
withholding agent to apply backup with-
holding and QI does not know that the
withholding agent has failed to report or
backup withhold as required;

(5) With respect to an account holder
of an intermediary or flow-through entity
(other than a QI) that is a direct or indirect
account holder of QI, the intermediary or
flow-through entity allocates the payment
to a chapter 4 withholding rate pool of
U.S. payees and provides a Form
W-8IMY containing a certification that
the entity meets the requirements of
§1.6049-4(c)(4)(iii); or

(6) With respect to an account holder
of another QI that is a direct or indirect
account holder of QI, the QI allocates the
payment to a chapter 4 withholding rate
pool of U.S. payees and provides the ap-
plicable certification on a valid Form
W-8IMY for allocating the payment to
this pool.

(B) Reportable Payments other than
Reportable Amounts. QI must file a
Form 1099 for a reportable payment
(other than a reportable amount) paid to
each U.S. non-exempt recipient (whether
a direct or indirect account holder), or to
any account holder that is presumed to be
a U.S. non-exempt recipient under section
5.13(C) of this Agreement. Notwithstand-
ing the previous sentence, QI is not re-
quired to file a Form 1099 for a reportable
payment (other than a reportable amount)
paid to a direct account holder that is (or is
presumed) a U.S. non-exempt recipient
if-

(4) With respect to a reportable pay-
ment that is broker proceeds paid to a U.S.
non-exempt recipient, QI has applied the
procedures of section 3.05(C) of this
Agreement and QI does not know that the

other payor has failed to report or backup
withhold on the payment as required.

## SECTION 9. ADJUSTMENTS FOR OVER- AND UNDER- WITHHOLDING; REFUNDS

Sec. 9.01. Adjustments for Overwith-
holding by Withholding Agent When
QI Does not Assume Primary With-
holding Responsibility. QI may request
that a withholding agent make an adjust-
ment for amounts paid to QI when the
withholding agent has overwithheld under
chapter 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 period
prescribed for those procedures. Nothing
in this section shall be interpreted to re-
quire a withholding agent to apply the
reimbursement or set off procedures under
sections 9.01(A) or (B) of this Agreement.
See §1.1474-2(a)(2) for the definition of
overwithholding that applies for purposes
of this section 9 with respect to an amount
withheld under chapter 4.

(A) Reimbursement Procedure. QI
may request a withholding agent to repay
QI for any amount overwithheld and for
the withholding agent to reimburse itself
under the reimbursement procedures
described in §§1.1461-2(a)(2)(i) and
1.1474-2(a)(3) by making the request be-
fore the earlier of the due date (without
regard to extensions) for the withholding
agent to file Form 1042 and Form 1042-S
for the calendar year of overwithholding
or the date the Form 1042-S is actually
filed with the IRS.

(B) Set-off Procedure. QI may request
a withholding agent to repay QI by apply-
ing the amount overwithheld against any
amount which otherwise would be re-
quired to be withheld under chapter 3 or 4
from income paid by the withholding
agent to QI under the set-off procedures of
§§1.1461-2(a)(3) and 1.1474-2(a)(4). QI
must make the request before the earlier
of the due date (without regard to exten-
sions) for the withholding agent to file
Form 1042-S for the calendar year of
overwithholding or the date that the Form
1042-S is actually filed with the IRS.

Sec. 9.02. Adjustments for Overwith-
holding by QI Assuming Primary With-

holding Responsibility. QI may make an
adjustment for amounts paid to its account
holders when QI has overwithheld by ap-
plying either the reimbursement or set-off
procedures described in this section 9.02
within the time period prescribed for those
procedures.

(A) Reimbursement Procedure. QI
may repay its account holders for an
amount overwithheld under chapter 3 or 4
and reimburse itself by reducing, by the
amount of tax actually repaid to the ac-
count holders, the amount of any subse-
quent deposit of tax required to be made
by QI under section 3.08 of this Agree-
ment. For purposes of this section
9.02(A), an amount that is overwithheld
shall be applied in order of time (i.e.,
sequentially) to each of the QI's subse-
quent deposit periods in the same calendar
year to the extent that the withholding
taxes required to be deposited for a sub-
sequent deposit period exceed the amount
actually deposited. An amount overwith-
held in a calendar year may be applied to
deposit periods in the calendar year fol-
lowing the calendar year of overwithhold-
ing only if:

(1) The repayment occurs before the
earlier of the due date (without regard to
extensions) for filing Form 1042-S for the
calendar year of overwithholding or the
date that the Form 1042-S is actually filed
by QI with the IRS;

(2) QI states on a Form 1042-S (issued,
if applicable, to the account holder or oth-
erwise to a chapter 3 or 4 reporting pool),
filed by March 15 of the calendar year
following the calendar year of overwith-
holding, the amount of tax withheld and
the amount of any actual repayments; and

(3) QI states on a Form 1042, filed by
March 15 of the calendar year following
the calendar year of overwithholding, that
the filing of the Form 1042 constitutes a
claim for credit in accordance with
§1.6414-1.

(B) Set-Off Procedure. QI may repay
its account holders by applying the
amount overwithheld against any amount
which otherwise would be required under
chapter 3 or 4 to be withheld from a
payment made by QI to the account hold-
ers before the earlier of March 15 of the
calendar year following the calendar year
of overwithholding or the date that the
Form 1042-S is actually filed with the

IRS. For purposes of making a return on
Form 1042 or 1042-S for the calendar
year of overwithholding, and for purposes
of making a deposit of the amount with-
held, the reduced amount shall be consid-
ered the amount required to be withheld
from such income under chapter 3 or 4.

Sec. 9.03. Repayment of Backup
Withholding. If QI erroneously with-
holds, as defined under §31.6413(a)-3, an
amount under section 3406 from an ac-
count holder, QI may refund the amount
erroneously 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 not
been recovered under the reimbursement
or set-off procedures as described in sec-
tion 9.01 or 9.02 of this Agreement, QI
may request a credit or refund of the total
amount overwithheld by following the
procedures of this section 9.04. QI shall
follow the procedures set forth under sec-
tions 6402 and 6414, and the regulations
thereunder, to claim the credit or refund.
No credit or refund will be allowed after
the expiration of the statutory period of
limitation for refunds under section 6511.
If there has been an overwithholding and
QI does not apply for a collective refund,
it must provide a Form 1042-S for the
payment that was subject to the overwith-
holding if requested by the account holder
receiving the payment.

(A) Payments for which a Collective
Refund is Permitted. Except as other-
wise provided in this section 9.04, QI may
use the collective refund procedures with
respect to all amounts subject to chapters
3 and 4 withholding. With respect to
amounts withheld under chapter 3 or 4, QI
shall not include in its collective refund
claim tax withheld on payments made to
an indirect account holder or a direct ac-
count holder of QI that is a nonqualified
intermediary or flow-through entity, and
with respect to amounts withheld under
chapter 4, if QI is a participating FFI or
registered deemed-compliant FFI, QI
shall not include in its collective refund
claim tax withheld on payments made to
any account holder described in the FFI
agreement or in §1.1471-4(h)(2).

(B) Requirements for Collective Re-
fund. QI may use the collective refund
procedures under this section 9.04 only if
the following conditions are met:

(1) QI must not have issued (and will
not issue) Forms 1042-S to the account
holders that received the payment that was
subject to overwithholding;

(2) QI must submit together with its
amended Form 1042 on which it provides
a reconciliation of amounts withheld and
claims a credit or refund, a copy of the
Form 1042-S furnished to QI by its with-
holding agent reporting the taxes withheld
to 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 a
refund is being sought under section 6302
or received a Form 1042-S from its with-
holding agent showing the amount of tax
withheld, and neither QI nor its withhold-
ing agent has applied the reimbursement
or set-off procedure of §§1.1461-2 and
1.1474-2 to adjust the tax withheld to
which the claim relates;

(iii) QI has repaid or will repay the
amount for which refund is sought to the
appropriate account holders;

(iv) QI retains a record showing the
total amount of tax withheld, credits from
other withholding agents, tax assumed by
QI, adjustments for underwithholding,
and reimbursements for overwithholding
as its relates to each account holder and
also showing the repayment (if applica-
ble) to such account holders for the
amount of tax for which a refund is being
sought;

(v) QI retains valid documentation that
meets the requirements of chapter 3 or 4
(as applicable) to substantiate the amount
of overwithholding with respect to each
account holder for which the refund is
being sought; and

(vi) QI has not issued and will not issue
a Form 1042-S (or such other form as the
IRS may prescribe) to any account holder
with respect to the payments for which the
refund is being sought.

Sec. 9.05. Adjustments for Under-
withholding. If QI knows that an amount
should have been withheld under chapter
3 or 4 from a previous payment made to
an 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 payee
or satisfy the tax from property that it
holds in custody for such person or prop-
erty over which it has control. The addi-
tional withholding or satisfaction of the
tax owed described in the previous sen-
tence must be made before the due date
(not including extensions) of the Form
1042 for the calendar year in which the
underwithholding occurred. QI's respon-
sibilities under this section 9.05 will be
met if it informs a withholding agent from
which it received the payment of the un-
derwithholding and the withholding agent
satisfies the underwithholding.

Sec. 9.06. Underwithholding After
Form 1042 Filed. If, after a Form 1042
has been filed for a calendar year, QI, QI's
reviewer, or the IRS determines that QI
has underwithheld tax for such year, QI
shall file an amended Form 1042 to report
and pay the underwithheld tax. QI shall
pay the underwithheld tax, the interest due
on the underwithheld tax, and any appli-
cable penalties at the time of filing the
amended Form 1042. If QI fails to file an
amended return, the IRS shall make such
return under section 6020 and assess such
tax under the procedures set forth in the
Code.

## SECTION 10. COMPLIANCE PROCEDURES

### Sec. 10.01. Compliance Program

(A) In General. QI is required to adopt
a compliance program under the authority
of a responsible officer or, if QI adopts a
consolidated compliance program, under
the authority of a responsible officer of a
Compliance QI (as described in section
10.02(B) of this Agreement). QI's com-
pliance program must include policies,
procedures, and processes sufficient for
QI to satisfy the documentation, reporting,
and withholding requirements of this
Agreement and sufficient for a responsible
officer of QI (or a Compliance QI) to
make the certifications required under sec-
tion 10.03 of this Agreement. If QI is
acting as a QDD, QI's compliance pro-
gram must also include policies, proce-
dures, and processes sufficient for it to
satisfy and report its QDD tax liability and
other reporting required as a condition of

its status as a QDD. QI must also perform
or arrange for the performance of a peri-
odic review described in section 10.04 of
this Agreement to the extent required by
that section. As part of the responsible
officer's certification, QI must provide to
the IRS the factual information as re-
quired by and referenced in sections 10.04
and 10.05 and in Appendix I to this
Agreement. QI must also satisfy the re-
quirements of section 10.06 of this Agree-
ment with respect to the report covering
the periodic review and must comply with
the IRS review described in section 10.08
of this Agreement. With respect to QI
that, prior to January 1, 2017, was a lim-
ited FFI (as defined in §1.1471-
1(b)(77) (or a limited branch, as defined in
§1.1471-1(b)(76)), references in this sec-
tion 10 (and in Appendix I to this Agree-
ment) to QI's FATCA Requirements as a
participating FFI, registered deemed-
compliant FFI, or registered deemed-
compliant Model 1 IGA FFI include its
requirements under §1.1471-4(e)(4) for
purposes of its initial certification period.

(B) Coordination with FATCA Re-
quirements as a Participating FFI, Reg-
istered Deemed-Compliant FFI, or Reg-
istered Deemed-Compliant Model 1
IGA FFI and, for a Direct Reporting
NFFE, the Requirements of §1.1472-
1(c)(3). As a condition for maintaining QI
status, QI must maintain its chapter 4 sta-
tus with respect to each branch of QI
operating under this Agreement. There-
fore, QI must, as part of the compliance
procedures described in this section 10
determine whether it is compliant with its
FATCA requirements as a participating
FFI, registered deemed-compliant FFI, or
registered deemed-compliant Model 1
IGA FFI.

(C) Phase-in Year for QDD. For pur-
poses of the IRS's enforcement and ad-
ministration of the QDD rules in the sec-
tion 871(m) regulations and the relevant
provisions of this Agreement for calendar
year 2017, the IRS will take into account
the extent to which the QDD made a good
faith effort to comply with sections 871
and 881, chapters 3 and 4 with respect to
section 871(m) transactions, and the rele-
vant provisions of this Agreement. For
calendar year 2017, a QDD is not required
to perform a periodic review with respect
to its QDD activities (as otherwise re-

quired by section 10.04 of this Agree-
ment) or provide the factual information
specified in Appendix I. In addition, the
QDD is not required to make the certifi-
cation of internal controls as applicable to
its QDD activities for the certification pe-
riod ending in calendar year 2017 but
rather is required to certify for this period
that it has made a good faith effort to
comply with the relevant provisions of
this Agreement in accordance with Notice
2016-76. A QDD is not required to file the
certification described in the preceding
sentence with the IRS; however, a QDD
must retain a record of the certification
(and information in support of the certifi-
cation) until the end of the calendar year
2022. As a result, the certification of in-
ternal controls (and factual information
and other certifications) applicable to a
QI's QDD activities are not included in
Appendix I and will be added to the QI
agreement for purposes of certification pe-
riods ending after December 31, 2017. For
2017, a material failure relevant to a QDD
has not occurred unless the QDD failed to
make a good faith effort to comply with
the section 871(m) regulations and the
relevant provisions of the QI agreement.

The QDD will be considered to satisfy
its obligations for purposes of section 10
that apply specifically to a QDD under
this Agreement for calendar year 2017
provided that the QDD made a good faith
effort to comply with the relevant terms of
this Agreement. Any QDD that has not
made a good faith effort to comply with
its QDD obligations will not be given any
relief from IRS administration or enforce-
ment during calendar 2017, including pen-
alties.

10.02. Responsible Officer. QI must
appoint an individual as a responsible of-
ficer as defined in section 2.72 of this
Agreement. The responsible officer must
be identified on the QI/WP/WT Applica-
tion and Accounts Management System as
QI's responsible party, and such person
may, but is not required to, be the same
responsible officer for purposes of com-
pliance with QI's FATCA requirements as
a participating FFI, registered deemed-
compliant FFI, or registered deemed-
compliant Model 1 IGA FFI. The respon-
sible officer must establish a compliance
program that meets the requirements of
this section 10.02 and must make the pe-

riodic certifications to the IRS described
in section 10.03 of this Agreement. The
responsible officer of QI must be an offi-
cer of QI with sufficient authority to fulfill
the duties of a responsible officer de-
scribed in this section 10. The responsible
officer (or a delegate appointed by the
responsible officer) must also serve as the
point of contact for the IRS for all issues
related to this Agreement and for comply-
ing with IRS requests for information or
additional review procedures under sec-
tion 10.07 of this Agreement. References
in this section 10.02 to the responsible
officer include a responsible officer's des-
ignee, where appropriate.

(A) Compliance Program. The re-
sponsible officer must establish a program
for QI to comply with the requirements of
this Agreement that includes the follow-
ing-

(1) Written Policies and Procedures.
The responsible officer must ensure the
drafting and updating, as necessary, of
written policies and procedures sufficient
for QI to satisfy the documentation, with-
holding, reporting, and other obligations
of this Agreement, including, with respect
to QI that is acting as a QDD, satisfying
its QDD tax liability. Such written poli-
cies and procedures must include a pro-
cess for employees of QI to raise issues to
the responsible officer (or the responsible
officer's designee) that concern QI's com-
pliance with this Agreement.

(2) Training. The responsible officer
must communicate such policies and pro-
cedures to any line of business of QI that
is responsible for obtaining, reviewing,
and retaining a record of documentation
under the requirements of section 5 of this
Agreement; making payments subject to
withholding under section 3 of this Agree-
ment; reporting payments and accounts as
required under sections 7 and 8 of this
Agreement; or entering into potential sec-
tion 871(m) transactions, in the case of QI
that is acting as a QDD.

(3) Systems. The responsible officer
must ensure that systems and processes
are in place that will allow QI to fulfill its
obligations under this Agreement. For ex-
ample, in order to fulfill QI's obligations
to report on Forms 1042-S, 1099, and
8966 under section 8 of this Agreement,
QI must establish systems for document-
ing account holders and for recording the

information with respect to each such ac-
count that QI is required to report under
that section.

(4) Monitoring of Business Changes.
The responsible officer must monitor
business practices and arrangements that
affect QI's compliance with this Agree-
ment, including, for example, QI's acqui-
sition of lines of businesses or accounts
that give rise to documentation, withhold-
ing, or reporting obligations under this
Agreement.

(5) QDD Tax Liability Determina-
tions. If QI is acting as a QDD, the re-
sponsible officer must ensure that the
QDD has appropriate systems in place to
make the necessary determinations and
calculations to identify section 871(m)
transactions, potential section 871(m)
transactions, the amount of dividends re-
ceived in its QDD equity derivatives
dealer capacity and the section 881 taxes
paid thereon, its net delta exposure, the
dividend amount per share, the stock
owned by the QDD included in its net
delta exposure long position, its long po-
sition, its short position, its section
871(m) amount and the section 881 taxes
paid thereon, its QDD tax liability
amount, and the amount of dividend
equivalent payments made by the QDD.
In addition, the responsible officer must
ensure that the QDD has appropriate sys-
tems in place to determine whether a
transaction is as a principal or non-
principal, whether a transaction is in an
equity derivatives dealer or non-equity de-
rivatives dealer capacity, whether the
transaction exists for federal income tax
purposes, whether transaction is owned by
the QDD, and whether the transaction is
effectively connected with the conduct of
a trade or business in the United States.
This includes appropriate systems to,
where required, calculate the delta for a
potential section 871(m) transaction, per-
form the substantial equivalence test de-
scribed in §1.871-15(h), calculate the
amount of a dividend equivalent, deter-
mine any QDD tax liability amount (and
each part thereof) and its timing, and de-
termine what payments are received or
made with respect to potential section
871(m) transactions and underlying secu-
rities as a principal and whether in its
equity derivatives dealer capacity or non-
equity derivatives dealer capacity and by

which home office or branch that is acting
as a QDD. The systems must also take
into account information received pursu-
ant to §1.871-15(p).

(6) Periodic Review. Unless QI re-
ceives a waiver (the requirements of
which are described in section 10.07(B) of
this Agreement), the responsible officer
must designate a reviewer that meets
the qualifications described in section
10.04(A) of this Agreement to perform the
periodic review as described in section
10.05 of this Agreement, to the extent
required.

(7) Certification of Internal Con-
trols. The responsible officer must make
the periodic certification as described in
section 10.03 of this Agreement, includ-
ing ensuring that corrective actions are
taken in response to any material failures
(as defined in section 10.03(B) of this
Agreement) of QI's compliance with this
Agreement.

(B) Consolidated Compliance Pro-
gram. The IRS, in its discretion, may
permit a consolidated compliance pro-
gram that includes two or more QIs that
are members of a group of entities under
common ownership when the QIs: (i) op-
erate under a uniform compliance pro-
gram for purposes of this Agreement; (ii)
share practices, procedures, and systems
subject to uniform monitoring and con-
trol; and (iii) are subject to a consolidated
periodic review that includes a review of
internal 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 a
member of a consolidated compliance
program must designate a Compliance QI
to act on its behalf, and the responsible
officer of the Compliance QI must iden-
tify itself as such when making its peri-
odic certification and must comply with
the identification, certification of internal
controls, and periodic review require-
ments for the QI consolidated compliance
program as the IRS may prescribe. The
Compliance QI must also agree to be
jointly and severally liable for the obliga-
tions and liabilities of any QI in its con-
solidated compliance program relating to
the QI's obligations under this Agree-
ment. QIs that want to operate a consoli-
dated compliance program must contact

the IRS Foreign Intermediaries Program
for approval.

10.03. Certification of Internal Con-
trols by Responsible Officer. A QI's
responsible officer must make the certifi-
cation described in either Part II.A (Cer-
tification of Effective Internal Controls) or
Part II.B (Qualified Certification) of Ap-
pendix I to this Agreement and must dis-
close any material failures that occurred
during the certification period or during
any prior period if the material failure was
not disclosed as part of a prior certifica-
tion or written disclosure made by QI to
the IRS. If the responsible officer has
identified an event of default or a material
failure that has not been corrected as of
the date of the certification, the responsi-
ble officer cannot make the certification in
Part II.A (Certification of Effective Inter-
nal Controls) and must make the certifi-
cation in Part II.B (Qualified Certifica-
tion).

For a QI that uses the third year of the
certification period for its periodic review,
the certification is due on or before De-
cember 31 of the year following the cer-
tification period. For a QI that uses the
first or second year of the certification
period for its periodic review or a QI that
obtains a waiver of the periodic review
requirement, the certification is due on or
before July 1 of the year following the
certification period. The initial certifica-
tion period is the period ending on the
third full calendar year that this Agree-
ment is in effect (including renewals of
this Agreement). Subsequent certification
periods will be every three calendar years
following the initial certification period
(including renewals of this Agreement).

The certification of internal controls
required by this section 10.03 applies only
to the internal controls related to QI's
compliance with this Agreement and its
FATCA requirements as a participating
FFI, registered deemed-compliant FFI, or
registered deemed-compliant Model 1
IGA FFI and, in the case of a direct re-
porting NFFE, its requirements under
§1.1472-1(c)(3), with respect to accounts
for which it acts as a QI, and does not
relate to any other obligations or require-
ments. The responsible officer may rely
on any reasonable procedure, process, re-
view, or certification that enables the re-
sponsible officer to make the certification

described in this section 10.03. If the re-
sponsible officer relies on an internal or
external review for this purpose (i.e., for
purposes of determining whether QI has
effective internal controls), the internal or
external reviewer must be independent, as
described in section 10.04 of this Agree-
ment. The responsible officer must docu-
ment the procedures, processes, reviews,
or certifications relied upon in making the
certification. QI's responsible officer (or
the responsible officer of its Compliance
QI) must make the certifications of com-
pliance in such manner as the IRS may
prescribe.

(A) PAIs and Partnership or Trust
to which QI Applies the Agency Option.
Unless QI has received a waiver of the
periodic review requirement, any PAI
with which QI has an agreement and any
partnership or trust to which QI applies
the agency option must provide its docu-
mentation and other information to QI for
inclusion in QI's periodic review or con-
duct an independent periodic review and
provide a written certification to QI re-
garding its compliance with the require-
ments of the PAI or agency agreement.
Such certification must be available to the
IRS upon a request made as part of the
review described in section 10.08 of this
Agreement (with a certified translation
into English if the certification is not in
English).

### (B) Material Failures.

(1) Material Failures Defined. A ma-
terial failure is generally a failure of QI to
fulfill the requirements of this Agreement
or its FATCA requirements as a partici-
pating FFI, registered deemed-compliant
FFI, or registered deemed-compliant
Model 1 IGA FFI. For purposes of the
certifications described in Parts II.A and B
of Appendix I to this Agreement, a mate-
rial failure is limited to the following:

(i) QI's establishing of, for financial
statement purposes, a tax reserve or pro-
vision for a potential future tax liability
related to QI's failure to comply with this
Agreement, including its FATCA require-
ments as a participating FFI, registered
deemed-compliant FFI, or registered
deemed-compliant Model 1 IGA FFI, and
with respect to QI that is acting as a QDD,
failure to satisfy its QDD tax liability and

its 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 for
the relevant personnel of QI to take ac-
tions consistent with QI's obligations un-
der this Agreement, or if QI is acting as a
QDD, its obligations as a QDD under this
Agreement or pursuant to section 871(m)
and the regulations under that section.

(iii) A criminal or civil penalty or sanc-
tion imposed on QI (or any branch or
office 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 any
branch or office thereof) is subject and
that is imposed due to QI's failure to
properly identify account holders under
the requirements of those procedures.

(iv) A finding (including a finding
noted in the periodic review report de-
scribed in section 10.06 of this Agree-
ment) for one or more years covered by
this Agreement that QI failed to-

(a) Withhold an amount that QI was
required to withhold under chapter 3 or 4
or under section 3406 as required under
section 3 of this Agreement or, if QI is
acting as a QDD, failing to timely pay its
QDD tax liability;

(b) Provide information sufficient for an-
other withholding agent to perform with-
holding and reporting to the extent required
when QI does not assume primary chapters
3 and 4 withholding responsibility or pri-
mary Form 1099 reporting and backup
withholding responsibility;

(c) Provide allocation information as
described in section 6.03(D) of this
Agreement (regarding U.S. non-exempt
recipient account holders) by January 15
as required by that section when QI ap-
plies the alternative withholding rate pool
procedures;

(d) Make deposits in the time and man-
ner required by section 3.08 of this Agree-
ment or make adequate deposits to satisfy
its withholding obligations, or, if QI is
acting as a QDD, timely satisfy its QDD
tax liability, taking into account the pro-
cedures under section 9 of this Agree-
ment;

(e) Report or report accurately on
Forms 1099 as required under section 8.06
of this Agreement or provide information
to the payor to the extent QI does not

assume primary Form 1099 reporting and
backup withholding responsibilities;

(f) Report or report accurately on
Forms 1042 and 1042-S under sections 7
and 8 of this Agreement;

(g) Report or report accurately on
Form 8966 under sections 8.04 and 8.05
of this Agreement; or

(h) Withhold an amount required to be
withheld or report accurately with respect
to U.S. source substitute dividend pay-
ments or make timely and adequate de-
posits of tax due with respect to such
payments for which QI is a QSL and acts
as a dealer or intermediary.

(2) Limitations on Material Failures.
A failure described in section 10.03(B)
(1)(iv) of this Agreement is a material
failure only if the failure was the result of
a deliberate action on the part of one or
more employees of QI to avoid the re-
quirements of this Agreement with respect
to one or more account holders of QI, or
was an error attributable to a failure of QI
to establish or implement internal controls
necessary for QI to meet the requirements
of this Agreement. Regardless of these
limitations for certification purposes, QI is
required to correct a failure to withhold or
deposit tax under section 3 of this Agree-
ment, or to report under section 7 or 8 of
this Agreement, or, for a QI that is acting
as a QDD, to timely pay its QDD tax
liability and timely file the appropriate
return (or amended return).

Sec. 10.04. Periodic Review Absent
Waiver. Unless the QI receives a waiver
(the requirements of which are described
in section 10.07(B) of this Agreement), at
the time QI provides the certification de-
scribed in section 10.03 of this Agree-
ment, QI must also provide certain factual
information regarding its accounts, with-
holdable payments, amounts subject to
chapter 3 withholding, and, if QI is acting
as a QDD, section 871(m) transactions,
potential section 871(m) transactions, and
its QDD tax liability based on the results
of a periodic review. The factual informa-
tion requested is included in Appendix I to
this Agreement.

(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 or an
employee of an affiliate of QI (including
an employee of a Compliance QI in the

case of a consolidated compliance pro-
gram) ("internal reviewer"), or a certified
public accountant, attorney, or third-party
consultant ("external reviewer"), or any
combination thereof.

(1) Internal Reviewer. QI may desig-
nate an internal reviewer to perform the
periodic review (or a portion of the peri-
odic review) only when the internal re-
viewer is competent with respect to the
requirements of this Agreement. The in-
ternal reviewer must also be able to report
findings that reflect the independent judg-
ment of the reviewer. The internal re-
viewer must not be reviewing its own
work, 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 and
validating documentation). The results of
the periodic review and the internal re-
viewer's reporting of such results to the
responsible officer cannot influence or af-
fect the compensation, bonus, employ-
ment status, or employee review of the
internal reviewer. The IRS has the right to
request the performance of the periodic
review by an alternative reviewer if the
IRS, in its sole discretion, reasonably be-
lieves that the reviewer selected by QI
was not independent, as described in this
Agreement, or did not perform an effec-
tive periodic review under this Agree-
ment.

In the case of a consolidated compli-
ance program, the Compliance QI may
designate an internal reviewer to perform
the consolidated periodic review (or a por-
tion of the consolidated periodic review).
See section 10.02(B) of this Agreement.
The internal reviewer of the Compliance
QI must meet the requirements of this
section with respect to both the Compli-
ance QI and each QI that is a member of
the consolidated compliance program.

If QI designates an internal reviewer
that is an employee of an affiliate of QI
but is not part of a consolidated compli-
ance program, QI must ensure that the
internal reviewer has access to all neces-
sary information in order to complete the
review. In addition, QI must permit the
IRS to communicate directly with such
internal reviewer.

(2) External Reviewer. QI may en-
gage an external reviewer that is a certi-
fied public accountant, attorney, or third-

party consultant that is regularly engaged
in the practice of performing reviews of
clients' policies, procedures, and pro-
cesses for complying with accounting,
tax, or regulatory requirements (including
assisting clients in determining such com-
pliance). The external reviewer cannot be
reviewing systems, policies, or procedures
or the results thereof that it (or the firm
with which it is affiliated) was involved in
designing, implementing, or maintaining.
The external reviewer must be in good
standing with and comply with any appli-
cable professional standards for maintain-
ing its license as an accountant or attorney
(or other third-party consultant that has
similar professional standards or require-
ments). The external reviewer is not re-
quired to make an attestation or render an
opinion regarding QI's compliance with
this Agreement or QI's compliance with
its FATCA requirements as a participating
FFI, registered deemed-compliant FFI, or
registered deemed-compliant Model 1
IGA FFI, but the reviewer must be able to
perform the periodic review as specified
in section 10.05 of this Agreement. QI
must permit the external reviewer to have
access to all relevant records of QI for
purposes of performing the review, in-
cluding information regarding specific ac-
count holders. Additionally, the engage-
ment between the external reviewer and
QI must impose no restrictions on QI's
ability to provide the results of the review
to the IRS. However, the external re-
viewer is not required to divulge the iden-
tity of QI's account holders to the IRS,
except as otherwise provided under QI's
FATCA requirements as a participating
FFI, registered deemed-compliant FFI, or
registered deemed-compliant Model 1
IGA FFI. QI must permit the IRS to com-
municate directly with the external re-
viewer, 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 of
the Compliance QI) must require the re-
viewer to test accounts related to QI's
documentation, withholding, reporting,
and other obligations under this Agree-
ment, including its QDD tax liability with
respect to QI that is acting as a QDD, and
its FATCA requirements as a participating
FFI, registered deemed-compliant FFI, or

registered deemed-compliant Model 1
IGA FFI for accounts for which it is act-
ing as a QI, and to identify deficiencies in
meeting these obligations. Any PAI with
which QI has an agreement and any part-
nership or trust to which QI applies the
agency option must provide the informa-
tion necessary for QI to test accounts and
transactions of such entity as part of QI's
periodic review unless such entity con-
ducts an its own periodic review and pro-
vides QI with the report documenting the
results of such review as described in sec-
tion 10.06 of this Agreement. Unless oth-
erwise approved by the IRS, the review
must include the steps described in section
10.05(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 also
include a review of its determination as to
whether transactions are section 871(m)
transactions, its computations and determi-
nations of dividend equivalent amounts,
dividends and taxes paid thereon, whether
transactions are in its equity derivatives
dealer capacity, net delta exposure, its sec-
tion 871(m) amount, and its calculation of
its QDD tax liability, as well as any other
amounts required to be included on the rec-
onciliation schedule. The review may be
conducted for any calendar year covered by
the certification period. However, all results
of the review must relate to one calendar
year. QI may conduct a review for a partic-
ular calendar year if, on the due date for
reporting the factual information relating to
the periodic review (provided in section
10.04 of this Agreement), there are 15 or
more months available on the period for
assessment under section 6501(a) of the cal-
endar year for which the review is to be
conducted or the QI's submits, upon re-
quest, a Form 872, Consent to Extend the
Time to Assess Tax, that will satisfy the
15-month requirement. The Form 872 must
be submitted to the IRS at the address pro-
vided in section 12.06 of this Agreement.

QI may use a sample to test accounts if
there are more than 60 accounts to review.
If QI has fewer than 60 accounts, it must
review all accounts and cannot use a sam-
ple to test accounts. To the extent appli-
cable, the reviewer must separately review
its QI activities (when not acting in its

QDD capacity) and QDD activities. The
reviewer is required to record its sampling
procedures and to maintain the ability to
reconstruct the sample. Further, the re-
view is not required to include statistical
sampling procedures for testing transac-
tions, but the reviewer must document its
methodology for sampling determina-
tions. A safe harbor methodology and ad-
ditional information on the use of statisti-
cal sampling is provided in Appendix II to
this Agreement.

If the reviewer determines that under-
withholding has occurred, QI shall report
and pay any amount due. QI must also
notify the IRS Foreign Intermediaries Pro-
gram at the address provided in section
12.06 of this Agreement of the underwith-
holding discovered as a result of the re-
view. See Appendix II to this Agreement
for information required to be provided
when reporting underwithholding and in-
formation regarding any projection of un-
derwithholding determined using a sam-
pling method.

(A) Documentation. The reviewer
must-

(1) Review QI's accounts, to ensure
that QI obtained documentation that meets
the requirements described in sections
5.01 through 5.09 of this Agreement;

(2) Review QI's accounts for which
treaty benefits are claimed, to ensure that
QI obtained the treaty statements and lim-
itation on benefits information required by
section 5.03(B) of this Agreement;

(3) Review information contained in
account holder files to determine if the
documentation validity standards of sec-
tion 5.10 of this Agreement have been
met. 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 status
from foreign to U.S. or a change in chap-
ter 4 status from participating FFI to non-
participating FFI) are being conveyed to
QI's withholding agents;

(4) Review the accounts for which QI
is acting as a QI to ensure that QI is
obtaining, reviewing, and maintaining
documentation in accordance with its
FATCA requirements as a participating
FFI, registered deemed-compliant FFI, or
registered deemed-compliant Model 1
IGA FFI;

(5) Review accounts held by U.S. non-
exempt recipient account holders, to de-
termine if QI obtained Forms W-9, and, if
QI does not assume primary Form 1099
reporting and backup withholding respon-
sibility, that QI transmitted those forms to
a withholding agent consistent with this
Agreement;

(6) For a QI that is a QDD, review
accounts for which QI is acting as a QDD
and that received a reportable payment to
determine whether QI has documented the
status of account holders under the re-
quirements described in sections 5.01
through 5.09 of this Agreement;

(7) For a QI that makes payments of
U.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 QI
pays U.S. source substitute interest to de-
termine whether QI has documented the
status of such persons under the require-
ments described in sections 5.01 through
5.09 of this Agreement; and

(8) For QI that is a QSL, review a
sample of transactions for which QI acts
as a QSL to determine whether QI has
documented the status of persons to which
QI pays U.S. source substitute dividends.

(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 against
the documentation provided by, or the
presumption rules applied to, the account
holder, the type of income earned, and the
withholding rate applied;

(2) Verify, if QI is using the procedure
for U.S. non-exempt recipients described
in section 6.03(D) of this Agreement, that
QI 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 or
trust described in section 4.05 of this
Agreement, if applicable, perform test
checks, using account holder documenta-
tion for the selected partners, beneficia-
ries, or owners and records of each type of
reportable amount paid by QI to the entity,
to determine whether the highest rate of
withholding applicable to each type of
reportable amount was applied.

(1) To the extent QI has assumed pri-
mary chapters 3 and 4 withholding re-
sponsibilities, perform test checks, using
recalcitrant account holders and nonpar-
ticipating FFIs, to verify that QI withheld
the proper amounts under chapter 4;

(2) To the extent QI has assumed pri-
mary chapters 3 and 4 withholding re-
sponsibility, perform test checks, using
foreign account holders for which no
withholding is required under chapter 4
based on the payees chapter 4 status, to
verify that QI withheld the proper
amounts under chapter 3 and properly ap-
plied the exemptions from chapter 4 with-
holding;

(3) To the extent QI has not assumed
primary chapters 3 and 4 withholding re-
sponsibility, verify that QI has fulfilled its
responsibilities under section 3.02 of this
Agreement (including withholding if QI
failed to provide the required information
to a withholding agent to withhold on
payments);

(4) To the extent QI has assumed
primary Form 1099 reporting and
backup withholding responsibility, per-
form checks using U.S. non-exempt re-
cipient account holders to verify that QI
backup withheld when required;

(5) To the extent QI has not assumed
primary Form 1099 reporting and backup
withholding responsibility, perform test
checks using U.S. non-exempt account
holders to verify that QI fulfilled its
backup withholding responsibilities under
sections 3.04 through 3.06 of this Agree-
ment;

(6) Verify that amounts withheld by QI
were timely deposited in accordance with
section 3.08 of this Agreement;

(7) To the extent that QI is acting as a
QDD, determine that QI withheld when
required on payments that it made with
respect to potential section 871(m) trans-
actions;

(8) To the extent that QI makes pay-
ments of U.S. source substitute interest
and assumes chapter 3 and 4 withholding
responsibility for such amounts, deter-
mine that QI withheld when required on
such payments; and

(9) To the extent QI acts as a QSL,
determine that QI withheld when required

on U.S. source payments of substitute div-
idends.

(D) Return Filing and Information
Reporting. The reviewer must-

(1) Obtain copies of original and
amended Forms 1042 and 945, and any
schedules, statements, or attachments re-
quired to be filed with those forms, verify
that the forms have been filed, and deter-
mine whether the amounts of income,
taxes, and other information reported on
those forms are accurate by-

(i) Reviewing copies of Forms 1042-S
that withholding agents have provided QI
to determine whether QI properly reported
the amount of taxes withheld by other
withholding agents on Form 1042;

(ii) Reviewing account statements and
correspondence from withholding agents;

(iii) Determining that adjustments to
the 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 section
9.02 of this Agreement and are supported
by sufficient documentation;

(iv) Reconciling amounts shown on
Forms 1042 with amounts shown on Form
1042-S (including the amount of taxes
reported as withheld);

(v) If QI is acting as a QDD, reviewing
the reconciliation schedule described in
section 7.01(c) of this Agreement and any
information used to prepare such schedule
or 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 the
applicable period, and reviewing such in-
formation to determine whether the sec-
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) and
Forms 1042-S, as well as any information
received pursuant to §1.871-15(p), to de-
termine whether the QDD properly took
the information into account (e.g., to cal-
culate its QDD tax liability);

(vii) To the extent QI acts as a QSL,
determine that QI properly reported the
gross amount of the U.S. source payments
of substitute dividends to which the recip-
ient would have otherwise been entitled

before consideration of any withholding
tax obligations; the amount of tax with-
held by the withholding agent; and the
amount of tax withheld by other withhold-
ing agents in the series of securities lend-
ing or sale-repurchase transaction;

(viii) In the case of collective credits
or refunds, reviewing the statements at-
tached to amended Forms 1042 filed to
claim a collective refund, determine
whether those forms are accurate, and-

(a) Determine the causes of any over-
withholding reported and ensure QI did
not issue Forms 1042-S to persons whom
it included as part of its collective credit
or refund;

(b) Determine that QI repaid the appro-
priate account holders and that the amount
of the claim is accurate and supported by
adequate documentation; and

(c) Determine that QI did not include
payments made to a partnership or trust
described in section 4.05 of this Agree-
ment.

(2) Obtain copies of original and cor-
rected Forms 1042-S and Forms 1099
filed by QI together with the work papers
used to prepare those forms, and deter-
mine whether the amounts reported on
those forms are accurate by-

(i) Reconciling payments and tax re-
ported on Forms 1042-S received from
withholding agents with amounts (includ-
ing characterization of income) and taxes
reported by QI as withheld on Forms
1042-S and determining the reason(s) for
any variance;

(ii) Reviewing the Forms W-8IMY,
and the associated withholding state-
ments, that QI has provided withholding
agents;

(iii) Reviewing account statements is-
sued by QI to account holders;

(iv) Determining, in the case in which
QI utilized the reimbursement or set-off
procedure, that QI satisfied the require-
ments of section 9.02 of this Agreement
and that the adjusted amounts of tax with-
held are properly reflected on Forms
1042-S.

(3) Obtain copies of original and
amended Forms 8966 (or, for QI that is a
reporting Model 1 FFI, any analogous
forms used for reporting account informa-
tion pursuant to the applicable Model 1
IGA) of accounts for which QI is acting as
a QI, and determine whether the amounts

of income and other information reported
on Forms 8966 are accurate by-

(i) Reviewing U.S. accounts (or U.S.
reportable accounts for which QI acts as a
QI) to determine that such accounts were
reported in accordance with QI's FATCA
requirements as a participating FFI, regis-
tered deemed-compliant FFI, or registered
deemed-compliant Model 1 IGA FFI;

(ii) If QI is an NFFE acting as a QI on
behalf of persons other than its sharehold-
ers, confirming that if QI is acting on
behalf of a passive NFFE with substantial
U.S. owners, withholdable payments
made to the passive NFFE and the infor-
mation regarding its substantial U.S. own-
ers were reported;

(iii) Confirming with respect to any
nonqualified intermediary or flow-through
entity that provides information regarding
an account holder (or interest holder) that
is an NFFE (other than an excepted
NFFE) with one or more substantial U.S.
owners that such substantial U.S. owners
were reported to the extent required under
section 8.04(B) of this Agreement;

(iv) Reviewing the documentation pro-
vided by a PAI or a partnership or trust to
which QI applied the agency option to
determine that QI reported on Form 8966
to the extent required under section 4 of
this Agreement; and

(v) Reviewing work papers used to
prepare 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 a
QDD to determine whether QI is acting as
a QDD with respect to all potential section
871(m) transactions and underlying secu-
rities for which it is required to act as a
QDD and not any other transactions and
whether the section 871(m) amount in-
cludes the amounts in its equity deriva-
tives dealer capacity and not amounts in
its non-equity derivatives dealer capacity.

(E) Significant Change in Circum-
stances. The reviewer must verify that in
the 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 (H) of this Agreement.

Sec. 10.06 Periodic Review Report.

(A) In General. The results of the pe-
riodic review must be documented in a
written report addressed to the responsible

officer of QI and must be available to the
IRS upon request (with a certified trans-
lation into English if the report is not in
English). The report must describe the
scope of the review and the actions per-
formed to satisfy each requirement of sec-
tion 10.05(A) through (E), including the
methodology for sampling determina-
tions. The report may include explanatory
footnotes to clarify the results of the re-
port. Recommendations may be included
but are not required to be provided in the
report. The periodic review report should
form the basis for the factual information
provided by QI that is set forth in Appen-
dix I.

In addition to the findings of section
10.05 of this Agreement, the periodic re-
view report should also include details
regarding the documentation and tax de-
posit and payment failures identified by
the reviewer but then cured before the
periodic review report is finalized. While
the curing of inadequate documentation is
permissible, the factual information re-
ported (as set forth in Appendix I) should
report the results of the review as it was
performed and should not reflect the re-
sults after curing. Any curing process
should not delay certification of internal
controls or factual information required in
Appendix I to this Agreement. To the
extent necessary, the periodic review re-
port should include the dates on (or time
period during) which curative documenta-
tion was received for accounts with re-
spect to which the reviewer determined
that underwithholding had occurred, the
number of accounts for which curative
documentation was obtained and a revised
calculation of the underwithholding or ad-
ditional backup withholding.

(B) Periodic Review Report for
QDDs. If QI is acting as a QDD, the
periodic review report should also include
the 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
business within the United States within
the meaning of section 864), (ii) non-
principal accounts, (iii) principal accounts
that are effectively connected with the
conduct or a trade or business within the
United States within the meaning of sec-
tion 864, (iv) equity derivatives dealer
accounts, and (v) non-equity derivatives

dealer accounts. The report should also
include any other issues related to the
QDD tax liability (e.g., incorrect determi-
nation of whether an account is a potential
section 871(m) transaction or a section
871(m) transaction, the dividends re-
ceived in the QDD's equity derivatives
dealer capacity and the taxes paid on those
dividends, the net delta exposure, the sec-
tion 871(m) amount and the taxes on the
section 871(m) amount, the amount of
dividend equivalent payments made, or
any other amounts subject to tax (or re-
quired to compute the tax liability) under
section 871(a) and 881 (including the
QDD tax liability)) for each QDD.

(C) PAI Certification and Partner-
ship or Trust to which QI Applies the
Agency Option. Any PAI with which QI
has an agreement and any partnership or
trust 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 in
section 10.04 of this Agreement, must
conduct an independent periodic review in
accordance with the compliance proce-
dures described in section 10.05 of this
Agreement. The performance results of
the periodic review must be documented
in 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 report
is 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 as
long as this Agreement is in effect.

Sec. 10.07. Waiver of Periodic Review
Requirement.

(A) In General. A QI that is not acting
as a QDD and that is an FFI that meets the
requirements of section 10.07(B) may ap-
ply for a waiver of the periodic review
requirement. QI must request a waiver of
the periodic review requirement under this
section 10.07 at the time the responsible
officer makes the certification described in
section 10.03 of this Agreement. QI's ap-
plication for such a waiver must be ap-
proved by the IRS, and waiver applica-
tions are not approved automatically. QI
must apply for a waiver for each certifi-
cation period for which a waiver is re-

quested. If QI's request for a waiver of the
periodic review requirement is granted,
such approval is only to waive QI's obli-
gations under sections 10.04 and 10.05 of
this Agreement, and QI is still required to
make the certification described in section
10.03 of this Agreement. The waiver also
does not preclude the IRS from requesting
information or conducting a correspon-
dence review as described in section 10.07
of this Agreement. QI must include the
information of any PAI with which QI has
an agreement and any partnership or trust
to which QI applies the agency option in
its waiver application which is set forth in
Part III of Appendix I to this Agreement.

(B) Eligibility. QI is eligible to apply
for a waiver of the periodic review re-
quirement if it meets the following re-
quirements-

(1) QI must be an FFI that is not also
acting as a QDD;

(2) QI cannot be part of a consolidated
compliance program;

(3) For each calendar year covered by
the certification period, the reportable
amounts received by QI cannot exceed $5
million;

(4) QI must have timely filed its Forms
1042, 1042-S, 945, 1099, and 8966, as
applicable, for all calendar years covered
by the certification period;

(5) QI must have made all periodic
certifications and reviews required by sec-
tions 10.02 and 10.03 of this Agreement
as well as all certifications required pur-
suant to QI's FATCA requirements as a
participating FFI, registered deemed-
compliant FFI, or registered deemed-
compliant Model 1 IGA FFI; and

(6) QI must have made the certification
of effective internal controls in section
10.02(A).

(C) Documentation Required with
Waiver Application. When applying for
a waiver under this section 10.07, QI must
include 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 results
without any curing or remediation.

(D) Approval. If QI's request for a
waiver of the periodic review requirement
is approved, the IRS will notify QI. If QI
requests a waiver but such request is not
approved, QI will be granted a six month
extension from the date of denial of the

waiver to complete the periodic review.
Such extension will not be granted if QI
has made the request for waiver in bad
faith.

Sec. 10.08. Periodic Review.

(A) In General. Based upon the certi-
fications made by the responsible officer
and the disclosure of material failures, the
information reported on Forms 945, 1042,
1042-S, 1099, and 8966 filed with the IRS
during 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. The
IRS may preemptively request remedia-
tion or the conduct of a limited periodic
review earlier than the time period pro-
vided in this section 10 if, based on the
information described above, the IRS
identifies, in its discretion, a presence of
factors indicating systemic or significant
compliance failures by QI. The IRS may
also request that QI designate a replace-
ment responsible officer if QI's responsi-
ble officer has not complied with its re-
sponsibilities (including responding to
requests by the IRS for additional infor-
mation) or the IRS has information that
indicates the responsible officer may not
be relied upon to comply with its respon-
sibilities.

(B) Periodic Review Report. The IRS
may request, through written correspon-
dence to the responsible officer of QI (or
the Compliance QI), a copy of the results
of QI's periodic review for any prior cer-
tification period or the periodic review
report of any PAI or partnership or trust to
which QI applied the agency option that
QI has an agreement during the current
certification period (with a certified trans-
lation into English if the report is not in
English). QI is required to provide the
results within 30 calendar days of such
request.

(C) Correspondence Review. The
IRS may, in its discretion, conduct addi-
tional fact finding through a correspon-
dence review. In such a review, the IRS
will contact the responsible officer of QI
(or the Compliance QI) in writing and
request information about QI's compli-
ance with this Agreement or the compli-
ance of a PAI or a partnership or trust to
which QI applied the agency option, in-
cluding, for example, information about

documentation, withholding, or reporting
processes, its periodic review, and infor-
mation about any material failures that
were disclosed to the IRS (including re-
mediation plans). The IRS may request
phone or video interviews with employees
of QI (and the Compliance QI), a PAI, or
a partnership or trust to which QI applied
the agency option as part of the IRS's
correspondence review. QI is required to
respond in a reasonable time to any such
requests.

(D) Additional Review Procedures.
In limited circumstances, the IRS may
direct QI (or the Compliance QI) or any
PAI or partnership or trust to which QI
applies the agency option to perform ad-
ditional, specified review procedures. The
IRS reserves the right to require QI (or the
Compliance QI) or a PAI, or a partnership
or trust to which QI applied the agency
option to engage an external reviewer to
perform the additional review procedures
regardless of whether such reviewer per-
formed the periodic review. The IRS will
provide the responsible officer of QI with
a written plan describing the additional
review procedures and will provide a due
date of not more than 120 days for the QI
to provide to the IRS a report covering the
reviewer's findings.

## SECTION 11. EXPIRATION, TERMINATION, MERGER AND DEFAULT

Sec. 11.01. Term of Agreement. This
Agreement begins on the effective date
and expires at the end of the sixth full
calendar year the Agreement is in effect,
unless terminated under section 11.02 of
this Agreement. This Agreement may be
renewed as provided in section 11.08 of
this Agreement.

Sec. 11.02. Termination of Agreement.

(A) In General. This Agreement may
be terminated by either the IRS or QI prior
to the end of its term by delivery of a
notice, in accordance with section 12.06
of this Agreement, of termination to the
other party. The IRS, however, shall not
terminate this Agreement unless there has
been a significant change in circum-
stances, as defined in section 11.04 of this
Agreement, or an event of default has
occurred, as defined in section 11.06 of

this Agreement, and the IRS determines,
in its sole discretion, that the significant
change in circumstances or the event of
default warrants termination of this
Agreement. The IRS shall not terminate
this Agreement if QI can establish to the
satisfaction of the IRS that all events of
default for which it has received notice
have been cured within the time period
agreed upon. The IRS shall notify QI that
an event of default has occurred and that
the IRS intends to terminate the Agree-
ment unless QI cures the default or estab-
lishes that no event of default occurred. A
notice of termination sent by either party
shall take effect on the date specified in
the notice, and QI is required to notify its
withholding agent of the date that its sta-
tus as a QI is terminated.

The termination of the Agreement shall
not affect any of QI's reporting, tax filing,
withholding, depositing, or payment re-
sponsibilities arising in the calendar years
for which this Agreement was in effect
and portion of the calendar year in which
termination is requested. The IRS shall
revoke QI's QI-EIN within a reasonable
time after the reporting, tax filing, and
depositing requirements for such years are
satisfied. The termination of this Agree-
ment is not intended to affect any other
federal income tax consequences.

(B) Final Certification after a Termi-
nation of the Agreement. Upon a termi-
nation of this Agreement, QI must provide
to the IRS the certification described in
section 10.03 of this Agreement covering
the period from the end of the most recent
certification period (or, if the first certifi-
cation period has not ended, the effective
date of this Agreement) to the date of
termination within six months of the date
of termination, regardless of whether a
periodic review has been completed for
such period.

Sec. 11.03. Loss of QDD Status. If QI
is acting as a QDD and the home office or
branch, as applicable, fails to qualify as an
eligible entity during the term of this
Agreement, the home office or branch
shall lose its QDD status immediately
upon the QDD failing to qualify as an
eligible entity and as of that date can no
longer act as a QDD. QI is required to
notify its withholding agent of the date
that the QDD failed to qualify as an eli-
gible entity and no longer was permitted

to act as a QDD. The QDD's loss of QDD
status shall not affect any of QI's QDD
reporting, tax filing, withholding, deposit-
ing, or payment responsibilities for the
period QI was acting as a QDD as pro-
vided in this Agreement, including paying
its QDD tax liability.

Sec. 11.04. Significant Change in
Circumstances. For purposes of this
Agreement, a significant change in cir-
cumstances includes, but is not limited
to-

(A) An acquisition of all, or substan-
tially all, of QI's assets in any transaction
in which QI is not the surviving legal
entity;

(B) A change in U.S. federal law, or
applicable foreign law, that affects the
validity of any provision of this Agree-
ment, materially affects the procedures
contained in this Agreement, or affects
QI's ability to perform its obligations un-
der this Agreement;

(D) A material change in the applicable
know-your-customer rules and proce-
dures;

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

(F) If QI is an FFI, QI's failure to
maintain its status as a participating FFI,
registered deemed-compliant FFI, or reg-
istered deemed-compliant Model 1 IGA
FFI;

(G) If QI is acting as a sponsoring
entity on behalf of a sponsored FFI or
sponsored direct reporting NFFE, if it fails
to comply with the due diligence, with-
holding, reporting, and compliance re-
quirements of a sponsoring entity; or

(H) If QI is acting as a QDD, the home
office or branch, as applicable, ceases to
qualify as an eligible entity, including as a
result of a change in its business or regu-
latory status (see section 11.03).

Sec. 11.05. Merger. If QI merges with
or is acquired by another QI and the suc-
cessor QI assumes all the rights, debts,
and obligations of the predecessor QI as it
relates to such QI's QI agreement, the
predecessor or acquired QI must notify
the IRS that it intends to terminate this
Agreement prior to the end of its term by
delivery of a notice of termination and

merger, in accordance with section 12.06
of this Agreement. A notice of termination
and merger shall take effect on the date
specified in the notice, and QI is required
to notify its withholding agent of the date
that its status as a QI is terminated and
designate the successor QI to receive pay-
ments in its capacity as a QI for any
accounts previously covered by predeces-
sor QI's QI Agreement.

The successor QI must ensure that all
reporting and tax filing obligations are
fulfilled 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 the
calendar years and portion of the calendar
year in which termination is requested and
for which this Agreement was in effect
(including for Form 1042-S filed to report
withholding under chapter 4). To the ex-
tent QI is acting as a QDD, it must use the
standard procedure outlined in Rev. Proc.
99-50 and cannot use the alternative pro-
cedures. See QI's FATCA Requirements
as a participating FFI, registered deemed-
compliant FFI, or registered deemed-
compliant Model 1 IGA FFI for the pro-
cedures, if any, for reporting on Form
8966 in the case of a merger or acquisi-
tion. In addition, the successor QI must
provide the certification required by sec-
tion 10.03 for the predecessor QI's com-
pliance period prior to the merger (and
must include the predecessor QI in its
review following the merger).

The IRS shall revoke the predecessor
QI's QI-EIN within a reasonable time af-
ter the reporting, tax filing, and depositing
requirements for such years are satisfied.
The termination of this Agreement is not
intended 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 any
material duty or obligation required under
this Agreement and the responsible officer
had actual knowledge or should have
known of the facts relevant to the failure
to perform any material duty. An event of
default includes, but is not limited to, the
occurrence of any of the following:

(A) QI fails to implement adequate
procedures, accounting systems, and in-
ternal controls to ensure compliance with
this Agreement;

(B) QI underwithholds a material
amount 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 an
amended Form 1042 or 945 reporting, and
paying, 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 number
of direct account holders;

(E) QI files Forms 945, 1042, 1042-S,
1099, or 8966 that are materially incorrect
or fraudulent;

(F) If QI is an FFI, QI fails to materi-
ally comply with its FATCA requirements
as a participating FFI, registered deemed-
compliant FFI, or registered deemed-
compliant Model 1 IGA FFI;

(G) If QI is a sponsoring entity, QI
fails to materially comply with the due
diligence, withholding, reporting, and
compliance requirements of a sponsoring
entity;

(H) QI fails to materially comply with
the requirements of a nonqualified inter-
mediary under chapters 3 and 61, and
section 3406 with respect to any account
for 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 IRS
on its compliance review described in sec-
tion 10.08 of this Agreement;

(K) QI fails to inform the IRS of any
change in the applicable know-your-
customer rules within 90 days of the
change becoming effective;

(L) QI fails to inform the IRS within 90
days of any significant change in its busi-
ness practices to the extent that change
affects QI's obligations under this Agree-
ment;

(M) QI fails to inform the IRS of any
PAI of QI, as described in section 4 of this
Agreement;

(N) QI fails to cure a material failure
identified in the qualified certification de-
scribed in Part II.B of Appendix I to this
Agreement or identified by the IRS;

(O) QI makes any fraudulent statement
or a misrepresentation of material fact
with 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, as
described in this Agreement, to ade-
quately perform its review function, and
QI fails to arrange for a periodic review
conducted by a reviewer approved by the
IRS;

(Q) An intermediary with which QI
has a PAI agreement is in default with that
agreement and QI fails to terminate that
agreement within the time period speci-
fied in section 4.04 of this Agreement;

(R) A partnership or trust to which QI
applies the agency option is in default
with that agreement and QI fails to termi-
nate that agreement within the time period
specified in section 4.06 of this Agree-
ment; and

(S) If QI is acting as a QDD, after
calendar year 2017, QI fails to timely pay
a material amount of its QDD tax liability
and fails to correct the underpayment and
pay the appropriate tax amount.

Sec. 11.07. Notice and Cure. Upon
the occurrence of an event of default, the
IRS will deliver to QI a notice of default
specifying each event of default. QI must
respond to the notice of default within 60
days (60-day response) from the date of
the notice of default. The 60-day response
shall contain an offer to cure the event of
default and the time period in which to
cure or shall state why QI believes that no
event of default occurred. If QI does not
provide a 60-day response, the IRS will
deliver a notice of termination as provided
in section 11.02 of this Agreement. If QI
provides a 60-day response, the IRS shall
either accept or reject QI's statement that
no default has occurred or QI's proposal
to cure the event of default. If the IRS
rejects QI's contention that no default has
occurred or rejects QI's proposal to cure
the event of default, the IRS may offer a
counter-proposal to cure the event of de-
fault with which QI will be required to
comply within 30 days. If QI fails to pro-
vide a 30-day response, the IRS will send
a notice of termination in accordance with
section 11.02 of this Agreement to QI,
which QI may appeal within 30 days of
the date of the notice by sending a written
appeal to the address specified in section
12.06 of this Agreement. If QI appeals the
notice of termination, this Agreement
shall not terminate until the appeal has
been decided. If an event of default is

discovered in the course of a review, the
QI may cure the default, without follow-
ing the procedures of this section 11.07, if
the external reviewer's report describes
the default and the actions that QI took to
cure the default and the IRS determines
that the cure procedures followed by QI
were sufficient. If the IRS determines that
QI's actions to cure the default were not
sufficient, the IRS shall issue a notice of
default and the procedures described in
this section 11.07 shall be followed.

Sec. 11.08. Renewal. If QI intends to
renew this Agreement, it must submit an
application for renewal to the IRS on the
QI/WP/WT Application and Accounts
Management System. This Agreement
will be renewed only upon the agreement
of both QI and the IRS. A QI that seeks to
renew its QI agreement and also seeks to
become a QDD (that was not previously
acting as a QDD) must supplement the
renewal request by providing a statement
containing all information required by
Form 14345 relating to a QDD.

## SECTION 12. MISCELLANEOUS PROVISIONS

Sec. 12.01. QI's application to become
a QI, all Appendices to this Agreement,
and, if QI is an FFI, its FATCA require-
ments as a participating FFI, registered
deemed-compliant FFI, or registered
deemed-compliant Model 1 IGA FFI, are
hereby incorporated into and made an in-
tegral part of this Agreement. This Agree-
ment, QI's application, and the Appendi-
ces to this Agreement constitute the
complete agreement between the parties.

Sec. 12.02. This Agreement may be
amended by the IRS if the IRS determines
that such amendment is needed for the
sound administration of the internal reve-
nue laws or internal revenue regulations.
This Agreement will only be modified
through published guidance issued by the
IRS and U.S. Treasury Department. Any
such modification imposing additional re-
quirements will in no event become effec-
tive until the later of 90 days after the IRS
provides notice of such modification or
the beginning of the next calendar year
following the publication of such guid-
ance.

Sec. 12.03. Any waiver of a provision
of this Agreement is a waiver solely of
that provision. The waiver does not obli-

gate the IRS to waive other provisions of
this Agreement or the same provision at a
later date.

Sec. 12.04. This Agreement shall be
governed by the laws of the United States.
Any legal action brought under this
Agreement shall be brought only in a
United States court with jurisdiction to
hear and resolve matters under the internal
revenue laws of the United States. For this
purpose, 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 QI/WP/WT Application and
Accounts Management System, notices
provided under this Agreement shall be
mailed registered, first class airmail. All

notices sent to the IRS must include the
QI's name, QI-EIN, GIIN (if applicable),
and the name of its responsible officer.
Such notices shall be directed as follows:

To the IRS:
Internal Revenue Service
Foreign Payments Practice
Foreign Intermediaries Program
290 Broadway, 12th Floor NW
New York, New York 10007-1867
To the QI:

The QI's responsible officer. Such no-
tices shall be sent to the address indicated
in the QI's registration or application (as
may be amended).

Sec. 12.07. QI, acting in its capacity as
a QI or in any other capacity, does not act
as an agent of the IRS, nor does it have the
authority to hold itself out as an agent of
the IRS.

## SECTION 7. EFFECTIVE DATE

The effective date of the QI agreement
contained in section 6 of this revenue pro-
cedure (as modified and superseded by
any future published guidance) is on or
after January 1, 2017.

## SECTION 8. DRAFTING INFORMATION

The principal author of this notice is
Leni C. Perkins of the Office of Asso-
ciate Chief Counsel (International). For
further information regarding this notice
contact Ms. Perkins at (202) 317-6942
(not a toll free call) or, with respect to
QDDs, Peter Merkel or Karen Walny
at (202) 317-6938 (not a toll free
call).

# APPENDIX I

General Instructions: QIs must provide the information and certifications described in this Appendix as applicable to their QI
status 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 the periodic review requirement (as described in section 10.07 of the QI Agreement) and who wish to ap- ply for such a waiver. Under section 10.07(A) and (B) of the QI Agreement, the following QIs are not eligible for a waiver: (a) QIs that are NFFEs, (b) QIs that are acting as QDDs, and (c) QIs that are part 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 compliance
group.

## 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 the
certification period? Y/N

C. Is QI the Compliance QI for a consolidated compliance program? Y/N

1\. 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 certification
period:

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 the QI
Agreement. Y/N

c. Each PAI has provided QI with either (1) its information for inclusion in QI's periodic review (as described in section
4.01(F) of the QI Agreement) or (2) a certification as described in section 10.03 of the QI Agreement and a 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. 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 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 4.06(A)(2) of the QI Agreement. Y/N

b. Each partnership or trust to which QI applies the agency option pursuant to section 4.06 of the QI Agreement has provided
QI with either (1) its information for inclusion in QI's periodic review (as described in section 4.06(A)(5) of the QI
Agreement) or (2) a certification described in section 10.03 of the QI Agreement and a periodic review report 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. 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), an
owner-documented FFI with respect to QI, an exempt beneficial owner, or an NFFE or that it is covered as an account
that 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

### 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 an event of default or a material failure that QI has not corrected as of the date of this
certification (or such an event of default or material failure has otherwise been identified), the responsible officer cannot make the
certification of 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, review, or certification undertaken in preparation for the responsible
officer's certification of internal controls, QI maintains effective internal controls over its documentation, withholding, and
reporting obligations under the QI Agreement and according to its applicable FATCA requirements, with respect to accounts
for which it acts as a QI.

3\. Based on the information known (or information that reasonably should have been known) to the responsible officer,
including the findings of any procedure, process, review, or certification undertaken in preparation for the responsible
officer's certification of internal controls, there are no material failures, as defined in section 10.03(B) 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 well as 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, 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 necessary
information for inclusion in the QI's periodic review or (b) provided the responsible officer of QI with a certification of
effective internal controls described in Part II.A of Appendix I to the QI Agreement and have represented to QI that there
are no material failures, as defined in section 10.03(B) of the QI Agreement, or, if there are such failures, they have been
corrected as of the time of this certification, and the PAIs, partnerships, or trusts have disclosed any such failures to QI
together with 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 as
otherwise required by a jurisdiction's AML/KYC procedures, as applicable).

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

8\. A periodic review was conducted for the certification period in accordance with section 10.04 of the QI Agreement, and the
results 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 this
certification, 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, or
has determined that, as of the date of the certification, there are one or more material failures as defined in section 10.03(B)
of the QI Agreement with respect to QI's compliance, its PAI's compliance, or the compliance of a partnership or trust to
which QI 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, QI will correct such
failure by paying any taxes due (including interest 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 or
partnership or trust performs its own periodic review) will respond to any notice of default (if applicable) or will provide
(either directly or through QI) to the IRS, to the extent requested, a description of each material failure and a written plan
to correct each such failure

### 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
of any other procedure, process, or review undertaken by the responsible officer in preparation for his or her certification of
internal controls. Y/N

### 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 should
also indicate which QI in the consolidated compliance group is associated with the material failure or event of default. For 2017, a
material failure relevant to a QDD has not occurred unless the QDD failed to make a good faith effort to comply with the section
871(m) regulations and the relevant provisions of the QI agreement relating to its QDD obligations.

1\. The responsible officer has determined that as of the date of the review, there are no material failures with respect to QI's
compliance 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 respect
to QI's compliance with the QI Agreement and that appropriate actions have been or will be taken to prevent such failures
from reoccurring.

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 liability
related 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, and with respect to QI that is
acting as a QDD, failure to satisfy its QDD tax liability and its obligations pursuant to section 871(m) and the regulations
under that section.

ii. QI's failure to establish written policies, procedures, or systems sufficient for the relevant personnel of QI to take
actions consistent with QI's obligations under the QI Agreement, or if QI is acting as a QDD, its obligations as a QDD
under the 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 other
governmental authority or agency with oversight over QI's compliance with AML/KYC procedures to which QI (or
any branch or office thereof) is subject and that is imposed due to QI's failure to properly identify account holders
under the 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 1099
reporting and backup withholding responsibility;

3\. Provide allocation information as described in section 6.03(D) of the QI Agreement (regarding U.S. non-exempt
recipient account holders) by January 15, as required by that section when QI applies the alternative withholding rate
pool procedures;

4\. Make deposits in the time and manner required by section 3.08 of the QI Agreement or make adequate deposits to
satisfy its withholding obligations or, if QI is acting as a QDD, timely satisfy its QDD tax liability, taking into
account the procedures 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
information to 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;

7\. Report or report accurately on Form 8966 under sections 8.04 and 8.05 of the QI Agreement; or

8\. Withhold an amount required to be withheld or report accurately with respect to U.S. source substitute dividend
payments or make timely and adequate deposits of tax due with respect to such payments for which QI is a QSL
and acts as a dealer or intermediary.

v. Other (include a detailed explanation).

3\. The material failure identified in the review has been corrected by the time of this certification. Y/N/NA

a. 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/NA

a. 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/NA

a. 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 the
timeframe for completing such steps.

6\. An event of default as defined in section 11.06 of the QI Agreement has been identified. Y/N

a. If yes, identify the event of default:

i. QI failed to implement adequate procedures, accounting systems, and internal controls to ensure compliance with the
QI Agreement;

ii. QI underwithheld a material amount of tax that QI was required to withhold under chapter 3 or 4 or backup withhold
under 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, registered
deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI;

vii. If QI is a sponsoring entity, QI failed to materially comply with 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, and
section 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 applicable know-your-customer rules 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 Part II.B of Appendix I to 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 reviewer
approved by the IRS;

xvii. An intermediary with which QI has a PAI agreement was in default with that agreement and QI failed to terminate
that 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 to
terminate that agreement within the time period specified in section 4.06 of the QI Agreement;

xix. If QI is acting as a QDD, after calendar year 2017, QI failed to timely pay a material amount of its QDD tax liability
and failed to correct the underpayment 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 (H) of the QI Agreement.

2\. For the most recent certification period, the periodic review has identified the following significant change(s) in circum-
stances:

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 applicable know-your-customer rules and procedures.

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 which
the 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 participating
FFI and made the following certification of compliance with respect to its FFI agreement for the most recent certification
period under the FFI agreement (check one). Note: You may only check N/A if, during the certification period, your chapter
4 status changed from one of the other applicable chapter 4 statuses to participating FFI or if your certification under the FFI
agreement is not due as of the date of this certification.

a. Certification of Effective Internal Controls

b. Qualified Certification

c. 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 FFI
status 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
under the 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 branch operates in the jurisdiction) and has met the requirements under the IGA to be treated as a deemed-compliant FFI.

#### PART III. WAIVER OF PERIODIC REVIEW

For Parts B.1 through 6, while the curing of inadequate documentation is permissible, the information reported in this section
of the Appendix must not reflect any remediation or 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.

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

1\. The total number of accounts

a. Total number of direct account holders

i. Foreign persons

ii. U.S. exempt recipients

iii. U.S. non-exempt recipients

iv. Intermediaries and flow-through entities

b. Total number of indirect account holders

i. Foreign persons

ii. U.S. exempt recipients

iii. U.S. non-exempt recipients

iv. Intermediaries and flow-through entities

2\. The total number of U.S. account holders that received reportable payments.

3\. The total number of non-U.S. 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\. Total of reportable amounts received for non-U.S. accounts.

8\. Total of reportable payments received for U.S. accounts.

9\. The aggregate amount of tax withheld under chapter 3 and chapter 4 (by QI or QI's withholding agent(s)).

10\. The total number of Forms 1099 filed by QI.

11\. 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 or
Obtained a Waiver. If QI acts solely as a QDD and has no other QI activities, QI is not required to complete Part IV.B
through F.

A. General Information

1\. Did QI use an external reviewer to conduct any portion of its periodic review? Y/N

a. If yes, provide name(s) of reviewer(s).

2\. Did QI use an internal reviewer to conduct any portion of its periodic review? Y/N

a. 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 QI
Agreement), there must be 15 or more months available on the statutory period for assessment for taxes reportable on Form 1042
of the calendar year for which the review was conducted or the QI must submit, upon request by the IRS, a Form 872, Consent to
Extend the Time to Assess Tax, that will satisfy the 15-month requirement. The Form 872 must be submitted to the IRS at the address
provided 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, the information
reported shall be based on the review and not 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 which QI is acting as a QDD
or accounts receiving substitute interest payments for which QI has assumed primary withholding responsibility.

1\. Did QI assume primary chapters 3 and 4 withholding responsibility for any accounts for the calendar year provided in Question
3 in Part A, above? Y/N

2\. Did QI assume primary Form 1099 reporting and backup withholding responsibility for any accounts for the calendar year
provided 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.

### 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 the 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 benefits
information 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).

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.

#### 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 ppropriate 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 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).

3\. The aggregate amount reported paid by QI on Forms 1042-S to QI's chapter 4 reporting pool- U.S. payee pool.

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

5\. The aggregate amount reported paid by QI on Forms 1042-S to other QIs (excluding QIs that are acting as QDDs), QSLs,
and WPs and WTs as a class.

6\. The aggregate amount reported paid by QI on Forms 1042-S to QIs that are acting as QDDs.

7\. 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 respect
to their chapter 4 reporting pools (excluding amounts referenced in Questions 5 and 6 directly above).

8\. The aggregate amount reported paid by QI on Forms 1042-S to indirect account holders (not included in Question 2 or 7
above and including an account holder of an intermediary or flow through entity reported by QI as made to an unknown
recipient on Form 1042-S).

9\. The aggregate amount subject to reporting on Form 1042-S paid by QI to U.S. non-exempt recipients as a class not includable
in a chapter 4 withholding rate pool of QI.

10\. The aggregate amount subject to reporting on Form 1042-S paid by QI to U.S. exempt recipients as a class not includable
in a chapter 4 withholding rate pool of QI.

11\. 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.

12\. Total of questions 2 through 11.

13\. The amount of any unreconciled variances (if Question 1 minus Question 12 is other than 0).

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 by QI as amounts it withheld on Forms 1042-S.

3\. The aggregate amount reported by QI as amounts it backup withheld on Forms 1099.

4\. If QI did not assume primary withholding responsibility and amounts are entered for questions 2 or 3, explain any
underwithholding that occurred by the withholding agent.

5\. If QI assumed primary withholding responsibility and an amount is entered for question 1, explain the amount withheld
by others.

6\. The aggregate amount of any collective claims for refund or credit made by QI.

## Part V. Qualified Derivatives Dealers

## [RESERVED]

### Part VI. Substitute Interest

Complete only if a QI 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.

B. Documentation

1\. Total accounts reviewed with valid documentation.

2\. Total accounts reviewed with invalid documentation or no documentation for which documentation or additional documentation
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 benefits
information 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 primary
withholding 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.

### Section I. Background.

To the extent provided in section 10.05 of the QI Agreement, the reviewer is permitted to use a sampling methodology to perform
the periodic review. This Appendix includes safe harbor procedures covering basic sample design parameters and methodologies,
including sample size, strata allocation, and projection. Generally, sampling should only be used whenever an examination of all
accounts within a particular class of accounts would be prohibitive in 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 in section 2 of the QI Agreement.

Sampling should only be used if there are more than 60 accounts to review. If any accounts of a QI held by PAIs ("PAI accounts")
or accounts of a QI held by partnerships or trusts utilizing the Agency Option ("Agency Accounts") are also included in the QI's
review (because the PAI or the partnership or trust did not perform its own compliance review), the PAI or Agency Accounts should
be included in the sample of accounts for which QI acts as a QI ("QI accounts") by adding additional strata, replicating the strata
prescribed in section II.A.3 of this Appendix, as applicable, that contain only PAI accounts or Agency Accounts. For purposes of
the QI's periodic review, a QI account is referred to as a "sample unit" (and collectively as the "sample") with respect to each review.
If a population contains 60 or fewer sample units, all sample units for that population must be reviewed.

The sampling methodology employed envisions a documentation review (as prescribed in section 10.05(A) of the QI Agreement)
requiring review of all selected sample units, and a review of: (1) withholding rate pool classifications (as prescribed in section
10.05(B) of the QI Agreement), (2) withholding responsibilities (as prescribed in section 10.05(C) of the QI Agreement), and (3)
information reporting (as prescribed in section 10.05(D) of the QI Agreement) that requires review of a subset (a "spot check" under
section II.B.1 of this Appendix) of the sample units reviewed in the documentation review. See section 10.05 of the QI Agreement.

The statistical sampling methodologies used in this Appendix are not intended to be and cannot be used for any other tax purpose.
A QI may use another sampling technique provided it documents its parameters and methodologies for the IRS to review, as
described in section 10.05 of the QI Agreement. The standards and principles of Rev. Proc. 2011-42, 2011-37 I.R.B. 318, should be
applied to any safe harbor sampling procedures. At the time it reviews the QI's periodic certification, the IRS will determine if a
projection of underwithholding identified utilizing a statistical sampling method is required based on that review, along with a review
of the QI's compliance report and other relevant information.

A reviewer may request approval to modify the safe harbor methodology or approval of another sampling methodology in order
to select more than one sample or to use multistage, cluster, or other sampling methodologies including additional stratifications. To
obtain IRS approval, contact the Financial Intermediaries Program in accordance with section 12.06 of the QI Agreement.

The safe harbor in this Appendix applies to all QIs, irrespective of whether the QI also acts as a QDD or not, with a certification
period ending December 31, 2017. For a QI that also acts as a QDD, the safe harbor excludes a sample of QDD accounts, which
will be added in 2017 and applicable to certifications ending after December 31, 2017.

### Section II. Safe Harbor Methodology.

#### A. DOCUMENTATION REVIEW

##### 1. Population.

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.

2\. Sample Sizes for Documentation Review.

(a) Sample Size Calculations. If PAI accounts or Agency Accounts have been added to the sample of QI accounts because the
PAI or Agency Partnership or Trust did not perform its own periodic review, a separate sample size calculation should also be
performed for the PAI accounts or the Agency Accounts as if they were part of a separate QI sample. If multiple samples are used,
the sample size for the each sample (including for any additional PAI accounts or Agency Accounts) is calculated independently.
The sample size for each sample is the lesser of (1) the number of sample units determined using the sample formula in section
II.A.2(c) , or (2) 25 percent of the total number of sample units in the population. However, in determining the sample size, the
reviewer must adhere to the guidelines for minimum stratum sample sizes in sections II.A.3 and II.A.4 of this Appendix. This may
result in a sample size greater than the sample size resulting from using the formula in sections II.A.2(b) and II.A.2(c) of this section.
The minimum sample size of any sample shall not be less than 60. A sample size larger than calculated under this section may be
used without contacting the Financial Intermediaries Program.

(b) Sample Size Adjustments. The variable P "error rate" should be set equal to 5 percent for the sample of QI accounts.

epo
Sample Size =
1+1 (12 PQ _1)

where t= 1.645 (confidence coefficient at 95 percent one-sided)
P= 5 percent (error rate) for the QI account sample
Q= 1-P
d = 2 percent (precision level)
N= total population

##### 3. Strata.

Sample of QI Accounts. The reviewer must segregate all of the QI accounts into the following strata. While segregating accounts,
steps should be taken to ensure all partnerships and trusts for which the QI has utilized the joint account option are placed into the
appropriate direct account stratum (stratum 1) while the underlying partners, beneficiaries, or owners of the partnerships or trusts are
excluded from the indirect stratum (stratum 3). Such underlying accounts will be selected for review in accordance with section
II.A.7 of this Appendix.

Further substratification by dollar amounts may be used in accordance with section II.A.6 of this Appendix.

(a) A stratum of all accounts held by direct account holders that are not U.S. non-exempt recipients.

(b) A stratum of all accounts that are held by direct account holders that are U.S. non-exempt recipients.

4\. Allocation of Sample Size to Each Stratum.

The reviewer must allocate the number of sample units for each sample (including for any PAI accounts or Agency Accounts
added to the sample of QI accounts) independently of the other samples. The reviewer must allocate the number of sample units in
the sample determined under section II.A.2 of this Appendix to each stratum described in section II.A.3 by multiplying the number
of sample units in the sample, as determined under section II.A.2, by a fraction, the numerator of which is the total number of sample
units in the stratum and the denominator of which is the total number of sample units in the population. If the allocation of sample
units to a stratum using the above method results in a sample size of a stratum that is less than 60 and less than the actual number
of sample units in the stratum, the minimum allocation to that stratum is the lesser of (1) 60 sample units or (2) the total number
of sample units in the stratum. If there are fewer than 60 sample units in any stratum, all sample units in that stratum must be
examined, and the difference between 60 and the number of sample units in the stratum must be reallocated to the remaining strata
on a pro rata basis. If there are 60 or more sample units in the stratum, but the allocation, as determined under the fraction above,
is less than 60 sample units, the number of sample units to be used in the sample from that stratum is 60.

##### 5. Random Number Generator.

The reviewer must select for the documentation review sample units from each stratum identified in section II.A.3 of this
Appendix by using a random number generator. Random numbers should be drawn separately for each sample (including for any
PAI or Agency Account added to the sample of QI accounts) including the use of separate seeds. Information regarding the random
number generator used must be included in the records as required in section III.D of this Appendix. This information must be
sufficient to allow the IRS to replicate the random numbers as well as to allow the reviewer to continue the sequences of randomly
generated numbers if it is determined additional sample units need to be reviewed. This information must include the name and
version of the random number generator, the seed numbers used or generated, specification of any options selected, and the computer
equipment on which it was run.

##### 6. Optional Further Stratification by Dollar Amounts.

For each sample (including for any PAI or Agency Account added to the sample of QI accounts), the reviewer may further stratify
by dollar amounts for that sample without submitting a request for approval when the reviewer is otherwise selecting the sample in
accordance with this Appendix. Reportable amounts for foreign recipients and reportable payments for U.S. recipients are to be

considered 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 not
consist of more than 30 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.

7\. Determining Rate of Withholding for Partnerships and Trusts for Which the QI has Applied the Joint Account Option.

When reviewing documentation of partners, beneficiaries, or owners of a partnership or trust to which a QI has applied the joint
account option to determine the rate of withholding the QI should have applied to the partnership 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

15 - 19

20 - 24

25 - 29

30 - 34

35 - 39

40 - 49

50 - 74

75 - 99

100 - 199

200 - 499

500 - 4,999

&gt; 4,999

B. WITHHOLDING RATE POOL, WITHHOLDING RESPONSIBILITIES, AND RETURN FILING AND INFORMATION
REPORTING REVIEWS (SPOT CHECK)

1\. Selection of Accounts for Review.

For purposes of further reviewing and testing accounts previously reviewed in the documentation review for compliance with the
withholding rate pool, withholding responsibilities, and return filing and information reporting subsections of sections 10.05(B)
through 10.05(D) of the QI Agreement, the reviewer must review accounts from every stratum in the sample that has failed the
documentation review specified under section 10.05(A) of the QI Agreement, taking into account the applicable presumption rules
where documentation is missing, invalid, or unreliable.

To the extent the number of sample units listed above from the sample (or in the population, if the reviewer has not used statistical
sampling) in any stratum is less than 30, the reviewer must also select for review (in the order selected by the random number
generator under section II.A.5 of this Appendix or, if the reviewer has not used statistical sampling, in the order used by the QI for
its record keeping) an additional number of sample units drawn from that stratum that equal the difference between 30 and the
number of sample units from the sample in that stratum.

When performing portions of the spot check review, if the reviewer determines underwithholding occurred on a payment to an
account, all payments to that account must be considered when calculating total underwithholding for that account.

### Section III. Additional Requirements Regarding the Use of Sampling

#### A. DOCUMENTATION OF SAMPLE PLAN

The reviewer should provide in its periodic report the information described in Rev. Proc. 2011-42, Appendix (A), Sampling Plan
Standards, and Appendix (B), Sampling Documentation Standards, as applicable. Additionally, originally recorded payment and
withholding amounts as well as the amount that should have been withheld and the amount actually withheld as determined by the
compliance review should be retained for every sample unit, as well as any other additional information required by this Appendix.

## B. DETERMINATION OF UNDERWITHHOLDING

If the reviewer determines that underwithholding has occurred with respect to the sampled accounts, QI shall report and pay, in
accordance with the requirements of the QI Agreement, the actual underwithheld tax without regard to projection. The QI will also
notify the Financial Intermediaries Program within 30 days of the completion of the review, at the address provided in section 12.06
of the QI Agreement, of any underwithholding identified as a result of the review. The QI must report to the IRS the amount of any
underwithholding without regard to any curing of any documentation required to support reduced withholding applied by the QI as
well as the amount of any underwithholding following any such curing. Curing for purposes of the preceding sentence is limited to
curing performed after the selection of the sample.

## C. PROJECTION

At the time it reviews the QI's periodic certification, the IRS will determine if a projection of underwithholding identified from
the sample is required based on that review, along with a review of QI's compliance report and other relevant information. If
projection is required, the QI or the QI's reviewers will be directed to perform the projection. The IRS will instruct the QI or the
QI's reviewers on the use of the formulas in Rev. Proc. 2011-42 to perform the projection.

If the reviewer has determined that overwithholding has occurred with respect to a sample, and the IRS determines projection is
appropriate, projection may not be used for the QI to claim a refund. A projection of overwithholding may offset any underwith-
holding in the sample, provided that QI enters into a closing agreement (Form 906) that QI will not file a claim for refund for any
overwithholding that the reviewer has discovered.

The IRS reserves the right to review and adjust any projection. If after reviewing all relevant information, the IRS determines that
further action is necessary with respect to determining the amount of underwithholding for the year of review or any other year, the
IRS may request that QI have the reviewer review additional sample units or conduct a full review of the entire sample or may
determine that it is not appropriate to project an amount of underwithholding.

## D. REPORTING OF SAMPLE RESULTS IN THE PERIODIC REVIEW REPORT

At a minimum, the reviewer should describe in the report, the steps taken to construct the sample population and the steps taken
to ensure all accounts subject to review were included in the population and subject to sampling under the procedures outlined in
this Appendix.

The reviewer should also record the original population and sample statistics separately for each sample (including for any PAI
or Agency Account added to the sample of QI accounts) by stratum 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;

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

## Rev. Proc. 2017-16

### SECTION 1. PURPOSE

This revenue procedure sets forth the
agreement entered into by a foreign finan-
cial institution (FFI) with the Internal
Revenue Service (IRS) to be treated as a
participating FFI under section 1471(b) of
the Internal Revenue Code (Code) and
§1.1471-4 of the Income Tax Regulations
(the FFI agreement). This revenue proce-
dure also provides guidance to FFIs and
branches of FFIs treated as reporting fi-
nancial institutions under an applicable
Model 2 intergovernmental agreement
(IGA) (reporting Model 2 FFIs) on com-
plying with the terms of the FFI agree-
ment, as modified by the Model 2 IGA.
The FFI agreement provided in Revenue
Procedure 2014-38 (2014-29 I.R.B. 131)
(2014 FFI agreement) expires on Decem-
ber 31, 2016. The FFI agreement in this
revenue procedure will apply to FFIs with
an FFI agreement effective on or after
January 1, 2017.

Section 2 of this revenue procedure
provides background on the FFI agree-
ment. Section 3 of this revenue procedure
provides information on registering as a
participating FFI (including a reporting
Model 2 FFI) to comply with the terms of
the FFI agreement and renewing an FFI
agreement on the IRS FATCA registration
website. Section 4 of this revenue proce-
dure provides information on the scope of
FFIs that are eligible to register to enter
into the FFI agreement to be treated as a
participating FFI. Section 5 of this reve-
nue procedure provides a highlight of the
changes to the 2014 FFI agreement. Sec-
tion 6 of this revenue procedure provides
the FFI agreement. Section 7 of this rev-
enue procedure provides the effective
date; section 8 provides the effect on other
documents; section 9 describes the collec-
tion of information burdens under the Pa-
perwork Reduction Act; and section 10
provides drafting information. This reve-
nue procedure supersedes Revenue Proce-
dure 2014-38 with respect to the require-
ments of a participating FFI (including a
reporting Model 2 FFI) that apply on or
after January 1, 2017.

### SECTION 2. BACKGROUND

On March 18, 2010, the Hiring Incen-
tives to Restore Employment Act of 2010,
Pub. L. 111-147, added chapter 4 of Sub-
title A (chapter 4 or FATCA) of the Code,
comprised of sections 1471 through 1474.
On January 28, 2013, the Department of
the Treasury (Treasury Department) and
the IRS published final regulations (TD
9610) under chapter 4 in the Federal Reg-
ister (78 FR 5874), and, on September 10,
2013, published corrections to those final
regulations (collectively, the 2013 chapter
4 regulations). The 2013 chapter 4 regu-
lations provide comprehensive guidance
to withholding agents and FFIs, including
the substantive requirements applicable to
participating FFIs under the FFI agree-
ment, which are contained in §1.1471-
4. On January 13, 2014, the Treasury De-
partment and the IRS issued Revenue
Procedure 2014-13 (2014-3 I.R.B. 419),
which provides the terms of the FFI agree-
ment and substantially incorporates the
provisions of §1.1471-4 of the 2013
chapter 4 regulations, as modified by No-
tice 2013-43 (2013-31 I.R.B. 113) (for
example, to reflect revised timelines for
FATCA implementation).

On March 6, 2014, temporary regu-
lations (TD 9657) under chapter 4 were
published in the Federal Register (79 FR
12812) and corrections to the temporary
regulations were published in the Fed-
eral Register on July 1, 2014, and No-
vember 18, 2014 (79 FR 37175 and 78
FR 68619, respectively). TD 9657 and
the corrections thereto are referred to
collectively as the 2014 chapter 4 regu-
lations.

On July 14, 2014, the Treasury Depart-
ment and the IRS issued Revenue Proce-
dure 2014-38, which updated the FFI
agreement published in Revenue Proce-
dure 2014-13 consistent with the 2014
chapter 4 regulations and temporary reg-
ulations (TD 9658) under chapters 3 and
61 and sections 3406 and 6402 (79 FR
12726). The Treasury Department and the
IRS are publishing regulations finalizing
certain temporary regulations under chap-
ter 4 (final chapter 4 regulations) and tem-
porary regulations providing additional
rules under chapter 4 (temporary chapter 4
regulations) shortly after the publication
date of the FFI agreement (T.D. 9809).

The Treasury Department and the IRS are
also publishing regulations finalizing cer-
tain temporary regulations under chapters
3 and 61 and sections 3406 and 6402 and
temporary regulations providing rules un-
der chapter 3 shortly after the publication
date of the FFI agreement (T.D. 9808).
The FFI agreement references and incor-
porates certain provisions of the afore-
mentioned regulations.

### SECTION 3. FATCA REGISTRATION FOR PARTICIPATING FFI (INCLUDING A REPORTING MODEL 2 FFI) STATUS AND RENEWAL OF THE FFI AGREEMENT

.01 New Applicants. An FFI may reg-
ister on Form 8957, Foreign Account Tax
Compliance Act (FATCA) Registration,
via the FATCA registration website avail-
able at https://www.irs.gov/fatca to enter
into an FFI agreement on behalf of all
branches (defined in section 2.07 of the
FFI agreement as including a home of-
fice), other than branches that are report-
ing Model 1 FFIs or U.S. branches, so that
each of such branches may be treated as a
participating FFI and receive a global in-
termediary identification number (GIIN).
An FFI that is eligible to be treated as a
reporting Model 2 FFI pursuant to an ap-
plicable Model 2 IGA with respect to one
or more of its branches (including a home
office) may also register on the FATCA
registration website on behalf of such
branches to obtain a GIIN and to agree to
comply with the terms of the FFI agree-
ment, as modified by an applicable Model
2 IGA, so that such branches may be
treated as reporting Model 2 FFIs. The
effective date of the FFI agreement with
respect to an FFI or a branch of an FFI
that is a participating FFI is the date on
which the IRS issues a GIIN to the FFI or
branch.

.02 Renewals. A participating FFI (in-
cluding a reporting Model 2 FFI) that
seeks to renew its FFI agreement must do
so through the FATCA registration web-
site. The IRS anticipates that the renewal
function for 2017 FFI agreements will be
available in May 2017. An FFI that seeks
to renew its FFI agreement must renew
prior to July 31, 2017, and the renewed
FFI agreement shall apply beginning Jan-
uary 1, 2017, provided that the FFI acts in

accordance with the FFI agreement pro-
vided in section 6 of this revenue proce-
dure beginning on January 1, 2017. An
FFI that does not renew its FFI agreement
by July 31, 2017, will be treated as having
terminated its FFI agreement on January
1, 2017.

### SECTION 4. SCOPE OF THE FFI AGREEMENT

An FFI that registers as a participating
FFI (other than a reporting Model 2 FFI)
must comply with the FFI agreement with
respect to all of its branches (including a
home office), other than branches that are
reporting Model 1 FFIs or that are U.S.
branches. In the case of an FFI that reg-
isters as a reporting Model 2 FFI with
respect to a branch (including a home
office) to be treated as a reporting Model
2 FFI, the FFI does not have to agree to
comply with the terms of the FFI agree-
ment for its branches that are not reporting
Model 2 FFIs. However, if any branches
of a reporting Model 2 FFI are not treated
as reporting Model 2 FFIs and need to be
treated as participating FFIs, the FFI must
be able to comply with the FFI agreement
with respect to all of its branches (other
than branches that are reporting Model 1
FFIs or that are U.S. branches). In general,
the FFI agreement does not apply to a
reporting Model 1 FFI, unless the report-
ing Model 1 FFI has registered a branch
located outside of a Model 1 IGA juris-
diction to agree to comply with the terms
of the FFI agreement and to treat the
branch as a participating FFI or reporting
Model 2 FFI. In such a case, the terms of
the FFI agreement apply to the operations
of such branch.

With respect to an FFI that agrees that
one or more branches (other than a branch
that is a reporting Model 1 FFI or a U.S.
branch) will be subject to the require-
ments of the FFI agreement and that has
entered into a Qualified Intermediary (QI)
agreement, Withholding Foreign Partner-
ship (WP) agreement, or Withholding
Foreign Trust (WT) agreement, the QI,
WP, or WT agreement, as applicable, will
apply in addition to the requirements of
the FFI agreement, unless specifically
modified by the QI, WP, or WT agree-
ment.

## SECTION 5. HIGHLIGHTS OF AMENDMENTS TO THE FFI AGREEMENT

Section 6 of this revenue procedure
sets forth the FFI agreement applicable to
FFIs with agreements effective on or after
January 1, 2017. The FFI agreement is
updated to be consistent with the final and
temporary chapter 4 regulations and to
provide further clarification of certain of
the requirements in the 2014 FFI agree-
ment. The following provides a highlight
of the changes to the 2014 FFI agreement.

Under the final chapter 4 regulations, a
U.S. branch of an FFI that is treated as a
U.S. person (as defined in §1.1441-
1(b)(2)) is not required to be part of an
FFI that is a participating FFI or registered
deemed-compliant FFI when it is acting as
an intermediary. Additionally, a U.S.
branch that does not agree to be treated as
a U.S. person is not required to be part of
an FFI that is a participating FFI or reg-
istered deemed-compliant FFI if the
branch, when acting as an intermediary,
applies the rules in §1.1471-4(d)(2)
(iii)(C). Section 1.1471-4(d)(2)(iii)(C) of
the final chapter 4 regulations provides
that such U.S. branches must report their
U.S. accounts and accounts held by
owner-documented FFIs under §1.1471-
4(d)(3), (d)(5), or (d)(6) and apply the
withholding and due diligence rules in
§1.1471-4(b) and (c)(2) to all of its ac-
counts as if the U.S. branch were a par-
ticipating FFI. Although such U.S. branch
applies certain rules in §1.1471-4 as if it
were a participating FFI, it is unnecessary
for the U.S. branch to be registered and to
agree to the terms of the FFI agreement.
Accordingly, the FFI agreement removes
the provisions on U.S. branches that were
in the 2014 FFI agreement. See the pre-
amble to the final chapter 4 regulations for
a more detailed explanation of the
changes to the regulations that apply to
U.S. branches.

Section 1.02 of the FFI agreement is
revised to clarify that a reporting Model 2
FFI does not need to apply the FFI agree-
ment to all branches of the reporting
Model 2 FFI, unless the reporting Model 2
FFI has other branches that need to be
covered by the FFI agreement to be
treated as participating FFIs (in which
case all branches of the FFI other than

branches that are reporting Model 1
FFIs or U.S. branches must be registered
to agree to the terms of the FFI agree-
ment).

Allowances in the temporary chapter 4
regulations for combined reporting on
Forms 1042-S and 8966 following a
merger or bulk acquisition of an FFI's
accounts are incorporated by cross-
reference to such regulations in sections
6.02(B)(2) and 6.05(F) of the FFI agree-
ment. Additionally, rules in the temporary
chapter 4 regulations that clarify informa-
tion reported by participating FFIs that are
partnerships on Form 8966 on financial
accounts held by their partners are added
by cross-reference to such regulations in
section 6.02(B) of the FFI agreement. In
sections 8.03 and 8.04 of the FFI agree-
ment, the timing of certifications and the
scope of IRS inquiries are updated consis-
tent with the final chapter 4 regulations. A
coordination rule for reporting on owner-
documented FFIs in the final chapter 4
regulations is added in section 9.02(B)(5)
of the FFI agreement, and section 9 of the
FFI agreement is reorganized for clarity.

Several revisions are made to the FFI
agreement to reflect the expiration of tran-
sitional periods that were provided for in
the 2014 chapter 4 regulations. Sections
1.02, 4.02(C), 6.05(E), 9.01, and 11.01(A)
of the FFI agreement are revised, and sec-
tions 7.04(A) and 11.01(C) of the FFI
agreement are removed, to coordinate
with the expiration of limited FFI and
limited branch statuses on December 31,
2016. Sections 4.02(C), 6.05(E), 7.04,
11.01(B), and 11.02(B)(6) of the FFI
agreement are modified to apply to related
entities or branches (as defined in section
2.67 of the FFI agreement) of reporting
Model 2 FFIs due to the expiration of the
transitional period for limited FFI and
limited branch statuses. Section 6.02(B)
(2) of the 2014 FFI agreement (relating to
reporting of payments on U.S. accounts)
is removed to coordinate with the expira-
tion of the transitional reporting rules for
2014 and 2015, and section 6.02(B)(3) of
the FFI agreement is renumbered as sec-
tion 6.02(B)(2) of the FFI agreement.

Section 4.01(A) of the FFI agreement
is revised to clarify that a participating
FFI is required to withhold on a withhold-
able payment to a payee that is (or is
presumed to be) a passive NFFE that has

not identified its substantial U.S. owners
or certified that it has no substantial U.S.
owners, as required under §1.1471-
3(d)(12)(iii), with respect to an offshore
obligation that is not an account. In ad-
dition, section 6.02(A)(3) of the FFI
agreement is revised to remove a refer-
ence to a trustee-documented trust sub-
ject to a Model 1 IGA because a partic-
ipating FFI when acting as a trustee of a
trustee-documented trust would report
such trustee-documented trust to the ap-
plicable Model 1 jurisdiction, not the
IRS.

Additional revisions are made to the
FFI agreement to correct and clarify cer-
tain provisions applicable to reporting
Model 2 FFIs. In section 2.62 of the FFI
agreement, the definition of a preexisting
account is modified to include the defini-
tion of the term from the Model 2 IGA
that is applied by a reporting Model 2 FFI.
Under the 2014 FFI agreement, a report-
ing Model 2 FFI may apply the due dili-
gence procedures in the FFI agreement or
the procedures in Annex I of the applica-
ble Model 2 IGA for the two year period
after an applicable Model 2 IGA has been
signed without being bound to such pro-
cedures. Section 3.01 of the FFI agree-
ment is revised to extend such period to
two years from the date the applicable
Model 2 IGA enters into force (rather than
the date of signature), but only with re-
spect to accounts for which the due dili-
gence procedures commenced prior to en-
try into force of the applicable Model 2
IGA.

The presumption rules for reporting
Model 2 FFIs for entity accounts are up-
dated in section 3.04(C) of the FFI agree-
ment. Section 3.04(C) of the 2014 FFI
agreement provides that, to the extent a
reporting Model 2 FFI applies the due
diligence procedures described in Annex I
of the applicable Model 2 IGA, such FFI
must apply the procedures of Annex I of
the applicable Model 2 IGA to treat the
account as held by a nonparticipating FFI
or as a non-consenting U.S. account. Sec-
tion 3.04(C) of the 2014 FFI agreement
also provides that, with respect to a with-
holdable payment made to an entity
payee, a reporting Model 2 FFI must ap-
ply the presumption rules of §1.1471-
3(f). A comment to the 2014 chapter 4
regulations suggested that an undocu-

mented entity account should be treated as
a non-consenting U.S. account and should
not be subject to withholding. The Trea-
sury Department and the IRS do not agree
with this suggested treatment of undocu-
mented accounts. Under Annex I of the
Model 2 IGA, reporting Model 2 FFIs
must apply the due diligence procedures
described in Annex I to document the
status of their account holders under the
IGA as U.S. accounts, non-consenting
U.S. accounts, or nonparticipating FFIs,
and if such procedures are applied, cases
in which an entity account is undocu-
mented should not arise. If a reporting
Model 2 FFI does not have information in
its possession or that is publicly available
based on which it can reasonably deter-
mine the status of an entity account
holder, the FFI must obtain a self-
certification to establish the status of such
entity (or in some cases, a self-
certification to establish the status of the
controlling persons of a passive NFFE)
consistent with Annex I of the applicable
IGA. In cases where a reporting Model 2
FFI acts as an intermediary for a with-
holdable payment that is allocated to an
entity account and is unable to document
the account by obtaining such information
or self-certification consistent with the
procedures described in Annex I of the
applicable IGA, the chapter 4 regulations
and the FFI agreement provide presump-
tion rules for withholdable payments
made to such account (and if an FFI has
many such undocumented accounts, the
U.S. Competent Authority may determine
that the FFI is significantly non-compliant
with the requirements of the IGA). In such
cases, the reporting Model 2 FFI must
apply the presumption rules in §1.1471-
3(f) to treat such entity account as a non-
participating FFI and provide sufficient
information to the upstream withholding
agent to withhold on the payment (or, if
such reporting Model 2 FFI is a WP, WT,
or a QI that assumes primary withholding
responsibility on the payment for chapters
3 and 4, the WP, WT, or QI must with-
hold). Treating undocumented entity ac-
counts as accounts of nonparticipating
FFIs, and withholding on them accord-
ingly, is consistent with the approach of
the IGAs, which contemplate that nonpar-
ticipating FFIs remain subject to with-

holding on withholdable payments re-
ceived through a reporting Model 2 FFI.

The 2014 FFI agreement provides that
a reporting Model 2 FFI may document
account holders and payees with docu-
mentation that meets the requirements un-
der Annex I of an applicable Model 2
IGA. However, the due diligence proce-
dures in Annex I of the Model 2 IGA
permits a reporting Model 2 FFI to rely on
certain publicly available information to
document certain account holders. Section
3.03(B)(2) of the FFI agreement is revised
to cover publicly available information
used to document an account, and pro-
vides that a reporting Model 2 FFI may
rely on such information, to the extent
permitted in Annex I of an applicable
Model 2 IGA, until the date there is a
change in circumstances that affects the
account holder's claim of chapter 4 status.

The FFI agreement includes new pro-
cedures for final certifications of compli-
ance upon a termination of the FFI agree-
ment. An FFI must provide to the IRS
within six months of the date of termina-
tion a certification of compliance covering
the period from the end of the most recent
certification period (or, if the first certifi-
cation period has not ended, the effective
date of the FFI agreement) to the date of
termination, irrespective of whether a pe-
riodic review has been completed for such
period. The FFI agreement is also revised
to make clear that an FFI's obligations
under the FFI agreement with respect to
the period covered by the agreement when
it was applicable will survive termination
of the agreement. This revision is consis-
tent with the QI, WP, and WT agreements,
which provide that a termination of a QI,
WP, or WT agreement does not affect the
entity's reporting, tax filing, withholding,
depositing, or payment responsibilities
arising in the calendar years for which the
QI, WP, or WT agreement was in effect,
including the pre-termination portion of
the calendar year during which the termi-
nation occurred.

If a jurisdiction that is not treated as
having an IGA in effect is later treated as
having a Model 1 IGA in effect, each
participating FFI (other than a participat-
ing FFI that is a branch) in such jurisdic-
tion should modify its registration on the
FATCA registration website to reflect an
updated chapter 4 status consistent with

the Model 1 IGA if it chooses to comply
with such IGA, and will be treated as
having terminated its FFI agreement only
with respect to the home office of the FFI
that is treated as a reporting Model 1 FFI.
A participating FFI that is a branch that is
in a jurisdiction that is later treated as
having a Model 1 IGA may terminate its
FFI agreement and be treated as a report-
ing Model 1 FFI by applying the provi-
sions of the applicable Model 1 IGA con-
sistent with the terms of the applicable
IGA. Section 12.03(C) of the FFI agree-
ment (survival of obligations under the
FFI agreement) will apply with respect to
the home office or branch. Within 30 days
of the change in chapter 4 status, the FFI
must provide to each withholding agent
either a new withholding certificate or oral
or written confirmation (including by
e-mail) of the change in the FFI's chapter
4 status. The FFI agreement will continue
to apply to any other branches of the re-
porting Model 1 FFI that are covered by
the FFI agreement to be treated as partic-
ipating FFIs.

## SECTION 6. FFI AGREEMENT

The text of the FFI agreement is set
forth below. The IRS will not provide
signed copies of the FFI agreement.

Section 1. Purpose and Scope.

Section 2. Definitions.

Section 3. Due Diligence Require-
ments for Documentation and Identifica-
tion of Account Holders and Nonpartici-
pating FFI Payees.

Section 4. Withholding Requirements.

Section 5. Deposit Requirements.

Section 6. Information Reporting and
Tax Return Obligations.

Section 7. Legal Prohibitions on Re-
porting U.S. Accounts and on Withhold-
ing.

Section 8. Compliance Procedures.

Section 9. Participating FFI Withhold-
ing Certificate.

Section 10. Adjustments for Overwith-
holding and Underwithholding and Re-
funds.

Section 11. FFI Group.

Section 12. Expiration, Modification,
Termination, Default, and Renewal of this
Agreement.

Section 13. Miscellaneous Provisions.

Section 1. Purpose and Scope.

.01 Purpose. THIS AGREEMENT is
made under, and pursuant to, section
1471(b) and §1.1471-4:

WHEREAS, an FFI has completed
and submitted a Form 8957, Foreign Ac-
count Tax Compliance Act (FATCA)
Registration, in accordance with its in-
structions, which registration indicated
that one or more of its branches (as de-
fined in section 2.07 of this agreement,
which includes a home office) seeks to be
treated as a participating FFI, and has
represented that such branches (other than
a branch that is a reporting Model 1 FFI or
a U.S. branch) are eligible to, and will
comply with, the terms of the FFI agree-
ment;

WHEREAS, this agreement estab-
lishes the FFI's due diligence, withhold-
ing, information reporting, tax return
filing, and other obligations as a partici-
pating FFI under sections 1471 through
1474 and §§1.1471-1 through 1.1474-6;

NOW THEREFORE, the terms of
this agreement are as follows:

.02 General Obligations. An FFI that
agrees to comply with the terms of this
agreement applicable to all of its
branches, other than a branch that is a
reporting Model 1 FFI or a U.S. branch,
will be treated as a participating FFI with
respect to such branches, and such partic-
ipating FFI branches will not be subject to
withholding under section 1471. An FFI
(or branch of an FFI, other than a branch
that is a reporting Model 1 FFI or a U.S.
branch) must act in its capacity as a par-
ticipating FFI with respect to all of the
accounts that it maintains for purposes of
reporting such accounts and must act as a
withholding agent to the extent required
under this agreement. Notwithstanding
the preceding sentences, an FFI that
agrees to comply with the terms of this
agreement applicable only to branches
that are located in a jurisdiction that is
treated as having a Model 2 IGA in effect
will be treated as a reporting Model 2 FFI
with respect to such branches, and such
branches will not be subject to withhold-
ing under section 1471, even if not all
branches of the FFI are able to comply
with the terms of the FFI agreement. A
reporting Model 2 FFI may comply with
the requirements of the FFI agreement,

including with respect to due diligence,
reporting, and withholding, by applying
the rules set forth in this agreement (ap-
plied by substituting the term "reporting
Model 2 FFI" for "participating FFI"
throughout the FFI agreement, except
where the provisions of the FFI agreement
explicitly refer to a reporting Model 2
FFI).

Section 2. Definitions.

### 01. Scope of Definitions.

(A) In General. Unless specifically
modified in this agreement, all terms used
in this agreement have the same meaning
as provided in sections 1471 through
1474, including the regulations thereun-
der. See § 1.1471-1(b) for a comprehen-
sive list of chapter 4 terms and definitions.

(B) Reporting Model 2 FFIs. A re-
porting Model 2 FFI must use the defini-
tions set forth in the applicable Model 2
IGA with respect to the accounts that it
maintains in the Model 2 IGA jurisdiction,
unless the Model 2 IGA jurisdiction per-
mits the use of a definition provided in
this agreement or §1.1471-1(b) in lieu of
a definition set forth in the applicable
Model 2 IGA, and such application does
not frustrate the purposes of the Model 2
IGA.

.02 Account/Financial account. "Ac-
count" or "financial account" means an
account described in §1.1471-1(b)(1).

.03 Account holder. "Account holder"
has the meaning set forth in §1.1471-
1(b)(2).

.04 Account maintained by a partic-
ipating FFI. "Account maintained by a
participating FFI" means an account that a
participating FFI is treated as maintaining
under §1.1471-5(b)(5).

.05 Active NFFE. In the case of a
reporting Model 2 FFI, "active NFFE"
means an active NFFE as defined in the
applicable Model 2 IGA.

.06 Backup withholding. "Backup
withholding" has the meaning set forth in
§1.1471-1(b)(7).

.07 Branch. "Branch" has the meaning
set forth in §1.1471-1(b)(10).

.08 Branch that maintains the ac-
count. A branch maintains an account if
the rights and obligations of the partici-
pating FFI and the account holder with
regard to such account (including any as-

sets held in the account) are governed by
the laws of the jurisdiction in which the
branch is located. See §1.1471-5(b)(5) for
when a participating FFI is treated as
maintaining an account.

.09 Certified deemed-compliant FFI.
"Certified deemed-compliant FFI" has the
meaning set forth in §1.1471-1(b)(14).

.10 Change in circumstances. For a
participating FFI, a "change in circum-
stances" has the meaning described in
§1.1471-4(c)(2)(iii). In the case of a re-
porting Model 2 FFI that applies the pro-
cedures of Annex I of the applicable
Model 2 IGA with respect to an account,
a change of circumstances has the mean-
ing that such term has under Annex I of
the applicable Model 2 IGA.

.11 Chapter 4 reportable amount.
"Chapter 4 reportable amount" has the
meaning set forth in §1.1471-1(b)(18).

.12 Chapter 4 reporting pool. "Chap-
ter 4 reporting pool" means a chapter 4
withholding rate pool of account holders
and payees (as defined in section 2.14 of
this Agreement) associated with a with-
holdable payment that is within a partic-
ular income code (as provided in the in-
structions to Form 1042-S) reported on
Form 1042-S and for which a separate
Form 1042-S is required to be filed.

.13 Chapter 4 status. "Chapter 4 sta-
tus" has the meaning set forth in §1.1471-
1(b)(19).

.14 Chapter 4 withholding rate pool.
"Chapter 4 withholding rate pool" means
a pool of payees that are nonparticipating
FFIs provided on a chapter 4 withholding
statement (as described in §1.1471-
3(c)(3)(iii)(B)(3)) to which a withholdable
payment is allocated. "Chapter 4 with-
holding rate pool" also means a pool of
payees that are described in paragraph
(A) or (B) that is provided on an FFI
withholding statement (as described in
§1.1471-3(c)(3)(iii)(B)(2)) to which a
withholdable payment is allocated:

(A) A pool of payees consisting of each
class of recalcitrant account hold-
ers described in §1.1471-4(d)
(6) (or with respect to an FFI that
is a QI, a single pool of recalcitrant
account holders without the need
to subdivide into each class of re-
calcitrant account holders de-
scribed in §1.1471-4(d)(6)), in-
cluding a separate pool of account

holders to which the escrow pro-
cedures for dormant accounts ap-
ply; or

(B) A pool of payees that are U.S.
persons as described in §1.1471-
3(c)(3)(iii)(B)(2).

.15 Compliance FI. "Compliance FI"
means a financial institution described in
§1.1471-4(f)(2)(ii)(A).

.16 Custodial institution. "Custodial
institution" has the meaning set forth in
§1.1471-1(b)(25).

.17 Deemed-compliant FFI. "Deemed-
compliant FFI" has the meaning set forth in
§1.1471-1(b)(27).

.18 Depository institution. "Deposi-
tory institution" has the meaning set forth
in §1.1471-1(b)(30).

.19 Effective date of the FFI agree-
ment. The effective date of the FFI agree-
ment with respect to an FFI or a branch of
an FFI that is a participating FFI is the
date on which the IRS issues a GIIN to the
FFI or branch. For a participating FFI that
receives a GIIN prior to June 30, 2014, the
effective date of the FFI agreement is June
30, 2014.

.20 Entity account. "Entity account"
has the meaning set forth in §1.1471-
1(b)(40).

.21 Entity payee. "Entity payee"
means a payee that is an entity and that is
not an account holder.

.22 Excepted NFFE. "Excepted
NFFE" has the meaning set forth in
§1.1471-1(b)(41).

.23 Exempt beneficial owner. "Ex-
empt beneficial owner" has the meaning
set forth in §1.1471-1(b)(42).

.24 Exempt recipient. "Exempt recip-
ient" has the meaning set forth in
§1.1471-1(b)(43).

.25 Financial institution (FI). "Finan-
cial institution" or "FI" has the meaning
set forth in §1.1471-1(b)(50).

.26 FFI group. "FFI group" means an
expanded affiliated group (as defined in
§1.1471-5(i)) that includes one or more
participating FFIs or, in the case of a
reporting Model 2 FFI, a group of related
entities as defined in an applicable Model
2 IGA.

.27 FFI member. "FFI member"
means an FFI that is a member of an FFI
group.

.28 FFI withholding statement. "FFI
withholding statement" means a withhold-

ing statement provided by a participating
FFI or registered deemed-compliant FFI
that meets the requirements of section
9.02 of this agreement.

.29 Foreign financial institution
(FFI). "Foreign financial institution" or
"FFI" has the meaning set forth in
§1.1471-1(b)(47).

.30 Foreign reportable amount.
"Foreign reportable amount" means a
payment of foreign source amounts de-
scribed in §1.1471-4(d)(2)(ii)(F).

.31 Form 945. "Form 945" means IRS
Form 945, Annual Return of Withheld
Federal Income Tax.

.32 Form 1042. "Form 1042" means
IRS Form 1042, Annual Withholding Tax
Return for U.S. Source Income of Foreign
Persons.

.33 Form 1042-S. "Form 1042-S"
means IRS Form 1042-S, Foreign Per-
son's U.S. Source Income Subject to
Withholding.

.34 Form 1099. "Form 1099" means
IRS Form 1099-B, Proceeds From Broker
and Barter Exchange Transactions; IRS
Form 1099-DIV, Dividends and Distribu-
tions; IRS Form 1099-INT, Interest In-
come; IRS Form 1099-MISC, Miscella-
neous Income; IRS Form 1099-OID,
Original Issue Discount, and any other
form in the IRS Form 1099 series appro-
priate to the type of payment required to
be reported.

.35 Form 8957. "Form 8957" means
IRS Form 8957, Foreign Account Tax
Compliance Act (FATCA) Registration,
and includes the online version of the
form on the FATCA registration website
available at https://www.irs.gov/fatca.

.36 Form 8966. "Form 8966" means
IRS Form 8966, FATCA Report, and in-
cludes the FATCA Report XML.

.37 GIIN. "GIIN" or "global interme-
diary identification number" has the
meaning set forth in §1.1471-1(b)(57).

.38 Grandfathered obligation.
"Grandfathered obligation" has the mean-
ing set forth in §1.1471-2(b)(2)(i).

.39 Individual account. "Individual
account" has the meaning set forth in
§1.1471-1(b)(64).

.40 Intergovernmental Agreement
(IGA). "Intergovernmental Agreement"
or "IGA" has the meaning set forth in
§1.1471-1(b)(67).

.41 IRS FFI List. "IRS FFI List" has
the meaning set forth in §1.1471-
1(b)(73).

.42 Lead FI. "Lead FI" means an FFI
or U.S. financial institution that is desig-
nated by one or more members of the FFI
group to initiate and manage FATCA reg-
istration via the FATCA registration web-
site for such FFI members of the FFI
group and that agrees to the responsibili-
ties described in section 11.02 of this
agreement.

.43 Limited branch. "Limited branch"
has the meaning set forth in §1.1471-
1(b)(76).

.44 Limited FFI. "Limited FFI" has
the meaning set forth in §1.1471-
1(b)(77).

.45 Model 1 IGA. "Model 1 IGA" has
the meaning set forth in §1.1471-
1(b)(78).

.46 Model 2 IGA. "Model 2 IGA" has
the meaning set forth in §1.1471-
1(b)(79).

.47 New account. "New account"
means an account other than a preexisting
account.

.48 Non-consenting U.S. account. For
purposes of a reporting Model 2 FFI,
"non-consenting U.S. account" has the
meaning that such term has under an ap-
plicable Model 2 IGA.

.49 Non-exempt recipient. "Non-
exempt recipient" has the meaning set
forth in §1.1471-1(b)(81).

.50 Non-financial foreign entity
(NFFE). "Non-financial foreign entity" or
"NFFE" has the meaning set forth in
§1.1471-1(b)(80).

.51 Nonparticipating FFI. "Nonpar-
ticipating FFI" has the meaning set forth
in §1.1471-1(b)(82).

.52 Nonqualified intermediary (NQI).
"Nonqualified intermediary" or "NQI" has
the meaning set forth in §1.1471-1(b)(85).

.53 Non-U.S. account. "Non-U.S. ac-
count" has the meaning set forth in
§1.1471-1(b)(84).

.54 Non-U.S. payor. "Non-U.S. payor"
means a payor other than a U.S. payor.

.55 Nonwithholding foreign partner-
ship (NWP). "Nonwithholding foreign
partnership" or "NWP" has the meaning
set forth in §1.1471-1(b)(86).

.56 Nonwithholding foreign trust
(NWT). "Nonwithholding foreign trust"

or "NWT" has the meaning set forth in
§1.1471-1(b)(87).

.57 Offshore obligation. "Offshore
obligation" has the meaning set forth in
§1.1471-1(b)(88).

.58 Owner-documented FFI. "Owner-
documented FFI" has the meaning set forth
in §1.1471-1(b)(90).

.59 Participating FFI. "Participating
FFI" means an FFI that has agreed to
comply with the requirements of an FFI
agreement with respect to all branches of
the FFI, other than a branch that is a
reporting Model 1 FFI or a U.S. branch. A
participating FFI also includes a reporting
Model 2 FFI. See the definition of report-
ing Model 2 FFI in section 2.69 of this
agreement.

.60 Passive NFFE. "Passive NFFE"
means an NFFE other than an excepted
NFFE (or, in the case of a reporting Model
2 FFI, other than an active NFFE).

.61 Payee. "Payee" has the meaning
set forth in §1.1471-1(b)(96).

.62 Preexisting account. "Preexisting
account" means an account described in
§1.1471-1(b)(101). With respect to a re-
porting Model 2 FFI, "preexisting ac-
count" means a financial account main-
tained by the reporting Model 2 FFI as of
the determination date (as defined in the
applicable Model 2 IGA).

.63 Preexisting obligation. "Preexist-
ing obligation" means an obligation de-
scribed in §1.1471-1(b)(104).

.64 Qualified intermediary. "Quali-
fied intermediary" or "QI" has the mean-
ing set forth in §1.1471-1(b)(107).

.65 Recalcitrant account holder. "Re-
calcitrant account holder" has the mean-
ing set forth in §1.1471-1(b)(110).

.66 Registered deemed-compliant
FFI. "Registered deemed-compliant FFI"
means an FFI described in §1.1471-
5(f)(1), and includes a reporting Model 1
FFI, a QI branch of a U.S. financial insti-
tution that is a reporting Model 1 FFI, and
an FFI treated as a registered deemed-
compliant FFI under a Model 2 IGA.

.67 Related entity or branch. "Re-
lated entity or branch" means a related
entity or branch of a reporting Model 1
FFI or a reporting Model 2 FFI that is
treated as a nonparticipating FFI under
Article 3(5) of the Model 2 IGA (or any
analogous provision in an applicable
Model 2 IGA) or Article 4(5) of the

Model 1 IGA (or any analogous provision
in an applicable Model 1 IGA) if the re-
quirements in the applicable IGA with
respect to such related entity or branch are
satisfied.

.68 Reporting Model 1 FFI. "Report-
ing Model 1 FFI" means an FFI or branch
of an FFI that is treated as a reporting
financial institution under an applicable
Model 1 IGA and that has registered with
the IRS to obtain a GIIN.

.69 Reporting Model 2 FFI. "Report-
ing Model 2 FFI" means an FFI or branch
of an FFI that is treated as a reporting
financial institution under an applicable
Model 2 IGA and that has registered with
the IRS to comply with the terms of this
agreement, as modified by an applicable
Model 2 IGA.

.70 Reportable payment. "Reportable
payment" has the meaning set forth in
§1.1471-1(b)(113).

.71 Responsible officer. "Responsible
officer" has the meaning set forth in
§1.1471-1(b)(116).

.72 Specified insurance company.
"Specified insurance company" has the
meaning set forth in §1.1471-1(b)(119).

.73 Territory FI. "Territory FI" or
"territory financial institution" has the
meaning set forth in §1.1471-1(b)(130).

.74 U.S. account. "U.S. account" has
the meaning set forth in §1.1471-
1(b)(134).

.75 U.S. payor. "U.S. payor" has the
meaning set forth in §1.1471-1(b)(140).

.76 U.S. source FDAP income. "U.S.
source FDAP income" has the meaning
set forth in §1.1471-1(b)(142).

.77 Withholdable payment. "With-
holdable payment" has the meaning set
forth in §1.1471-1(b)(145).

.78 Withholding agent. "Withholding
agent" has the meaning set forth in
§1.1471-1(b)(147).

.79 Withholding certificate. "With-
holding certificate" has the meaning set
forth in §1.1471-1(b)(148).

.80 Withholding foreign partnership
(WP). "Withholding foreign partnership"
or "WP" has the meaning set forth in
§1.1471-1(b)(149).

.81 Withholding foreign trust (WT).
"Withholding foreign trust" or "WT" has
the meaning set forth in §1.1471-
1(b)(151).

Section 3. Due Diligence Requirements
for Documentation and Identification
of Account Holders and
Nonparticipating FFI Payees.

.01 In General. The due diligence pro-
cedures described in this section 3 gener-
ally apply to a participating FFI. The par-
ticipating FFI must perform the due
diligence procedures described in this sec-
tion 3 to determine which of the accounts
that it maintains are (i) U.S. accounts, (ii)
accounts held by recalcitrant account
holders, (iii) accounts held by nonpartici-
pating FFIs, or (iv) non-U.S. accounts. A
participating FFI that makes a withhold-
able payment to a payee other than an
account holder must also perform due dil-
igence procedures described in this sec-
tion 3 to determine if withholding is re-
quired under section 4 of this agreement.

A reporting Model 2 FFI must perform
the due diligence procedures described in
Annex I of the applicable Model 2 IGA
with respect to all accounts that such re-
porting Model 2 FFI maintains within the
Model 2 IGA jurisdiction unless the re-
porting Model 2 FFI elects to apply the
due diligence procedures of this agree-
ment, as described in this section 3. A
reporting Model 2 FFI may apply the due
diligence procedures described in section
3.02 of this agreement separately for each
section of Annex I (for example, preexist-
ing entity accounts) with respect to all
accounts or with respect to any clearly
identified group of accounts (such as by
line of business or the location where the
account is maintained). Except as pro-
vided for the two year period following
the date that an applicable Model 2 IGA
has entered into force, a reporting Model 2
FFI that applies the due diligence proce-
dures of section 3.02 of this agreement
with respect to certain accounts must con-
tinue to apply these procedures consis-
tently to these accounts in all subsequent
years unless there has been a material
modification to section 3.02 of this agree-
ment or §1.1471-4(c). With respect to the
two-year period beginning on the date that
an applicable Model 2 IGA has entered
into force, a reporting Model 2 FFI may
apply either the due diligence procedures
described in section 3.02 of this agree-
ment or those described in Annex 1 of the
applicable Model 2 IGA with respect to

any clearly identified group of accounts,
without being bound to a particular set of
due diligence rules, so long as the appli-
cation does not frustrate the purpose of the
Model 2 IGA, and only to the extent due
diligence procedures with respect to such
accounts commenced prior to entry into
force of the applicable Model 2 IGA. Not-
withstanding the foregoing, a reporting
Model 2 FFI must apply the due diligence
procedures of section 3.02(B) of this
agreement with respect to an entity payee
other than an account holder that is receiv-
ing a withholdable payment.

## .02 Due Diligence Procedures.

(A) Identification and Documenta-
tion of Account Holders. A participating
FFI is required to determine the chapter 4
status of each holder of an account main-
tained by the participating FFI and to
identify each account that is a U.S. ac-
count, non-U.S. account, account held by
a recalcitrant account holder, or account
held by a nonparticipating FFI. For this
purpose, the participating FFI is required
to apply the due diligence procedures for
accounts to the extent, and in the manner,
required under §1.1471-4(c) within the
applicable time periods described in
§1.1471-4(c)(3), (c)(4), and (c)(5). As
provided in §1.1471-1(b)(104)(i), an ob-
ligation held by an entity that is opened,
issued, or executed on or after July 1,
2014, and before January 1, 2015, may be
treated as a preexisting obligation for pur-
poses of implementing the applicable due
diligence procedures. However, the time-
frames provided in §1.1471-4(c)(3) apply
to all preexisting obligations held by an
entity, including those obligations de-
scribed in the preceding sentence. A par-
ticipating FFI that is unable to reliably
associate valid documentation with an ac-
count holder to determine the chapter 4
status of such account holder under such
required procedures must apply the pre-
sumption rules of section 3.04 of this
agreement. See also §1.1471-4(d)(2) for
other account holders to which a partici-
pating FFI's due diligence requirements
apply (e.g., account holders of a territory
FI, sponsored FFI, or owner-documented
FFI).

(B) Identification and Documenta-
tion of Certain Payees other than Ac-

count Holders. For determining when
withholding is required under section 4 of
this agreement, a participating FFI is,
prior to payment, required to reliably as-
sociate the payment with documentation
that meets the requirements of section
3.03(B) of this agreement when making a
withholdable payment to an entity payee.
If an account holder receives a withhold-
able payment and is not treated as the
payee of the payment, in addition to doc-
umenting the chapter 4 status of the ac-
count holder, the participating FFI is also
required to establish the chapter 4 status
of the payee or payees to determine
whether withholding is required under
section 4 of this agreement. See, however,
§1.1471-3(e)(4)(vi) for when a participat-
ing FFI may rely on the chapter 4 status of
a payee provided by another participating
FFI or registered deemed-compliant FFI
that is acting as an intermediary or that is
a flow-through entity with respect to the
payee. Except as otherwise provided in
section 4.02(A) of this agreement, a par-
ticipating FFI must apply the presumption
rules of section 3.04 of this agreement to
determine the chapter 4 status of a payee
if, prior to the time of payment, it cannot
reliably associate the payment with docu-
mentation meeting the requirements of
section 3.03(B) of this agreement. See,
however, §1.1471-3(c)(7) for require-
ments that apply for documentation re-
ceived after the date of a payment. With
respect to a preexisting account, a partic-
ipating FFI must, to the extent required
under §1.1471-4(c), determine the chap-
ter 4 status of the payee within the appli-
cable time period described in §1.1471-
4(c)(3) or, if unable to do so, must apply
the presumption rules of section 3.04 of
this agreement to determine the chapter 4
status of a payee.

## .03 Additional Requirements for Identification and Documentation of Account Holders and Payees.

(A) In General. To the extent that the
participating FFI is required to retain a
record of the documentation collected (or
otherwise maintained) to establish the
chapter 4 status of an account holder or
payee, the participating FFI must do so in
accordance with the requirements of
§1.1471-4(c)(2). The participating FFI

must also institute procedures that meet
the requirements of §1.1471-4(c)(2) to
ensure that any change in circumstances
(defined in section 2.10 of this agreement)
is identified with respect to an account.

## (B) Requirements for Documentation.

(1) In General. To the extent the par-
ticipating FFI obtains withholding certifi-
cates, substitute certification forms, writ-
ten statements, or documentary evidence
to document an account holder or payee,
such documentation must meet the re-
quirements set forth in §1.1471-3(c). Sec-
tions 1.1471-3(c)(3) through (5) provide
the requirements of valid withholding cer-
tificates, written statements, and docu-
mentary evidence. Section 1.1471-3(c)(6)
provides other applicable rules for with-
holding certificates, written statements,
and documentary evidence, including
their periods of validity and electronic
transmission requirements. Sections
1.1471-3(c)(8) and (9) provide require-
ments related to the sharing of documen-
tation and reliance by a participating FFI
on documentation collected by another
person. A participating FFI must obtain
the documentation specified in §1.1471-
3(d) to establish the chapter 4 status of an
entity account holder or an entity payee. A
participating FFI may rely on documenta-
tion that meets the requirements of
§1.1471-3(c) until the earlier of the expi-
ration date of such documentation or the
date there is a change in circumstances
that affects the account holder or payee's
claim of chapter 4 status. If the participat-
ing FFI is unable to obtain the required
documentation within 90 days of a change
in circumstances, the participating FFI
must apply the presumption rules of sec-
tion 3.04 of this agreement with respect to
the account or payee until valid documen-
tation is obtained upon which the FFI is
permitted to rely.

(2) Requirements for Reporting
Model 2 FFIs. To the extent a reporting
Model 2 FFI applies the due diligence
procedures described in Annex I of the
applicable Model 2 IGA with respect to an
account, such documentation or publicly
available information used to document
the account must meet the requirements
described in the applicable Model 2 IGA.
In the case of documentation, the report-

ing Model 2 FFI may rely on such docu-
mentation until the earlier of the expira-
tion date of such documentation or the
date there is a change in circumstances
that affects the account holder or payee's
claim of chapter 4 status. In the case of
publicly available information, the report-
ing Model 2 FFI may rely on such infor-
mation until the date there is a change in
circumstances that affects the account
holder or payee's claim of chapter 4 sta-
tus. Upon the expiration of the documen-
tation or a change in circumstances, the
reporting Model 2 FFI must obtain new or
additional documentation or must redeter-
mine the status of the account in accor-
dance with the due diligence procedures
described in Annex I of the applicable
Model 2 IGA. If an account holder of a
new account (as defined in the applicable
Model 2 IGA) has a change in circum-
stances that would cause such account to
be treated as a U.S. account and the ac-
count holder refuses to provide consent
for such account to be reported, the report-
ing Model 2 FFI must report the account
as a non-consenting U.S. account as de-
scribed in section 6.03(B) of this agree-
ment.

.04 Presumption Rules in Absence of
Valid Documentation. If the participat-
ing FFI is required to, but is unable to,
obtain documentation (or a record of doc-
umentation) that meets the requirements
of this section 3 within the applicable time
period described in section 3.02 of this
agreement, or if the participating FFI
knows or has reason to know that docu-
mentation provided for an account holder
or payee is unreliable or incorrect, as de-
termined applying the standards of knowl-
edge described in §1.1471-4(c)(2), or as
determined under Annex I of the applica-
ble Model 2 IGA in the case of a reporting
Model 2 FFI that applies such procedures
with respect to an account, the FFI is
required to apply the presumption rules
described in this section 3.04 until valid
documentation is provided for the account
holder or payee upon which the FFI is
permitted to rely. However, following a
change in circumstances, a participating
FFI may continue to treat otherwise valid
documentation previously provided by an
account holder or payee as valid and rely
on such documentation until the earlier of
90 days following the change in circum-

stances or the date new documentation is
obtained upon which the participating FFI
may rely to document the chapter 4 status
of the account holder or payee. See, how-
ever, §1.1441-1(e)(4)(ii)(D) for require-
ments when a change in circumstances
occurs for purposes of chapter 3 and the
related grace period allowed under
§1.1441-1(b)(3)(iv), to the extent a with-
holdable payment that is also a reportable
amount (as defined in §1.1441-
1(c)(22)) is made to the account holder or
payee.

(A) Entity Payee or Account Held by
an Entity. With respect to a withholdable
payment made to an entity payee, a par-
ticipating FFI must apply the presumption
rules of §1.1471-3(f). The presumption
rules of §1.1471-3(f) also apply to an
account held by an entity. However, in the
case of an account held by a passive
NFFE that provides the documentation
described in §1.1471-3(d)(12) to establish
its status as a passive NFFE but fails to
provide the information regarding its own-
ers required under §1.1471-3(d)(12)(iii), the
participating FFI must treat the account as
held by a recalcitrant account holder in ac-
cordance with §1.1471-5(g)(2)(iv).

(B) Account Held by an Individual.
With respect to an account held by an
individual, a participating FFI must treat
the account as held by a recalcitrant ac-
count holder in accordance with §1.1471-
5(g) and classify the type of recalcitrant
account holder in accordance with the
pools described in §1.1471-4(d)(6).

(C) Presumption Rules for an Entity
Account Holder of a Reporting Model 2
FFI. To the extent a reporting Model 2
FFI applies the due diligence procedures
described in Annex I of the applicable
Model 2 IGA, the FFI must determine the
status of the account as a U.S. account,
non-consenting account, or a nonpartici-
pating FFI by applying such procedures.
With respect to a withholdable payment
made to an entity account holder of a
reporting Model 2 FFI, if the reporting
Model 2 FFI is unable to document the
entity account consistent with the proce-
dures described in Annex I, the reporting
Model 2 FFI must apply the presumption
rules described in §1.1471-3(f). With re-
spect to a withholdable payment made to
an entity payee that is not an account
holder, a reporting Model 2 FFI must ap-

ply the presumption rules of §1.1471-
3(f). A reporting Model 2 FFI that has
undocumented accounts may be deter-
mined to be significantly non-compliant
with the requirements of an applicable
IGA.

## Section 4. Withholding Requirements. .01 Withholding Requirements.

(A) In General. A participating FFI is
generally required to deduct and withhold
a tax equal to 30 percent of any withhold-
able payment made to an account main-
tained by such participating FFI that is
held by a recalcitrant account holder or a
nonparticipating FFI. A participating FFI
is also generally required to deduct and
withhold a tax equal to 30 percent of any
withholdable payment made to a payee
that is (or is presumed to be) a nonpartic-
ipating FFI or a passive NFFE that has not
identified its substantial U.S. owners or
certified that it has no substantial U.S.
owners as required under §1.1471-
3(d)(12)(iii) with respect to an offshore
obligation that is not an account. There is
no requirement to withhold on foreign
passthru payments for payments made be-
fore January 1, 2019 and therefore this
requirement is not addressed in this agree-
ment. See section 7.03 of this agreement
for the requirements of a participating FFI
that is prohibited by law from withholding
as required under this section 4.01.

(B) Modification of Withholding Re-
quirements for a Reporting Model 2
FFI. Notwithstanding the withholding re-
quirements described in section 4.01(A)
of this agreement, a reporting Model 2 FFI
is not required to deduct and withhold tax
on any withholdable payment made to its
non-consenting U.S. accounts, provided
that the conditions under the applicable
Model 2 IGA regarding the suspension of
withholding relating to non-consenting
U.S. accounts are met. If such conditions
are not met, the reporting Model 2 FFI is
required to treat its non-consenting U.S.
accounts as held by recalcitrant account
holders and is required to deduct and
withhold a tax equal to 30 percent of any
withholdable payment made to such ac-
counts in accordance with section 4.02 of
this agreement. In addition, a reporting
Model 2 FFI is required to withhold in
accordance with section 4.02 of this

agreement on any withholdable payment
made to an account holder or a payee
other than an account holder that is (or is
presumed to be under section 3.04(C) of
this agreement) a nonparticipating FFI.

(C) Election to Withhold under Sec-
tion 3406 on Recalcitrant Account
Holders. With respect to a recalcitrant
account holder that receives a withhold-
able payment and that is also subject to
backup withholding under section 3406, a
participating FFI may elect to satisfy its
withholding obligation under this section
4 and §1.1471-4(b) by applying backup
withholding under section 3406 to such
withholdable payments. A participating
FFI may make the election described in
this paragraph only if it complies with the
information reporting rules under chapter
61 with respect to payments to which
backup withholding applies. Nothing in
this section 4 or §1.1471-4(b) relieves a
participating FFI of its requirement to
backup withhold under section 3406 with
respect to reportable payments that are not
withholdable payments (e.g., payments
with respect to grandfathered obligations).
See section 4.04(D) of this agreement for
the coordination of backup withholding
under section 3406 for a participating FFI
that does not make the election described
in this section 4.01(C) and that withholds
under section 1471(b) with respect to a
withholdable payment made to a recalci-
trant account holder that is subject to
backup withholding under section 3406.

## .02 General Rules for Withholding.

(A) Withholding Determination in
General. A participating FFI that makes a
withholdable payment is required to de-
termine whether withholding under this
section 4 applies at the time the withhold-
able payment is made by applying the
requirements of §1.1471-4(b) to deter-
mine the payee of the payment and to
reliably associate the payment with valid
documentation to establish the payee's
chapter 4 status. The exceptions to with-
holding described in §1.1471-2, including
the exceptions for payments made under a
grandfathered obligation and payments
made to certain excepted accounts, apply
for purposes of determining whether with-
holding is required under this section 4. A
participating FFI is not required to with-

hold under this section 4 on payments
made to an account holder of a preexisting
account (including an entity account that
is opened on or after July 1, 2014, and
before January 1, 2015, that the FFI treats
as a preexisting obligation under
§1.1471-1(b)(104)(i)) prior to the expira-
tion of the applicable time period de-
scribed in section 3.02(A) of this agree-
ment for identifying the account (or
applying the presumption rules), unless
the account is documented as held by a
nonparticipating FFI.

(B) Withholding Requirements for a
Participating FFI that is an NQI, NWP,
or NWT. A participating FFI that is an
NQI, NWP, or NWT, or that is a QI that
elects under section 1471(b)(3) not to as-
sume withholding responsibility for a pay-
ment is generally not required to withhold
with respect to a withholdable payment of
U.S. source FDAP income that it receives
as an intermediary or as an NWP or NWT
when it provides its withholding agent
with an FFI withholding statement that
includes sufficient information for such
withholding agent to establish the portion
of the payment (if any) that is allocable to
recalcitrant account holders (in each of the
chapter 4 withholding rate pools described
in section 9.02(B) of this agreement), to
payees that are nonparticipating FFIs, and
to payees that are U.S. persons (U.S.
payee pool) in accordance with §1.1471-
4(b)(3). If a participating FFI elects to
backup withhold under section 3406 with
respect to recalcitrant account holders as
described in section 4.01(C) of this agree-
ment, the participating FFI must provide
its withholding agent with an FFI with-
holding statement that includes sufficient
information for such withholding agent to
report the payments made to the account
holders in accordance with chapter 61 and
to apply backup withholding. See
§1.1471-3(c)(3)(iii) and section 9 of this
agreement for the requirements applicable
to a participating FFI's withholding cer-
tificate, withholding statement, and asso-
ciated documentation. If the withholdable
payment is exempt from chapter 4 with-
holding, the information provided by the
participating FFI to the withholding agent
must also include the payee's chapter 4
status when specific payee information is
required for purposes of chapter 3. A par-
ticipating FFI must also provide the with-

holding agent with information regarding
any account holders or payees of an inter-
mediary or flow-through entity that holds
an account with the participating FFI,
other than a QI, WP, or WT.

A participating FFI is required to with-
hold under §1.1471-4(b)(3) when it fails
to provide sufficient information to its
withholding agent or when it knows or has
reason to know that the withholding agent
has not withheld to the extent required
under §1.1471-2(a)(i) with respect to its
account holders. For example, if a partic-
ipating FFI provides the documentation
described in §1.1471-3(c)(3)(iii) to its
withholding agent and, based on the
amount of the payment that it receives
from the withholding agent, it knows or
has reason to know that the withholding
agent has underwithheld on the payment,
it is required to deduct and withhold tax
from the payment to the extent of the
underwithheld tax. A participating FFI is
also required to withhold when it applies
the dormant account procedures described
in section 5.02 of this agreement.

(C) Withholding Requirements with
Respect to Related Entities and
Branches. A participating FFI is required to
withhold on a withholdable payment it
makes to a related entity or branch of a
reporting Model 1 FFI or reporting Model 2
FFI to the extent required under §1.1471-
4(b)(5), including when a participating FFI
has reason to know that a withholdable pay-
ment was made to a related entity or branch
of a reporting Model 1 FFI or reporting
Model 2 FFI. A participating FFI making a
withholdable payment to a reporting Model
1 FFI or reporting Model 2 FFI will have
reason to know that a withholdable payment
is made to a related entity or branch of such
reporting Model 1 FFI or reporting Model 2
FFI when the participating FFI has reason to
know under §1.1471-3(e)(3)(i). For the
withholding required by a reporting Model
2 FFI making a withholdable payment to its
related branch, see section 7.04 of this
agreement.

.03 Liability for Failure to Withhold.
A participating FFI that fails to withhold
any tax under chapter 4 as required under
section 4.02 of this agreement is liable for
the amount of tax not withheld and any
interest, additions to tax, and penalties
that may apply under a relevant provision
of the Code.

## .04 Coordination with Other Withholding Provisions.

(A) In General. A participating FFI is
a withholding agent for purposes of chap-
ter 4, a withholding agent under chapter 3
with respect to a payment subject to with-
holding under §1.1441-2(a) or under sec-
tions 1445 or 1446, and a payor for pur-
poses of withholding under section 3406.
Except to the extent provided in this sec-
tion 4.04, no provision of this agreement
otherwise limits the requirement of a par-
ticipating FFI to withhold as a withhold-
ing agent for purposes of chapters 3 and 4
or as a payor for purposes of backup with-
holding under section 3406 to the extent
required.

(B) Coordination of Withholding un-
der Sections 1471(a) and 1472(a). A par-
ticipating FFI that complies with the with-
holding requirements of this agreement is
deemed to satisfy its chapter 4 withhold-
ing obligations under sections 1471(a) and
1472(a) with respect to its account holders
and entity payees.

(C) Coordination with Withholding
under Chapter 3. In the case of a with-
holdable payment that is also subject to
withholding under section 1441, 1442, or
1443, a participating FFI may credit the
tax withheld under section 4.02 of this
agreement against its liability under sec-
tion 1441, 1442, or 1443 as described in
§1.1474-6(b). In the case of a withhold-
able payment that is also subject to with-
holding under section 1445, withholding
under section 1445 applies to the payment
to the extent described under §1.1474-
6(c), and withholding is not required un-
der section 4.02 of this agreement. In the
case of a withholdable payment that is
also subject to withholding under section
1446, withholding under section 1446 ap-
plies to the extent described under
§1.1474-6(d), and withholding is not re-
quired under section 4.02 of this agree-
ment.

(D) Coordination with Backup With-
holding. In the case of a withholdable
payment that is also a reportable payment
made by the participating FFI to a recal-
citrant account holder, withholding under
section 3406 will not apply to the report-
able payment if tax is withheld on the
payment under section 4.02 of this agree-
ment, unless the participating FFI elects to

apply backup withholding under section
3406 to a payment made to a recalcitrant
account holder as described in section
4.01(C) of this agreement.

Section 5. Deposit Requirements.

.01 In General. A participating FFI
that withholds tax as required under this
agreement must deposit amounts withheld
within the time period provided in
§1.1474-1(b)(1) or, for amounts withheld
under the election described in section
4.01(C) of this agreement, §31.6302-
4. See §1.1471-2(a)(5)(ii) for an optional
escrow procedure when a withholding
agent is unable to determine at the time of
payment whether such payment is a with-
holdable payment.

.02 Dormant Accounts. If a participat-
ing FFI receives a withholdable payment
not otherwise subject to backup withhold-
ing under section 3406, or withholding
under chapter 3, on behalf of a dormant
account held by a recalcitrant account
holder, the participating FFI may, in lieu
of depositing the tax withheld, set aside
the amount withheld in escrow until the
date that the account ceases to be a dor-
mant account. The tax withheld in escrow
becomes due on the date that is 90 days
following the date that the account ceases
to be a dormant account. A participating
FFI that maintains a dormant account of a
recalcitrant account holder and that elects
to escrow withheld tax pursuant to this
section 5.02 may not delegate the respon-
sibility to escrow withheld tax to the with-
holding agent from which it receives the
payment. See section 6.05(C) of this
agreement for the reporting requirements
and section 9 of this agreement for the
requirements of an FFI withholding state-
ment when the participating FFI applies
the escrow rule for dormant accounts de-
scribed in this section 5.02. Sections
1.1471-4(d)(6)(ii) and (iii) provide the
rules for determining when the participat-
ing FFI must treat an account as dormant
and when an account will no longer be
treated as a dormant account.

## Section 6. Information Reporting and Tax Return Obligations.

.01 In General. Under section 1471(c)
and §1.1471-4(d), a participating FFI is
required to report annually certain specific

payee information with respect to U.S.
accounts that it maintains. A participating
FFI is also required to report certain ag-
gregate account information described in
section 6.03 of this agreement with re-
spect to its recalcitrant account holders
classified in accordance with the pools
described in §1.1471-4(d)(6) and, in the
case of a reporting Model 2 FFI, its non-
consenting U.S. accounts classified in ac-
cordance with the pools described in
§1.1471-4(d)(6). A participating FFI has
a transitional reporting obligation for pay-
ments of foreign reportable amounts made
to account holders that are nonparticipat-
ing FFIs as described in section 6.04 of
this agreement. A participating FFI may
also be required under section 6.05 of this
agreement to report certain aggregate in-
formation with respect to chapter 4 report-
able amounts paid to its recalcitrant
account holders, payees that are nonpar-
ticipating FFIs, and payees that are U.S.
persons. If a participating FFI is required
to file information returns under section
6.05 of this agreement, the participating
FFI is also required under section 6.06 of
this agreement to file Form 1042 to report
chapter 4 reportable amounts and any tax
withheld on such amounts. A participat-
ing FFI must file information returns
about its account holders or payees for
purposes of chapter 4 (Forms 8966,
1099, 1042-S) on magnetic media (as
defined in §301.1474-1(d)(1)). See also
section 7 of this agreement for the re-
quirements of a participating FFI that is
prohibited by law from reporting its
U.S. accounts as required under this sec-
tion 6. In the case of a reporting Model
2 FFI, in applying this section with re-
spect to a passive NFFE, the term "sub-
stantial U.S. owner" means a "control-
ling person" as defined in the applicable
Model 2 IGA that is identified as a spec-
ified U.S. person.

## .02 U.S. Account Reporting.

(A) Accounts for which Reporting is
Required.

(1) In General. On a calendar-year
basis, a participating FFI must report each
U.S. account that it maintains in the man-
ner described in section 6.02(B) of this
agreement. The participating FFI is also
required to report accounts held by an FFI

that it has agreed to treat as an owner-
documented FFI under §1.1471-3(d)(6) to
the extent required under this section 6.02.

(2) Special Reporting of Account
Holders of Territory FIs. If a participat-
ing FFI maintains an account held by a
territory FI that is a flow-through entity or
that acts as an intermediary with respect to
a withholdable payment, and the territory
FI does not agree to be treated as a U.S.
person with respect to the payment, the
participating FFI is required to report each
specified U.S. person and each substantial
U.S. owner of an entity treated as a pas-
sive NFFE with respect to which the ter-
ritory FI acts as an intermediary or is a
flow-through entity to the extent that the
territory FI provides the participating FFI
with sufficient information to report
such account. See §1.1471-4(d)(2)(ii)
(B)(2) for the information required to be
reported for an account or payee of a
territory FI.

(3) Additional U.S. Account Report-
ing Requirement for a Trustee of a
Trustee-Documented Trust. In addition
to the accounts required to be reported
under section 6.02(A)(1) of this agree-
ment, a participating FFI that is the trustee
of a trustee-documented trust (as defined
in an applicable Model 2 IGA) must re-
port each U.S. account maintained by the
trust as if the participating FFI maintained
the account.

(B) General Reporting Require-
ments of a Participating FFI. A partici-
pating FFI may report its U.S. accounts on
Form 8966 in the manner described in
§1.1471-4(d)(3). If a participating FFI is
partnership, see §1.1471-
4(d)(4)(iv)(C) for the payments required
a
to be reported on Form 8966 with respect
to an account that is a partner's interest in
the partnership. Alternatively, to the ex-
tent allowed under §1.1471-4(d)(5), a
participating FFI may elect to perform
chapter 61 reporting as modified in sec-
tion 6.02(B)(1) of this agreement, in lieu
of reporting in the manner described in
§1.1471-4(d)(3). A participating FFI may
elect to perform chapter 61 reporting with
respect to all its U.S. accounts or with
respect to any clearly identified group of
U.S. accounts (such as by line of business
or the location where the account is main-
tained) in the manner described in section
6.02(B)(1) of this agreement. With respect

to a cash value insurance contract or an-
nuity contract held by a specified U.S.
person, a participating FFI may also elect
to report under section 6047(d) in the
manner described in §1.1471-
4(d)(5)(i)(B) and section 6.07 of this
agreement.

(1) Modified Chapter 61 Reporting.
A participating FFI that elects to perform
chapter 61 reporting must report the infor-
mation otherwise required to be reported
under sections 6041, 6042, 6045, and
6049 and must report payments made to
an account subject to reporting under the
applicable section. A participating FFI
that is a non-U.S. payor, however, must
determine the payments subject to report-
ing under the applicable section as if it
were a U.S. payor.

A participating FFI that elects to per-
form chapter 61 reporting must treat
each account holder that is a specified
U.S. person, passive NFFE that is a
U.S .- owned foreign entity, or owner-
documented FFI as if it were an account
holder who is an individual and citizen
of the United States and must report
each such account regardless of whether
the account holder of such account qual-
ifies as an exempt recipient. With re-
spect to each account holder of a U.S.
account that is a specified U.S. person,
the participating FFI must report on the
appropriate Form 1099 the information
described in §1.1471-4(d)(5)(ii) and the
accompanying instructions to the form.
With respect to an account held by an
entity treated as a passive NFFE with
substantial U.S. owners or held by an
owner-documented FFI with specified
U.S. persons identified in §1.1471-
3(d)(6)(iv)(A)(1) and (2), the participat-
ing FFI must report on Form 8966 the
U.S. owner information described in
§1.1471-4(d)(5)(ii) and (iii) and the ac-
companying instructions to the form.

A participating FFI that reports an ac-
count under this section 6.02(B)(1) must
report such account for the calendar year
regardless of whether the participating
FFI makes a reportable payment to the
account during the calendar year. In such
a case and with respect to a specified U.S.
person, the appropriate form is Form
1099-MISC, Miscellaneous Income. For
example, with respect to a custodial ac-
count, the participating FFI is required to

file a Form 1099-MISC even if no report-
able payments were paid or credited to the
account with respect to any financial in-
strument, investment, or contract held in
such account. A participating FFI that
reports accounts under this section
6.02(B)(1) may decide at a later time to
report the accounts in the manner de-
scribed in §1.1471-4(d)(3) beginning on
the first reporting date for the calendar
year following the calendar year for which
it last reports an account under this section
6.02(B)(1).

(2) Time and Manner of Filing. The
participating FFI must file Form 8966 or
Form 1099 on magnetic media with the
IRS on or before March 31 of the year
following the end of the calendar year to
which the form relates in accordance with
the requirements prescribed for such re-
porting on the form and its accompanying
instructions. If a participating FFI (succes-
sor) acquires substantially all of the ac-
counts maintained by another participat-
ing FFI (predecessor), or substantially all
of the accounts maintained at a branch of
the predecessor, in a merger or bulk ac-
quisition of accounts for value, the suc-
cessor may assume the predecessor's ob-
ligations to report the acquired accounts
on Form 8966 for the calendar in which
the merger or acquisition occurs, provided
the requirements in §1.1471-4(d)(2)(ii)
(G)(1) through (6) are satisfied.

## .03 Reporting With Respect to Recalcitrant Account Holders.

(A) In General. A participating FFI is
required to report certain aggregate infor-
mation regarding accounts held by recal-
citrant account holders on Form 8966 and
in the manner described in §1.1471-
4(d)(6). Such reporting is required regard-
less of whether the participating FFI
makes a withholdable payment to the ac-
count during the calendar year. The par-
ticipating FFI must file Form 8966 on
magnetic media (i.e., the FATCA Report
XML) with the IRS on or before March 31
of the year following the end of the cal-
endar year to which the form relates in
accordance with the requirements pre-
scribed for such reporting on the form and
its accompanying instructions.

(B) Reporting Model 2 FFIs' Report-
ing of Non-Consenting U.S. Accounts.

Instead of the reporting described in sec-
tion 6.03(A) of this agreement, a reporting
Model 2 FFI is required to report on Form
8966 certain aggregate information re-
garding accounts treated as non-
consenting U.S. accounts classified in ac-
cordance with the pools described in
§1.1471-4(d)(6) and the accompanying
instructions to the form. Such reporting is
required regardless of whether the report-
ing Model 2 FFI makes a withholdable
payment to the account during the calen-
dar year. A reporting Model 2 FFI must
file Form 8966 on magnetic media (i.e.,
the FATCA Report XML) with the IRS on
or before March 31 of the year following
the end of the calendar year to which the
form relates (unless otherwise specified in
the applicable Model 2 IGA) in accor-
dance with the requirements prescribed
for such reporting on the form and its
accompanying instructions.

.04 Special Transitional Reporting of
Payments to Nonparticipating FFIs. For
calendar years 2015 and 2016, the partic-
ipating FFI must report on a specific
payee basis on Form 8966 the aggregate
amount of foreign reportable amounts
paid with respect to an account held by a
nonparticipating FFI (including a limited
branch and limited FFI treated as a non-
participating FFI) that the participating
FFI maintains. If, however, the participat-
ing FFI is prohibited under domestic law
from reporting on a specific payee basis
without consent from the account holder
and the participating FFI has not obtained
such consent (i.e., the account holder is a
non-consenting nonparticipating FFI), the
participating FFI may instead report the
aggregate number of accounts held
by such non-consenting nonparticipating
FFIs and the aggregate amount of foreign
reportable amounts paid to such non-
consenting nonparticipating FFIs. In ei-
ther case, the participating FFI may report
all income, gross proceeds, and redemp-
tions (regardless of source) paid to the
nonparticipating FFI's account (or all
non-consenting nonparticipating FFIs' ac-
counts, as applicable) by the participating
FFI during the calendar year instead
of reporting only foreign reportable
amounts. With respect to calendar year
2015, however, a participating FFI is not
required to report gross proceeds de-
scribed in §1.1471-4(d)(4)(iv)(B)(3) paid

to an account held by a nonparticipating
FFI. The participating FFI must file Form
8966 on magnetic media (i.e., the FATCA
Report XML) with the IRS on or before
March 31 of the year following the end of
the calendar year to which the form relates
in accordance with the requirements pre-
scribed for such reporting on the form and
its accompanying instructions.

## .05 Withholdable Payment Reporting and Reporting of Tax Withheld.

(A) In General. Except as otherwise
provided in this section 6.05(A) and sec-
tion 6.05(B) of this agreement, a partici-
pating FFI is required to report on Form
1042-S chapter 4 reportable amounts
made during the year to payees that are
recalcitrant account holders, nonpartici-
pating FFIs, and, with respect to a non-
U.S. payor, U.S. persons that are included
in a U.S. payee pool (see section 9.02).
Forms 1042-S must identify the foreign
branch of the FFI maintaining the payee's
account using the GIIN assigned to such
branch and the employer identification
number (EIN) of the legal entity covered
by this agreement.

(1) Allowance for Specific Payee or
Pooled Reporting. A participating FFI
may report chapter 4 reportable amounts
made to a specific recipient or to a chapter
4 reporting pool to the extent permitted or
required under section 6.05(A)(1)(i) of
this agreement. Section 1.1474-1(d) pro-
vides additional reporting requirements
for chapter 4 reportable amounts. A par-
ticipating FFI that fails to file returns or
furnish statements required by this agree-
ment may be subject to penalties in accor-
dance with sections 6721 through 6724.

(i) Pooled Reporting. A participating
FFI may report on Form 1042-S chapter 4
reportable amounts made to recalcitrant
account holders and nonparticipating FFIs
in a chapter 4 reporting pool. With respect
to recalcitrant account holders, a separate
chapter 4 reporting pool is required for
each class of recalcitrant account holders
described in §1.1471-4(d)(6). Addition-
ally, a participating FFI that is a non-U.S.
payor may report payees of U.S. accounts
that it reports under section 6.02 of this
agreement in a chapter 4 reporting pool of
U.S. payees. Section 1.1474-1(d) pro-
vides additional reporting requirements

for chapter 4 reportable amounts. See also
Form 1042-S and its accompanying in-
structions for the chapter 4 reporting pool
codes for recipients and income codes.

(ii) Specific Recipient Reporting. As
an alternative to reporting chapter 4 re-
portable amounts to a chapter 4 reporting
pool of recalcitrant account holders and
nonparticipating FFIs as described in sec-
tion 6.05(A)(1)(i) of this agreement, a par-
ticipating FFI may issue a Form 1042-S to
a recalcitrant account holder or a nonpar-
ticipating FFI on a specific payee basis.
Section 1.1474-1(d)(1)(i) specifies the in-
formation that is required to be included
on Form 1042-S. See also section 10.04 of
this agreement for the limitation on filing
a collective refund claim on behalf of ac-
count holders or payees that are reported
on a specific payee basis.

(2) Reporting Required when Elect-
ing to Withhold under Section 3406 on
Recalcitrant Account Holders. A partic-
ipating FFI that elects to satisfy its obli-
gation to withhold on withholdable pay-
ments with respect to recalcitrant account
holders by backup withholding under sec-
tion 3406 with respect such payments as
described in section 4.01(C) of this agree-
ment must report on the applicable Form
1099 in the manner required under chapter
61 with respect to payments to which
backup withholding applies. Forms 1099
must be filed by the legal entity covered
by this agreement and must exclude pay-
ments made by its U.S. branch, if any.

(B) Special Reporting Rules when
Withholding Agent Reports on Behalf
of Participating FFI. A participating FFI
is not required to report on Form 1042-S
or Form 1099 as described in section
6.05(A) of this agreement amounts that
the participating FFI receives on behalf of
a recalcitrant account holder, nonpartici-
pating FFI, or chapter 4 reporting pool of
payees that are U.S. persons to the extent
that its withholding agent has correctly
reported on a Form 1042-S or Form 1099,
as the context requires, and withheld the
correct amount of tax on such amounts.
The participating FFI is required to report,
however, when the participating FFI
knows, or has reason to know, that the
payment is not correctly reported on Form
1042-S or Form 1099, that less than the
required amount has been withheld on the
payment, or that the amount of tax with-

held is not correctly reported on Form
1042-S or Form 1099. In such a case, the
participating FFI must report the payment
on Form 1042-S or Form 1099 to the
extent required under section 6.05(A) of
this agreement. See section 9 of this
agreement for the information that the
participating FFI must include on its with-
holding statement to enable its withhold-
ing agent to report.

(C) Dormant Accounts. Notwith-
standing section 6.05(B) of this agree-
ment, a participating FFI is required to
report a chapter 4 reportable amount made
to a recalcitrant account holder that holds
a dormant account for which the partici-
pating FFI sets aside the amount withheld
in escrow, in lieu of depositing the tax
withheld. See section 5.02 of this agree-
ment for the requirements of the escrow
procedure for dormant accounts. See also
section 9 of this agreement for the with-
holding statement requirements with re-
spect to dormant accounts and the instruc-
tions to Form 1042-S for reporting under
this procedure.

(D) U.S. Source FDAP Income Sub-
ject to Reporting under Chapter 3. In a
case in which a participating FFI reports
under section 6.05(A) of this agreement a
withholdable payment of U.S. source
FDAP income subject to withholding un-
der section 4 of this agreement, a separate
Form 1042-S is not required to be filed for
the same payment for chapter 3 reporting
purposes under §1.1461-1(c)(2). A partic-
ipating FFI that is reporting U.S. source
FDAP income that is not subject to with-
holding under section 4 of this agreement
must include in its reporting an exemption
code for chapter 4 purposes to the extent
the participating FFI is required to report
the amount under §1.1461-1(c)(2).

(E) Reporting of Withholdable Pay-
ments to Related Entities and Branches.
A participating FFI must report (or pro-
vide sufficient information to its withhold-
ing agent, as described in section 6.05(B)
of this agreement, to report) withholdable
payments that it makes to, or receives as
an intermediary on behalf of, a related
entity or branch of a reporting Model 1
FFI or reporting Model 2 FFI. See section
4.02(C) of this agreement for the with-
holding requirements of a participating
FFI with respect to payments made to a
related entity or branch of a reporting

Model 1 FFI or reporting Model 2 FFI.
See Form 1042-S and its accompanying
instructions for the other information that
a participating FFI is required to report in
such a case.

(F) Time and Manner of Filing. A
participating FFI must file Forms 1042-S
on magnetic media with the IRS on or
before March 15 of the year following the
end of the calendar year to which the form
relates in accordance with the require-
ments prescribed for such reporting on the
form and its accompanying instructions. A
participating FFI required to report on
Forms 1042-S under section 6.05(A) of
this agreement may rely on the procedures
used for chapter 3 purposes for reporting
on Forms 1042-S (even if the participating
FFI is not required to report under chapter
3) for combined reporting following a
merger or acquisition, provided that all of
the requirements for such reporting pro-
vided in the Instructions for Form 1042-S
are satisfied. A participating FFI must file
the relevant Forms 1099, if applicable, on
magnetic media with the IRS on or before
March 31 of the year following the end of
the calendar year to which the form relates
in accordance with the requirements pre-
scribed for such reporting on the form and
its accompanying instructions.

## .06 Tax Return Filing Requirements.

If a participating FFI is required to
report on Form 1042-S chapter 4 report-
able amounts, it must also file an income
tax return on Form 1042 to report the
chapter 4 reportable amounts paid to ac-
count holders and payees that the partici-
pating FFI is required to report on Form
1042-S. A participating FFI will also be
required to report on Form 1042 the
amount of tax withheld and the amount of
tax deposited with respect to such pay-
ments for the calendar year, in addition to
any other information required by the
form and its accompanying instructions. If
a participating FFI applies backup with-
holding, instead of withholding under
chapter 4, with respect to recalcitrant ac-
count holders as described in section
4.01(C) of this agreement, the participat-
ing FFI must also file an income tax return
on Form 945 to the extent the participat-
ing FFI withheld tax on withholdable pay-
ments that are reportable amounts paid to

its account holders. See section 6.05(F) of
this agreement for the rules on when Form
1042-S and Form 1099 are required to be
filed.

Form 1042 or Form 945 must be filed
by the legal entity covered by this agree-
ment, and it must exclude payments made
by any U.S. branch of such entity. With-
holding certificates and other statements
or information provided to the participat-
ing FFI should not be attached to the
return. With respect to Form 1042, the
information required for purposes of
chapter 4 is in addition to the information
required to be provided on Form 1042 for
purposes of chapter 3. A participating FFI
must file Form 1042 with the IRS on or
before March 15 of the year following the
calendar year to which the form relates. A
participating FFI must file Form 945 with
the IRS on or before January 31 of the
year following the calendar year to which
the form relates.

.07 Coordination with Chapter 61
Reporting. A non-U.S. payor that is a
participating FFI will satisfy its reporting
obligations under chapter 61 (Form 1099
reporting) with respect to a reportable
payment made to a payee that is an ac-
count holder of the participating FFI and
that is a U.S. non-exempt recipient if such
participating FFI reports with respect to
such an account holder pursuant to section
6.02 of this agreement (and must include
the reporting of the account holder's TIN).
See §1.6049-4(c)(4). A participating FFI
(regardless of whether the FFI is a U.S.
payor or non-U.S. payor) will satisfy its
Form 1099 reporting obligations with re-
spect to a reportable payment made to a
payee that is an account holder of the
participating FFI and that is a treated as a
U.S. non-exempt recipient under the pre-
sumption rules of chapters 3 and 61 if
such participating FFI reports with respect
to such an account holder pursuant to sec-
tion 6.03 of this agreement. See §1.6049-
4(c)(4). A participating FFI is required to
report a payment on Form 1099, however,
to the extent that backup withholding is
required under section 3406 with respect
to the payment, or the participating FFI
elects to apply backup withholding to the
payment under section 4.01(C) of this
agreement and another payor (as defined
in §1.6049-5(c)(5)) has not performed

Form 1099 reporting with respect to the
payment.

## .08 Retention Requirements.

(A) Account Statements. A participat-
ing FFI is required to retain information
that summarizes the account activity of its
U.S. accounts and accounts held by recal-
citrant account holders and nonparticipat-
ing FFIs to the extent required in
§1.1471-4(d).

(B) Forms 1042-S. A participating FFI
must retain a copy of each Form 1042-S
for the period of limitations on assessment
and collection applicable to the tax report-
able on the Form 1042 to which the Form
1042-S relates.

Section 7. Legal Prohibitions on
Reporting U.S. Accounts and on
Withholding.

.01 In General. If a participating FFI
(or branch thereof) is prohibited by law
from reporting its U.S. accounts as re-
quired under section 6.02 of this agree-
ment or from withholding to the extent
required under section 4 of this agree-
ment, the participating FFI (or branch
thereof) must comply with the require-
ments of section 7.02 or 7.03 of this
agreement.

.02 Prohibitions on Reporting U.S.
Accounts. A participating FFI that is pro-
hibited under the laws of the jurisdiction
in which it is resident, established, or lo-
cated from reporting a U.S. account as
required under section 6.02 of this agree-
ment must satisfy the requirements of
§1.1471-4(i)(2) to request a valid and ef-
fective waiver of such law or otherwise
close or transfer the account.

(A) Reporting Model 2 FFI. A report-
ing Model 2 FFI that is prohibited under
the laws of the jurisdiction in which it is
resident, established, or located from re-
porting a preexisting U.S. account as re-
quired under section 6.02 of this agree-
ment must request consent to report such
account and, if consent is not provided,
must report certain aggregate information
about such account with other non-
consenting U.S. accounts in accordance
with section 6.03 of this agreement. With
respect to a new account (as defined in the
applicable Model 2 IGA), a reporting
Model 2 FFI must obtain from each ac-

count holder of a U.S. account, as a con-
dition of account opening, the consent re-
quired under domestic law in order for
such reporting Model 2 FFI to report the
account as required under section 6.02 of
this agreement. Additionally, a reporting
Model 2 FFI must request the account
holder's consent to report, if required by
domestic law, after account opening for
any new account that is not identified as a
U.S. account at account opening and that
must subsequently be treated as a U.S.
account due to a change in circumstances.
If consent is not provided by the account
holder, the reporting Model 2 FFI must
treat the account as a non-consenting U.S.
account and report the account as de-
scribed in section 6.03(B) of this agree-
ment.

.03 Legal Prohibitions Preventing
Withholding with Respect to Recalci-
trant Account Holders and Nonpartici-
pating FFIs. To the extent a participating
FFI is prohibited under domestic law from
withholding with respect to recalcitrant
account holders and nonparticipating FFIs
as required under section 4 of this agree-
ment, the participating FFI is required to
satisfy the requirements of §1.1471-
4(i)(3) to block or transfer each account or
offshore obligation held by such persons.

.04 Related Branch of a Reporting
Model 2 FFI. If a reporting Model 2 FFI
maintains one or more related branches,
the reporting Model 2 FFI must comply
with the requirements described in the ap-
plicable Model 2 IGA with respect to each
related branch, which includes the re-
quirements to withhold on payments made
or received on behalf of such branch as
described in section 4.03(C) of this agree-
ment and to report such payments as de-
scribed in section 6.05(E) of this agree-
ment. If a branch maintained by the FFI is
no longer prohibited from complying with
the requirements of this agreement or oth-
erwise being treated as a deemed-
compliant FFI, a reporting Model 2 FFI
must notify the IRS on the FATCA regis-
tration website by the beginning of the
third calendar quarter following such date
that the branch will cease to be a related
branch by registering such branch as a
participating FFI or deemed-compliant
FFI by that date. A reporting Model 2 FFI
with one or more branches that are treated
as nonparticipating FFIs solely due to the

expiration of the transitional rule for
limited branches under §1.1471-4(e)
(2)(v) will continue to be a reporting
Model 2 FFI, provided that the reporting
Model 2 FFI continues to comply with the
requirements of the applicable Model 2
IGA with respect to such branches.

## Section 8. Compliance Procedures.

.01 In General. A participating FFI is
required to adopt a compliance program
under the authority of the responsible of-
ficer of the participating FFI or, in the case
of a participating FFI that adopts a con-
solidated compliance program under the
requirements of §1.1471-4(f)(2)(ii), un-
der the authority of the responsible officer
of a compliance FI. A participating FFI's
compliance program must include poli-
cies, procedures, and processes sufficient
for the participating FFI to satisfy the due
diligence, reporting, and withholding re-
quirements of this agreement. A partici-
pating FFI must also perform, or have
performed on its behalf, a review of its
compliance with this agreement for the
certification period (described in
§1.1471-4(f)(3)). The results of such
review must be considered by the re-
sponsible officer in making the periodic
certifications described in section 8.03
of this agreement. A participating FFI
must also comply with the IRS review
of compliance described in section 8.04
of this agreement.

.02 Responsible Officer. A participat-
ing FFI must appoint a responsible officer
to establish, or to appoint one or more
designees to establish, a compliance pro-
gram that meets the requirements of sec-
tion 8.01 of this agreement and to period-
ically review the sufficiency of such
compliance program. The responsible of-
ficer must make the certifications de-
scribed in section 8.03 of this agreement
to the IRS regarding the FFI's compliance
with this agreement.

## .03 Certifications of Compliance by Responsible Officer.

(A) Certification Regarding the Due
Diligence Procedures. No later than the
due date of the participating FFI's first
certification of compliance required under
section 8.03(B) of this agreement, the re-
sponsible officer of the participating FFI

must make the certification described in
§1.1471-4(c)(7) regarding the FFI's com-
pletion of the due diligence procedures for
preexisting accounts required under sec-
tion 3 of this agreement and regarding the
absence of any formal or informal prac-
tices or procedures to assist account hold-
ers in the avoidance of chapter 4 as de-
scribed in §1.1471-4(c)(7).

(B) Periodic Certification of Compli-
ance. On or before July 1 of the calendar
year following the end of the certification
period defined in §1.1471-4(f)(3)(i), the
responsible officer of the participating FFI
must make either the certification of ef-
fective internal controls described in
§1.1471-4(f)(3)(ii) or, when required,
make the qualified certification under
§1.1471-4(f)(3)(iii). The responsible offi-
cer must consider the results of the partic-
ipating FFI's periodic review in making
the periodic certification of compliance.

(C) Method of Making Certifica-
tions. The participating FFI (or the com-
pliance FI with respect to such FFI) must
make the certifications of compliance on
the form and in such manner as the IRS
may prescribe in future guidance or other
instructions.

## .04 Review of Compliance.

(A) General Inquiries of FFI and Ac-
count Holder Compliance. Based upon
the information reporting forms and tax
returns (Forms 945, 1042, 1042-S, 8966,
and 1099) filed with the IRS (or the ab-
sence of such reporting) for each calendar
year, the IRS may request additional in-
formation with respect to the information
reported, or required to be reported, on
such forms, or may request the account
statements described in §1.1471-4(d)
(4)(v), or confirmation that the FFI has no
reporting requirements. The IRS may also
request any additional information to de-
termine an FFI's compliance with its FFI
agreement and to assist the IRS with its
review of account holder compliance with
tax reporting requirements.

(B) Inquiries of Reporting Model 2
FFIs. In the case of a reporting Model 2
FFI, the IRS or the U.S. Competent Au-
thority, as provided in the applicable
Model 2 IGA, may make an inquiry di-
rectly to a reporting Model 2 FFI regard-
ing the information described in section

8.04(A) of this agreement. When the IRS
or the U.S. Competent Authority has rea-
son to believe that administrative errors or
other minor errors may have led to incor-
rect or incomplete information reporting,
the IRS or the U.S. Competent Authority
may make such an inquiry directly to a
reporting Model 2 FFI. Additionally, if a
reporting Model 2 FFI reports aggregate
information regarding its non-consenting
U.S. accounts and accounts held by non-
participating FFIs as described in sections
6.03 and 6.04 of this agreement, the U.S.
Competent Authority, consistent with the
terms of the applicable competent author-
ity arrangement under the applicable
Model 2 IGA, may request information
regarding the accounts underlying the ag-
gregate information returns filed with re-
spect to such accounts.

(C) Inquiries regarding Substantial
Non-Compliance. Based on the informa-
tion reporting forms and tax returns
(Forms 945, 1042, 1042-S, 8966, and
1099) filed with the IRS for each calendar
year, the certifications made by the re-
sponsible officer, or any other information
related to a participating FFI's compliance
with this agreement, the IRS may deter-
mine in its discretion that the participating
FFI may not have substantially complied
with the requirements of this agreement.
In such a case, the IRS may request from
the responsible officer (or designee) infor-
mation necessary to verify the participat-
ing FFI's compliance with this agreement
or the performance of specified review
procedures as described in §1.1471-
4(f)(4)(ii). If the IRS determines that a
participating FFI has failed to substan-
tially comply with the requirements of this
agreement, the IRS will notify the partic-
ipating FFI in accordance with section
12.06 of this agreement that an event of
default has occurred.

(D) Inquiries regarding Significant
Non-Compliance for Reporting Model
2 FFIs. Consistent with the terms of the
applicable competent authority arrange-
ment under the Model 2 IGA, the U.S.
Competent Authority may request infor-
mation necessary to verify a reporting
Model 2 FFI's compliance with this
agreement as described in §1.1471-
4(f)(4)(ii). If the U.S. Competent Author-
ity determines that a reporting Model 2
FFI has failed to significantly comply with

the requirements of this agreement, as
modified by the applicable Model 2 IGA,
the U.S. Competent Authority will notify
the Competent Authority of the jurisdic-
tion in which the reporting Model 2 FFI is
located, and will also notify the reporting
Model 2 FFI in accordance with section
12.06 of this agreement that an event of
default has occurred.

## Section 9. Participating FFI Withholding Certificate.

### .01 Participating FFI Withholding Certificate.

A participating FFI agrees to furnish a
valid withholding certificate to each with-
holding agent from which it receives a
withholdable payment and to each partic-
ipating FFI or deemed-compliant FFI with
whom the participating FFI holds an ac-
count.

(A) Beneficial Owner. When a partic-
ipating FFI receives a withholdable pay-
ment as a beneficial owner of the payment
(as defined in §1.1471-1(b)(7)) or other-
wise holds an obligation or account for its
own benefit, the withholding certificate to
be furnished is a Form W-8BEN-E
(or acceptable substitute form under
§1.1471-3(c)(6)(v)) that certifies that the
participating FFI is the beneficial owner
and that includes the GIIN of the partici-
pating FFI in its jurisdiction of residence
for tax purposes (or place of organization
if the FFI has no such residence) or oth-
erwise identifies the branch of the partic-
ipating FFI that is receiving the payment
and the branch's GIIN if the branch re-
ceiving the payment operates in a jurisdic-
tion other than the participating FFI's ju-
risdiction of residence, and all of the other
information required by §1.1471-3(c)
(3)(ii), the form, and its accompanying
instructions. Alternatively, with respect to
a payment made prior to January 1, 2017,
or made with respect to an offshore obli-
gation, the participating FFI may provide
its GIIN and documentation to the extent
required in §1.1471-3(d)(4)(ii) or (iii). In
such a case, the participating FFI will not
be subject to withholding and will not be
reported as a nonparticipating FFI with
respect to withholdable payments it re-
ceives from a withholding agent to whom
the participating FFI provided such docu-
mentation. If, however, in the case of a

reporting Model 2 FFI, the branch of the
reporting Model 2 FFI receiving the with-
holdable payment is a related branch, the
reporting Model 2 FFI must identify the
branch as a nonparticipating FFI on the
Form W-8BEN-E that it provides to
the withholding agent, and such payment
will be subject to withholding and report-
ing for purposes of chapter 4.

(B) Intermediary or Flow-Through
Entity. When a participating FFI receives
a withholdable payment of U.S. source
FDAP income as an intermediary, holds
an account with a participating or regis-
tered deemed-compliant FFI as an inter-
mediary, or is a flow-through entity, the
withholding certificate that the participat-
ing FFI must furnish to the withholding
agent is a Form W-8IMY that meets
the requirements in §1.1471-3(c)(3)
(iii) (or acceptable substitute form under
§1.1471-3(c)(6)(v)). In such a case, the
participating FFI will not be subject to
withholding (or reporting) as a nonpartic-
ipating FFI for purposes of chapter 4 that
would otherwise apply based on its status
as a participating FFI, though withholding
for purposes of chapter 4 may apply to the
extent that it receives a payment on behalf
of recalcitrant account holders or nonpar-
ticipating FFIs and fails to provide suffi-
cient information for its withholding agent
to withhold and report on Form 1042-S
under chapter 4 with respect to such per-
sons. Additionally, withholding for pur-
poses of chapter 3 may apply with respect
to payments of U.S. source FDAP income
based on the status of persons for whom
the participating FFI receives the pay-
ment. For the requirements of a withhold-
ing certificate provided by a foreign part-
nership or foreign trust receiving a chapter
3 reportable amount, see §1.1441-5(c)
(2) or §1.1441-5(e)(5), respectively. For
the requirements of a withholding certifi-
cate provided by a foreign intermediary
that receives a chapter 3 reportable
amount, see §1.1441-1(e)(3).

### .02 Withholding Statement.

(A) In General. A participating FFI
agrees to provide an FFI withholding
statement that includes the information
described in section 9.02(B) of this agree-
ment to each withholding agent from
which it receives a withholdable payment

of U.S. source FDAP income on behalf of
its account holders or other persons (in-
cluding its partners, beneficiaries, or
owners for a participating FFI that is
a flow-through entity). See section
§1.1471-3(c)(3)(iii)(B)(1) and (2) for
the requirements of an FFI withholding
statement. The withholding statement
must be updated as often as necessary
for the participating FFI to meet its
withholding and reporting obligations
under sections 4 and 6 of this agree-
ment.

## (B) Allocation of Payment on Withholding Statement.

(1) In General. In general, unless a
participating FFI is permitted to provide
on its withholding statement pooled infor-
mation for the payees described in section
9.02(B)(2) or (3), a participating FFI must
allocate a withholdable payment of U.S.
source FDAP income to each payee of the
payment on its withholding statement by
providing payee specific information. In
addition, the withholding statement must
include the information necessary for the
withholding agent to fulfill its obligations
under chapter 4, and chapters 3 and 61, if
applicable.

(2) Chapter 4 Withholding Rate
Pools. A participating FFI may include on
the withholding statement information
that indicates the portion of such with-
holdable payment that is allocated to each
of its chapter 4 withholding rate pools
(consisting of separate pools for each
class of recalcitrant account holders, for
nonparticipating FFIs, and for U.S. pay-
ees). If a participating FFI applies the
escrow procedure for dormant accounts
described in section 5.02 of this agree-
ment, the participating FFI must indicate
the portion of such payment allocated to a
chapter 4 withholding rate pool of recal-
citrant account holders that hold dormant
accounts that the participating FFI (and
not the withholding agent) will hold in
escrow. A participating FFI must identify
its pools of recalcitrant account holders in
accordance with the chapter 4 reporting
pools provided on Form 1042-S and its
accompanying instructions. If, however, a
participating FFI elects to apply backup
withholding instead of withholding under
chapter 4 with respect to a recalcitrant

account holder that is described in section
4.01(C) of this agreement, the withhold-
ing statement provided to the withholding
agent must indicate the portion of such
payment subject to backup withholding
under section 3406 that is allocated to the
account holder and include the other in-
formation required under chapter 61 for
the withholding agent to report with re-
spect to the payment. See Form 1042-S
and its accompanying instructions for in-
formation on the chapter 4 withholding
rate pools applicable to recalcitrant ac-
count holders, nonparticipating FFIs, and
U.S. payees.

(3) Exempt Payee Pool. To the extent
a withholdable payment is not subject to
reporting by the withholding agent on any
of Forms 1042-S, 1099, and 8966, a par-
ticipating FFI may allocate a portion of a
withholdable payment to a group of doc-
umented payees (other than nonqualified
intermediaries or flow-through entities),
provided that the participating FFI pro-
vides to the withholding agent for each
account holder payee-specific information
(including the payee's chapter 4 status
(using the applicable status code used for
filing Form 1042-S)) and any other infor-
mation required for purposes of chapter 3
or 61 on the withholding statement, and
the participating FFI provides documenta-
tion for each account holder in the pool
(an "exempt payee pool"). For example, a
participating FFI can provide an exempt
payee pool for a payment of U.S. source
interest on a bank deposit not subject to
withholding or reporting under chapter 4
that is allocable to a group of documented
foreign account holders (that is, a with-
holdable payment that is not reported on
any of Forms 1042-S, 1099, and 8966)
and provide to the withholding agent doc-
umentation for each account holder in-
cluded in the pool.

(4) Allocation of Payment to Payees
Subject to Withholding or Reporting
under Chapter 3 or 61 but not Chapter
4. If any portion of a withholdable pay-
ment is allocable to payees not subject to
withholding or reporting under chapter 4,
but the payment is subject to withholding
or reporting under chapter 3 or 61, see
§§1.1441-1(e)(3)(iv) (nonqualified with-
holding statement), 1.1441-5(c)(3)(iv)
(withholding statement of a foreign sim-
ple or grantor trust), 1.1441-5(e)(5)(iv)

(withholding statement of a nonwithhold-
ing foreign partnership), and 1.6049-5(d)
for the additional requirements for allocat-
ing a payment to payees with regard to
chapters 3 or 61 (including the require-
ments applicable to the withholding state-
ment and the appropriate documentation
to be provided with respect to each such
payee). In addition to allocating the por-
tion of the payment to each such payee,
the withholding statement must include
the information necessary for the with-
holding agent to report the payment on
Form 1042-S or Form 1099. See §1.1471-
3(c)(3)(iii)(B)(2) for the circumstances in
which a participating FFI may allocate a
withholdable payment to a chapter 4 with-
holding rate pool of U.S. payees on an FFI
withholding statement, and see §1.6049-
4(c)(4)(iii) for when a participating FFI
may also allocate reportable payments to a
chapter 4 withholding rate pool of U.S.
payees on an FFI withholding statement.

(5) Coordination with Reporting on
Form 8966. In a case in which a with-
holdable payment is allocable to an ac-
count holder of the participating FFI that
is a passive NFFE with one or more sub-
stantial U.S. owners, the FFI may certify
on the withholding statement that it is
reporting, for the year in which the pay-
ment is made, the account holder as a U.S.
account (excluding a non-consenting U.S.
account or an account held by a recalci-
trant account holder) as required under
this agreement. Further, an FFI withhold-
ing statement provided by a participating
FFI may include a certification that the
FFI is reporting to the IRS for the year of
the payment all of the information de-
scribed in §1.1471-4(d) or §1.1474-
1(i)(1) (as applicable) with respect to all
specified U.S. persons described in
§1.1471-3(d)(6)(iv)(A)(1) and (2) with
respect to an account holder or payee that
the FFI has agreed to treat as an owner-
documented FFI.

(6) Documentation from Intermedi-
aries and Flow-Through Entities. If a
participating FFI has an account holder
that is acting as an intermediary or is a
flow-through entity with respect to a with-
holdable payment and that has provided
the information described in §1.1471-
3(c)(2) necessary for the withholding
agent to report the payment, the partici-
pating FFI must provide to its withholding

agent the account holder information or
pool reporting information provided to it
by such other entity for determining the
amount of withholding or the reporting
required under chapter 4. See §1.1471-
3(e)(4)(vi)(B) (providing that the partici-
pating FFI may rely on the determination
of a payee's chapter 4 status that is pro-
vided by another participating FFI or reg-
istered deemed-compliant FFI unless the
first-mentioned participating FFI knows
or has reason to know that such informa-
tion is incorrect or unreliable).

(C) Optional Procedure for Specific
Recipient Reporting for Payees that are
Recalcitrant Account Holders or Non-
participating FFIs. For payments that are
received by a participating FFI that is act-
ing as an intermediary or that is a flow-
through entity and that are subject to with-
holding under chapter 4, the participating
FFI may provide specific recipient infor-
mation instead of chapter 4 withholding
rate pool information on the withholding
statement regarding any (or all) recipients
that are recalcitrant account holders or
nonparticipating FFIs. In such a case, the
withholding statement must include the
information necessary to enable the with-
holding agent to report the payment in
accordance with the requirements de-
scribed in §1.1474-1(d) and the require-
ments of Form 1042-S or Form 1099 and
its accompanying instructions. The partic-
ipating FFI is not required to provide the
withholding agent with the withholding
certificate or other documentation for each
recipient.

## Section 10. Adjustments for Overwithholding and Underwithholding and Refunds.

.01 Adjustments for Overwithhold-
ing by Withholding Agent. A participat-
ing FFI may request a withholding agent
to make an adjustment for amounts paid to
the participating FFI on which the with-
holding agent has overwithheld (as de-
fined in §1.1474-2(a)(2)) under chapter 4
by applying either the reimbursement pro-
cedure or the set-off procedure described
in this section 10.01. Nothing in this sec-
tion 10 requires a withholding agent to
apply these procedures.

(A) Reimbursement Procedure. A
participating FFI may request a withhold-
ing agent to repay the participating FFI for

any amount overwithheld under chapter 4,
and for the withholding agent to reim-
burse itself under the reimbursement pro-
cedures under § 1.1474-2(a)(3), by mak-
ing a request to the withholding agent
prior to the earlier of the due date (without
regard to extensions) for filing Form 1042
and Form 1042-S, or the actual filing of
Form 1042-S, for the calendar year of
overwithholding. In such a case, the par-
ticipating FFI must provide the withhold-
ing agent with sufficient information to
determine the correct amount of withhold-
ing and to correctly report the payment as
required under §1.1474-1(d)(4). See sec-
tion 4.02 of this agreement for the circum-
stances in which a withholding agent may
withhold on behalf of the participating
FFI with respect to its account holders or
payees.

(B) Set-off Procedure. A participating
FFI may request a withholding agent re-
pay the participating FFI by applying the
amount overwithheld under chapter 4
against any amount which otherwise
would be required to be withheld under
chapter 3 or 4 from income paid by the
withholding agent to the participating FFI
under the set-off procedures of §1.1474-
2(a)(4). A participating FFI must make the
request before the earlier of the due date
(without regard to extension) for filing
Form 1042-S, or the actual filing of Form
1042-S, for the calendar year of overwith-
holding.

.02 Adjustments for Overwithhold-
ing by Participating FFI. A participating
FFI may make an adjustment for amounts
paid to its account holders and payees for
which it has overwithheld tax under chap-
ter 4 (as defined in §1.1474-2(a)) by ap-
plying either the reimbursement proce-
dures or the set-off procedures described
in §1.1474-2(a)(3) or (4), respectively.

.03 Repayment of Backup Withhold-
ing. If a participating FFI erroneously
withholds (as defined in §31.6413(a)-
3) an amount under section 3406 from an
account holder or payee, such participat-
ing FFI may refund to such person the
amount erroneously withheld as provided
in §31.6413(a)-3.

.04 Collective Credit or Refund Pro-
cedures for Overpayments. If there has
been an overpayment of tax with respect
to an account holder or a payee of a par-
ticipating FFI resulting from tax withheld

under chapter 4 on a payment made to
such account holder or payee during a
calendar year, and the amount withheld
has not been recovered under the reim-
bursement or set-off procedures described
under section 10.01 or 10.02 of this agree-
ment, the participating FFI may request a
credit or refund of the amount of tax over-
withheld to the extent permitted under
§1.1471-4(h). The participating FFI must
follow the procedures set forth under
§1.1471-4(h)(4) to request the credit or
refund on behalf of its account holders.
No credit or refund will be allowed after
the expiration of the statutory period of
limitations for refunds under section 6511
with regard to the account holder or payee
for whom the refund or credit is sought.

.05 Adjustments for Underwithhold-
ing. If a participating FFI knows that an
amount should have been withheld under
chapter 4 from a previous payment to an
account holder or a payee but was not
withheld, the participating FFI may either
withhold from future payments made pur-
suant to chapter 3 or chapter 4 to the same
account holder or payee or satisfy the tax
from property that it holds in custody for
such person or property of such person
over which it has control. The additional
withholding or satisfaction of the tax
owed may only be made before the due
date (without regard to extensions) of
Form 1042 for the calendar year in which
the underwithholding occurred. A partici-
pating FFI's responsibilities will be met
under this section 10.05 if it informs the
withholding agent from whom the partic-
ipating FFI received the payment of the
underwithholding, and the withholding
agent satisfies the underwithholding.

.06 Underwithholding after Form
1042 Filed. If, after Form 1042 has been
filed for a calendar year (or the due date
for filing Form 1042 if no Form 1042 was
filed), a participating FFI or the IRS de-
termines that the participating FFI has un-
derwithheld tax for such year, the partic-
ipating FFI must file an amended Form
1042 (or original Form 1042 if no Form
1042 was filed) to report and pay the
underwithheld tax. A participating FFI
must pay the underwithheld tax, the inter-
est due on the underwithheld tax, and any
applicable penalties at the time of filing
such amended (or original) Form 1042. If
a participating FFI fails to file a return (if

required under section 6.06 of this agree-
ment or this section 10.06), the IRS will
make such return under section 6020 and
assess such tax under the procedures set
forth in the Code.

Section 11. FFI Group.

### .01 FFI Group.

(A) In General. With respect to a par-
ticipating FFI other than a reporting
Model 2 FFI, each FFI that is a member of
an FFI group must have the chapter 4
status of a participating FFI, deemed-
compliant FFI, or exempt beneficial
owner as a condition for any member of
such FFI group obtaining chapter 4 status
as a participating FFI or registered
deemed-compliant FFI. In addition, the
participating FFI and each FFI (other than
a certified deemed-compliant FFI or ex-
empt beneficial owner) that is a member
of the participating FFI's FFI group must
comply with the requirements of a partic-
ipating FFI or registered deemed-
compliant FFI as a condition for the par-
ticipating FFI maintaining its chapter 4
status as a participating FFI. An FFI and
its FFI group may register on the FATCA
registration website.

(B) Special Rule for a Reporting
Model 2 FFI. A reporting Model 2 FFI
that has a related entity or branch will not
cease to be a reporting Model 2 FFI, pro-
vided that the reporting Model 2 FFI con-
tinues to comply with the requirements of
the applicable Model 2 IGA with respect
to such related entities and branches.

### .02 Lead FI.

(A) Designation of the Lead FI. If the
participating FFI designates a lead FI to
initiate its FATCA registration, the partic-
ipating FFI must authorize the lead FI to
fulfill the responsibilities described in sec-
tion 11.02(B) of this agreement. If an FFI
group has in place a consolidated compli-
ance program as described in §1.1471-
4(f)(2)(ii), the FI that is designated as the
compliance FI for the FFI group must act
as the lead FI for each member of the FFI
group that participates in such consoli-
dated compliance program.

(B) Responsibilities of the Lead FI. A
participating FFI or U.S. financial institu-
tion that is designated as the lead FI by

one or more FFIs that are members of an
FFI group agrees to meet the following
responsibilities with respect to such FFIs
in addition to its other obligations under
this agreement:

(1) Identify itself as the lead FI as part
of the registration process and to delete its
status as lead FI upon termination of such
status;

(2) Identify all FFIs that have desig-
nated the participating FFI as their lead FI
as part of the participating FFI's registra-
tion process;

(3) Monitor the information regarding
members of the FFI group for which it is
acting as a lead FI by accessing the
FATCA registration website every six
months to review the information pro-
vided and, if needed, update the informa-
tion provided with respect to any mem-
bers of the FFI group for which it is acting
as a lead FI;

(4) Inform the IRS within 90 days of an
acquisition or sale of a member of the FFI
group for which it is acting as a lead FI by
updating the information on the FATCA
registration website to add or delete (or in-
struct the member to delete) such member;

(5) Inform the IRS within 90 days of a
change affecting the chapter 4 status of
any member of the FFI group for which it
is acting as a lead FI, including when any
member of the FFI group for which it is
acting as a lead FI ceases to comply with
(or that does not otherwise comply with) the
requirements of either a participating FFI or
a registered deemed-compliant FFI by up-
dating such member FFI's chapter 4 status
on the FATCA registration website; and

(6) With respect to a lead FI of an FFI
group that is a group of related entities as
defined in an applicable Model 2 IGA,
inform the IRS within the time period
prescribed under §1.1471-4(e)(3)(iv) that
a member of the FFI group for which it is
acting as a lead FI ceases to be a related
entity, or a branch of a member of the FFI
group ceases to be a related branch, and
designate on the FATCA registration
website the status for which such member
FFI or branch will register.

Section 12. Expiration, Modification,
Termination, Default, and Renewal of
this Agreement.

.01 Term of Agreement. This agree-
ment begins on its effective date and ex-

pires on December 31, 2018 unless termi-
nated under section 12.03 of this
agreement. This agreement may be re-
newed as provided in section 12.08 of this
agreement.

.02 Modification. This agreement may
be modified by the IRS before the expira-
tion date indicated in section 12.01 of this
agreement. This agreement will only be
modified through published guidance.
Any modification imposing additional re-
quirements on participating FFIs will in
no event become effective until the later
of 120 days after the IRS issues published
guidance of such modification or the be-
ginning of the next calendar year follow-
ing such published guidance.

.03 Termination of Agreement. This
agreement may be terminated by either
the IRS or the participating FFI prior to
the end of its term by delivery of a notice
of termination to the other party in accor-
dance with section 12.06 of this agree-
ment.

(A) In General. The IRS will not ter-
minate this agreement unless there has
been a significant change in circumstances
(as defined in section 12.04 of this agree-
ment) or an event of default (as defined in
section 12.05 of this agreement), and the
IRS determines, in its sole discretion, that
the significant change in circumstances or
the event of default warrants termination
of this agreement. The IRS will not termi-
nate this agreement in the event of default
if the participating FFI can establish to the
satisfaction of the IRS that all events of
default for which it has received a notice
(described in section 12.06 of this agree-
ment) have been cured within the speci-
fied time period agreed to with the IRS.

(B) Reporting Model 2 FFI. In the
case of a reporting Model 2 FFI, the re-
porting Model 2 FFI will not be treated as
a nonparticipating FFI unless the U.S.
Competent Authority has provided the
Competent Authority of a Model 2 IGA
jurisdiction in which the reporting Model
2 FFI is located notice of significant non-
compliance with the terms of this agree-
ment, as modified by the applicable Model
2 IGA, and the matter is not resolved
within the 12-month period following the
notice of significant non-compliance.

(C) Survival of Obligations. The ter-
mination of this agreement shall not affect
any of the participating FFI's due dili-

gence, withholding, information report-
ing, tax return filing, compliance obli-
gations, or other obligations as a
participating FFI arising in or with re-
spect to a calendar year (or a portion of
a calendar year) for which this agree-
ment was in effect.

.04 Significant Change in Circum-
stances. For purposes of this agreement, a
significant change in circumstances in-
cludes-

(A) An acquisition of all, or substan-
tially all, of a participating FFI's assets in
any transaction in which the participating
FFI is not the surviving legal entity;

(B) A change in U.S. federal law that
affects the validity of any provision of this
agreement, materially affects the provi-
sions contained in this agreement, or ma-
terially affects the participating FFI's abil-
ity to perform its obligations under this
agreement;

(D) A case in which a participating FFI
(other than a reporting Model 2 FFI)
maintains a limited branch that cannot ful-
fill the requirements for participating FFI
or deemed-compliant FFI status after the
expiration of the transitional rule for lim-
ited branches under §1.1471-4(e)(2)(v) or
a participating FFI (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 under §1.1471-4(e)
(3)(iv); and

(E) A significant change in a partici-
pating FFI's business practices or applica-
ble foreign law that materially affects the
participating FFI's ability to meet its ob-
ligations under this agreement.

.05 Event of Default. For purposes of
this agreement, an event of default occurs
if a participating FFI fails to perform any
material duty or obligation required under
this agreement or if the IRS determines
that a participating FFI has failed to sub-
stantially comply with the requirements of
this agreement. In addition to the occur-
rences enumerated in §1.1471-4(g)(1), an
event of default also includes the occur-
rence of the following:

(A) The participating FFI fails to in-
form the IRS within 90 days of any sig-
nificant change in circumstances; or

(B) If the participating FFI is desig-
nated by one or more FFIs that are mem-
bers of an FFI group as a lead FI, the FFI
fails, 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.

.06 Notice of Event of Default. Fol-
lowing an event of default known by, or
disclosed to, the IRS, the IRS will deliver
to the participating FFI a notice of default
specifying the event of default and re-
questing that the participating FFI
remediate the event of default as de-
scribed in §1.1471-4(g)(2). See §1.1471-
4(g)(3) for the remediation process for an
event of default.

## .07 Termination Procedures.

(A) Procedure to Appeal Notice of
Termination. If a participating FFI re-
ceives a notice of termination of this
agreement from the IRS, the participating
FFI may appeal the determination within
90 days by sending to the address speci-
fied in section 13.03 of this agreement a
written notice explaining why this agree-
ment should not be terminated. If a par-
ticipating FFI appeals the notice of termi-
nation, this agreement will not terminate
until the appeal is decided. If a participat-
ing FFI does not provide a notice of ap-
peal within 90 days, this agreement will
terminate on the date specified in the no-
tice of termination.

(B) Termination of Agreement. If the
participating FFI seeks to terminate this
agreement, it is required to provide notice
to the IRS through the FATCA registra-
tion website. After receipt of the notice of
termination, the IRS will remove the FFI
from the IRS FFI List. If the FFI's status
as a participating FFI is terminated
(whether by the FFI or by the IRS), the
FFI must send notice of the termination
within 30 days after the date of termina-
tion to each withholding agent from which
it receives payments and each financial
institution with which it holds an account
to which it has provided a withholding

certificate or other documentation pursu-
ant to section 9.01 of this agreement.

## (C) Termination of Status as Compliance FI or Lead FI.

(1) If a participating FFI seeks to ter-
minate its status as a compliance FI or
lead FI, it is required to provide notice of
termination on the FATCA registration
website in accordance with its instructions
or as provided in later published guidance.
A lead FFI's notice of termination of its
lead FI status will require designation of a
new lead FI on the FATCA registration
website in accordance with its instructions
or as provided in other guidance.

(2) A compliance FI that terminates its
status as a compliance FI will still be
required to serve as the point of contact
for the IRS with respect to the certification
periods (as defined in §1.1471-4(f)
(3)(i)) during which the FFI acted as a
compliance FI unless the FFI designates
another FI that has full access to the in-
formation that relates to such periods that
will act as the compliance FI for such
periods.

.08 Renewal. If a participating FFI in-
tends to renew this agreement, it may do
so via the FATCA registration website
available at www.irs.gov/fatca in accor-
dance with its instructions or as otherwise
provided other guidance. This agreement
will be renewed only upon the agreement
of both the participating FFI and the IRS
and is subject to modifications to this
agreement as the IRS prescribes pursuant
to procedures described in section 12.02
of this agreement.

## .09 Treatment of Reporting Model 2 FFIs.

Notwithstanding anything to the con-
trary in this agreement, a reporting
Model 2 FFI is not entering into a bind-
ing agreement by agreeing to comply
with the terms of this agreement, except
to the extent that such an FFI is entering
into an agreement on behalf of one or
more of its branches in order for each
such branch to be treated as a partici-
pating FFI. For the avoidance of doubt,
compliance with the terms of this agree-
ment requires compliance with the re-
quirement to recertify on the FATCA

registration website that the reporting
Model 2 FFI shall comply with the
terms of any renewed agreement, in-
cluding any modified terms pursuant to
section 12.02 of this agreement.

.10 Final Certification after a Termi-
nation of the FFI Agreement. Upon a
termination of this agreement, a partici-
pating FFI must provide to the IRS the
certification of compliance described in
section 8.03(B) of this agreement cover-
ing the period from the end of the most
recent certification period (or, if the first
certification period has not ended, the ef-
fective date of the FFI agreement) to the
date of termination (the "short certifica-
tion period") within six months of the date
of termination, irrespective of whether a
periodic review has been completed for
such period.

## Section 13. Miscellaneous Provisions.

.01 Waiver. Any waiver of a provision
of this agreement is a waiver solely of that
provision. The waiver does not obligate
the IRS to waive other provisions of this
agreement or the same provision at a later
date.

.02 Governing Law. This agreement is
governed by the laws of the United States.
Any legal action brought under this agree-
ment will be brought only in a United
States court with jurisdiction to hear and
resolve matters under the internal revenue
laws of the United States. For this pur-
pose, the participating FFI agrees to sub-
mit to the jurisdiction of such United
States court.

.03 Notices. Except as otherwise pro-
vided on the FATCA registration website,
notices provided under this agreement are
to be mailed via registered, first class air-
mail. All notices sent to the IRS must
include the participating FFI's name and
GIIN and the name of the participating
FFI's responsible officer. Such notices
should be directed as follows:

To the IRS:
Internal Revenue Service
Office of Foreign Payments
290 Broadway
New York, New York 10007
To the participating FFI:

The participating FFI's responsible of-
ficer (or the responsible officer of the
compliance FI for issues related to the
participating FFI's compliance with this

agreement). Such notices should be sent to
the address indicated in the FFI's registra-
tion (as may be amended).

### SECTION 7. EFFECTIVE DATE

The effective date of this revenue pro-
cedure is January 1, 2017.

### SECTION 8. EFFECT ON OTHER DOCUMENTS

Revenue Procedure 2014-38 is super-
seded.

### SECTION 9. PAPERWORK REDUCTION ACT

This revenue procedure refers to a col-
lection of information in the following
sections of the FFI agreement (set forth in
section 6 of this revenue procedure): sec-
tion 3 regarding the due diligence require-
ments for account holder and nonpartici-
pating FFI payee identification and
documentation; section 4 regarding with-
holding requirements; section 5 regarding

deposit requirements; section 6 regarding
information reporting and tax return obli-
gations; section 7 regarding the legal pro-
hibitions on reporting U.S. accounts and
on withholding; section 8 regarding com-
pliance procedures; section 9 regarding
the participating FFI withholding certifi-
cate; and section 10 regarding adjustments
for overwithholding and underwithhold-
ing and refunds. Responses to these col-
lections of information are required for an
FFI to comply with the terms of its FFI
agreement and not be subject to withhold-
ing under section 1471. The likely respon-
dents are individuals, businesses, other
for-profit institutions, and certain non-
profit institutions.

The estimated information collection
burden referred to in this revenue pro-
cedure will be reflected in the Forms
8957, W-8BEN, W-8BEN-E, W-8ECI,
W-8EXP, W-8IMY, W-9, 1040NR,
1042, 1042-S, 1120-F, 1099, and 8966,
as well as various income tax returns
filed for purposes of claiming a refund
of tax. The information collection bur-

den relating to the section 8 compliance
procedures will be reflected in future
guidance.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less the collection of information displays
a valid control number assigned by the
Office of Management and Budget.

#### SECTION 10. DRAFTING INFORMATION

The principal author of this revenue
procedure is Kamela Nelan of the Office
of Associate Chief Counsel (Interna-
tional). For further information regarding
this revenue procedure, contact Ms. Nelan
at (202) 317-6942 (not a toll free number).

#### Definition of Terms

Revenue rulings and revenue procedures
(hereinafter referred to as "rulings") that
have an effect on previous rulings use the
following defined terms to describe the
effect:

Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).

Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.

Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.

Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and
the new ruling holds that it applies to

both A and B, the prior ruling is modi-
fied because it corrects a published po-
sition. (Compare with 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 in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.

Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.

Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the new

ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.

Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.

Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.

#### Abbreviations

The following abbreviations in current
use and formerly used will appear in ma-
terial published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

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.

Ct.D .- Court Decision.

I.R.B .- Internal Revenue Bulletin.

CY-County.

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.

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.

BK-Bank.

B.T.A .- Board of Tax Appeals.

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

CI-City.

COOP-Cooperative.

D-Decedent.

DC-Dummy Corporation.

X-Corporation.

Y-Corporation.

Z-Corporation.

##### Numerical Finding List1

Bulletin 2017-1 through 2017-3

Notices:

2017-1, 2017-2 I.R.B. 367
2017-3, 2017-2 I.R.B. 368
2017-6, 2017-3 I.R.B. 422
2017-7, 2017-3 I.R.B. 423
2017-8, 2017-3 I.R.B. 423

Proposed Regulations:

REG-128276-12, 2017-2 I.R.B. 369
REG-134438-15, 2017-2 I.R.B. 373
REG-133353-16, 2017-2 I.R.B. 372

##### Revenue Procedures:

2017-1, 2017-1 I.R.B. 1
2017-2, 2017-1 I.R.B. 106
2017-3, 2017-1 I.R.B. 130
2017-4, 2017-1 I.R.B. 146

2017-5, 2017-1 I.R.B. 230
2017-7, 2017-1 I.R.B. 269
2017-12, 2017-3 I.R.B. 424

2017-14, 2017-3 I.R.B. 426

2017-15, 2017-3 I.R.B. 437

2017-16, 2017-3 I.R.B. 501

##### Revenue Rulings:

2017-1, 2017-3 I.R.B. 377
2017-2, 2017-2 I.R.B. 364

Treasury Decisions:

9794, 2017-2 I.R.B. 273
9795, 2017-2 I.R.B. 326
9796, 2017-3 I.R.B. 380
9801, 2017-2 I.R.B. 355
9802, 2017-2 I.R.B. 361
9803, 2017-3 I.R.B. 384
9804, 2017-3 I.R.B. 406

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016-27 through 2016-52 is in Internal Revenue Bulletin
2016-52, dated December 26, 2016.

### Finding List of Current Actions on Previously Published Items1

Bulletin 2017-1 through 2017-3

Notices:

2002-1
Amplified by
Notice 2017-1, 2017-2 I.R.B. 367

2011-86
Obsoleted by
Notice 2017-1, 2017-2 I.R.B. 367

2016-29
Modified by
Notice 2017-6, 2017-3 I.R.B. xxx

Revenue Procedures:

2017-01 I.R.B. 1

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016-27 through 2016-52 is in Internal Revenue Bulletin
2016-52, dated December 26, 2016.

# Internal Revenue Service Washington, DC 20224

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