Ross McGill

April 20, 2023|7 Minutes

Training: The QI’s Achilles’ Heel


For those five thousand odd financial firms that have obtained US qualified intermediary status, training is the most overlooked obligation of the QI Agreement and the second most common reason for failures and penalty notices.

It is very easy to focus on operational tax matters such as reporting or certifying compliance after a Periodic Review. However, these operational tax obligations are all part of a cycle founded on a financial institution outside the US being appointed to take on certain obligations.

Section 10 of the QI Agreement deals with these compliance obligations. This describes how the IRS manages control and oversight of QIs and enforcement of the QI Agreement.

Section 10.02 establishes the obligation of a QI to:

  1. appoint a Responsible Officer, and
  2. have a written compliance program.

The compliance program document is supposed to be designed specifically to document how any given QI will meet its obligations. No two QIs have the same circumstances so, its natural that every compliance program will be different. However, this will not be enough for the IRS. They want more than just an obligation to have policies and procedures. They want to know how those policies and procedures are going to be implemented.

For most financial institutions this means some changes to systems and training staff who may not necessarily have the background knowledge to understand what has to be done or why. Just in case firms might not prioritise training, the QI Agreement specifically obligates a Responsible Officer to conduct training.

In section 10.02(A)(2) it says:

(2) Training. The responsible officer must communicate such policies and procedures to any line of business of QI that is responsible for obtaining, reviewing, and retaining a record of documentation under the requirements of section 5 of this Agreement; making payments subject to withholding under section 3 of this Agreement; reporting payments and accounts as required under sections 7 and 8 of this Agreement; or entering into potential section 871(m) transactions, in the case of QI that is acting as a QDD”.

This is very clear. Every QI must not only document what it is doing, how (procedure) and why (policy), but they must also train that information into their staff.

Many QIs have only one or two people that deal with US-sourced income on a regular basis, with much of the day-to-day work being done by other departments, such as client onboarding or income processing. It is these other departments that will have minimal, if any knowledge of the context of the regulations that apply to them.

This obligation to train has several connections to other parts of the QI Agreement, so it cannot be ignored with impunity.

For example, every three years the firm must certify that it has effective controls in place. If you fail to train staff effectively, there will be mistakes made and these could rise to the level of a Material Failure or an Event of Default found by a reviewer. This, in turn, will lead to a qualified certification to the IRS in which the Responsible Officer will have to make a personal attestation to correct the cause and provide a remediation plan for the IRS’ approval. Material Failures are defined in Section 10.03(B) and Events of Default are defined in Section 11.06. If a reviewer finds mistakes that can be traced back to a failure to train staff or worse, to a deliberate attempt to ignore the terms of the QI Agreement, then your QI status itself will be at stake.

Section 11.06 says:

“An event of default occurs if QI fails to perform any material duty or obligation required under this Agreement and the responsible officer had actual knowledge or should have known of the facts relevant to the failure to perform any material duty”.

Because training is specifically noted in the compliance obligations, it is a material obligation, so failure to have a training plan can lead to the loss of QI status, including all the time, effort and resources you put into becoming a QI in the first place. All of the other circumstances that are described in Section 11.06 and in Section 10.03(B) could be directly caused by a lack of appropriate or effective training.

Despite all this, there are very few ways to properly, consistently and effectively train staff about QI obligations because there are only one or two subject matter experts in the world, and it is expensive to train people who only seem to play a very limited role in QI compliance – until now!

We have created a series of training videos and a training management system as part of the Tax Compliance Toolkit.

Our QI Essentials course includes six modules:

  • Overview and context
  • The QI application
  • Documentation
  • Withholding and depositing
  • Reporting
  • Governance

Each module includes a test to check your knowledge. If you score 80% or more in all six tests, you will receive a certificate of achievement.

Tax Compliance Toolkit subscribers can access our online courses for free. If you’re not a Tax Compliance Toolkit subscriber, you can pay to access the courses.

The QI Essentials course material is intended for staff working at a QI. However, the training is also very useful for firms that are thinking about becoming a QI, or are in the process of applying.

The Tax Compliance Toolkit makes sure that you have a record of who was trained, in what area of specialisation, when they were trained and what level of skill they gained, helping you to evidence your compliance with the QI Agreement.

If you would like to know more, please contact us or visit the Tax Compliance Toolkit Training Academy to start learning.

Ross McGill

Ross is the founder and chairman of TConsult. He has spent over 26 years working in the withholding tax landscape with companies developing tax reclaim software and operating outsource tax reclamation services.

Ross not only sees the big picture but is also incredibly detail oriented. He can make even the most complex issues simple to understand. He has authored 10 books (including two second editions) on various aspects of tax, technology, and regulation in financial services, making him one of the leading authorities in the world of tax.