Section 2. Delayed Effective Date

Commentators to Notice 99–8 stated that financial institutions are involved in substantial information systems changes that are required for their systems to become year 2000 compliant. To meet their objectives, financial institutions are imposing restrictions on systems changes to ensure a smooth year 2000 transition. Commentators also indicated that certain

aspects of the qualified intermediary regime were not apparent to some financial institutions when the new withholding regulations were first issued and that implementation of the regulations would require more time and effort from many institutions than had initially been expected. Further, because the terms of the qualified intermediary agreements have not been finalized, potential qualified intermediaries are not yet certain of all of their documentation, withholding, and reporting obligations. Therefore, commentators have stated that full compliance with the regulations cannot be achieved if the 1441 regulations become effective on January 1, 2000.

Treasury and the IRS have concluded that it is in the best interest of tax administration to extend the date of applicability of the final withholding regulations to permit taxpayers to make the computer system modifications necessary to comply with the new withholding regulations without the impediments caused by year 2000 concerns. Therefore, T.D. 8734, as modified by T.D. 8804, will be amended to apply to payments made after December 31, 2000.

In Notice 98–16, the IRS stated that it would regard the 1999 calendar year as a transition period in enforcing compliance for the administration of the withholding tax system. The year 2000 will similarly be regarded as a transition period. Accordingly, in enforcing compliance with current withholding rules for calendar years 1999 and 2000, the IRS will take into account the extent to which a withholding agent makes a good faith effort to transform its business practices and information systems to comply with the final withholding regulations. For example, the IRS will take into account whether a U.S. withholding agent makes reasonable efforts during 1999 and 2000 to modify its account opening practices to conform to the new documentation requirements, obtain new withholding certificates on existing accounts, and make appropriate systems changes to comply with the final withholding regulations. For foreign withholding agents, the IRS will take into account whether or not the withholding agent makes a good faith effort to seek qualified intermediary status. The IRS will also take into account whether or not a withholding agent (whether U.S. or for

1999–20 I.R.B. 75 May 17, 1999

eign) effectively implements the final withholding regulations beginning on January 1, 2001.