IRS launches quality review tool for Form 1042-S data

New online tool designed to help U.S. withholding agents comply with reporting and withholding responsibilities with respect to Form 1042-S

Tool designed to help U.S. withholding agents comply with reporting responsibilities

The IRS today announced that it has launched a new online tool designed to help U.S. withholding agents comply with reporting and withholding responsibilities with respect to Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.

According to an IRS release—IR-2021-223 (November 15, 2021)—the online tool allows taxpayers to perform a quality review of data before submitting the information to the IRS. The IRS noted that the use of this tool does not change a withholding agent's obligations to file Forms 1042-S with the IRS or to furnish a copy of the Form 1042-S to the payee.

Today’s IRS release also explains that:

  • The tool is designed to accept Form 1042-S data in common file formats that can be generated by most withholding agents' back office systems. After uploading the data, the user will receive a report indicating errors and potential errors.
  • The withholding agent remains responsible for making changes to the data on the agent's system of record before submission to the IRS.
  • The tool can be used as many times as necessary on new or revised data.
  • The IRS has no access to the users' data.
  • Use of the tool is voluntary, but the IRS will consider a withholding agent's use of the tool when making enforcement and penalty determinations.

Background

In general, withholding agents (e.g., banks, insurance companies, universities, entertainment venues and resorts, and financial institutions) are required to file an information return on Form 1042-S to report amounts paid from U.S. sources to foreign persons. The definition of a withholding agent includes any person—U.S. or foreign—that has control, receipt or custody of amounts that are subject to the rules under Code Chapter 3 (Withholding of Tax on Nonresident Aliens and Foreign Corporations) or Chapter 4 (Taxes to Enforce Reporting on Certain Foreign Accounts, i.e., FATCA or the Foreign Account Tax Compliance Act).

KPMG observation

A reminder: Withholding agents are still subject to penalties for failures to properly complete Form 1042-S.

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