SECTION 11. ADJUSTMENTS FOR OVER- AND UNDER-WITHHOLDING; REFUNDS

Sec. 11.01. Adjustments for Overwithholding by Withholding Agent. QI may request a withholding agent to make an adjustment for amounts paid to QI on which the withholding agent has overwithheld under chapter 3 of the Code by applying either the reimbursement or set-off procedures described in this section within the time period prescribed for those procedures.

(A) Reimbursement Procedure. QI may request a withholding agent to repay QI for any amount overwithheld under chapter 3 of the Code and for the withholding agent to reimburse itself under the reimbursement procedures of Treas. Reg. §1.1461-2(a)(2)(i) by making the request to the withholding agent prior to the due date for filing the Form 1042 and Form 1042-S (without regard to extensions) for the calendar year of overwithholding. Nothing in this section shall be interpreted to require a withholding agent to reimburse QI under Treas. Reg. §1.1461–2(a)(2)(i).

(B) Set-off Procedure. QI may request a withholding agent to repay QI by applying the amount overwithheld against any amount which otherwise would be required under chapter 3 of the Code to be withheld from income paid by the withholding agent to QI. QI must make the request before the earlier of the due date (without regard to extensions) 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. 11.02. Adjustments for Chapter 3 Overwithholding by QI. QI may make an adjustment for amounts paid to its account holders that it has overwithheld under chapter 3 of the Code by applying either the reimbursement or set-off procedures described in this section within the time period prescribed for those procedures.

(A) Reimbursement Procedure. QI may repay its account holder for an amount overwithheld and reimburse itself by reducing, by the amount of tax actually repaid to the beneficial owner or payee, the amount of any deposit of tax made by the withholding agent under section 6302 of the Code and Treas. Reg. §1.6302–2(a)(1)(iii) for any subsequent payment period occurring before the end of the calendar year following the calendar year of overwithholding. Any such reduction that occurs for a payment period in the calendar year following the calendar year of overwithholding shall be allowed only if:

(i) QI states on a timely filed (not including extensions) Form 1042-S for the calendar year of withholding issued to the recipient of the income or, if appropriate, the Form 1042-S reporting income from a class of assets as described in section 10.04 of this Agreement, the amount of tax withheld and the amount of any actual repayments; and

(ii) QI states on a timely filed (not including extensions) Form 1042 for the calendar year of overwithholding, that the filing of the Form 1042 constitutes a claim for credit in accordance with Treas. Reg. §1.6414–1.

(B) Set-Off Procedure. QI may repay its account holder by applying the amount overwithheld against any amount which otherwise would be required under chapter 3 of the Code or the regulations thereunder to be withheld from income paid by QI to the account holder before the earlier of the due date (without regard to extensions) for filing the Form 1042-S for the account holder or the withholding pool, as appropriate, for 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 (or an amended form) for the calendar year of overwithholding, and for

1999–5 I.R.B. 45 February 1, 1999

purposes of making a deposit of the amount withheld, the reduced amount shall be considered the amount required to be withheld from such income under chapter 3 of the Code.

Sec. 11.03. Repayment of Backup Withholding. If QI erroneously withholds, as defined under Treas. Reg. §31.6413(a)-3, an amount under section 3406 of the Code from a payee, QI may refund the amount erroneously withheld as provided in Treas. Reg. §31.6413(a)–3.

Sec. 11.04. Collective Refund or Credit Procedures for Chapter 3 Overwithholding. If there has been overwithholding under chapter 3 of the Code on the total amount of reportable payments paid to QI’s account holders during a calendar year and the amount has not been recovered under the reimbursement or set-off procedures under sections 11.02 or 11.03 of this Agreement, QI may request a refund or credit of the total amount overwithheld for account holders for whom QI acts as a qualified intermediary by following the procedures of this section 11.04. QI shall not include in its collective refund claim payments made to another qualified intermediary, a withholding foreign partnership, a nonqualified intermediary, or the account holders of a nonqualified intermediary. QI shall follow the procedures set forth under sections 6402 and 6414 of the Code, 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 of the Code. QI may use the collective refund procedures under this section 11.04 only if the following conditions are met:

(A) QI must not have issued a Form 1042-S to the account holders from whose payment the amount has been overwithheld;

(B) QI must submit together with its amended return on which it claims a credit or refund a statement that QI has repaid the tax to the account holder prior to filing the claim for refund or credit; and

(C) QI must retain a record that it paid, or credited the account of, the account holder the amount of the overwithholding.

Sec. 11.05. Adjustments for Chapter 3 Underwithholding. If QI knows that an amount should have been withheld under chapter 3 of the Code from a previous payment to an account holder but was not withheld, QI may either withhold from future payments made to the same account holder or satisfy the tax from property that it holds in custody for the account holder or property over which it has control. The additional withholding or satisfaction of the tax owed may only be made before the due date of the Form 1042 (not including extensions) for the calendar year in which the underwithholding occurred.

Sec. 11.06. Underwithholding After Form 1042 Filed. If, after a Form 1042 has been filed for a calendar year, QI, the external auditor designated in Appendix B of this Agreement, 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 for such year. QI shall pay the underwithheld tax, the interest due on the underwithheld tax, and any applicable 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 of the Code.