Form 1042 information reporting requirements.

• Author: Pasmanik, Philip T.

Taxpayers have an obligation to file information reporting forms to report certain payments to non-resident individuals, foreign corporations, foreign partnerships, and certain foreign fiduciaries, estates, and trusts. (1) In general, every U.S. person that makes a fixed or determinable payment of annual or periodic income (FDAP payment) from U.S. sources must withhold the correct amount of U.S. withholding tax and remit that tax to the IRS. (2) The withholding tax rate is 30% as imposed by Secs. 871(a)(1) and 881(a) unless the rate is reduced by a tax treaty (discussed below) in force between the United States and the country in which the recipient of the income resides)

Secs. 1441 and 1442 require tax withholding on nonresident aliens and foreign corporations, respectively. The obligation for U.S. federal income tax withholding is discussed in great detail in the regulations, which were originally promulgated in 1997 and generally apply to all payments made after 2000 (TD 8734, 8804). The regulations on withholding tax from foreign persons are designed to be integrated with certain information reporting and backup withholding rules applied to similar payments to U.S. persons.

Information Reporting

U.S. persons (4) who make FDAP payments to those foreign persons noted above are required to file Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. Form 1042 is due by March 15 and is prepared on a calendar-year basis (regardless of the taxpayer's year end). If additional time is required to file the form, an extension may be filed to extend the filing date but not the payment of the tax. Taxpayers are also responsible for filing Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, and Form 1042-T, Annual Summary and Transmittal of Forms 1042-S. Forms 1042-S and 1042-T are also due by March 15. It is important to note that Form 1042-S must be filed when a U.S. person makes FDAP-type payments (discussed below) to a foreign person who is subject to U.S. withholding, even if no tax was withheld because of an existing income tax treaty or specific statutory exemption from withholding as provided by the Code. (5)

Types of Payments and Timing of Withholding

FDAP-type income payments include interest, dividends, rent, salaries, wages, premiums, annuities, compensation, remunerations, emoluments, or certain other fixed or determinable annual or periodic gains and income. (6) The regulations provide...