by Hans-Dieter Wolf, KPMG Düsseldorf, and Chip K. Collins, KPMG National Office Washington, D.C.
An abridged version of this article appeared in International Tax Review, November 2002 at page 23
1. Q1 Audit Guidelines - Rev. Proc. 2002-55
2. Central features of the QI withholding tax regime
2.1 U.S. withholding on investment income
2.2 Old withholding regime in general
2.3 New withholding regime
2.4 Trade-offs of QI status
2.5 Success of QI system
2.6 Beneficial owner
2.7 Presumption rules
2.8 External audit of QI compliance
3. QI audit guidelines
3.1 External audit of QI compliance
3.2 Highlights of final audit guidelines
3.3 Audit waivers
3.3.1 Waivers in general
3.3.2 Waiver 1: $100,000 threshold (any audit year)
3.3.3 Waiver 2: $100,000 to $400,000 threshold (second audit year only)
3.3.4 Waiver 3: Annual internal review program (second audit year only)
3.3.5 No audit waivers for private arrangement intermediaries (PAIs)
3.3.6 Waiver application deadline June 30th
3.4 Scope of the external audit
3.4.1 Audit scope in general
3.4.2 Only accounts receiving "reportable amounts
3.5 Statistical sampling
3.5.1 Maximum sample size reduced to 321
3.5.2 Sampling methodologies permitted without advance IRS approval - random and dollar-based stratification
3.5.3 Statistical sample of accounts to test documentation vs. "spot" sample to test certain withholding and reporting compliance
3.6 Phase 1 of the external audit - basic fact finding
3.6.1 Phase 1 in general
3.6.2 No need to interview employees or review procedures
3.6.3 Limiting account holder information to be reviewed
3.6.4 Documenting account holder status as a bank, broker, etc.
3.6.5 Testing withholding rate pool classifications by reference to last payment only
3.6.6 Testing compliance for reporting non-U.S. source income paid inside the U.S., and gross sales proceeds from sales effected inside the U.S.
3.7 The external audit reoprt; explaining questionable results
3.8 Audit report deadlines and extensions
3.9 "Consolidated" audits of multiple Qis - the external audit plan
3.10 Use of internal auditors
3.11 Phases 2 and 3 of the audit - extrapolation etc.