Section 5. Qualified Intermediary

Procedures

As indicated above, for the final withholding regulations to be most effectively implemented, it is desirable for qualified intermediary withholding agreements to be available to as many foreign financial intermediaries as possible. A qualified intermediary is a foreign person, or a foreign branch of a U.S. person, that agrees with the IRS in a qualified intermediary withholding agreement to collect information regarding its account holders and to make that information available as may be required under the agreement. It is an

ticipated that the qualified intermediary regime will reduce the collection of information and reporting required of withholding agents under the current rules.

Simultaneously with this notice, Treasury and the IRS are releasing Revenue Procedure 98–27, which provides guidance on entering into a qualified intermediary withholding agreement with the IRS. Although the revenue procedure is designed to provide specific guidance on the application process for persons described in §1.1441–1(e)(5)(ii)(A) and (B) (i.e., foreign financial institutions, foreign clearing organizations, and foreign branches of U.S. financial institutions and U.S. clearing organizations), any person desiring a qualified intermediary withholding agreement may submit a draft agreement in the general manner described in the revenue procedure.

This notice announces that, although any person is permitted to apply for and negotiate an individual qualified intermediary withholding agreement with the IRS, the IRS intends to issue a series of model agreements of broad applicability to make qualified withholding agreements as widely available as possible. It is contemplated that, upon release of one of these model agreements, any person falling within the class of persons covered by the model agreement would be able to accept, sign, and submit the agreement to the IRS, without the need for individual negotiations. The IRS currently contemplates that each model agreement will be specific to a particular country, or group of countries with similar laws and practices, and will be specific to a class of persons conducting similar intermediary businesses in a similar manner. Such an approach enables each model agreement to cover as broad a class of persons as possible, while allowing uniform application of all material provisions among all persons in the identified class.

Because of its intent to issue a series of model agreements of broad applicability, the IRS invites submissions of proposed model agreements by groups or associations of potential qualified intermediaries. As part of the submission, the IRS requests a description of the class of persons the proposed model agreement is intended to cover and why that class of persons could operate under a single model agreement.

1998–15 I.R.B. 13 April 13, 1998

local bond. Section 103(b)(1) provides that § 103(a) shall not apply to any private activity bond that is not a “qualified bond” within the meaning of § 141. Section 141(e) provides that the term “qualified bond” includes any private activity bond that (1) is a qualified mortgage bond, (2) meets the volume cap requirements under § 146, and (3) meets the applicable requirements under § 147.

.02 Section 143(a)(1) provides that the term “qualified mortgage bond” means a bond that is issued as part of a “qualified mortgage issue”. Section 143(a)(2)(A) provides that the term “qualified mortgage issue” means an issue of one or more bonds by a state or political subdivision thereof, but only if (i) all proceeds of the issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences; (ii) the issue meets the requirements of subsections (c),(d),(e),(f),(g), (h),(i), and (m)(7) of § 143; (iii) the issue does not meet the private business tests of paragraphs (1) and (2) of § 141(b); and (iv) with respect to amounts received more than 10 years after the date of issuance, repayments of $250,000 or more of principal on financing provided by the issue are used not later than the close of the first semi-annual period beginning after the date the prepayment (or complete repayment) is received to redeem bonds that are part of the issue.

.03 Section 143(f) imposes eligibility requirements concerning the maximum income of mortgagors for whom financing may be provided by qualified mortgage bonds. Section 25(c)(2)(A)(iii)(IV) provides that recipients of mortgage credit certificates must meet the income requirements of § 143(f). Generally, under §§ 143(f)(1) and 25(c)(2)(A)(iii)(IV), these income requirements are met only if all owner-financing under a qualified mortgage bond and all certified indebtedness amounts under a mortgage credit certificate program are provided to mortgagors whose family income is 115 percent or less of the applicable median family income. Under § 143(f)(6), the income limitation is reduced to 100 percent of the applicable median family income if there are fewer than three individuals in the family of the mortgagor.

.04 Section 143(f)(4) provides that the term “applicable median family income”

In the interest of ensuring that as many financial intermediaries as possible can become qualified intermediaries well in advance of the effective date of the final withholding regulations, the IRS intends to give submissions of proposed model agreements of broad applicability first consideration. Consequently, except in unusual circumstances, proposed agreements by individual intermediaries, while also invited, will not likely lead to negotiations with the IRS until sufficient progress has been made in the process of issuing model agreements. Moreover, persons who are clearly within a class of persons covered by an existing model agreement will not be permitted to negotiate an individual agreement absent unusual circumstances.

The IRS currently contemplates releasing a group of model agreements simultaneously, rather than issuing them one-byone, and expects that this release will occur before December 31, 1998. Additional model agreements and individual agreements may be issued after that first release of model agreements. Due to time constraints, however, groups or associations of intermediaries desiring to submit a proposed model agreement on behalf of a class of persons should make such a submission on or before July 3, 1998, to ensure that such model agreement can be released and individual agreements can be concluded prior to December 31, 1998.

Persons submitting proposed model agreements are advised that these submissions will be made available to the public.