Notice 2016-42 — Internal Revenue Bulletin 2017-3

forth a proposed QI agreement (the Proposed QI Agreement) that included revisions to the QI agreement currently in effect, contained in Revenue Procedure 2014-39 (the 2014 QI Agreement) as well as provisions relating to QDDs. Comments were received in response to the Proposed QI Agreement. This section provides a summary of changes reflected in the QI agreement provided in this Revenue Procedure (the 2017 QI Agreement), including changes made in response to certain of the comments received to the Proposed QI Agreement.

.01 Provisions Applicable to Qualified Derivatives Dealers. On September 18,

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2015, final and temporary regulations under section 871(m) and sections 1441, 1461, and 1473 (collectively, the 871(m) regulations) were published in T.D. 9734, which addressed the treatment of dividend equivalents from U.S. sources. On July 1, 2016, the Treasury Department and the IRS released Notice 2016-42, containing the Proposed QI Agreement that describes requirements and obligations that were proposed to be applicable to QDDs and that requested comments. On December 2, 2016, the Treasury Department and the IRS released Notice 2016-76, 2016-51 I.R.B. 834, providing guidance for complying with the section 871(m) regulations in 2017 and 2018 and explaining how the IRS intends to administer those regulations in 2017 and 2018. The QDD provisions of the 2017 QI Agreement reflect anticipated changes to the 871(m) regulations, which are discussed below.

(1) Updates to reflect Notice 2016-76 . The Proposed QI Agreement provided rules for how a QDD calculates its section 871(m) amount and determines its QDD tax liability. Based on comments received on the Proposed QI Agreement, Notice 2016-76 revised the methodology for determining the section 871(m) amount to use a net delta approach and announced that the regulations under §1.871–15(q) (1) would be revised to provide that a QDD will remain liable for tax under section 881(a)(1) and subject to withholding under chapters 3 and 4 on dividends on physical shares and deemed dividends received. Notice 2016-76 also makes calendar year 2017 a phase-in year for QDDs, as it provides that, in enforcing and administering the QDD rules in the section 871(m) regulations and the relevant provisions of the QI agreement for 2017, the IRS will take into account the extent to which the QDD made a good faith effort to comply with the section 871(m) regulations and the relevant provisions of the QI agreement.

The 2017 QI Agreement further modifies the computation of a QDD’s section 871(m) amount for 2017 and describes certain anticipated changes to the 871(m) regulations, which are expected to be released in January 2017. To provide QDDs with the time necessary to implement the computation of the section 871(m) amount announced in Notice 2016-76, a

QDD will not be liable for tax under section 881(a)(1) on dividends on physical shares (including deemed dividends) or on dividend equivalents that the QDD receives in its capacity as an equity derivatives dealer in calendar year 2017. Both the Proposed QI Agreement and Notice 2016-76 provided that a QDD will remain liable for tax under section 881(a)(1) on dividends and dividend equivalents that a QDD receives in any capacity other than as an equity derivatives dealer. The 2017 QI Agreement does not change this result. In addition, a QDD is responsible for withholding on dividend equivalents it pays to a foreign person on a section 871(m) transaction, whether in its capacity as an equity derivatives dealer or otherwise.

The 2017 QI Agreement provides that a QDD will be required to compute its section 871(m) amount using the net delta approach (as defined in section 2.47 of the 2017 QI Agreement) beginning in 2018, and will be subject to withholding on dividends (including deemed dividends) received on or after January 1, 2018. The Treasury Department and the IRS will consider comments recommending approaches for alleviating any overwithholding (and preventing any underwithholding) that might occur on dealer transactions with customers and on positions that hedge customer transactions when withholding on dividends (including deemed dividends) begins in 2018.

(2) Eligible entity . The Proposed QI Agreement provided that an entity must enter into a QI agreement and be an eligible entity to be a QDD. Comments to the Proposed QI Agreement requested that the definition of an eligible entity be expanded.

In response to comments regarding the application of the QDD rules to branches, the 2017 QI Agreement clarifies the treatment of branches. The 2017 QI Agreement provides that the home office (as defined in section 2.43 of the 2017 QI Agreement) and each branch of the person that is applying for the QI agreement must separately qualify and be approved for QDD status. The home office and any branch that wants to be a QDD must each separately meet the eligible entity requirements as if it were a separate entity. When approved as a QDD, the home office and

each branch are treated as a separate QDD and must apply the QDD provisions as if each home office and branch were separate entities. If a foreign person has one or more branches, the home office is the foreign person, excluding any branches of the foreign person.

As provided in section 1.02 of the 2017 QI Agreement, if a QI is an FFI, it can only have a branch also act as a QI if that branch is located in a jurisdiction identified on the IRS’s Approved KYC List. This rule applies to QIs that are FFIs and are applying for QDD status on behalf of the home office or any branch. The QI agreement does not require NFFEs applying for QI status to be located or operating in an approved KYC jurisdiction (because NFFEs under the QI agreement are required to document their account holders by collecting withholding certificates and are not allowed to document their account holders solely with documentary evidence). Similarly, a branch of a NFFE is not required to be located in a jurisdiction identified on the IRS’s Approved KYC List (and must document its account holders with withholding certificates) to be able to act as a QI, including a branch acting as a QDD.

Comments also requested that the definition of an eligible entity be expanded to include bank holding companies and their subsidiaries. The comments noted that bank holding companies are subject to extensive regulation, including compliance with risk management standards. In response to comments, the 2017 QI Agreement expands the eligible entity definition to include a bank holding company that is subject to regulatory supervision as a bank holding company by the governmental authority in the jurisdiction in which it is organized or operates. The eligible entity definitions is also expanded in the 2017 QI Agreement to include an entity that is wholly-owned (directly or indirectly) by a bank holding company subject to regulatory supervision as a bank holding company by a governmental authority in the jurisdiction in which the bank holding company is organized or operates. To qualify as a QDD, any bank holding company or wholly-owned subsidiary of a bank holding company must satisfy the other requirements of the eligible entity definition. Finally, to provide

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the IRS with flexibility to administer the QDD regime, an eligible entity will be defined to include any other person acceptable to the IRS, which is similar to the allowance provided to the IRS in defining persons eligible to enter into QI agreement as provided in §1.1441– 1(e)(5)(ii)(D). (3) Section 871(m) amount . The Proposed QI Agreement described the section 871(m) amount as the sum of the amounts by which, for each dividend on each underlying security, (A) the dividends on underlying securities associated with potential section 871(m) transactions and dividend equivalent payments that a QDD receives in its dealer capacity exceed (B) the dividend equivalent payments and the qualifying dividend equivalent offsetting payments that a QDD makes with respect to the same dividend in its dealer capacity. Comments requested that a QDD calculate its section 871(m) amount based on its net delta exposure to an underlying security. Comments noted that the net delta exposure is used for business or nontax regulatory purposes. The net delta exposure is calculated by multiplying the relevant dividend amount per share by the net delta exposure (measured in number of shares) of the QDD in its dealer capacity generally as of the close of the day before the ex-dividend date for the underlying security.

In response to comments, the 2017 QI Agreement provides that the section 871(m) amount is determined for each dividend on each underlying security by multiplying (A) the QDD’s net delta exposure to the underlying security for the applicable dividend by (B) the applicable dividend amount per share. The net delta exposure to an underlying security for an applicable dividend is the amount (measured in number of shares) by which (A) the aggregate number of shares in the underlying security that the QDD has exposure to as a result of positions in the underlying security (including as a result of owning the underlying security) with values that move in the same direction as the value of the underlying security (the long positions) exceeds (B) the aggregate number of shares of in the underlying security that the QDD has exposure to as a result of positions in the underlying security with values that move in the oppo

site direction from the value of the underlying security (the short positions). The net delta exposure calculation only includes long positions and short positions that the QDD holds in its equity derivatives dealer business. Any long positions or short positions that are treated as effectively connected with the QDD’s conduct of a trade or business in the United States for U.S. federal income tax purposes are excluded from the net delta exposure computation. The net delta exposure to an underlying security is determined at the end of the day on the date provided in §1.871–15(j)(2) for the applicable dividend. If a QDD calculates net delta for non-tax business purposes, that net delta ordinarily will be used for this purpose, subject to the modifications required by the net delta exposure definition. Each QDD must determine its net delta exposure separately only taking into account transactions that exist and are attributable to that QDD for federal income tax purposes.

(4) QDD tax liability . Under the Proposed QI Agreement, the QDD tax liability was the sum of a QDD’s section 881 tax liability for (A) its section 871(m) amount, (B) its dividends that are not on underlying securities associated with potential section 871(m) transactions and its dividend equivalent payments received as a QDD in its non-dealer capacity, and (C) any payments, such as interest, received as a QDD with respect to potential section 871(m) transactions or underlying securities that are not dividend or dividend equivalent payments.

As a result of the changes announced in Notice 2016-76 to modify the section 871(m) amount and to require withholding on dividends paid to a QDD, the 2017 QI Agreement makes corresponding changes to the QDD tax liability. The 2017 QI Agreement revises the section 871(m) amount to reflect the net delta exposure computation and permit a QDD to reduce the tax liability on its section 871(m) amount by taking into account withholding taxes paid on that same dividend. While the section 871(m) amount computation was expanded to permit offsets for amounts that do not give rise to withholding tax payments under the 2017 QI Agreement, the QDD is liable for tax on any dividends received, without offset

or credit forward to address concerns raised by the expansion of offsets in the section 871(m) amount computation. The 2017 QI Agreement is also revised to reflect that QDDs are subject to withholding on all U.S. source FDAP payments made to a QDD on underlying securities, other than dividend equivalents.

Under the 2017 QI Agreement, a QDD’s QDD tax liability is the sum of (A) for each dividend on each underlying security, the amount by which its tax liability under section 881 for its section 871(m) amount exceeds the amount of tax paid by the QDD in its capacity as an equity derivatives dealer under section 881(a)(1) on that dividend, (B) its tax liability under section 881 for dividend equivalent payments received as a QDD in its non-equity derivatives dealer capacity, and (C) its tax liability under section 881 for any payments, such as dividends or interest, received as a QDD with respect to potential section 871(m) transactions that are not dividend or dividend equivalent payments to the extent the full liability was not satisfied by withholding.

Under the Proposed QI Agreement, a QDD was required to pay its QDD tax liability based on the withholding timing and deposit rules for those payments. Comments requested that the timing for QDD tax liability payments be changed. After considering the comments, the 2017 QI Agreement removes the requirement that the QDD tax liability be paid in the same time and manner as would have been required for withholding on the applicable payments. Instead, the general rules regarding the time for a taxpayer to pay its tax liability will apply, which will typically require a QDD to make quarterly estimates of its QDD tax liability that will be added to the QI’s tax liability and filing an appropriate U.S. tax return.

(5) QDD withholding and reporting of payments . A QDD must assume primary withholding responsibility for purposes of chapters 3 and 4 for all payments it makes as a QDD. The amount subject to withholding is determined under the Internal Revenue Code and the regulations promulgated thereunder and is not reduced by any taxes paid by the QDD, including any tax paid as part of its QDD tax liability. A QI can elect whether or not to assume primary withholding responsibility for

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purposes of chapters 3 and 4 for payments for which it is not required to act as a QDD. Comments requested that the Proposed QI Agreement be revised to clarify that a QI that is not acting as a QDD may elect whether to assume primary withholding responsibility for payments that are not related to its QDD activities. While the Proposed QI Agreement already contained a rule that allowed a QI to elect whether or not to assume primary withholding responsibility for payments for which it was not required to act as a QDD, the 2017 QI Agreement further clarifies this rule.

The Proposed QI Agreement provided that there would be no withholding or reporting on payments made to a QDD with respect to potential section 871(m) transactions and underlying securities, other than reporting for dividends and substitute dividends. A comment requested that the exclusion be limited to dividends and dividend equivalents. As a result of changes to the section 871(m) amount in the 2017 QI Agreement, all payments (other than dividend equivalent payments) made to a QDD with respect to underlying securities will be subject to withholding and reporting if the payments would be subject to withholding and reporting to a non-QDD. As described in section 4.01(1) of the preamble to the 2017 QI Agreement, however, a QDD will be subject to withholding on dividends (including deemed dividends) beginning with those payments received on or after January 1, 2018. The 2017 QI Agreement retains the same withholding and reporting rules for payments made to a QDD with respect to potential section 871(m) transactions as in the Proposed QI Agreement.

The Proposed QI Agreement expanded the scope of payments that QDDs would receive without withholding to include any payments on underlying securities or potential section 871(m) transactions. A comment requested that the withholding exclusion be limited to dividends and dividend equivalents. The 2017 QI Agreement provides that a QDD will be subject to withholding on all payments, other than dividend equivalents, received by the QDD with respect to underlying securities. In addition, the 2017 QI Agreement

removes the withholding timing and deposit rules for these payments.

(6) Securities lending and sale- repurchase transactions . The Proposed QI Agreement provided that a QI must act as a QDD for any securities lending or sale-repurchase transaction it enters into that is a section 871(m) transaction, and that for purposes of the agreement, a QDD is deemed to make and receive payments pursuant to those securities lending and sale-repurchase transactions as a principal. Comments requested that this provision be revised to permit entities acting as agents of lenders in securities lending or sale-repurchase transactions to act as intermediaries and not be required to obtain QDD status. In response to that comment, the 2017 QI Agreement provides that to the extent a QI determines that it is acting as an intermediary with respect to a securities lending or sale-repurchase transaction that is a section 871(m) transaction, it will not be treated as entered into by the QI as a principal; therefore, those transactions will not be treated as entered into by the QI in its QDD capacity.

Pursuant to Notice 2016-76, taxpayers may continue to rely on Notice 2010-46, 2010-24 I.R.B. 757, during calendar year 2017. As a result, the 2017 QI Agreement addresses QIs who are qualified securities lenders (QSLs) during 2017. If a QI is acting as a QDD, the QI must act as a QDD for all payments made as a principal with respect to potential section 871(m) transactions and all payments received as a principal with respect to potential section 871(m) transactions and underlying securities. Therefore, a QI cannot be both a QSL and a QDD, except with respect to a securities lending or sale-repurchase transaction for which the QI has determined that it is acting as an intermediary.

(7) Form 1042-S reporting . Comments to the Proposed QI Agreement requested that a QI that is also acting as a QDD be allowed to separate its Form 1042-S reporting and report payments separately when acting as a QI and when acting as a QDD. Consistent with the 2017 Form 1042-S and the box 12b requirement on Form 1042-S that a withholding agent provide its chapter 3 status code, a QI that is also acting as a QDD is required to file separate Forms 1042-S to report payments made in each capacity by identifying its

specific chapter 3 status code as a QI or QDD. Section 8.01 of the 2017 QI Agreement has been updated to reflect this requirement. In addition, when a withholding agent makes a payment to a QDD that is subject to reporting under chapter 3 or 4, a separate Form 1042-S is required for each QDD, identifying the QDD by its home office or branch, if applicable.

(8) Responsible officer and scope of certification . A comment to the Proposed QI Agreement requested that QIs that also act as QDDs be able to designate different responsible officers for purposes of their QDD compliance. Because there is already flexibility for a QI’s responsible officer to rely on any process, procedure, review, or certification in making its certification and for a QI’s responsible officer to delegate its responsibilities as appropriate, this request was not adopted. A QI’s responsible officer may designate a specific person to be responsible for QDD compliance, but only the responsible officer may make the certification to the IRS.

.02 Periodic Review and Certifications of Compliance. The 2014 QI Agreement replaced the previous external audit requirement applicable to a QI with an internal compliance and review program. As part of this compliance program, the responsible officer is required to make periodic compliance certifications and provide, with the certifications, certain factual information to the IRS based, in part, on the results of a periodic review. After the 2014 QI Agreement was published, comments raised concerns about the administration of the compliance procedures, including potential costs of implementing and conducting a compliance program, difficulties in allocating resources to conduct the periodic review in the last year of the certification period (as required by the 2014 QI Agreement), and the lack of detailed standards for performance of the QI’s periodic review similar to those provided in Rev. Proc. 2002-55, 2002-2 C.B. 435. To address these comments, the Proposed QI Agreement modified and expanded upon the compliance provisions in section 10 and included, in Appendix I, the factual information to be provided by the QI, and, in Appendix II, a statistical sampling procedure that a QI’s reviewer may use for conducting the periodic review.

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(1) Certification of internal controls . The 2017 QI Agreement requires the QI’s responsible officer to make a periodic certification of internal controls provided in Appendix I, as previewed in the Proposed QI Agreement. The Proposed QI Agreement also listed the elements of the certification both in section 10.03 and in Appendix I. The 2017 QI Agreement retains the specified list of elements but eliminates the duplication by only listing the elements of the certification in Appendix I.

In making the periodic certification of internal controls, the responsible officer may rely on, in addition to the results of the periodic review (if required), any other processes, procedures, reviews, or certifications made by other persons that the responsible officer has determined are necessary in order to make the certification. This flexibility allows the responsible officer to decide, for example, whether to hire an external reviewer (for example, a law firm or accounting firm) and what the scope of the engagement should be (for example, whether the external reviewer will conduct a review of the sufficiency of the QI’s internal controls or whether the review will be limited to the periodic review, if required). A responsible officer may also rely on a review, report, or certification made by another officer or employee who may, for example, have greater subject matter expertise in a particular area (including a responsible officer for FATCA purposes). The responsible officer must, however, document what he or she has relied on in making the certification and retain such documentation for the same period of time for which the compliance review report and certifications are required to be retained pursuant to section 10.06(D) of the 2017 QI Agreement. For example, if the responsible officer relies on an internal or external reviewer to conduct a review of the QI’s internal controls, the responsible officer must retain any report delivered by the reviewer.

Comments to the Proposed QI Agreement requested further clarification regarding the certification of internal controls, including what a responsible officer should rely on if the QI requests and obtains a waiver of the periodic review requirement. When a QI does not request, or does not obtain, a waiver, the responsible

officer must take into account the results of the periodic review in making the certification of internal controls and must also use any other process, certification, or review necessary in order to be able to certify to the QI’s internal controls. When a QI does request and obtain a waiver and does not conduct a periodic review, the responsible officer must use the other processes, certifications, or reviews that he or she determines are necessary in order to be able to make the required certification.

Generally, regardless of whether a waiver is applied for and obtained, the 2017 QI Agreement does not provide further prescriptive requirements about what process or documentation the responsible officer must rely on to make the certification of internal controls because such prescriptive guidance may unnecessarily limit a responsible officer’s discretion to structure a compliance program that, in his or her judgment, is necessary for the responsible officer to make the certification of internal controls.

A comment to the Proposed QI Agreement also requested that a QI be able to designate different responsible officers based on lines of business (such as for making the certification when the QI acts as a nonqualified intermediary for payments). Because there is already flexibility allowing a responsible officer to rely on others in making his or her certification of internal controls to the IRS, as noted above with respect to requests for separate responsible officers for QDD purposes, this comment was not adopted.

(2) Certification period . Under the 2014 QI Agreement and the Proposed QI Agreement, the initial certification period ends at the end of the third full calendar year that the agreement is in effect. Each subsequent certification period is three full calendar years thereafter. A comment to the Proposed QI Agreement requested that the initial certification period be shortened and/or the second certification period be extended, so that the initial certification period would end on December 31, 2016, the termination date of the 2014 QI Agreement. Because the certification periods include any renewals of the QI agreement, it is not necessary that the certification period and an interim termination date be the same. In addition, the proposed solution fails to address cases of

those QIs that had QI agreements with effective dates in 2015 and 2016. As a result, the 2017 QI Agreement does not incorporate this change.

Another comment to the Proposed QI Agreement requested that a QI be allowed to apply the provisions of the 2014 QI Agreement to its initial certification period for purposes of making the initial periodic certification of compliance and providing the factual information required. This comment was not adopted because the 2014 QI Agreement, unlike the 2017 QI Agreement, does not contain compliance provisions and requirements specific enough for a QI to apply that agreement to its initial compliance period and provide the factual information required with the periodic certification.

With respect to the requirement in Part II.F of Appendix I of the Proposed QI Agreement that a QI certify to its FATCA status, a comment requested clarification whether the requirement that the QI certify to its FATCA status over the certification period meant certification period or calendar year. As having an appropriate FATCA status is a prerequisite to enter into a QI agreement and to maintain the agreement, a QI is required to certify to its FATCA status for the entire certification period and not just the calendar year selected for the periodic review.

(3) Periodic review . In addition to making the periodic certification of internal controls, a QI is required to report certain factual information regarding its documentation, withholding, reporting, and other obligations under the QI agreement. This factual information will be gathered, in part, through the testing of accounts and transactions required as part of the periodic review, as described in sections 10.04 and 10.05 of the 2017 QI Agreement. This review is focused on the testing of accounts and transactions rather than a substantive evaluation of the sufficiency of a QI’s policies and procedures. Section 10.05(A) through (E) of the 2017 QI Agreement provides the objectives for performing the review, and Appendix I to the 2017 QI Agreement describes the factual information that will be required to be reported to the IRS following the review when making the periodic certification.

The 2014 QI Agreement required that the periodic review be conducted for the

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made to the 2017 QI Agreement to clarify the scope of QI’s FATCA requirements (and related certifications).

(7) Standards for internal and external reviewers . A QI may use either an internal or an external reviewer to conduct the periodic review required by section 10.04 of the 2017 QI Agreement. In response to comments to the 2014 QI Agreement and as previewed in the Proposed QI Agreement, section 10 of 2017 QI Agreement has been clarified to prevent unintended inferences in the 2014 QI Agreement that the periodic review must satisfy the standards of a financial audit or other attestation engagement of a certified public accountant. References to an “auditor” (whether internal or external) in the 2014 QI Agreement have been replaced with “reviewer” in the Proposed QI Agreement and the 2017 QI Agreement.

The Proposed QI Agreement also clarified the description of the standard of independence required of a reviewer. Whether the reviewer is an internal or external reviewer, the reviewer must have sufficient independence to objectively conduct the review and cannot review his or her own work (for example, systems that the reviewer designed, or documentation that the reviewer validated in assisting a QI in its account opening processes).

Comments to the Proposed QI Agreement have requested further clarification of the independence standard, particularly as applicable to external reviewers. Many of these comments requested that this standard, which is described differently for internal and external reviewers, be relaxed to allow a wider range of external reviewers who have connections to, or experience with, the QI’s systems or compliance. For example, comments requested that independence for external reviewers be determined based on an individual or team basis (that is, even if an individual or team had established a QI’s compliance program, another individual or team in the same company or firm could review the first individual’s or team’s work). One comment suggested that the independence standard be clarified so that any individual with management responsibility for implementation of the QI agreement would not be allowed to have significant involvement with the review. The comment also proposed that

last year of the certification period. In response to comments regarding potential difficulties with this requirement, including resource constraints, the Proposed QI Agreement allowed a QI to choose any year within the certification period to select for its periodic review. The 2017 QI Agreement retains this allowance.

Comments to the Proposed QI Agreement requested that QIs that are also acting as QDDs be allowed to select different years within the certification period for the QI and QDD portions of their periodic reviews. Requiring a QI to use the same year for both the QI and QDD portions of the periodic review (when required) improves the efficiency of the IRS review process and assists the IRS with its compliance and administration of the QI program. As a result, the request was not adopted.

(4) Certification date . The 2014 QI Agreement provides that the initial certification period ends at the end of the third full calendar year that the 2014 QI Agreement (and any superseding agreement) is in effect. Therefore, for a QI with a 2014 QI Agreement with an effective date of June 30, 2014 through December 31, 2016, the initial certification period would end December 31, 2017, and the certification would be required to be provided to the IRS on or before July 1, 2018. The Proposed QI Agreement included these provisions without modification. Comments to the Proposed QI Agreement requested a six-month extension of the July 1 certification due date, and some comments also requested an additional, automatic six-month extension. Because it would be difficult for QIs that choose the last year of the certification period for their periodic reviews to make the certification on July 1 of the following year, the 2017 QI Agreement provides QIs using the third year of the certification period for their periodic review an additional six months to make the certification. In such cases, the certification will be due December 31 of the year following the end of the certification period (for example, December 31, 2018 for a certification period ending December 31, 2017). For QIs that choose either the first or second year for their periodic review, the same concerns are not present, and the certification will

continue to be due on July 1 following the end of the certification period.

(5) Consolidated Compliance Pro- gram . Comments raised questions regarding the consolidated compliance program, specifically what is required to apply for a consolidated compliance program and whether NFFEs are allowed to be in consolidated compliance programs. There is no restriction against NFFEs participating in consolidated compliance programs. For more information about consolidated compliance programs or to apply to operate a consolidated compliance program, contact the Foreign Intermediaries Program by e-mail at: lbi.fi.qiwpissues@irs.gov.

A comment also requested that, in a consolidated compliance program, the responsible officer of the compliance QI be allowed to rely on certifications by other responsible officers of the other QIs in the group. A responsible officer (of a QI or a compliance QI) may rely on any process, procedure, review, or certification that he or she determines is appropriate in making the periodic certification of compliance. Therefore, the responsible officer of a compliance QI may rely on certifications made by other officers or individuals in the QI compliance group. Notwithstanding that the responsible officer may rely on certifications made by other officers or individuals within the group, the periodic certification of compliance for the group may only be made by the responsible officer of the compliance QI.

(6) FATCA requirements . A QI that is an FFI is required to comply with the FATCA requirements applicable to its chapter 4 status as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI. In response to concerns raised following the 2014 QI Agreement, the Proposed QI Agreement clarified that a QI’s responsible officer may rely on other personnel with oversight or responsibility for the QI’s FATCA compliance in making its certifications relating the QI’s compliance with its FATCA obligations. The Proposed QI Agreement also clarified that in conducting the periodic review relating to its FATCA compliance, a QI is only required to review those accounts for which it is acting as a QI. Comments to the Proposed QI Agreement raised this question again, so further revisions were

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people who review client tax forms, perform withholding for clients, and calculate amounts required to be reported be disqualified from performing the review. Under this proposal, people who advise on what the FATCA and QI rules are and how they are applied to a particular situation, provide advice on how the withholding rules apply to a particular fact pattern, assist in reporting by physical submission of data to a tax authority (without responsibility for the underlying data), or provide quality assurance review services would be permitted to conduct the review.

The provisions of the 2017 QI Agreement regarding the independence of the reviewer are unchanged from the Proposed QI Agreement. The independence of a reviewer necessarily depends on specific facts and circumstances, and, as a result, providing more prescriptive rules than what is in the 2017 QI Agreement would likely be both over and underinclusive. Even though the 2017 QI Agreement does not contain comprehensive rules regarding what constitutes independence, the independence standard, as applied to external reviewers, should not be applied on an individual or team basis but should be applied on a company or firm-wide basis when the firm has developed or assisted in the development of policies and procedures relevant to a QI’s compliance with the agreement. To maintain an appropriate level of independence and integrity in the review process, reviewers should not be reviewing their own work and should be in a position where they would be able to make a negative assessment of the QI’s practices and procedures without concern about any negative impact for themselves or their employers. With respect to the comment that requested a specific allowance for a reviewer that also assisted with physical submission of client data, it is unclear why that activity would raise questions about independence with respect to a QI’s compliance with the QI Agreement.

A comment also requested the QI agreement not reference a reviewer’s “independence” because that term might have a particular meaning for public accounting firms that may not be relevant for this purpose, however, no suggestions for alternative language were offered.

This comment was not accepted as the term “independent” or “independence” is appropriate in this context, and it is appropriate for a reviewer to consider the standards of independence applicable to a public accounting firm to the extent they apply to a review it is engaged to conduct for a QI.

The terms of the Proposed QI Agreement also required that an internal reviewer be “competent” to perform the review. A comment requested that the definition of “competence” in this context be clarified, particularly with respect to an internal reviewer. A reviewer must have enough knowledge and experience (including that received by training) to conduct the required review in order to provide the necessary information to the IRS, as required by Appendix I to the 2017 QI Agreement, and to enable the responsible officer to make the required certification.

(8) Waiver . Section 10.07 of the Proposed QI Agreement allowed, under certain circumstances, a QI that is an FFI that is not acting as a QDD and that is not part of a consolidated compliance group to apply for a waiver of the requirement to conduct the periodic review. In cases where a QI applies for a waiver, it is required to provide certain factual information along with its periodic certification, as specified in Parts I and III of Appendix I. Comments to the Proposed QI Agreement requested that the information required to be provided with a waiver request be reduced. In order to obtain the necessary information to approve a waiver request, it is important for the IRS to receive information regarding the QI’s account population that is specified in Part III of Appendix I (information that is generally consistent with the information that was required for a waiver of a QI audit under the QI agreement that was in effect prior to the 2014 QI Agreement). As a result, this request was not adopted, and the information required to be provided with a waiver request remains unchanged from the Proposed QI Agreement. However, in response to comments, Part III of Appendix I of the 2017 QI Agreement clarifies that a QI is not required to conduct a periodic review in order to provide the factual information required for the waiver request.

In addition, a comment to the Proposed QI Agreement requested that QIs in a consolidated compliance group also be allowed to apply for a waiver of the periodic review. This request was not adopted due to concerns that allowing a waiver for QIs that participate in a consolidated compliance program would reduce the effectiveness of the consolidated compliance program. Thus, the 2017 QI Agreement retains this prohibition, consistent with the terms of the QI agreements prior to the 2014 QI Agreement. (9) Statistical sampling for periodic re- view . The Proposed QI Agreement allowed for the use of statistical sampling of a QI’s accounts for purposes of the periodic review (rather than requiring a review of all accounts) provided that the QI has 50 or more accounts to review. The Proposed QI Agreement also included, in Appendix II, a safe harbor method for determining a statistical sample of accounts for the periodic review.

Comments were received on Appendix II to the Proposed QI Agreement, and changes in response to certain of those comments are reflected in Appendix II to the 2017 QI Agreement. One comment requested that a QI’s reviewer be permitted to perform a “spot check” (rather than take a statistical sample) for certain parts of the review to the extent that spot check procedures were permitted for a QI’s audit under the former QI agreement audit guidelines in Rev. Proc. 2002-55. In response to this comment, Appendix II has been revised to permit the use of spot check procedures with respect to the review procedures performed pursuant to sections 10.05(B) through (D) of the 2017 QI Agreement and to specify the requirements for these procedures.

Other comments requested that a QI’s reviewer not be required to project an amount of underwithholding determined as a result of a sample tested for the periodic review unless specifically requested to do so by the IRS during its review of a QI’s compliance. One comment also requested that projection not be required as a result of a single error. In response to these comments, Appendix II to the 2017 QI Agreement provides that a QI will pay any underwithheld tax without regard to projection and that the IRS will determine if a projection of any underwithholding

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from a sample is required at the time of the IRS’s review of the QI’s periodic certification (and, if so, will direct the reviewer in performing the projection). Appendix II to the 2017 QI Agreement was also revised to indicate that when a reviewer determines an amount of underwithholding, the QI should pay the amount determined and report both the underwithholding determined by the review and any amount of underwithholding that was cured (that is, for which valid documentation to support a reduced rate of withholding applied by the QI was obtained after the selection of the sample) following the review.

Another comment requested that the U.S. account population used for the sample be limited to accounts that received a reportable amount (rather than a reportable payment, as required by the Proposed QI Agreement) given the additional requirements for a QI that is a non-U.S. payor to determine reportable payments made to an account that are not reportable amounts. The comment was not accepted because sampling of U.S. accounts receiving reportable payments (not just reportable amounts) is useful for determining whether such payments have been properly reflected on Forms 1099 or identified on Forms 8966 for purposes of the review steps under section 10.05(D) of the 2017 QI Agreement. Additionally, this requirement imposes minimal additional burden on a QI’s review as the reviewer may determine such payments based on the determinations made by the QI for purposes of identifying the population of U.S. accounts for the sample.

Other changes were made to Appendix II to the 2017 QI Agreement upon further consideration by the IRS. Appendix II to the 2017 QI Agreement does not include a sample of QDD accounts, which will be added in 2017 for use by QIs that act as QDDs to conduct a periodic review when the QI’s certification period ends after December 31, 2017. Appendix II to the 2017 QI Agreement specifies that a reviewer, when applying statistical sampling based on the Appendix, is required to take into account the principles of Notice 2011-42, 2011 I.R.B. 318 (providing guidance on taxpayers applying statistical sampling). To better target circumstances where the statistical sampling approach is appropri

ate, the 2017 QI Agreement has been revised to permit statistical sampling to be used for purposes of the periodic review only when there are 60 or more accounts to review (rather than 50, as in the Proposed QI Agreement). This requirement applies regardless of whether the QI’s reviewer applies the provisions of Appendix II in determining a statistical sample.

The strata required for determining the sample have been consolidated in Appendix II to the 2017 QI Agreement, and the separate stratum for those accounts for which the QI has assumed primary withholding responsibilities for substitute interest has been removed (that is, such accounts are now included in the population of QI accounts). This consolidation will reduce the number of transactions required to be reviewed for purposes of the spot check procedures.

Appendix II to the 2017 QI Agreement has also been revised to address how accounts of those partnerships and trusts to which a QI applies the agency option are to be included in the sample for cases in which the partnership or trust did not arrange for the performance of its own periodic review. These accounts, similar to accounts held by private arrangement intermediaries (PAIs), are to be included in separate strata in addition to the strata already applicable to the sample of QI accounts, and the number of sample units required has been specified.

(10) Information and certifications in Appendix I . The Proposed QI Agreement required a QDD to report certain factual information (described in Appendix I) related to the determination of its QDD tax liability (as described in section 3.09 of the Proposed QI Agreement). The factual information relating to a QDD’s tax liability in Appendix I of the 2017 QI Agreement is reserved and will be added in 2017. In addition, Appendix I to the 2017 QI Agreement was also revised to include a limited number of changes and minor corrections to conform to the changes to Appendix II and in response to comments.

(11) Form 8966 XML schema . Comments to the Proposed QI Agreement noted that section 10.05(D)(3) requires review of Form 8966 reporting and requested clarification of whether review of the Form 8966 XML schema rather than paper forms would be sufficient. Although

no change is being made to the 2017 QI Agreement, in this context an “original” Form 8966 does not refer exclusively to a paper form, and review of the Form 8966 XML schema would be appropriate. In addition, for purposes of the review, a QI that is a reporting Model 1 FFI should include in its review any analogous forms used for reporting account information pursuant to the applicable Model 1 IGA.

.03 Limited FFIs and Limited Branches. As noted in the preamble to the Proposed QI Agreement, because limited FFI (and limited branch) status will no longer be available as of January 1, 2017 (pursuant to the regulations under chapter 4), and, as previewed in the Proposed QI Agreement, the 2017 QI Agreement removes limited FFI as a category of entity eligible to enter into a QI agreement.

.04 Entities Eligible for QI Agreements. Pursuant to §1.1441–1(e)(5)(ii) and the 2014 QI Agreement, the QI Agreement may be entered into by (1) FFIs that are participating FFIs, registered deemed-compliant FFIs, or registered deemed-compliant Model 1 IGA FFIs, (2) foreign branches of U.S. financial institutions or clearing organizations that are either reporting Model 1 FFIs or agree to the reporting requirements of a PFFI; (3) foreign corporations (that is, NFFEs) for purposes of presenting claims of benefits under an income tax treaty on behalf of their shareholders, and (4) any other persons acceptable to the IRS. In the preamble to the Proposed QI Agreement, the Treasury Department and the IRS requested comments on the types of entities where an NFFE would be acting as a QI on behalf of its shareholders rather than entering into a withholding foreign partnership agreement as a reverse hybrid. No comments were received. As a result, and consistent with revisions to the chapter 3 regulations, this category of NFFE is removed from the 2017 QI Agreement as an entity eligible to enter into the QI agreement, together with the related requirement for such QIs to also act as direct reporting NFFEs for purposes of chapter 4.

.05 Assumption of Withholding on Substitute Interest. As noted in the preamble to the Proposed QI Agreement, comments requested that, as the QSL regime is incorporated into the QDD regime, consideration be given to covering payments of substitute interest on debt securities

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under the QI agreement in addition to substitute dividend payments. The Proposed QI Agreement previewed this allowance for a QI to assume primary chapters 3 and 4 withholding responsibility and primary Form 1099 reporting and section 3406 backup withholding responsibility for payments of interest and substitute interest it receives in connection with a sale-repurchase or similar agreement, a securities lending transaction, or collateral that it holds in connection with its activities as a securities dealer. The 2017 QI Agreement retains this allowance.

Enabling a QI to assume primary withholding responsibility for payments of interest and substitute interest will allow a QI to provide a Form W-8IMY, Certifi- cate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withhold- ing and Reporting, to a withholding agent to certify that the QI is a QI assuming primary withholding responsibility without requiring the QI to distinguish between payments of interest and substitute interest the QI receives as a principal and those that it receives as an intermediary. QIs that assume primary withholding responsibility for payments of interest and substitute interest as described in this paragraph will be required to assume primary withholding responsibility for all such payments.

Some comments to the Proposed QI Agreement asked for more clarity as to whether the allowance for a QI to assume primary withholding responsibility for payments of interest and substitute interest required a QI to be a QDD. A QI’s assumption of primary withholding responsibility for payments of interest and substitute interest is independent from responsibilities the QI has when it acts as QDD or whether a QI is eligible to act as a QDD, and thus a QI is permitted to assume primary withholding responsibility for such payments without having to act as a QDD and without regard to whether the QI is eligible to act as a QDD.

.06 Partnerships or Trusts Applying the Joint Account or Agency Options. The Proposed QI Agreement previewed two changes to the application of the joint account and agency options. Comments were received on the 2014 QI Agreement regarding the chapter 4 statuses required

of a partnership or trust to which a QI may apply these options. As previewed in the Proposed QI Agreement, sections 4.05(A)(1) and 4.06(A)(2) of the 2017 QI Agreement have been modified to allow a QI to apply the joint account or agency option to partnerships or trusts that are covered as accounts that are excluded from the definition of financial accounts under Annex II of an applicable IGA or under §1.1471–5(a). In addition, consistent with the withholding foreign partnership and withholding foreign trust agreements, a QI can apply the joint account or agency option to partnerships or trusts that are owner-documented FFIs with respect to the QI.

Comments to the Proposed QI Agreement noted an inconsistency between section 4.05(B)(3) of the Proposed QI Agreement and section 8.02(E) and Appendix I to the Proposed QI Agreement with respect to whether a QI would be required to specifically report and provide the names of partnerships or trusts to which it applies the joint account option. Consistent with the obligations described in section 4.05(B)(3) that do not require specific reporting for a partnership or trust to which a QI applies the joint account option, the 2017 QI Agreement does not require that the partnership or trust be identified on a Form 1042-S; accordingly, section 8.02(E) was removed, and Appendix I was modified to remove the requirement that a QI disclose to the IRS the names of these partnerships and trusts.

Similarly, comments requested that Appendix I be modified to remove the requirement that QIs provide the names of partnerships or trusts to which they apply the agency option. This requirement has been removed from Appendix I to the 2017 QI Agreement, except for cases in which the QI reports a material failure with respect to the partnership or trust.

A comment to the Proposed QI Agreement requested clarification regarding the requirement in section 4.05(A)(1) that a partnership or trust to which a QI applies the joint account option is required to provide the QI with a certification regarding its chapter 4 status. This certification requirement was a new requirement in the Proposed QI Agreement and is maintained in the 2017 QI Agreement, although the partnership or trust to which a QI applies

the joint account or agency option, even prior to this change, was required to maintain a certain chapter 4 status and to certify to that status on the Form W-8IMY it provided to the QI.

The Proposed QI Agreement did not allow QIs that are QDDs to enter into a private arrangement intermediary (PAI) agreement or to apply the joint account or agency options with respect to accounts or transactions in their QDD capacities. Comments requested that QIs acting as QDDs be allowed to use the joint account option. This request was adopted, and accordingly the 2017 QI Agreement allows QIs to use the joint account option when making payments in its capacity as a QDD. The 2017 QI Agreement does not allow a QDD to apply the agency option with respect to an account or transaction in its QDD capacity due to concerns about the administration of the QDD rules and the calculation of the QDD tax liability.

.07 Limitation on Benefits for Treaty Claims. Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities), was revised in April 2016 to include checkboxes for a beneficial owner to provide information regarding the limitation on benefits provision of an applicable treaty that it satisfies, and Form 1042-S was revised in 2016 to include a line for a withholding agent to report the corresponding limitation on benefits provision code, when required. The Proposed QI Agreement previewed the standard of knowledge required by a withholding agent with respect to an applicable limitation on benefits claim associated with a claim for treaty benefits. Consistent with revisions to the chapter 3 regulations, the Proposed QI Agreement modified the requirements for a QI using documentary evidence to document an entity account holder claiming a reduced rate of withholding under an income tax treaty to require the collection of information regarding limitation on benefits on the treaty statement provided by the account holder, and the 2017 QI Agreement includes this revision. A QI opening an account for an entity account holder on or after January 1, 2017, will be required to collect this limitation on benefits information. For QIs with pre-existing entity accounts (as described in section 5.10(A) of the 2017

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QI Agreement) that were documented with documentary evidence, there will be a two-year transition period provided for the collection of the appropriate limitation on benefits information (unless there is a change in circumstances that requires the QI to obtain corrected information sooner than the two-year period). For QIs that documented entity accounts with Forms W-8, those forms may be relied up on until their normal expiration period (unless there is a change in circumstances that requires a QI to obtain corrected information sooner than the expiration period). Comments to the Proposed QI Agreement requested a three-year transition period for accounts documented with documentary evidence, consistent with the validity period for a Form W-8 with respect to a claim for reduced withholding under an income tax treaty. This request was not adopted because a QI that documents account holders making a treaty claim on a withholding certificate would not in all cases have a full threeyear period starting in 2017 to obtain a new withholding certificate containing the limitation on benefits information. Additionally, the Treasury Department and the IRS believe that two years is a reasonable period for a QI to obtain the limitation on benefits information from these account holders, especially considering that the requirement is intended to enhance compliance of persons claiming treaty benefits.

The standard of knowledge for the limitation on benefits claims under the Proposed QI Agreement was actual knowledge. The chapter 3 regulations are also amended to apply an actual knowledge standard for limitation on benefits claims. The 2017 QI Agreement removes the discussion of the actual knowledge standard from section 5.10(A) and replaces it with a citation to the chapter 3 regulations in §1.1441–6(b)(1) that include this standard.

.08 Validity Period for Documentary Evidence and Treaty Statements. In connection with the revisions to the chapter 3 regulations requiring limitation on benefits information, the chapter 3 regulations are also amended to provide that treaty statements associated with documentary evidence for establishing residence in a treaty country have a three-year validity period, consistent with the validity period

for withholding certificates that contain a claim for treaty benefits. Section 5.11(A) of the 2017 QI Agreement provides that a treaty statement (including a statement provided in section 5.03 of the 2017 QI Agreement) will be subject to the same validity period as prescribed in the chapter 3 regulations. The 2017 QI Agreement does not, however, change the existing rule for the validity period of documentary evidence that was included in prior versions of the QI agreement, including documentary evidence supporting a claim for treaty benefits. The Treasury Department and the IRS are considering applying the same three-year validity period to documentary evidence obtained QIs supporting an account holder’s claim for treaty benefits to align with the validity period of the treaty statement.

.09 Validation of Treaty Claims. In addition to the standard of knowledge for limitation on benefits claims, the Proposed QI Agreement provided that a QI will be considered to have reason to know that a claim for treaty benefits is unreliable or incorrect if, among other requirements, the account holder claims benefits under a treaty that does not exist or is not in force. QIs may determine this, for example, by checking whether a jurisdiction is included on the list maintained at https://www.irs.gov/ businesses/international-businesses/united- states-income-tax-treaties-a-to-z .Thisreason to know rule will generally apply to pre-existing accounts for which the QI already holds valid documentation only upon a change in circumstances. For a pre-existing entity account, this reason to know rule will also apply when the QI obtains a written limitation on benefits statement. For purposes of applying this rule, a “pre-existing account” or “preexisting entity account” is an account for which QI holds valid documentation prior to January 1, 2017, for a QI with a QI agreement in effect prior to that date. For a QI that did not have a QI agreement in effect prior to January 1, 2017, a preexisting account means an account maintained (and for which QI has valid documentation) prior to the effective date of its QI agreement. For all new accounts, the reason-to-know rule will apply upon account opening. The chapter 3 regulations are also revised to include this reason to know rule for all withholding agents, and

the 2017 QI Agreement removes the reference to this standard from section 5.10(A) of the Proposed QI Agreement and replaces it with a citation to this same general rule in the chapter 3 regulations.

.10 Term of Agreement. The Proposed QI Agreement specified a term of three full calendar years following the effective date of the QI agreement. Comments requested that the three year term be extended, with suggestions of a six year agreement or an agreement that was valid indefinitely. The 2017 QI Agreement has been revised to include a six-year term.

.11 Effective Date. Notice 2016-42 and the Proposed QI Agreement included application procedures that provided that if a prospective QI applies prior to March 31 of a given calendar year and its application is approved, its QI agreement will have an effective date as of January 1 of that year. Similarly, if an existing QI renews its 2014 QI Agreement prior to March 31, 2017, it will be considered to have a January 1 effective date for its 2017 QI Agreement with no change in its QI status. If a prospective QI applies after March 31 of a calendar year but has not received any reportable payments prior to submitting its application and its application is approved, its QI agreement will have an effective date of January 1 of that year. However, if a prospective QI applies after March 31 of a calendar year and has received a reportable payment prior to submitting its application and its application is approved, its QI agreement will have an effective date of the first of the month in which both its application is approved and its QI-EIN is issued.

Comments to the Proposed QI Agreement requested that prospective QIs be allowed to apply for QI status at any point during the calendar year and, if their applications are approved, have effective dates retroactive to January 1 of that year. This suggestion was not adopted. Although comments noted potential inconvenience with having two types of types of reporting (QI and NQI) in a single year, this inconvenience is outweighed by the potential for underwithholding and misreporting for the period during which the entity was not yet approved for QI status. A prospective QI could wait until the next year to apply for QI status (similar to the

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process for withholding foreign partnerships and withholding foreign trusts).

.12 Documentation of Account Holders and Presumption Rules.

(1) Interaction with Intergovernmental Agreements (IGAs) . Comments to the 2014 QI Agreement and the Proposed QI Agreement noted an inconsistency in the documentation requirements with an FFI’s requirements under an applicable IGA. In response to these comments, section 5 of the 2017 QI Agreement has been modified to clarify that a QI that is an FFI may document account holders for chapter 4 purposes consistent with its applicable requirements under Annex I of the applicable IGA. In addition, section 5.10(B) was clarified and simplified by replacing the parts of the text of the Proposed QI Agreement that were identical to the provisions of the chapter 3 regulations with a cross-reference to the chapter 3 regulations.

In addition, a comment to the 2014 QI Agreement raised the question of whether the presumption rules under an applicable IGA apply rather than the presumption rules in the QI agreement or in the regulations. A QI that is also a reporting Model 1 or 2 FFI may apply the due diligence procedures described in Annex I to document the status of its account holders under the IGA as U.S. accounts, nonparticipating FFIs, in the case of a reporting Model 2 FFI, non-consenting U.S. accounts, or, in the case of a Model 1 FFI, U.S. reportable accounts, and if such procedures are applied, cases in which an entity account holder is undocumented should not arise. If a QI that is a reporting Model 1 FFI or reporting Model 2 FFI does not have information in its possession or that is publicly available based on which it can reasonably determine the chapter 4 status of an entity account holder, the FFI must obtain a selfcertification to establish the status of such entity (or in some cases, a selfcertification to establish the status of the controlling persons of a passive NFFE) consistent with Annex I of the applicable IGA. When the QI acts as an intermediary for a withholdable payment made to an entity account and is unable to document the account by obtaining information or a self-certification consistent with the procedures described in

Annex I of the applicable IGA, the chapter 4 regulations and the 2017 QI Agreement provide that the QI must apply the presumption rules in §1.1471–3(f) to treat such entity account as a nonparticipating FFI. Additionally, because there typically should not be undocumented accounts pursuant to the IGA, if an FFI has many such undocumented accounts, the U.S. Competent Authority may determine that there is significant noncompliance with respect to the FFI.

(2) FFIs not using documentary evi- dence . A comment to the Proposed QI Agreement requested that QIs that are FFIs and that document their account holders using withholding certificates rather than documentary evidence be allowed to operate as QIs in jurisdictions without KYC rules approved by the IRS. This request was not adopted because after a QI enters into the agreement, there is no further distinction between whether an FFI documents with withholding certificates or documentary evidence (that is, nothing in the agreement prevents an FFI from documenting with documentary evidence, notwithstanding an intent not to do so). Allowing this could also create administration and compliance issues for the IRS.

.13 Collective Refunds. Section 9.04 of the Proposed QI Agreement provided that if there has been overwithholding and a QI does not apply for a collective refund, it must provide a specific Form 1042-S for the payment subject to the overwithholding if requested by an account holder. Comments to the Proposed QI Agreement asked that this provision be removed because of potential administrative difficulties. This request was not adopted because an account holder can only get a refund for overwithholding through a QI’s collective refund or by having a Form 1042-S to substantiate the withholding (see §301.6402–3(e)), and a QI should not prevent its account holders from obtaining refunds by declining to apply the collective refund procedures or by refusing to issue a specific Form 1042-S if it declines to apply the collective refund procedures.

.14 Correction of Errors. In addition to the minor changes and corrections that were previewed in the Proposed QI Agreement, the 2017 QI Agreement includes additional minor changes and cor

rections. For example, references to the “KYC attachment” or other attachments were deleted because printed and signed agreements are no longer used. In addition, in response to comments regarding the length and complexity of the agreement, certain nonsubstantive clarifications and deletions were made to remove repetitive references and generally simplify the agreement (including with respect to the standard of knowledge for limitation on benefits claims and reason to know for treaty claims, as discussed previously in this section).

.15 Revised Chapter 3 and 61 Regulations and Revised Chapter 4 Regulations. The 2017 QI agreement also incorporates and references certain provisions in final and temporary regulations issued under chapters 3 and 61 of the Code (T.D. 9808) and under chapter 4 of the Code (T.D. 9809), both of which are to be published shortly after the publication date of the 2017 QI Agreement.