Section 1. Background

In Treasury Decision 8734 (62 F.R. 53387 [1997–2 C.B. 109]), as modified by T.D. 8804 (63 F.R. 72183 [1999–12 I.R.B. 5]) (the “new withholding regulations”), the Department of the Treasury and the Internal Revenue Service issued comprehensive regulations under chapter 3 (sections 1441–1464) and subpart G of subchapter A of chapter 61 (sections 6041–6050S) of the Internal Revenue Code (the “Code”). Qualified intermediaries are a key component of those regulations. A qualified intermediary is a foreign entity, or foreign branch of a U.S. entity, that obtains the benefit of establishing the foreign status of its account holders, and their entitlement to reduced rates of withholding, by using a single withholding certificate rather than having to provide documentation for each customer to a U.S. withholding agent. In addition, the qualified intermediary can report most of its payments to the IRS on a pooled basis, rather than having to provide a Form 1042-S for each of its foreign account holders or investors. In exchange for these benefits, the qualified intermediary assumes certain compliance and information reporting responsibilities.

To be a qualified intermediary, an entity must enter an agreement with the IRS. The IRS has provided information on qualified intermediary agreements first in Rev. Proc. 98–27, 1998–15 I.R.B. 30, and Notice 98–16, 1998–15 I.R.B. 12, and subsequently in Notice 99–8, 1999–5 I.R.B. 26. The final provisions of qualified intermediary agreements have not yet been determined. Notice 99–8 also announced certain changes that Treasury and IRS are proposing to make to T.D. 8734.