Part VI. Substitute Interest

Complete only if a qualified intermediary that has assumed primary withholding responsibility for payments of substitute interest (as described in section 3.03(A) of the QI Agreement).

A. General Information

1. Total number of accounts receiving substitute interest payments.
2. Total number of accounts receiving substitute interest reviewed as part of the periodic review.
3. Did QI use a statistical sampling method in conducting the review of substitute interest transactions for which QI assume primary withholding responsibility? Y/N/NA

a. If yes, was it the safe harbor method under Appendix II to the QI Agreement? b. If no, describe the method used.

B. Documentation

1. Total accounts reviewed with valid documentation.
2. Total accounts reviewed with invalid documentation or no documentation for which documentation or additional documentation was obtained after the initial review.
3. Total accounts reviewed for which treaty benefits were claimed.
4. Total accounts reviewed for which treaty benefits were claimed where QI did not obtain sufficient documentation to establish the payee’s entitlement to treaty benefits (including, where applicable, the treaty statement and limitation on benefits information required by section 5.03(B) of the QI Agreement).
5. Total accounts reviewed held by U.S. non-exempt recipient account holders.
6. Total accounts held by U.S. non-exempt recipient account holders reviewed for which QI has obtained a valid Form W–9.

C. Withholding

1. The aggregate amount reported as withheld under chapter 3 by QI on Forms 1042–S with respect to substitute interest payments.
2. Number of accounts for which amounts were withheld under chapter 3 with respect to substitute interest payments.
3. The aggregate amount reported as withheld under chapter 4 by QI on Forms 1042–S with respect to substitute interest payments.
4. Number of accounts for which amounts were withheld under chapter 4 with respect to substitute interest payments.
5. Additional withholding required under chapter 4 based on results of periodic review.
6. Additional withholding required under chapter 3 based on results of periodic review.
7. Aggregate amount reported as withheld on Forms 1099 on reportable payments (including reportable amounts) subject to backup withholding.
8. Additional backup withholding required based on results of periodic review.
9. The aggregate amount of deposits made in accordance with section 3.08 of the QI Agreement with respect to substitute interest payments.

D. Reporting

1. Total amount of interest or substitute interest payments received for which QI represented itself as assuming primary withholding responsibility.
2. Aggregate amount of substitute interest payments made.
3. Total amount of payments in Question 2 that were reported on Forms 1099.
4. Total amount of payments in Question 2 that were amounts subject to chapter 4 reporting reported on Form 1042–S.
5. Total amount of payments in Question 2 that were amounts subject to chapter 3 reporting reported on Form 1042–S.
6. Aggregate amount of any claims for credit or refund made by QI with respect to payments of substitute interest.

Bulletin No. 2016–29 127 July 18, 2016

APPENDIX II

Section 1. Background. As provided in section 10.05 of the QI Agreement, the reviewer is permitted to use a sampling methodology to perform the periodic review. This Appendix includes safe harbor procedures covering basic sample design parameters and methodologies, including sample size, strata allocation, and projection. QI may use another sampling technique provided it documents its parameters and methodologies for the IRS to review, as described in section 10.05 of the QI Agreement. Sampling should only be used whenever an examination of all accounts within a particular class of accounts would be prohibitive in terms of time and expense. If it is reasonable to examine all accounts in connection with a particular part of the periodic review, sampling techniques should not be used. Except as otherwise provided herein, the terms used in this Appendix are as defined in section 2 of the QI Agreement.

Generally, sampling should only be used if there are more than 50 accounts to review. To the extent applicable, the reviewer must separately review accounts for which QI acts as a qualified intermediary (excluding accounts for which QI is acting as a QDD and accounts to which QI made substitute interest payments for which QI assumed primary withholding responsibility) (“QI accounts”), accounts for which QI is acting as a QDD, and accounts receiving substitute interest payments for which QI assumed primary withholding responsibility. If PAI accounts are also included in the QI’s review (because the PAI did not perform its own compliance review), the PAI accounts should be included in the sample of QI accounts by adding additional strata, replicating the strata prescribed in section 2.C of this Appendix as applicable, that contain only PAI accounts. For purposes of the QI’s periodic review, a QI account, an account for which QI is acting as a QDD, or an account receiving substitute interest payments for which QI assumed primary withholding responsibility is referred to as a “sample unit” (and collectively as the “sample”) with respect to each review. For any of the three reviews with populations containing 50 or fewer sample units, all sample units for that population must be reviewed.

The statistical sampling methodologies used in this Appendix are not intended to be and cannot be used for any other tax purpose. A reviewer may request approval to modify the safe harbor or approval of another sampling methodology in order to select more than the three sample units or to use multistage, cluster, or other sampling methodologies including additional stratifications. To obtain IRS approval, contact the Financial Intermediaries Program in accordance with section 12.06 of the QI Agreement.