Periodic Review and Certifications of Compliance. The 2014 QI Agreement replaced the previous external audit requirement applicable to a QI with an internal compliance and review program. As part of this compliance program, the responsible officer is required to make periodic compliance certifications and provide, with the certifications, certain factual information to the IRS based, in part, on the results of a periodic review. After the 2014 QI Agreement was published, comments raised concerns about the administration of the compliance procedures, including potential costs of implementing and conducting a compliance program, difficulties in allocating resources to conduct the periodic review in the last year of the certification period (as required by the 2014 QI Agreement), and the lack of detailed standards for performance of the QI’s periodic review similar to those provided in Rev. Proc. 2002-55, 2002-2 C.B. 435. To address these comments, the Proposed QI Agreement modified and expanded upon the compliance provisions in section 10 and included, in Appendix I, the factual information to be provided by the QI, and, in Appendix II, a statistical sampling procedure that a QI’s reviewer may use for conducting the periodic review.
Periodic Review and Certifications of Compliance. (A) In general. The 2014 QI agreement replaced the previous external audit requirement with an internal compliance and review program. As part of this compliance program, the responsible officer is required to make periodic compliance certifications and provide certain factual information to the IRS. After the 2014 QI agreement was issued, commentators raised concerns about the administrability of the compliance review procedures, including potential costs of implementing and conducting a compliance program, difficulties in allocating resources to conduct the periodic review in the last year of the certification period, and the lack of detailed standards for performance of the QI’s periodic review similar to those provided in Rev. Proc. 2002-55, 2002-2 C.B. 435. Under the proposed QI agreement, a XX’s responsible officer will still be required to make a periodic certification of internal controls as described in section 10.03 and Appendix I of the proposed QI agreement. In making this certification, the responsible officer may rely on, in addition to the results of the periodic review, any other processes or reviews that the responsible officer has determined are necessary in order to make the certification. This allows the responsible officer to decide, for example, whether to hire an external reviewer (for example, a law firm or accounting firm) and what the scope of the engagement should be (for example, whether the external reviewer will conduct a review of the sufficiency of the QI’s internal controls or whether the review will be limited to the periodic review discussed below). The responsible officer must, however, document what he or she has relied upon in making the certification and retain such documentation for the same period of time for which the compliance review report and certifications are required to be retained pursuant to section 10.06(D) of the proposed QI agreement. For example, if the responsible officer relies on an internal or external reviewer to conduct a review of the internal controls and systems, the responsible officer must retain any report delivered by the reviewer. In addition to making the certification of internal controls, the QI is required to report certain factual information (described in Appendix I) regarding its documentation, withholding, reporting, and other obligations under the QI agreement, and, in the case of a QI that is acting as a QDD, certain information related to the determination of its QDD tax liabil...
