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The Newly Issued Form 1042-S – Foreign Person’s U.S. Source Income Subject to Withholding



Ronald Marini

IRS has issued the 2016 version of Form 1042-S, Foreign Persons’ U.S. Source Income Subject to Withholding, and the instructions for that form. The form requests even more information then the 2015 version of this form!

What’s New In 2016:

Substitute forms. A substitute form furnished to a recipient must conform in format and size to the official IRS form and contain the exact same information as the copy filed with the IRS. However, the size of the form may be adjusted if the substitute form is presented on a landscape oriented page instead of portrait. Only one Form 1042-S may be submitted per page, regardless of orientation. Withholding agents that furnish a substitute Form 1042-S (Copy B, C, or D) to the recipient must furnish a separate substitute Form 1042-S for each type of payment of income (as determined by the income code in box 1). Withholding agents are no longer permitted to combine all payments of income on a single substitute Form 1042-S. For more information, see Substitute Forms, later.

Account-by-account reporting by U.S. financial institutions. For amounts paid on or after January 1, 2016, a U.S. financial institution or a U.S. branch of a foreign financial institution maintaining an account within the U.S. is required to report payments of the same type of income (as determined by the income code in box 1) made to multiple financial accounts held by the same beneficial owner on separate Forms 1042-S for each account. See Account-by-Account Reporting by Certain Financial Institutions, 

Permanent extension of RIC qualified investment entity treatment un-der FIRPTA. On page 9, the section pertaining to “Withholding on Dispositions of U.S. Real Property Interests by Publicly Traded Trusts and Qualified Investment Entities (QIEs)” has been amended to reflect section 133 of P.L. 114-113, Division Q (PATH Act of 2015) which permanently extends the treatment of RICs as qualified investment entities.

List of foreign country codes. The list of foreign country codes has been removed from these instructions. Filers must now use the list of country codes at IRS.gov. A list of foreign countries with which the United States has an income tax treaty is also available atirs.gov/Businesses/International- Businesses/United-States-Income-Tax- Treaties—A-to-Z. If more information concerning these lists becomes available after these instructions are published, it will be posted at www.irs.gov/form1042s.

Recipient country code. Beginning in 2016, if the recipient is unknown, leave box 13b, Recipient’s Country Code, blank and enter “Unknown Recipient” in box 13a, Recipient’s name.

Chapter indicator. The checkboxes used to designate which chapter a withholding agent is reporting under have been consolidated into box 3. Withholding agents must enter either “3” or “4” in this box to indicate the chapter with respect to which the withholding agent is filing a given Form 1042-S. See Box 3, Chapter Indicator, later for more information.

Withholding agent’s status codes. Beginning in 2016, withholding agents must enter both a chapter 3 and chapter 4 status code regardless of the type of payment being made. Also, new status codes have been added under chapter 3 (code 34) and chapter 4 (code 50) for payments made by a foreign branch of a U.S. financial institution. See Boxes 12b and 12c, Withholding Agent’s Chapter 3 and Chapter 4 Status Code, 

Payer status codesBeginning for 2016, a payer must include its chapter 3 and chapter 4 status codes in boxes 16d and 16e. SeeBoxes 16a Through 16e, Payer’s Name, TIN, GIIN, Status Code, 

Treaty claims and limitation on ben-efits articles. Beginning for calendar year 2016, withholding agents that are withholding at a reduced rate based on a treaty claim by an entity must include a limitation on benefits code (LOB code) in box 13j for the recipient when they receive documentation establishing the applicable limitation on benefits provision of the treaty. Withholding agents are not, however, required to obtain new documentation unless they are otherwise required to renew such documentation. SeeBox 13j, LOB Code, 

Unique form identifierBeginning in 2017, withholding agents will be required to assign a unique identifying number to each Form 1042-S they file. This identifying number can be used, for example, to identify which information return is being corrected or amended when multiple information returns are filed by a withholding agent with respect to the same recipient. The unique identifying number cannot be the recipient’s U.S. or foreign TIN. The unique identifying number must be numeric. The length of a given identifying number must be exactly 10 digits. For 2016, withholding agents may choose to provide a unique identifying number in box 13k, Recipient’s Account Number, for Forms 1042-S filed for recipients that do not have an assigned account number (such as an indirect account holder).

Other changes. These instructions now provide further guidance on how to report payments that are made to hybrid and reverse hybrid entities in cases in which treaty claims are being made. See Payments Made to Persons Who Are Not Recipients,  These instructions also clarify which recipient code to use (if any) in certain cases, including when a withholding agent reports a pooled reporting code or makes a payment to a U.S. branch or to a limited branch treated as a nonparticipating FFI. See Boxes 13a through 13g, Recipient’s Name, Country Code, Address, Status Code, later.

We previously posted The IRS Issues New Version of Form W-8 BEN-E – Making It Even More Complex where we discussed how complicated that form has become.

Now looking at the 2016 version of this Form 1042-S, one has to wonder whether these forms will soon come with its own table context or separate Master Tax Guide solely to help taxpayers how to fill out one these forms?

What’s next a YouTube video?

My how things have changed!

 

Mr. Marini concentrates his practice in Representation before the IRS and All Other Tax Authorities, IRS Collections, Offers in Compromise, Installment Payment Plans, Appeals, Sales Tax Audits, International and Tax Law, Asset Protection and Estate Planning.

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