The IRS has been busy: your 1042/1042-S compliance efforts better be ready. There have already been big changes in 2017 and doublessly more to come. Let's discuss just one of these modifications which you must address.

The deadline of March 31, 2017 for all QI/WP/WT agreement renewals is rapidly approaching.  All QI/WP/WT agreements in effect prior to January 1, 2017 must be renewed by March 31, 2017 to continue in effect without interruption.  Regardless of what this means for such payees it is important that you comb your vendor files and see if you have been making any payments to vendors such as these.

Who are QI/WP/WT payees you might ask? When we are discussing a QI that means a Qualified Intermediary, a WP is a Withholding Foreign Partnership, and a WT is a Withholding Foreign Trust. A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP agreement with the IRS and is acting in that capacity with respect to its partners. A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT agreement with the IRS and is acting in that capacity with respect to its owners and beneficiaries. Finally, a qualified intermedi­ary (QI) is generally a foreign intermediary (or foreign branch of a U.S. intermediary) that has entered into a qualified intermediary agreement with the IRS.

From there note that in general, intermediaries and flow-through entities receiving reportable amounts are required to provide payors such as those of you in accounts payable, tax, or treasury departments reading this article both their chapter 3 (involving payments of U.S. sourced income made to Non-Resident Aliens) status and the chapter 3 status of persons for whom they receive such payments.  In addition, an intermediary or flow-through entity receiving a withholdable payment will be required to provide its chapter 4 status and the chapter 4 (FATCA) status of persons for whom it receives a withholdable payment when required for chapter 4 purposes. In either case failure to provide this information may subject the intermediary or flow-through entity to withholding at a 30% rate.

The same requirements apply to the trusts and partnerships indicated above and to your compliance efforts in terms of validing these Form 1042/1042-S reportable payees that you may have. Remember, you have a due diligence requirement to accurately document and validate your payee information (done using the Forms W-8 in this case) and a failure to update that information in response to required payee updates can cause you to run into a proposed penalty or trouble under audit. In particular, a WP or WT must pro­vide you with a Form W­-8IMY that certifies that the WP or WT is acting in it's capacity and pro­vides all other information and certifications re­quired by the form, including its WP­EIN or WT­EIN or via providing a certificate of a chapter 4 sta­tus permitted of a WP or WT (and GIIN if appli­cable). Moreover, you have an affirmative duty to examine all forms W-8IMY to make sure that a WI has properly assumed its IRS tax withholding requirements. Given all of that, you do not want to let things slide. Make sure you stay on top of such payees. It would be wise to collect new Form W-8IMY from each after April 1st of this year.