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Transcript PDF Slides PDF

Thanks for watching this presentation, Forms 1042-S: Filing Tips for Tribes.

Before we begin, I have a few announcements.

The information contained in this presentation is current as of the date it is presented.

This program is being recorded and will be maintained in accordance with federal recordkeeping laws.

The IRS has identified many errors on Forms 1042-S being filed with the IRS and furnished to recipients.

This webinar will address these errors to assist withholding agents in filing these forms properly.

This presentation assumes that the withholding agent has filed Form 1042-S and is familiar with the filing requirements.

It is not an introductory course on how and when to file these forms.

I'm Stan Wiatros, an IRS Indian Tribal Government Specialist.

We'd like to address Form 1042-S filing issues and their resulting problems.

We'll begin with the correct Form 1042-S filing procedures.

When Forms 1042-S are filed correctly, it relieves the potential burdens of issues on withholding agents and Form 1042-S recipients after their filing.

This is a paper Form 1042-S, which withholding agents send to the IRS.

You can find Form 1042-S at irs.gov because IRS posts an updated version of Form 1042-S each December for the upcoming year.

There may be changes to the form each year, so use the correct year version of the form.

Generally, Forms 1042-S must be filed electronically with the IRS.

You can file paper forms only when you're filing fewer than 250 forms 1042-S for the tax year.

When a filer has 250 or more Forms 1042-S, they must file electronically.

Financial institutions are required to file electronically, regardless of the number of forms filed.

This is explained in the instructions for Form 1042-S and Publication 1187: Specifications for Electronic Filing of Form 1042-S Foreign Persons U.S.

Source Income Subject to Withholding, which gives details on electronic filing for these forms.

Withholding agents send Copy A of Form 1042-S to the IRS.

As noted here, when you submit Form 1042-S to the IRS, you should only put one Form 1042-S on a page.

We'll discuss this in more detail later.

Copies B, C, and D, which are identical to Copy A, are sent to the recipient.

Copy B is to be retained by the recipient for their records.

Copy C is to be attached to the recipient's federal income tax return.

Copy D, also given to the recipient, should be attached to the recipient's state income tax return if applicable.

Copy E is retained by the withholding agent.

It is also important that all the applicable boxes on the Form 1042-S are properly filled in, as detailed in the instructions to the Form 1042-S, each year.

Incomplete forms create processing problems and may result in the Copy A being rejected by the IRS.

This could result in penalties to the withholding agent.

All the information on these copies should exactly match the information submitted to the IRS electronically or on the paper Copy A filed by the withholding agent.

Only one Form 1042-S should be filed per page.

If two or more Forms 1042-S are included on a page, this creates processing problems.

The IRS must cross out the second document and manually enter the information onto a new Form 1042-S.

As emphasized earlier, Copy A of the Form 1042-S given to the IRS and Copies B through D given to the recipient must be identical.

Not only should the forms be identical, but the information on these forms should also be identical.

If a substitute Form 1042-S is used, it must meet the requirements of Publication 1179.

It cannot be stressed enough that all copies of the Form 1042-S, Copies A through E, or its substitute per publication 1179 must be identical and contain identical information.

For example, if the recipient copy says John Doe and the IRS copy says John R. Doe, the IRS will reject it when we receive it from the recipient when they attach it to their Form 1040-NR.

Don't enter any portion of the address in the name line field.

Be careful to enter data in the appropriate fields.

The TIN, Taxpayer Identification Number, or ITIN, Individual Taxpayer Identification Number, is the only exception to the identical information rule.

The IRS understands that sometimes recipients get an ITIN after they've received their recipient copy from withholding agents.

Therefore, if the recipient copy doesn't have an ITIN and Copy A does, this will not result in an error.

On the other hand, if Copy A doesn't have an ITIN and the recipient copy does, this will result in IRS rejecting the recipient copy.

The recipient will then have to contact the withholding agent for a valid Form 1042-S.

It is also acceptable if the withholding agent truncates the characters of the TIN or ITIN on the recipient copy, as long as the IRS copy reflects the untruncated TIN or ITIN.

Always use the format as shown on the slide, showing XXX-XX- and then the last four digits of the TIN or ITIN.

Any other format will result in a mismatch on the recipient copies when compared to the Copy A filed with the IRS.

The IRS can't determine which four digits of the TIN or ITIN are on the recipient copies unless they are in this format.

Another mistake we see on the Form 1042-S is dollar values being entered with the cents.

The Form 1042-S is a dollars-only form.

Please enter amounts rounded to the nearest dollar.

The highlighted area on this 2017 Form 1042-S identify changes to the 2017 Form 1042-S from the 2016 Form 1042-S.

This is an example of how the Form 1042-S changes every year.

It is important that each year you follow the current year instructions for completing the Form 1042-S so that you complete the form correctly.

Beginning with the 2017 calendar year Form 1042-S, a unique form identifier is required.

This is a ten-digit numeric entry that the withholding agent creates and assigns to each Form 1042-S it files with the IRS and gives to the recipient.

Also beginning with the 2017 year return, an amendment number is required on any amended Form 1042-S you file.

See the instructions for Form 1042-S and Publication 1179 for more information on unique form identifiers and amendment numbers.

Publication 1179 has guidance on creating substitute documents which withholding agents may use in place of the IRS Form 1042-S.

Publication 1179 has information on rules for the size, shape, and format of any substitute forms.

The official Form 1042-S on irs.gov is the standard.

And IRS doesn't accept substitute forms and in lieu of statements that don't meet the rules.

Publication 1179 has been changed to explicitly state the requirement that all copies, A through E, of a Form 1042-S Substitute should be in the same physical format.

This slide shows an example of a Form 1042-S Substitute recipient copy.

This is referred to as an in lieu of receipt.

This is not an acceptable method of reporting.

This will not be accepted by the IRS to substantiate a claim for credit on a tax return.

If IRS receives a document like this one, we may reject the claimed credit.

The taxpayer will be required to resubmit the return with an official IRS Form 1042-S or an acceptable substitute as defined in Publication 1179.

Use the 2018 form when providing Forms 1042-S to report payments made in 2018, or use a substitute per Publication 1179.

The form changes each year and old forms should not be used in lieu of the current year.

You should never use an old year form and insert the current year.

When wrong forms are used, they must be manually processed.

This will delay processing and may result in penalties to the withholding agent.

The 2018 Form 1042-S is available on the irs.gov website.

It is to be used to provide the recipient proof of payment or withholding on a payment made in tax year 2018, and should not be used for payments made before January 1st, 2018.

Do not submit the 2018 Form 1042-S to the IRS for any reason until January 1st, 2019 or later.

From January 1st, 2018 through December 31st, 2018, the IRS will process the 2017 Form 1042-S.

Use the 2017 year form when filing your Forms 1042-S between January 1st, 2018 and December 31st, 2018 for payments made before January 1st, 2018.

The form changes each year and the IRS updates its programs to process all forms received according to the format for the return due to the IRS during the current year.

Old forms should not be used in lieu of the current year form.

You should never use an old year form and insert the current year.

However, if you are filing an old year Form 1042-S as in example two above, the current year form, or a substitute, per IRS Publication 1179, should be used.

The current year should be crossed out and the year being filed should be written in.

I will show you an example of this on the next slide.

When wrong forms are used, they must be processed manually.

and may result in penalties to the withholding agent.

This will delay processing The 2017 Form 1042-S was made available on the irs.gov website in November of 2016.

It was to be used to provide the recipient proof of payment or withholding on a payment made in tax year 2017.

It is not to be submitted to the IRS for any reason until January 1st, 2018 or later.

The 2015 Form 1042-S on the irs.gov website is what the IRS processed from January 1st, 2016 through December 31st, 2016, and should not be provided to the recipient after December 31st, 2016.

Alternatively, you can use a substitute per Publication 1179.

This slide shows an example of how a current year form should be used when filing Form 1042-S for prior years.

Prior year Forms 1042-S should never be used for filing the current year.

Here is an example of an incorrectly filed 2017 Form 1042-S.

As you can see, the form on the top of the slide says it is for the year 2017.

Please note that the box three of this form is a checkbox and box four is a checkbox for chapter four.

for chapter three, Now compare this form with the actual 2017 Form 1042-S from irs.gov below it.

Note that the boxes on the bottom form do not match those above.

Box three is chapter indicator that requires an entry of either three or four.

Also, the physical location of boxes five, six, seven, and eight are on the left side of the form, not the right side as they were on the top copy.

The top Form 1042-S, shown on this slide, is actually a 2015 Form 1042-S.

The year on this document was changed to 2017.

This Form 1042-S is not an acceptable substitute for the 2017 Form 1042-S as it does not comply with the official format of the tax year 2017 Form 1042-S.

As I mentioned, the Form 1042-S changes each year.

When the wrong year form is used for Copy A, the copy sent to the IRS, the IRS campus must transcribe each line manually so that the data input matches the correct boxes for the Form 1042-S for the correct year.

When the wrong year form is used, this slows down the processing of these documents.

When a wrong year form is given to the recipient, this could result in denying the credit and the IRS may ask the recipient for better documentation.

The recipient, in return, then must ask the withholding agent for this documentation.

A withholding agent could be subject to penalties if they use an unacceptable substitute for Form 1042-S.

Please note the box for chapter indicator, as highlighted on this slide.

Each Form 1042-S should report either chapter three or chapter four.

If filing on paper, please enter only one number.

If filed electronically, the system allows only one number to be entered.

The form was changed for 2016 to have only one box in which to enter either a three or a four.

Gambling winnings will generally be chapter three.

The Form 1042-T submitted for Transmittal of Paper Forms 1042-S should only include all chapter three Forms 1042-S or all chapter four Forms 1042-S.

Don't include both types on one Form 1042-T.

See the instructions for the Form 1042-T for further details.

You can find the 2017 version of Form 1042-T on irs.gov.

Generally, a withholding agent must give Forms 1042-S to the IRS and the recipient by March 15th after the year of the payment.

March 15th, 2020 falls on a Sunday, so Forms 1042-S for the 2019 year will be due March 16th, 2020.

Use Form 8809 to request an extension to file Forms 1042-S.

Don't use Form 7004 because Form 7004 is used for tax returns, not information returns.

You can find instructions to complete Form 8809 in the instructions for Form 1042-S.

File the Form 8809 Application for Extension of Time to File Information Returns before the Form's 1042-S due date, generally March 15th.

When you file Form 8809, IRS grants an automatic 30-day extension.

If you need more time, you must file a second Form 8809 before the initial extension period ends.

IRS grants a further extension at its discretion, and only if the filer can show extenuating circumstances that prevent them from filing the Forms 1042-S within the first 30-day extension.

If you've previously filed a Form 1042-S for an individual and have to make a change, you must file an amended Form 1042-S.

The instructions to the Form 1042-S explain how to file amended Forms 1042-S.

Publication 1187, which covers electronic filing of Form 1042-S, has instructions for filing these amended returns electronically.

You must file an amended Form 1042-S with the IRS and provide it to the recipient.

The information on the amended Form 1042-S filed and the recipient copies must match.

You may need to file both an amended and an original Form 1042-S to correct an error on a previously filed Form 1042-S.

For example, if, in 2018, you discover a 2016 Form 1042-S was submitted with the wrong name on it, an amended Form 1042-S must be filed using a 2017 Form 1042-S with the year changed to 2016.

This will correct the original submission which had the incorrect name.

The amended form should report zero income and withholding to indicate that this individual should not have received a Form 1042-S.

An original Form 1042-S, using the 2017 Form 1042-S, with the year changed to 2016 should be filed with the correct name on it, along with all other required entries.

You must use the 2017 Form 1042-S because it is the year the IRS is currently processing.

Other common mistakes to avoid when completing the Form 1042-S include using an invalid income code.

Correct income codes can be found in the instructions to the form.

Using an invalid tax rate; the statutory rate for most payments reported on Form 1042-S is 30 percent.

Other rates may apply, depending on treaty provisions, the type of income, or other factors.

Tax withholding reported isn't consistent with the tax rates shown; the tax withheld should agree with the income and tax rate reported.

Missing TIN when treaty exemption is claimed; if Form 1042-S indicates a treaty exemption was claimed, it must have the recipient's TIN or ITIN.

The presentation today covered the Form 1042-S filing errors that have been made by withholding agents.

Withholding agents are submitting unacceptable forms to the IRS and to the recipients, and are not ensuring that the information submitted to the IRS is identical to the information given to the recipients.

These mistakes can result in the recipient coming back to the withholding agent for further assistance, and can result in penalties to the withholding agent.

Information is also available through the irs.gov website, instructions to Form 1042-S, Publication 1179, and the FIRE system.