SECTION 9. ADJUSTMENTS FOR

OVER- AND UNDER- WITHHOLDING; REFUNDS

January 24, 2000 406 2000–4 I.R.B.

ing the procedures of this section 9.04. QI shall not include in its collective refund claim payments made to an indirect account holder or to a direct account holder that is a nonqualified intermediary or flow-through entity. 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 9.04 only if the following conditions are met: (A) QI must not have issued Forms 1042S to the account holders that received the payment that was subject to overwithholding; (B) QI must submit together with its amended return on which it claims a credit or refund a statement of the reason for the overwithholding; (C) QI must submit together with its amended return on which it claims a credit or refund a statement that it has repaid the amount of overwithholding to the appropriate account holders prior to filing the claim for credit or refund; and (D) QI must retain a record showing that it repaid the account holders the amount of the overwithholding. Sec. 9.05. Adjustments for NRA Under- withholding. 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. QI’s responsibilities will be met if it informs a withholding agent from which it received the payment of the underwithholding and the withholding agent satisfies the underwithholding. Sec. 9.06. NRA Underwithholding After Form 1042 Filed. If, after a Form 1042 has been filed for a calendar year, QI, QI’s external auditor, or the IRS determines that, due to QI’s failure to carry

Sec. 9.01. Adjustments for NRA Over- withholding 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 procedure described in section 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 require a withholding agent to apply the reimbursement or set off procedures under sections 9.01(A) or (B) of this Agreement. (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. (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 to be withheld under chapter 3 of the Code 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. 9.02. Adjustments for NRA Over- withholding 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 holders for an amount overwithheld and reimburse itself by reducing, by the amount of tax actually repaid to the account holders, the amount of any subsequent deposit of tax required to be made by QI under section 3.08 of this Agreement. For purposes of this section 9.02(A), an amount that is overwithheld shall be applied in order of time to each of

the QI’s subsequent deposit periods in the same calendar year to the extent that the withholding taxes required to be deposited for a subsequent deposit period exceed the amount actually deposited. An amount overwithheld in a calendar year may be applied to deposit periods in the calendar year following the calendar year of overwithholding only if: (1) QI states on a Form 1042-S (issued, if applicable, to the account holders of the income or otherwise to a reporting pool), filed by March 15 of the calendar year following the calendar year of overwithholding, the amount of tax withheld and the amount of any actual repayments; and (2) 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 Treas. Reg. §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 of the Code to be withheld from a payment made by QI to the account holders 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 withheld, the reduced amount shall be considered the amount required to be withheld from such income under chapter 3 of the Code. Sec. 9.03. Repayment of Backup With- holding. If QI erroneously withholds, as defined under Treas. Reg. §31.6413(a)–3, an amount under section 3406 of the Code from an account holder, QI may refund the amount erroneously withheld as provided in Treas. Reg. §31.6413(a)–3. Sec. 9.04. Collective Credit or Refund Procedures for NRA Overwithholding . If there has been overwithholding under chapter 3 of the Code on amounts subject to NRA withholding 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 9.01 or 9.02 of this Agreement, QI may request a credit or refund of the total amount overwithheld by follow

2000–4 I.R.B. 407 January 24, 2000

out its obligations under this Agreement, 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 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. See section 10.04 of this Agreement for procedures that apply if underwithholding is discovered as part of a statistical sampling of accounts. Sec. 9.07. Special Rule Regarding Fail- ure to Deposit Penalties. Solely for purposes of applying section 6656 of the Code (failure to make deposit of taxes), neither QI nor its withholding agent will be considered to have made an underpayment of a deposit of NRA withholding taxes if the conditions of this paragraph are met. The conditions of this paragraph are that– (A) The withholding agent or QI makes its deposits within the time (deposit period) required by section 6302 of the Code, or if applicable, section 3.08 of this Agreement; (B) The deposit is not less than 90 percent of the aggregate amount of the tax required to be withheld under chapter 3 of the Code during the deposit period applicable to the withholding agent or QI; and (C) QI and the withholding agent determine the difference between the total amount required to be deposited and the amount actually deposited as of the end of the 3rd, 6th, 9th, and 12th months of the calendar year and the difference is deposited no later than the 15th day of the second following month (i.e., May 15, August 15, November 15 and February 15, respectively). In determining whether there has been an underpayment, reimbursements and set-offs shall be taken into account.