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The IRS recently posted two new frequently asked questions (FAQs) that clarify the requirements for qualified intermediaries (QIs) to solicit US taxpayer identification numbers (TINs) from account holders investing in publicly traded partnerships (PTPs). New FAQs Q23 and Q24 appear under the "Certifications and Periodic Reviews" section on the QI/WP/WT related FAQs web page.

Background

The revised QI Agreement (Revenue Procedure 2022-43) incorporated IRC Section 1446 withholding requirements on PTP sales and distributions (Tax Alert 2023-0011). Beginning in 2023, QIs have new IRC Section 1446 responsibilities that impact their due diligence, withholding and reporting requirements, including obtaining account holders' TINs for IRC Section 1446 purposes.

QIs must use "best efforts" to obtain a US TIN from account holders that received an amount realized from a sale of PTP interest or a PTP distribution. A QI that cannot obtain a US TIN from an account holder is treated as using its best efforts to meet its due diligence requirements if it:

• Makes an initial written solicitation for the account holder's US TIN in 2023 or, if later, the calendar year in which the account holder acquires PTP interests
• Sends additional written solicitations in each of the next two calendar years if the account holder has not provided a US TIN

A QI that does not meet its QI requirements could be viewed as defaulting on its QI Agreement which, if not remediated, could lead to termination of the agreement.

New FAQs

The two new FAQs provide additional guidance on the TIN solicitation requirement. According to Q23, a QI that must solicit TINs satisfies the "best efforts" requirements if it makes the solicitations by January 31 of the succeeding year (e.g., a US TIN required to be solicited in 2023 must be solicited by January 31, 2024).

Under Q24, TIN solicitation is only required when an account holder either receives a PTP distribution subject to withholding under IRC Section 1446(a) or receives an amount realized for purposes of IRC Section 1446(f).

EY observes: It appears that the TIN solicitation is only triggered if withholding is required on effectively connected income (ECI) under IRC Section 1446(a) or an amount realized under IRC Section 1446(f). For example, it appears that a TIN solicitation may not be required for:

• PTP distributions associated with a valid qualified notice (QN) that reflects no ECI
• PTP distributions when an amount in excess of cumulative net income (ECNI) is not identified on a QN
• PTP sales with a valid QN that provides a 0% IRC Section 1446(f) withholding tax rate

Brokers should continue to monitor for additional guidance from the IRS clarifying the TIN solicitation requirement. In addition, brokers should consider whether it is operationally and practically easier to solicit TINs from every account holder that holds a PTP position or track if any of the IRC Section 1446 transactions and events that occur do not require a TIN solicitation.

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Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor