Goal
Improve Withholding Agent reporting accuracy on Forms 1042-S by creating a software program to flag inconsistencies or errors in the data that will be reported on the Forms 1042-S before submission to the IRS. Make the program available for use by the IRS to assist in administering compliance programs.
Background and Description of Tool
In general, Withholding Agents must file an information return on Form 1042-S to report amounts paid from U.S. sources to foreign persons. A Withholding Agent is any person, U.S. or foreign, that has control, receipt, or custody of amounts that are subject to the rules under Chapter 3 or Chapter 4 of the Internal Revenue Code. The Form 1042-S collects a variety of codes and information to help the IRS determine whether the correct dollar amounts have been withheld under the various laws and treaties applicable to the Withholding Agent and the foreign person receiving the payment. The IRS Foreign Payments Practice function would like to create a software program that both Withholding Agents and the IRS could use to review Form 1042-S electronic files and list identifiable reporting errors and potential errors that cannot otherwise be screened-out upon electronic submission to the IRS. Attached are examples of the types of reports the could produce for use by the Withholding Agent (in-house, before filing) and by the IRS (after filing). Withholding Agents would run this tool against their data before it is transmitted to the IRS and see the same type of risk analysis that the IRS will be performing on the FIRE files (Filing Information Returns Electronically files). Use of this tool, or like algorithms in the Withholding Agent’s automated systems, as part of its due diligence will help Withholding Agents avoid reporting tax and penalties.
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