Qualified Intermediary Audit

Cross-border payment withholding and reporting protocols increase the need for enhanced monitoring of compliance, internal controls and risk management. BDO Seidman’s ("BDO") 1441 Compliance Assessment, Remediation & Technology (“CART”) Services professionals can assist Qualified Intermediaries (“QI”) with mitigation of exposure to noncompliance risk. BDO’s 1441 CART Services practice has joined forces with Burt, Staples & Maner, LLP (“BSM”), an international law firm specializing in U.S. and international taxation, and Compliance Technologies International, LLP (“CTI”), which develops, installs and services software products designed to deal with tax withholding and reporting compliance.

Qualified Intermediary Requirements & Associated Risks

The IRS requires QI’s to accept certain documentation and withholding responsibilities in exchange for simplified withholding and reporting obligations for payments of U.S. source income.  Noncompliance with provisions set forth in the IRS QI Agreement may result in:

  • Revocation of QI status
  • Financial penalties that can total millions of dollars for a financial institution, including uncollected prior taxes, fines and interest
  • Criminal penalties, including possible incarceration for individuals who knowingly facilitate tax evasion
  • Reputational damage

Section 1441 guidance and enforcement is a rapidly evolving topic. QI compliance is the focus of U.S. Department of Justice investigations and inquiries as well as the subject of significant media attention.

The U.S. Department of the Treasury is enhancing the obligations of a QI to include identifying U.S. persons who are beneficial owners of U.S. source income through accounts held indirectly by such persons,
as well as developing the QI audit procedures to identify such accounts.

Entities at Risk
Entities at risk of noncompliance with cross-border payment withholding and reporting protocols include financial institutions making payments of U.S. source income that have entered into agreements with the IRS. These entities include:

  • Foreign financial institutions or foreign branches of U.S. financial institutions that have entered into an agreement with the IRS to become a QI
  • Foreign partnerships that have entered into an agreement with the IRS to become a withholding foreign partnership
  • Foreign trusts that have entered into an agreement with the IRS to become a foreign withholding trust

Our 1441 CART Services professionals can assist foreign partnerships, trusts and financial institutions in the complex challenges of adhering to cross-border payment withholding requirements.

Health Checks
The combined experience of BSM, BDO Consulting and CTI provides the foundation for an evaluation of client systems and procedures for tax withholding and information return reporting to identify areas of noncompliance or heightened risk. Such top-to bottom health checks and related QI services are designed to identify areas where there is a heightened risk of noncompliance by performing a limited review of key areas. When areas of heightened risk of noncompliance are identified, targeted evaluation of these high-risk areas can be performed to identify the extent of noncompliance.

Leveraging BSM’s international tax experience and CTI’s technology tools, our 1441 CART Services professionals can develop remediation plans designed to correct errors in documentation and information return reporting and tax withholding.

Our Qualified Intermediary Audits Services

QI’s require a significant level of internal collaboration to achieve successful enterprise-wide compliance. Affected areas within an organization may include back office functions, as well as tax and legal departments.

The 1441 CART Services QI audit approach consists of several phases of work, including planning, fieldwork, wrap-up and reporting. The components of each phase are summarized below:

Planning:

  • Evaluate overall QI structure
  • Propose potential consolidations with the IRS
  • Develop sampling plans where required
  • Design work plans for conducting the audit fieldwork
  • Draw audit samples where required

Fieldwork:

  • Analyze documentation
  • Evaluate “spot check” accounts
  • Examine information return reporting
  • Prepare additional procedures/letters of representation

Wrap-up and drafting of audit reports:

  • Prepare audit reports
  • Discuss final audit findings
  • Review and submit audit report

Our Experience

BDO has significant experience in the areas of data analysis, risk advisory services, technology and tax consulting.
  • Data Analysis

    BDO’s professionals include certified IT professionals, database specialists, programmers, certified computer forensics and e-discovery specialists, certified fraud examiners, certified anti-money laundering specialists and certified public accountants. Our professionals are certified in over f if teen information technology, fraud and accounting disciplines and are proficient in a wide range of programming languages, with certifications in over forty software programs.

    We have extensive experience in analyzing large volumes of financial, transactional and operational data from various sources within financial institutions. Our skilled professionals and wide range of
    technical resources can quickly detect patterns, trends and anomalies.

    To assess the risk of noncompliance, BDO’s professionals work closely with clients to understand and identify the information required for analysis. Using data analytics, BDO’s professionals can review significant volumes of disparate hard copy and electronic records to assess compliance, assist with remediation and provide best practice recommendations. Recognizing the convergence between anti-money laundering and tax compliance, BDO’s 1441 CART Services professionals can assist in standardizing withholding procedures and identifying accounts held by U.S. beneficial owners.

  • Risk Advisory Services

    Given the focus upon internal controls and associated risks under the proposed changes to the IRS Qualified Intermediary Agreement, affected organizations are likely to require significant review of existing risk management platforms and business processes. BDO’s Risk Advisory Services professionals have extensive experience in creating and developing comprehensive, enterprise-wide risk management processes and systems that can mitigate exposure to organizational risk.

  • Technology

    BDO’s professionals can assist organizations with adhering to Qualified Intermediary obligations by implementing new systems and procedures to facilitate compliance or enhance existing automated monitoring systems to reduce compliance costs both in technology and in personnel. BDO’s approach leverages best-in-class internal control and risk management frameworks that are designed to integrate fully into an organization’s internal audit processes, including planning, execution, reporting and issue monitoring. BDO can assist with validation of the functionality of technical solutions to assess whether the operation meets both business and regulatory expectations.

  • Tax Compliance & Controversy Experience

    BDO’s professionals can negotiate with the IRS regarding QI agreements and compliance-related tax matters for financial institutions.

    BDO’s depth of tax experience includes the ability to assist financial institutions by:

    • Conducting a review of an institution’s Section 1441 policies and procedures
    • Leveraging our tax knowledge to assist in reviewing tax documentation
    • Determining if tax treaty benefits are being applied correctly to payments of U.S. source income
    • Providing recommendations on how to properly set up withholding and reporting systems to adhere to tax code compliance
    • Making best practice recommendations to streamline tax reporting procedures
    • Assisting on ideas for tax-effective repatriation and worldwide financing
    • Assisting through all phases of tax planning and development of strategies

    Through our comprehensive tax resources and understanding of QI audit procedures, BDO’s professionals can advise financial institutions in managing their compliance with IRS tax regulations.

Our Team

The complex challenges of complying with Section 1441 of the IRS Regulations require a wide range of experience. To provide our clients with superior service, we have joined the forces of three independent firms. Our team uses a hands-on approach to identify our clients’ tax compliance issues, utilizing standardized-yet-flexible analytical methodologies developed through years of consulting experience. We have significant experience in the areas of legal, accounting, project management, investigations, consulting and technology services. This team provides our clients with a comprehensive approach and allows us to efficiently and effectively serve our clients in a highly flexible manner.

International Presence & Capability

BDO’s professionals have business relationships with key personnel and draw on the experience of resources from major banking centers around the world, including:

  • London
  • Zurich
  • Brussels
  • Frankfurt
  • New York
  • Chicago
  • San Francisco
  • Miami
  • Hong Kong
  • Singapore
  • Tokyo
  • Buenos Aires
  • Dubai
  • Johannesburg

BDO’s 1441 CART Services professionals can deploy resources across the country or around the world to help meet the needs of our clients.