The Internal Revenue Service released a draft of the instructions for Form 1042-S November 1. The Form 1042-S for 2014 has been modified to accommodate reporting of payments and amounts withheld under FATCA (Chapter 4) in addition to those payments and amounts withheld and required to be reported under Chapter 3 of the United States Internal Revenue Code.

Form 1042-S requires the reporting of an applicable exemption to the extent withholding under chapter 4 did not apply to a payment of U.S source fixed or determinable annual or periodical (FDAP) income (including deposit interest). Form 1042-S also requires, in certain cases, the reporting of additional information about a recipient of the payment, such as the recipient’s account number, date of birth, and foreign taxpayer identification number, if any.

For withholding agents, intermediaries, flow-through entities, and recipients, Form 1042-S requires that the chapter 3 status (or classification) and chapter 4 status be reported on the form according to codes provided in the instructions.

Special Transition Rule

With respect to a payment of U.S. source FDAP income paid prior to the time in which the withholding agent (or an intermediary or flow-through entity) is required to identify the chapter 4 status of the payee or recipient (if other than the payee), the withholding agent is not required to include on Form 1042-S the information required to report the payment for chapter 4 purposes. For example, if a withholding agent makes a U.S. source dividend payment prior to June 30, 2014, to a qualified intermediary, the withholding agent is not required to determine the chapter 4 status of such intermediary and is not required to complete boxes 4, 4a, 4b, 13b, 16b, or any chapter 4 status code on Form 1042-S. If the withholding agent makes another U.S. dividend payment after June 30, 2014, however, the withholding agent is required to complete a separate Form 1042-S for all such payments made after June 30, 2014, that includes the information required for reporting the payment for chapter 4 purposes.

In accordance with Circular 230 Disclosure