Draft Instructions for Form 1042-S Released by IRS (Updated for FATCA)
The Hiring Incentives to Restore Employment (HIRE) Act of 2010 (P.L. 111-147, March 18, 2010) added Chapter 4 to the Code (Sections 1471-1474 (FATCA)). Chapter 4 requires withholding agents to withhold 30% of certain payments to a foreign financial institution (FFI) unless the FFI has entered into an agreement with the IRS to, among other things, report certain information with respect to U.S. accounts.
Chapter 4 also imposes withholding, documentation and reporting requirements on withholding agents regarding certain payments made to non-financial foreign entities. These rules apply to withholdable payments made after June 30, 2014.
Additional boxes have been included on the form to accommodate reporting of payments and amounts withheld under FATCA, and an applicable exemption to the extent withholding under FATCA does not apply. Beginning January 1, 2014, financial institutions that are required to make payments under FATCA must file Forms 1042-S electronically regardless of how many Forms 1042-S they are required to file.
A withholding agent is not required to include on Form 1042-S the information needed to report the payment for FATCA purposes for payments of U.S.-source income paid before July 1, 2014. For example, if a withholding agent makes a U.S.-source dividend payment before July 1, 2014, to a qualified intermediary (i.e., an FFI or similar entity that has entered into a withholding agreement with the IRS), the agent is not required to determine the intermediary’s FATCA status or complete the new FATCA boxes on Form 1042-S.
However, if the agent makes another U.S. dividend payment after June 30, 2014, the agent must complete a separate Form 1042-S for all such payments made after that date that includes the information required for reporting the payment for FATCA purposes.
The draft 2014 Form 1042-S was released by the IRS in April 2013, but without the draft instructions for the form. The draft instructions for 2014 Form 1042-S explain changes to the form.
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If you have any questions about this World Business & Tax Update, please contact your WithumSmith+Brown professional, a member of WS+B’s International Services Group or email us at [email protected].
Kimberlee Phelan, CPA, MBA
Practice Leader, International Services Group
609.520.1188
[email protected]
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