General Instructions

Except as otherwise provided in these instructions, use the 2014 Form 1042-S only for amounts paid during 2014. Do not use the 2014 Form 1042-S for amounts paid during 2013.

What's New

Foreign Account Tax Compliance Act (FATCA).   The Form 1042-S for 2014 has been modified to accommodate reporting of payments and amounts withheld under the provisions commonly known as FATCA or Chapter 4 of the Internal Revenue Code (chapter 4) in addition to those amounts required to be reported under Chapter 3 of the Internal Revenue Code (chapter 3). Form 1042-S requires the reporting of an applicable exemption to the extent withholding under chapter 4 did not apply to a payment of U.S source fixed or determinable annual or periodical (FDAP) income (including deposit interest) that is reportable on Form 1042-S. When a financial institution reports a payment made to its financial account, Form 1042-S also requires the reporting of additional information about a recipient of the payment, such as the recipient's account number, date of birth, and foreign taxpayer identification number, if any. For withholding agents, intermediaries, flow-through entities, and recipients, Form 1042-S requires that the chapter 3 status (or classification) and, when the payment reported is a withholdable payment, the chapter 4 status be reported on the form according to codes provided in these instructions. See these instructions for a description of any further changes to the 2014 Form 1042-S. For the requirement of a withholding agent to file a Form 1042-S for chapter 4 purposes, see Regulations section 1.1474-1(d).

  For withholding agents that report amounts withheld by another withholding agent, Form 1042-S requests the name and EIN of the withholding agent that withheld the tax. This information is optional for 2014.

  Publication 515 (cited in these instructions) has not been updated as of the date of publication of these instructions to include the withholding and reporting provisions of chapter 4.

Electronic filing requirement for financial institutions.   Beginning January 1, 2014, financial institutions that are required to report payments made under chapters 3 or 4 must electronically file Forms 1042-S (regardless of the number of forms to file). See the instructions under Electronic Reporting, later.

Specified Federal procurement payments.    Specified Federal procurement payments (described under section 5000C(b)) paid to foreign persons that are subject to withholding under section 5000C must be reported on Form 1042-S. For more information, see Specified Federal Procurement Payments Made to Foreign Persons, later.

Interest on deposits.   Beginning January 1, 2013, deposit interest described in section 871(i)(2)(A) aggregating $10 or more paid to certain nonresident alien individuals with respect to a deposit maintained at an office within the United States by a resident of certain countries must be reported on Form 1042-S. For more information, see Interest on deposits, later.

Special Transitional Rule

With respect to a withholdable payment of U.S. source FDAP income paid prior to the time in which the withholding agent (or an intermediary or flow-through entity) is required to identify the chapter 4 status of the payee or recipient (if other than the payee), the withholding agent is not required to include on Form 1042-S the information required to report the payment for chapter 4 purposes. For example, if a withholding agent makes a U.S. source dividend payment prior to July 1, 2014, to a nonqualified intermediary, the withholding agent is not required to determine the chapter 4 status of such intermediary or its account holders and therefore is not required to complete boxes 4, 4a, 4b, 13b, 16b, or any chapter 4 status code on Form 1042-S. If the withholding agent makes another U.S. dividend payment on or after July 1, 2014, for which reporting on Form 1042-S is required for chapter 4 purposes and has documented the payee as a nonparticipating FFI, the withholding agent is required to complete a separate Form 1042-S for all such payments made on or after July 1, 2014, that includes the information required for reporting the payment and tax withheld for chapter 4 purposes. A separate Form 1042-S that includes the information required for chapter 4 purposes is not required for withholdable payments made on or after July 1, 2014, if chapter 4 withholding was not applied (or required to be applied) to the payment.

Reminders

FIRE System.   For files submitted on the FIRE System, it is the responsibility of the filer to check the status within 5 business days to verify the results of the transmission. The IRS will not mail error reports for files that are bad.

Substitute forms.   Any substitute forms must comply with the rules set out in Pub. 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, W-2G, and 1042-S. A substitute of Form 1042-S, Copy A, must be an exact copy of Form 1042-S, Copy A. If it is not, the form may be rejected as incorrect and the IRS may impose penalties. For more information, see Substitute Forms, later.

Purpose of Form

Use Form 1042-S to report income described under Amounts Subject to Reporting on Form 1042-S, later, and to report amounts withheld under chapter 3 or chapter 4.

Use Form 1042-S to report specified Federal procurement payments paid to foreign persons that are subject to withholding under section 5000C.

Also use Form 1042-S to report distributions of effectively connected income by a publicly traded partnership or nominee. See Publicly Traded Partnerships (Section 1446 Withholding Tax), later.

Every person required to deduct and withhold any tax under chapter 3 or chapter 4 is liable for such tax. Every person required to deduct and withhold any tax on payments made to expatriates is liable for such tax.

Do not use Form 1042-S to report an item required to be reported on any of the following forms.

  • Form W-2 (wages and other compensation made to employees (other than compensation for dependent personal services for which the beneficial owner is claiming treaty benefits), including wages in the form of group-term life insurance).

  • Form 1099.

  • Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests, or Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax. Withholding agents otherwise required to report a distribution partly on a Form 8288-A or Form 8805 and partly on a Form 1042-S may instead report the entire amount on Form 8288-A or  
    Form 8805.

  • Form 8966, FATCA Report. Foreign financial institutions (FFIs) and withholding agents are required to report on Form 8966 certain account holders and payees. An FFI or withholding agent may also be required to file Form 1042-S to report payments of U.S. source FDAP income made to such persons and to report tax deducted and withheld, if any.

Who Must File

Every withholding agent (defined in Definitions, later) must file an information return on Form 1042-S to report amounts paid during the preceding calendar year that are described under Amounts Subject to Reporting on Form 1042-S, later. However, withholding agents who are individuals are not required to report a payment on Form 1042-S if they are not making the payment as part of their trade or business and no withholding is required to be made on the payment. For example, an individual making a payment of interest that qualifies for the portfolio interest exception from withholding is not required to report the payment if the portfolio interest is paid on a loan that is not connected to the individual's trade or business. However, an individual who is a withholding agent paying an amount that actually has been subject to withholding is required to report the payment. Also, an individual paying an amount on which withholding is required must report the payment, whether or not the individual actually withholds. See Multiple Withholding Agent Rule, later, for exceptions to reporting when another person has reported the same payment to the recipient. Also see Publicly Traded Partnerships (Section 1446 Withholding Tax), later.

Every payor of a specified Federal procurement payment must file a Form 1042-S for payments withheld upon under section 5000C.

You must otherwise file a Form 1042-S even if you did not withhold tax under chapter 3 because the income was exempt from tax under a U.S. tax treaty or the Code, including the exemption for income that is effectively connected with the conduct of a trade or business in the United States, or you released the tax withheld to the recipient. For exceptions, see Amounts That Are Not Subject to Reporting on Form 1042-S, later.

Amounts paid to an individual that is a bona fide resident of a U.S. possession or territory are not subject to reporting on Form 1042-S if the beneficial owner of the income is a U.S. citizen, national, or resident alien (such amounts may be subject to Form 1099 reporting).

If you file Form 1042-S, you also must file Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. See Form 1042, and the instructions to the form, for more information.

Where, When, and How To File

Forms 1042-S, whether filed on paper or electronically, must be filed with the Internal Revenue Service by March 16, 2015. You also are required to furnish Form 1042-S to the recipient of the income by March 16, 2015.

Copy A is filed with the Internal Revenue Service. Send all paper Forms 1042-S with Form 1042-T, Annual Summary and Transmittal of Forms 1042-S, to the address in the Form 1042-T instructions. You must use Form 1042-T to transmit paper Forms 1042-S. Use a separate Form 1042-T to transmit each type of Form 1042-S. See Payments by U.S. Withholding Agents, later, and the Form 1042-T instructions for more information. If you are a financial institution or have 250 or more Forms 1042-S to file, follow the instructions under Electronic Reporting, later.

Attach only Copy A to Form 1042-T. Copies B, C, and D should be provided to the recipient of the income. Copy E should be retained by the withholding agent.

With respect to a withholdable payment, the recipient copy should be provided to the intermediary or flow-through entity named as a recipient with respect to a chapter 4 reporting pool, if applicable.

Extension of time to file.   To request an extension of time to file Forms 1042-S, file Form 8809, Application for Extension of Time To File Information Returns. See the Form 8809 instructions for where to file that form. You should request an extension as soon as you are aware that an extension is necessary, but no later than the due date for filing Form 1042-S. By filing Form 8809, you will get an automatic 30-day extension to file Form 1042-S. If you need more time, a second Form 8809 may be submitted before the end of the initial extended due date. See Form 8809 for more information.

  
If you are requesting extensions of time to file for 2 or more withholding agents or payers, you must submit the extension requests electronically. See Pub. 1187, Specifications for Filing Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, Electronically, for more information.

Recipient copies.

You may request an extension of time to provide the statements to recipients by sending a letter to:

Internal Revenue Service  
Information Returns Branch 
Attn: Extension of Time Coordinator 
240 Murall Drive Mail Stop 4360  
Kearneysville, WV 25430

See Extension to provide statements to recipients in Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

If you are requesting an extension of time to file for recipients of more than 10 withholding agents, you must submit the extension requests electronically. See Pub. 1187, Part D, Section 4, for more information.

Electronic Reporting

If you are either a person (including a corporation, partnership, individual, trust, or estate) that is required to file 250 or more Forms 1042-S, or a financial institution, whether U.S. or foreign, you are required to submit Forms 1042-S electronically.

Electronic submissions are filed using the Filing Information Returns Electronically (FIRE) System. The FIRE System operates 24 hours a day, 7 days a week, at fire.irs.gov. For more information, see Pub. 1187.

The electronic filing requirement applies separately to original and amended returns. For a withholding agent other than a financial institution, the filing requirement applies individually to each reporting entity as defined by its separate taxpayer identification number (TIN). For example, if you have 300 original Forms 1042-S, they must be filed electronically. However, if 200 of those forms contained erroneous information, the amended returns may be filed on paper forms because the number of amended Forms 1042-S is less than the 250-or-more filing requirement.

If you file electronically, do not file the same returns on paper. Duplicate filing may cause penalty notices to be generated.

Note.

Even though as many as 249 Forms 1042-S may be submitted on paper to the IRS, the IRS encourages filers to transmit forms electronically.

Hardship waiver.    For a withholding agent other than a participating FFI, QI, WP, or WT, to receive a hardship waiver from the required filing of Forms 1042-S electronically, submit Form 8508, Request for Waiver From Filing Information Returns Electronically. Waiver requests should be filed at least 45 days before the due date of the returns. See Form 8508 for more information.

Need assistance?   For additional information and instructions on filing Forms 1042-S electronically, extensions of time to file (Form 8809), and hardship waivers (Form 8508), see Pub. 1187. You also can call the Information Reporting Program at 866-455-7438 (toll free) or 304-263-8700 (not a toll-free number). Do not call the Information Reporting Program to answer tax law questions. See Caution, below, for additional information. The Information Reporting Program also can be reached by fax at 877-477-0572 (toll free) and international fax at 304-579-4105 (not a toll-free number).

  
This call site does not answer tax law questions concerning the requirements for withholding of tax on payments under chapter 3 or chapter 4 of the Code. If you need such assistance, you can call 267-941-1000 (not a toll-free number) from 6:00 a.m. to 11:00 p.m. Eastern time or write to:

 
Internal Revenue Service  
International Section 
Philadelphia, PA 19255-0725

Additional Information

For more information on the withholding of tax, see Pub. 515. To order this publication and other publications and forms, call 1-800-TAX-FORM (1-800-829-3676). You also can download forms and publications from IRS.gov.

Record Retention

Withholding agents should retain a copy of the information returns filed with the IRS, or have the ability to reconstruct the data, for at least 3 years after the reporting due date.

Substitute Forms

The official Form 1042-S is the standard for substitute forms. Because a substitute form is a variation from the official form, you should know the requirements of the official form for the year of use before you modify it to meet your needs. The IRS provides several means of obtaining the most frequently used tax forms. These include the Internet and DVD. For details on the requirements of substitute forms, see Pub. 1179.

Note.

Starting with calendar year 2015, withholding agents will be required to provide a recipient with a separate Form 1042-S for each type of income or other payment.

Penalty for filing incorrect substitute form.

Privately printed substitute Forms 1042-S must be exact copies of both the format and content of the official Form 1042-S. If you file a substitute for Form 1042-S, Copy A, with the IRS that is not an exact copy of the official Form 1042-S, Copy A, you may be subject to a penalty for failure to file a correct return. See Penalties, later.

Deposit Requirements

For information and rules concerning federal tax deposits, see Depositing Withheld Taxes in Pub. 515 or Deposit Requirements in the Instructions for Form 1042.

Definitions

Withholding agent.   A withholding agent is any person, U.S. or foreign, that has control, receipt, or custody of an amount subject to withholding under chapter 3, who can disburse or make payments of an amount subject to withholding, or who makes a withholdable payment under chapter 4. The withholding agent may be an individual, corporation, partnership, trust, association, or any other entity. The term withholding agent also includes, but is not limited to, a qualified intermediary (QI), a nonqualified intermediary (NQI), a withholding foreign partnership (WP), a withholding foreign trust (WT), a flow-through entity, a U.S. branch that is treated as a U.S. person under Regulations section 1.1441-1(b)(2)(iv)(A), a territory FI, a nominee under section 1446, and an authorized agent. A person may be a withholding agent even if there is no requirement to withhold from a payment or if another person has already withheld the required amount from a payment.

  In most cases, the U.S. person who pays (or causes to be paid) the item of U.S. source income to a foreign person (or to its agent) must withhold. However, other persons may be required to withhold. For example, if a payment is made by a QI (whether or not it assumes primary withholding responsibility) and the QI knows that withholding was not done by the person from which it received the payment, then that QI is required to do the appropriate withholding. In addition, withholding must be done by any QI that assumes primary withholding responsibility under chapters 3 and 4, a WP, a WT, a U.S. branch that agrees to be treated as a U.S. person under Regulations section 1.1441-1(b)(2)(iv)(A), or an authorized agent. Finally, if a payment is made by an NQI or a flow-through entity that knows, or has reason to know, that withholding was not done, that NQI or flow-through entity is required to withhold since it also falls within the definition of a withholding agent.

Account holder.    Generally, the account holder is the person that holds the account. See Regulations section 1.1471-5(a).

Authorized agent.   An agent is an authorized agent for purposes of acting as a reporting agent for filing Form 1042 or making tax deposits and payments only if all five of the following conditions apply.
  1. There is a written agreement between the withholding agent and the person acting as agent.

  2. A Form 8655, Reporting Agent Authorization, is filed with the IRS.

  3. The books and records and relevant personnel of the agent are available to the withholding agent.

  4. The withholding agent remains fully liable for the acts of its agent and does not assert any of the defenses that otherwise may be available, and

  5. If the agent is making deposits and tax payments or filing Forms 1042-S on behalf of its principal, the agent should be included as the payer on Form 1042-S, box 21.

  A sponsoring entity is a reporting agent and must fulfill the above conditions to be an authorized agent.

  For complete details on these conditions, see Regulations sections 1.1441-7(c) and 1.1474-1(a)(3)(ii).

Beneficial owner.   For payments other than those for which a reduced rate of withholding is claimed under an income tax treaty, the beneficial owner of income in most cases is the person who is required under U.S. tax principles to include the income in gross income on a tax return. A person is not a beneficial owner of income, however, to the extent that person is receiving the income as a nominee, agent, or custodian, or to the extent the person is a conduit whose participation in a transaction is disregarded. In the case of amounts paid that do not constitute income, beneficial ownership is determined as if the payment were income.

  Foreign partnerships, foreign simple trusts, and foreign grantor trusts are not the beneficial owners of income paid to the partnership or trust. The beneficial owners of income paid to a foreign partnership in most cases are the partners in the partnership, provided that the partner is not itself a partnership, foreign simple or grantor trust, nominee, or other agent. The beneficial owner of income paid to a foreign simple trust (a foreign trust that is described in section 651(a)) in most cases is the beneficiary of the trust, if the beneficiary is not a foreign partnership, foreign simple or grantor trust, nominee, or other agent. The beneficial owner of a foreign grantor trust (a foreign trust to the extent that all or a part of the income of the trust is treated as owned by the grantor or another person under sections 671 through 679) is the person treated as the owner of the trust. The beneficial owner of income paid to a foreign complex trust (a foreign trust that is not a foreign simple trust or foreign grantor trust) is the trust itself.

  The beneficial owner of income paid to a foreign estate is the estate itself.

  A payment to a U.S. partnership, U.S. trust, or U.S. estate is not subject to withholding under chapter 3 or 4. A U.S. partnership, trust, or estate should provide the withholding agent with a Form W-9, Request for Taxpayer Identification Number and Certification. In most cases, these beneficial owner rules apply for purposes of section 1446; however, there are exceptions.
  1. Chapter 3 withholding rate pool. A payment of a single type of income, determined in accordance with the income codes used to file Form 1042-S, that is subject to a single rate of withholding and a single chapter 4 exemption code.

  2. Chapter 4 withholding rate pool. A pool of account holders or payees provided on an FFI withholding statement (or a chapter 4 withholding statement). See Regulations section 1.1471-1(b)(20).

Disregarded entity.   A business entity that has a single owner and is not a corporation under Regulations section 301.7701-2(b) is disregarded as an entity separate from its owner.

Dividend equivalent.   To the extent specified in section 871(m), and the regulations thereunder, a dividend equivalent is a payment that, directly or indirectly, is contingent on, or determined by reference to, the payment of a dividend from U.S. sources. Dividend equivalent payments include the following payments.
  1. A substitute dividend made under a securities lending or sale-repurchase transaction involving a U.S. stock, and

  2. A payment made under a specified notional principal contract.

Exempt recipient.   An exempt recipient is any payee that is exempt from the Form 1099 reporting requirements.

Expatriate.   A person is considered an expatriate if he or she relinquishes U.S. citizenship or, in the case of a long-term resident of the United States, ceases to be a lawful permanent resident as defined in section 7701(b)(6).

Fiscally transparent entity.   An entity is treated as fiscally transparent with respect to an item of income for which treaty benefits are claimed to the extent that the interest holders in the entity must, on a current basis, take into account separately their shares of an item of income paid to the entity, whether or not distributed, and must determine the character of the items of income as if they were realized directly from the sources from which realized by the entity. For example, partnerships, common trust funds, and simple trusts or grantor trusts in most cases are considered to be fiscally transparent with respect to items of income received by them.

Flow-through entity.   A flow-through entity is a foreign partnership (other than a withholding foreign partnership), a foreign simple or grantor trust (other than a withholding foreign trust), or, for any payments for which a reduced rate of withholding under an income tax treaty is claimed, any entity to the extent the entity is considered to be fiscally transparent under section 894 with respect to the payment by an interest holder's jurisdiction.

Financial Institution.    A financial institution (FI) is an entity described in Regulations section 1.1471-5(e).

Foreign Financial Institution (FFI).    A foreign financial institution (FFI) is an entity described in Regulations section 1.1471-5(d) or as a financial institution under an Intergovernmental Agreement (IGA).

Deemed-Compliant FFI.

A deemed-compliant FFI is a foreign financial institution that is deemed to satisfy the requirements of section 1471(b) and is either a certified deemed-compliant FFI or registered deemed-compliant FFI (including a reporting model 1 FFI). See Regulations sections 1.1471-1(b)(12), (105), and (107) for the definition of certified deemed-compliant FFI, registered deemed-compliant FFI, and reporting model 1 FFI.

Nonparticipating FFI.

A nonparticipating FFI is a foreign financial institution that is not a participating FFI, deemed-compliant FFI, or exempt beneficial owner.

Participating FFI.

A participating FFI is a foreign financial institution that has agreed to satisfy the obligations of an FFI agreement under chapter 4, including an FFI described in a Model 2 IGA that has agreed to comply with the requirements of an FFI agreement (reporting model 2 FFI). See Regulations section 1.1471-1(b)(73) for the definition of a Model 2 IGA.

Foreign person.   A foreign person includes a nonresident alien individual, a foreign corporation, a foreign partnership, a foreign trust, a foreign estate, and any other person that is not a U.S. person. The term also includes a foreign branch or office of a U.S. financial institution or U.S. clearing organization if the foreign branch is a QI. A payment to a U.S. branch of a foreign person is treated as a payment to a foreign person for purposes of Form 1042-S.

Global intermediary identification number.    The global intermediary identification number (GIIN) is the identification number that is assigned to a participating FFI (including a reporting model 2 FFI), registered deemed-compliant FFI (including a reporting model 1 FFI), or other entity for chapter 4 reporting purposes.

Intermediary.   An intermediary is a person that acts as a custodian, broker, nominee, or otherwise as an agent for another person, regardless of whether that other person is the beneficial owner of the amount paid, a flow-through entity, or another intermediary.

Qualified intermediary (QI).

A QI is an intermediary that is a party to a withholding agreement with the IRS. A QI (other than a limited FFI) that is a financial institution must have a chapter 4 status described in Regulations section 1.1441-1(e)(5)(ii). An entity must indicate its status as a QI on a Form W-8IMY submitted to a withholding agent. For information on a QI withholding agreement, see www.irs.gov/Businesses/Corporations/Qualified-Intermediaries-(QI).

A branch of a financial institution may not act as a QI in a country that does not have approved know-your-customer (KYC) rules. Countries having approved KYC rules are listed on IRS.gov. Branches that operate in non-KYC approved jurisdictions as intermediaries are required to act as nonqualified intermediaries.

Nonqualified intermediary (NQI).

An NQI is any intermediary that is not a U.S. person and that is not a QI.

Private arrangement intermediary (PAI).

A QI that is an FFI may enter into a contractual agreement with another intermediary that is a certified deemed-compliant FFI under which the other intermediary generally agrees to perform all of the obligations of the QI with respect to the accounts maintained directly by the other intermediary. See the QI Agreement for the requirements of a PAI and a QI's agreement with a PAI.

Nonfinancial foreign entity.    A nonfinancial foreign entity (NFFE) is a foreign entity or an entity incorporated or organized under the laws of any U.S. territory that is not a financial institution.

Excepted Nonfinancial foreign entity.

The term excepted NFFE means an NFFE that is described in Regulations section 1.1472-1(c)(1) and generally includes a publicly traded corporation, certain affiliated entities related to a publicly traded corporation, certain territory entities, active NFFEs, and entities excluded from the definition of foreign financial institution (excluded FFIs) described in Regulations section 1.1471-5(e)(5).

Non-exempt recipient.   A non-exempt recipient is any person who is not an exempt recipient under chapter 61 of the Code.

Nonresident alien individual.   Any individual who is not a citizen or resident of the United States is a nonresident alien individual. An alien individual meeting either the green card test or the substantial presence test for the calendar year is a resident alien. Any person not meeting either test is a nonresident alien individual. Additionally, an alien individual not otherwise a citizen of the U.S. who is a resident of a foreign country under the residence article of an income tax treaty, or an alien individual who is a bona fide resident of Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands, or American Samoa, is a nonresident alien individual. See Pub. 519, U.S. Tax Guide for Aliens, for more information on resident and nonresident alien status.

  
Even though a nonresident alien individual married to a U.S. citizen or resident alien may choose to be treated as a resident alien for certain purposes (for example, filing a joint income tax return), such individual is still treated as a nonresident alien for withholding tax purposes.

Payer.   A payer is the person for whom the withholding agent acts as an authorized agent pursuant to an agreement whereby the withholding agent agrees to withhold and report a payment.

Payee.   Except as otherwise provided, the payee is the person to whom a payment is made, regardless of whether such person is the beneficial owner of the amount or treated as the recipient of the payment for purposes of reporting on Form 1042-S. See Regulations section 1.1471-3(a).

Presumption rules.   For withholdable payments and for amounts subject to withholding under chapter 3, the presumption rules are those rules that a withholding agent must follow to determine the status of a beneficial owner or payee (for example, as a U.S. person or a foreign person) when it cannot reliably associate a payment with valid documentation. See, for example, Regulations sections 1.1441-1(b)(3), 1.1441-4(a), 1.1441-5(d) and (e), 1.1441-9(b)(3), 1.1446-1(c)(3), and 1.6049-5(d). Also see Pub. 515. For a withholdable payment (defined in Regulations section 1.1473-1(a)), the withholding agent must also follow the presumption rules under Regulations sections 1.1471-3(f) and, for an FFI, 1.1471-4(c)(4)(i) to determine the chapter 4 status of the payee when it cannot reliably associate a payment with valid documentation.

Publicly traded partnership (PTP).   A PTP is any partnership in which interests are regularly traded on an established securities market (regardless of the number of its partners). However, it does not include a PTP treated as a corporation under section 7704.

Qualified securities lender (QSL).   A QSL is a foreign financial institution that satisfies all of the following.
  • It is a bank, custodian, broker-dealer, or clearing organization that is regulated by the government in its home jurisdiction and that regularly borrows and lends the securities of U.S. corporations to unrelated customers.

  • It is subject to audit by the IRS under section 7602 or by an external auditor if it is a QI.

  • It provides to the withholding agent an annual certification of its QSL status.

  • It meets the requirements to qualify as a QSL provided in Notice 2010-46 for the transition period and until additional published guidance is issued. See Notice 2010-46, 2010-24 I.R.B. 757, available at  
    www.irs.gov/irb/2010-24_IRB/ar09.html.

Recalcitrant account holder.   Generally, a recalcitrant account holder is an account holder of a participating or deemed-compliant FFI that failed to provide the documentation required under chapter 4 to determine the account holder's status or to report the account as a U.S. account. See Regulations section 1.1471-5(g).

Recipient.   For chapter 3 purposes, a recipient includes any of the following.
  • A beneficial owner of income.

  • A QI.

  • A WP or WT.

  • A U.S. branch that is treated as a U.S. person under Regulations section 1.1441-1(b)(2)(iv)(A).

  • A foreign partnership or a foreign trust (other than a WP or WT), but only to the extent the income is effectively connected with its conduct of a trade or business in the United States.

  • A payee who is not known to be the beneficial owner, but who is presumed to be a foreign person under the presumption rules.

  • A PAI.

  • A partner receiving a distribution of effectively connected income from a PTP or nominee.

  • A QSL.

  For chapter 3 purposes, a recipient does not include any of the following.
  • An NQI.

  • A nonwithholding foreign partnership, if the income is not effectively connected with its conduct of a trade or business in the United States.

  • A disregarded entity, other than a hybrid entity claiming treaty benefits.

  • A foreign trust that is described in section 651(a) (a foreign simple trust) if the income is not effectively connected with the conduct of a trade or business in the United States.

  • A foreign trust to the extent that all or a part of the trust is treated as owned by the grantor or other person under sections 671 through 679 (a foreign grantor trust).

  • A U.S. branch that is not treated as a U.S. person unless the income is, or is treated as, effectively connected with the conduct of a trade or business in the United States.

  For chapter 4 purposes, a recipient also includes any of the following.
  • A recalcitrant account holder not included in a chapter 4 reporting pool.

  • A QI.

  • A WP or WT.

  • A PAI.

  • A participating FFI or deemed-compliant FFI that is an NQI, NWP, or NWT and provides chapter 4 withholding rate pool information to the extent permissible.

  • A participating FFI or deemed-compliant FFI that is the beneficial owner, including a nonreporting FFI under a model 1 or 2 IGA.

  • A U.S. branch or territory FI treated as a U.S. person under Regulations section 1.1441-1(b)(2)(iv)(A).

  • An NFFE that is not a flow-through entity or acting as an intermediary.

  • A foreign partnership or a foreign trust (other than a WP or WT), but only to the extent the income is effectively connected with its conduct of a trade or business in the United States.

  • A partner or beneficiary of a flow-through entity that is an NFFE (other than a WP or WT).

  • A nonparticipating FFI that is a beneficial owner.

  • An exempt beneficial owner that is not a flow-through entity or acting as an intermediary.

  For chapter 4 purposes, a recipient is generally the same person that is a recipient for chapter 3 purposes but does not include any of the following.
  • An account holder, partner, beneficiary, owner, or payee of a nonparticipating FFI unless it is an exempt beneficial owner.

  • A participating FFI or deemed-compliant FFI if the withholding agent issues a Form 1042-S to the FFI’s account holder, partner, owner, or payee.

  • An account holder, partner, owner, or payee of a participating FFI or registered deemed-compliant FFI that is included in a chapter 4 reporting pool.

Specified notional principal contract (SNPC).   An SNPC is any notional principal contract that satisfies one or more of the following.
  • In connection with entering into the contract, any long party to the contract transfers the underlying security to any short party to the contract.

  • In connection with the termination of the contract, any short party to the contract transfers the underlying security to any long party to the contract.

  • The underlying security is not readily tradable on an established securities market.

  • In connection with entering into the contract, the underlying security is posted as collateral by any short party to the contract with any long party to the contract.

  • The IRS identifies the contract as an SNPC.

Territory FI.   A territory FI is a financial institution that is incorporated or organized under the law of any U.S. territory and is not an investment entity. See Regulations section 1.1471-5(e)(1)(iii) for the definition of investment entity.

U.S. branch treated as a U.S. person.   A U.S. branch may agree to be treated as a U.S. person if it meets the requirements described in the regulations under chapter 3. See Regulations section 1.1441-1(b)(2)(iv)(A). Additionally, a territory FI may agree to be treated as a U.S. person.

  The U.S. branch or territory FI must provide a Form W-8IMY evidencing that it is agreeing to be treated as a U.S. person.

  
A U.S. branch that is treated as a U.S. person is treated as such solely for purposes of determining whether a payment is subject to withholding. The branch is, for purposes of information reporting, a foreign person, and payments to such a branch must be reported on Form 1042-S.

Withholdable payment.   A withholdable payment is a payment described in Regulations section 1.1473-1(a).

Withholding certificate.   The term “withholding certificate” refers to Form W-8 or Form W-9 in most cases.

Note.

Throughout these instructions, a reference to or mention of “Form W-8” is a reference to Forms W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and/or W-8IMY.

Withholding foreign partnership (WP) or withholding foreign trust (WT).   A WP or WT is a foreign partnership or trust that has entered into a withholding agreement with the IRS in which it agrees to assume primary withholding responsibility for all payments that are made to it for its partners, beneficiaries, or owners under chapter 3 (except for sections 1445 and 1446) and under chapter 4. For information on these withholding agreements, see Regulations section 1.1441-5.

Nonwithholding foreign partnership (NWP) or nonwithholding foreign trust (NWT).

An NWP or NWT is any partnership or trust (other than a complex trust) that is not a U.S. person and that is not a WP or WT.

Amounts Subject to Reporting on Form 1042-S

Amounts subject to reporting on Form 1042-S are amounts from U.S. sources paid to foreign persons (including persons presumed to be foreign) or included in a U.S. payee pool that are reportable under chapters 3 and 4, even if no amount is deducted and withheld from the payment because of a treaty or Code exception to taxation or if any amount withheld was repaid to the payee. Amounts subject to reporting are amounts from sources within the United States that constitute (a) fixed or determinable annual or periodical (FDAP) income (including deposit interest); (b) certain gains from the disposal of timber, coal, or domestic iron ore with a retained economic interest; and (c) gains relating to contingent payments received from the sale or exchange of patents, copyrights, and similar intangible property. A payment is also subject to reporting if withholding under chapter 4 is applied (or required to be applied) to the payment. Amounts subject to reporting on Form 1042-S include, but are not limited to, the following amounts to the extent from U.S. sources.

  • Interest on deposits paid to certain nonresident aliens. Interest described in section 871(i)(2)(A) aggregating $10 or more paid with respect to a deposit maintained at an office within the United States if such interest is paid to a nonresident alien individual who is a resident of a country identified, in Revenue Procedure 2012-24 (or a superseding Revenue Procedure) as of December 31, prior to the calendar year in which the interest is paid. A payor may elect to report interest described above paid to any nonresident alien individual by reporting all such interest. See Revenue Procedure 2012-24 (or a superseding Revenue Procedure) for the current list of countries with which the United States has in effect an income tax or other convention or bilateral agreement relating to exchange information within the meaning of section 6103(k)(4).

    When completing Form 1042-S, use income code 29 in box 1 and exemption code 02 in box 3a for chapter 3 purposes and the applicable chapter 4 exemption code in box 4a, if any (see the instructions for boxes 3a and 3b, later).

    If you issue a substitute Form 1042-S to the recipient, the substitute form must include a statement that the information on the form is being furnished to the United States Internal Revenue Service.

  • Interest on deposits subject to chapter 4 withholding. Interest on deposits from U.S. sources are withholdable payments and, therefore, may be subject to withholding under chapter 4 and, if withheld upon, reporting is required.

  • Corporate distributions. The entire amount of a corporate distribution (whether actual or deemed) must be reported, regardless of any estimate of the part of the distribution that represents a taxable dividend. Any distribution, however, that is treated as gain from the redemption of stock is not an amount subject to withholding. For information on dividends paid by a qualified investment entity (QIE), see Pub. 515.

  • Interest. This includes the part of a notional principal contract payment that is characterized as interest.

  • Rents.

  • Royalties.

  • Compensation for independent personal services performed in the United States.

  • Compensation for dependent personal services performed in the United States (but only if the beneficial owner is claiming treaty benefits).

  • Annuities.

  • Pension distributions and other deferred income.

  • Most gambling winnings. However, proceeds from a wager placed in blackjack, baccarat, craps, roulette, or big-6 wheel are not amounts subject to reporting.

  • Cancellation of indebtedness. Income from the cancellation of indebtedness must be reported unless the withholding agent is unrelated to the debtor and does not have knowledge of the facts that give rise to the payment.

  • Effectively connected income (ECI). ECI includes amounts that are (or are presumed to be) effectively connected with the conduct of a trade or business in the United States even if no withholding certificate is required. Note that bank deposit interest is subject to Form 1042-S reporting if it is ECI or otherwise reportable on Form 1042-S (see interest on deposits, earlier). ECI of a PTP distributed to a foreign partner must be reported on Form 1042-S.

  • Notional principal contract income. Income from notional principal contracts that the payer knows, or must presume, is effectively connected with the conduct of a U.S. trade or business is subject to reporting using income code 32. The amount to be reported is the amount of cash paid on the contract during the calendar year. Any amount of interest determined under the provisions of Regulations section 1.446-3(g)(4) (dealing with interest in the case of a significant non-periodic payment) is reportable as interest and not as notional principal contract income. See, however, the separate reporting for U.S.-source dividend equivalent payments.

  • Insurance premiums. Insurance premiums from U.S. sources are amounts subject to withholding under chapter 3 (excluding amounts subject to the section 4371 excise tax). Insurance premiums from U.S. sources are payments to which chapter 4 withholding is applied (or required to be applied) and, in such case, reporting is required.

  • REMIC excess inclusions. Excess inclusions from REMICs (income code 02) and withheld tax must be reported on Form 1042-S. A domestic partnership must separately state a partner's allocable share of REMIC taxable income or net loss and the excess inclusion amount on Schedule K-1 (Form 1065). If the partnership allocates all or some part of its allocable share of REMIC taxable income to a foreign partner, the partner must include the partner's allocated amount in income as if that amount was received on the earliest to occur of (1) the date of distribution by the partnership; (2) the date the foreign partner disposes of its indirect interest in the REMIC residual interest; or (3) the last day of the partnership's tax year.

The partnership must withhold tax on the part of the REMIC amount that is an excess inclusion.

An excess inclusion allocated to the following foreign persons must be included in that person's income at the same time as other income from the entity is included in income.

  • Shareholder of a real estate investment trust.

  • Shareholder of a regulated investment company.

  • Participant in a common trust fund.

  • Patron of a subchapter T cooperative organization.

  • Students, teachers, and researchers. Amounts paid to foreign students, trainees, teachers, or researchers as scholarship or fellowship income, and compensation for personal services (whether or not exempt from tax under an income tax treaty), must be reported. However, amounts that are exempt from tax under section 117 are not subject to reporting.

  • Amounts paid to foreign governments, foreign controlled banks of issue, and international organizations. These amounts are subject to reporting even if they are exempt from chapter 3 withholding under section 892 or 895.

  • Foreign targeted registered obligations. Interest paid on registered obligations targeted to foreign markets paid by a U.S. person to a foreign person other than a financial institution or a member of a clearing organization is an amount subject to reporting.

  • Original Issue Discount (OID) from the redemption of an OID obligation. The amount subject to reporting is the amount of OID actually includible in the gross income of the foreign beneficial owner of the income, if known. Otherwise, the withholding agent should report the entire amount of OID as if the recipient held the instrument from the date of original issuance. See Pub. 1212, Guide to Original Issue Discount (OID) Instruments.

  • Certain dispositions of U.S. real property interests. See Withholding on Dispositions of U.S. Real Property Interests by Publicly Traded Trusts and Qualified Investment Entities (QIEs), later.

  • Other U.S.-source dividend equivalent payments. Other U.S.-source dividend equivalent payments are payments other than substitute dividends that qualify as U.S.-source dividends under section 871(m) and the regulations thereunder. Report these amounts using income code 40.

  • Guarantee of indebtedness.This includes amounts paid, directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010. They must be paid by a non-corporate resident or U.S. corporation or by any foreign person if the amounts are effectively connected with the conduct of a U.S. trade or business. Report these amounts using income code 41.

  • Specified Federal procurement payments. Specified Federal procurement payments subject to withholding under section 5000C.

Amounts That Are Not Subject to Reportingon Form 1042-S

Interest and OID from short-term obligations.    Interest and OID from any obligation payable 183 days or less from the date of original issue should not be reported on Form 1042-S. See, however, the reporting requirements for deposit interest described earlier.

Registered obligations targeted to foreign markets.    Interest on a registered obligation that is targeted to foreign markets and that qualifies as portfolio interest is not subject to reporting if it is paid to a registered owner that is a financial institution or member of a clearing organization and you have received the required certifications.

Reporting will be required on interest paid on any registered obligation (regardless of whether targeted to foreign markets) if the registered obligation is issued after December 31, 2015.

Bearer obligations targeted to foreign markets.    Do not file Form 1042-S to report interest not subject to withholding on bearer obligations if a Form W-8 is not required.

Withholding is required on interest paid on any bearer obligations targeted to foreign markets if the obligation is issued after March 18, 2012. You must file Form 1042-S to report this interest paid on an obligation issued after that date.

Notional principal contract payments that are not ECI.    Amounts paid on a notional principal contract other than a specified notional principal contract (SNPC) other than income that is not effectively connected with the conduct of a trade or business in the United States should not be reported on Form 1042-S. All amounts paid on an SNPC that are treated as dividend equivalent payments should be reported as such on Form 1042-S.

Accrued interest and OID.   Interest paid on obligations sold between interest payment dates and the part of the purchase price of an OID obligation that is sold or exchanged in a transaction other than a redemption is not subject to reporting unless the sale or exchange is part of a plan, the principal purpose of which is to avoid tax, and the withholding agent has actual knowledge or reason to know of such plan.

Certain withholdable payments.    Withholdable payments not subject to reporting for chapter 3 purposes (other than bank deposit interest paid to certain nonresident aliens) are not required to be reported if withholding is not applied (or required to be applied) under chapter 4.

Withholding on Dispositions of U.S. Real Property Interests by Publicly Traded Trustsand Qualified Investment Entities (QIEs)

In general, when a publicly traded trust makes a distribution to a foreign person attributable to the disposition of a U.S. real property interest, it must withhold tax under section 1445. However, this withholding liability is shifted to the person who pays the distribution to a foreign person (or to the account of the foreign person) if the special notice requirement of Regulations section 1.1445-8(f) and other requirements of Regulations section 1.1445-8(b)(1) are satisfied.

The amount subject to withholding for a distribution by a publicly traded trust is determined under the large trust rules of Regulations section 1.1445-5(c)(3).

The rate of withholding is as follows:

  1. Distribution by a publicly traded trust that makes recurring sales of growing crops and timber – 10%.

  2. Distribution by a publicly traded trust not described in (1) above – 35%.

Special rules apply to qualified investment entities (QIEs). A QIE is one of the following.

  • A real estate investment trust (REIT).

  • A regulated investment company (RIC) that is a U.S. real property holding corporation. The special rule for a RIC applies only for distributions by the RIC that are directly or indirectly attributable to distributions the RIC received from a REIT.

In most cases, any distribution from a QIE attributable to gain from the sale or exchange of a U.S. real property interest is treated as such gain by the nonresident alien, foreign corporation, or other QIE receiving the distribution.

A distribution by a QIE to a nonresident alien or foreign corporation that is treated as gain from the sale or exchange of a U.S. real property interest by the shareholder is subject to withholding at 35%.

Any distribution by a QIE on stock regularly traded on a securities market in the United States is not treated as gain from the sale or exchange of a U.S. real property interest if the shareholder did not own more than 5% of that stock at any time during the 1-year period ending on the date of the distribution. These distributions are included in the shareholder's gross income as a dividend (income code 06) from the QIE, not as long-term capital gain.

Use Forms 1042-S and 1042 to report and pay over the withheld amounts. All other withholding required under section 1445 is reported and paid over using Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests, and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests.

For more information on reporting income from real property interests, see U.S. Real Property Interest in Pub. 515.

Publicly Traded Partnerships (Section1446 Withholding Tax)

A publicly traded partnership (PTP) (defined earlier in Definitions) that has effectively connected income, gain, or loss must pay a withholding tax on distributions of that income made to its foreign partners and file Form 1042-S using income code 27. A nominee that receives a distribution of effectively connected income from a PTP is treated as the withholding agent to the extent of the amount specified in the qualified notice received by the nominee. For this purpose, a nominee is a domestic person that holds an interest in a PTP on behalf of a foreign person. See Regulations section 1.1446-4 and Pub. 515 for details.

If you are a nominee that is the withholding agent under section 1446, enter the PTP's name and other required information in boxes 15a through 16f on Form 1042-S.

Other partnerships that have effectively connected gross income allocable to foreign partners must pay a withholding tax under section 1446. These amounts are reported on Form 8804, Annual Return for Partnership Withholding Tax (Section 1446), and Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax.

Payments by U.S. Withholding Agents

In general.   U.S. withholding agents making payments described under Amounts Subject to Reporting on Form 1042-S, earlier, must file a separate Form 1042-S for each recipient who receives the income. Furthermore, withholding agents filing paper Forms 1042-S are not permitted to report multiple types of income on Copy A filed with the IRS. These filers must use a separate Form 1042-S for information reportable on a single type of income.

  
These filers cannot use a single Form 1042-S to report income if that income is reportable under different income, recipient, or exemption codes, or is subject to different rates of withholding. Beginning in calendar year 2015, withholding agents are not permitted to report multiple types of income on a Form 1042-S (or substitute form) furnished to a recipient and thus must use a separate Form 1042-S for information reportable on a single type of income.

  See Payments Made to Persons Who Are Not Recipients, later, if the payment is made to a foreign person that is not a recipient.

Payments to Recipients

Payments directly to beneficial owners.   A U.S. withholding agent making a payment directly to a beneficial owner must complete Form 1042-S and treat the beneficial owner as the recipient. Boxes 15a through 16f should be left blank. The Form 1042-S must also include the appropriate chapter 3 and chapter 4 exemption codes, if applicable, in boxes 3a and 4a, as well as the appropriate recipient codes for the chapter 3 and chapter 4 status codes for a payment that is a withholdable payment and an amount subject to chapter 3 withholding. A U.S. withholding agent should complete box 21 only if it is completing Form 1042-S as a paying agent acting pursuant to an agreement to act as an authorized agent for filing and reporting Form 1042 and 1042-S.

  In the case of foreign joint owners, you may provide a single Form 1042-S made out to the owner whose status you relied upon to determine the applicable rate of withholding (the owner subject to the highest rate of withholding). If, however, any one of the owners requests its own Form 1042-S, you must furnish a Form 1042-S to the person who requests it, and you should amend the originally filed Form 1042-S. If more than one Form 1042-S is issued for a single payment, the aggregate amount paid and tax withheld that is reported on all Forms 1042-S cannot exceed the total amounts paid to joint owners and the tax withheld on those payments.

Payments to a qualified intermediary, withholding foreign partnership, or withholding foreign trust.   A U.S. withholding agent that makes payments to a QI (whether or not the QI assumes primary withholding responsibility), a withholding foreign partnership (WP), or a withholding foreign trust (WT) should complete Form 1042-S in most cases, treating the QI, WP, or WT as the recipient. However, see Payments allocated, or presumed made, to U.S. non-exempt recipients., later for exceptions. A QI that does not assume primary withholding responsibility is required to provide information regarding the proportions of income subject to a particular withholding rate to the withholding agent on the withholding statement associated with its Form W-8IMY. In such a case, the U.S. withholding agent must complete a separate Form 1042-S for each withholding rate pool of the QI. For purposes of chapter 4, a QI may provide a single pool of recalcitrant account holders (rather than separate pools for each class). In such a case, the withholding agent may use chapter 4 pooled reporting code 42 (recalcitrant pool-no U.S. indicia). In future years, the form will be updated to provide a specific code for this purpose. A QI that assumes primary withholding responsibility, a WP, or a WT is not required to provide withholding rate pool information.

  A U.S. withholding agent making payments to a QI (that assumes primary withholding responsibility), a WP, or a WT must use recipient code 12 (qualified intermediary), 13 (qualified Intermediary- branch under qualified intermediary agreement), 09 (withholding foreign partnership), or 11 (withholding foreign trust) as the chapter 3 status code and must use recipient code 08 (participating FFI- other), 09 (participating FFI- reporting model 2 FFI), 10 (registered deemed-compliant FFI- reporting model 1 FFI), 12 (registered deemed-compliant FFI-other) or, for an FFI treated as deemed-compliant under an IGA, 13 (certified deemed-compliant-other) as the chapter 4 status code if the entity is an FFI that receives a withholdable payment and provides chapter 4 withholding rate pool information. A U.S. withholding agent must not use any chapter 3 pooled reporting code (codes 33 through 38). Use of an inappropriate recipient code may cause a notice to be generated.

  
A QI is required to act in such capacity only for designated accounts. Therefore, such an entity also may provide a Form W-8IMY in which it certifies that it is acting as an NQI for other accounts and, if it is an FFI that is receiving a withholdable payment, that it is a participating FFI, registered deemed-compliant FFI, or FFI treated as deemed-compliant under an IGA. A U.S. withholding agent that receives a Form W-8IMY on which the foreign person providing the form indicates that it is not acting as a QI may not treat the foreign person as a recipient except as otherwise provided in these instructions. A withholding agent must not use the EIN that a QI provides in its capacity as such to report payments that are treated as made to an entity in its capacity as an NQI. In that case, use the GIIN, if any, and EIN that is provided by the entity on its Form W-8IMY in which it claims that it is acting as an NQI or flow-through entity.

Note.

A withholding agent is required to use chapter 4 reporting pool codes as the chapter 4 status code in the case of withholdable payments made to: 

  • A QI that does not assume primary withholding responsibility;

  • A participating FFI or registered deemed-compliant FFI that is an NQI, NWP, or NWT; or

  • An NQI, NWP, or NWT (other than a nonparticipating FFI) that provides a pool of nonparticipating FFIs,

 
if the QI, NQI, NWP, or NWT provides chapter 4 withholding rate pool information in the withholding statement associated with its Form W-8IMY. See the presumption rules under Regulations section 1.1471-3(f) if such information is not provided for a withholdable payment made to an entity.

Example 1.

WA, a U.S. withholding agent, makes a withholdable payment of U.S. source dividends to QI, a qualified intermediary that does not assume primary chapter 3 and 4 withholding responsibility and that is a participating FFI. QI provides WA with a valid Form W-8IMY with which it associates a withholding statement that allocates 95% of the payment to a chapter 3, 15% withholding rate pool with a single chapter 4 exemption code, and 5% of the payment to a chapter 4, 30% withholding rate pool of recalcitrant account holders. WA must complete a Form 1042-S, for the dividends allocated to the chapter 3, 15% withholding rate pool, showing “15.00” in box 3b (chapter 3 tax rate), “00” in box 3a (chapter 3 exemption code), chapter 4 exemption code 15 (payee not subject to chapter 4 withholding) in box 4a, “00.00” in box 4b (chapter 4 tax rate) and QI as the recipient in box 14a along with recipient code 12 (qualified intermediary) as the chapter 3 status code and recipient code 08 (participating FFI- other) as the chapter 4 status code. WA must also complete a Form 1042-S, for the dividends allocated to the chapter 4, 30% withholding rate pool, showing chapter 3 exemption code 12 (payee subjected to chapter 4 withholding) in box 3a,“00.00” in box 3b (chapter 3 tax rate), “00” in box 4a (chapter 4 exemption code), and “30.00” in box 4b with QI as the recipient in box 13a and recipient code 12 (qualified intermediary) as the chapter 3 status code and recipient code 42 (Recalcitrant Pool – No U.S. Indicia) as the chapter 4 status code.

Payments allocated, or presumed made, to U.S. non-exempt recipients.

A QI may provide Forms W-9 or other information regarding U.S. non-exempt recipients that the QI (or other entity maintaining the account) is required to report under chapter 61 and for which the QI does not assume primary Form 1099 reporting responsibility. QI may also provide information regarding U.S. non-exempt recipients that QI elects to backup withhold under section 3406 instead of withholding under chapter 4 on payments made to an account holder. If Forms W-9 or other information is provided together with information allocating all or a part of the payment to U.S. non-exempt recipients, you must report income allocable to the U.S. non-exempt recipients on the appropriate Form 1099 and not on Form 1042-S even though you are paying that income to a QI. QI may also provide information regarding U.S. non-exempt recipients in a chapter 4 withholding rate pool that the withholding agent must report on Form 1042-S.

You also may be required under the presumption rules to treat a payment made to a QI as made to a payee that is a U.S. non-exempt recipient from which you must withhold on the payment under the backup withholding provisions of the Code. In this case, you must report the payment on the appropriate Form 1099. See the General Instructions for Certain Information Returns.

Example 2.

WA, a U.S. withholding agent, makes a withholdable payment of U.S. source dividends to QI, a qualified intermediary and registered deemed-compliant FFI that is a local FFI described in Regulations section 1.1471-5(f)(1)(i)(A). QI provides WA with a valid Form W-8IMY certifying that it is transmitting Forms W-9 for U.S. non-exempt recipients and with which it associates a withholding statement that allocates 95% of the payment to a chapter 3, 15% withholding rate pool with a single chapter 4 exemption code, and 5% of the payment to C, a U.S. individual. QI also provides WA with C's Form W-9. C is a direct account holder of QI and a U.S. citizen that is a resident of QI's local jurisdiction that QI is not required to report under chapter 4 (see Regulations section 1.1471-5(f)(1)(i)(A)) and thus cannot be included in a chapter 4 withholding rate pool of U.S. payees. See Regulations section 1.6049-4(c)(4). WA must complete a Form 1042-S, showing QI as the recipient in box 14a, and WA should use recipient code 12 (qualified intermediary) as the chapter 3 status code and recipient code 12 (registered deemed-compliant FFI – other) as the chapter 4 status code for the dividends allocated to the 15% withholding rate pool. WA also must complete a Form 1099-DIV issued to C reporting the part of the dividend allocated to C.

Example 3.

WA, a withholding agent, makes a withholdable payment of U.S. source dividends to QI, a qualified intermediary that is a reporting model 1 FFI. QI provides WA with a valid Form W-8IMY with which it associates a withholding statement that allocates 40% of the payment to a chapter 3, 15% withholding rate pool and 40% to a chapter 3, 30% withholding rate pool. QI does not provide any withholding rate pool information regarding the remaining 20% of the payment. WA must apply the presumption rule to the part of the payment (20%) that has not been allocated. Under the presumption rules of Regulations section 1.1471-3(f) for a withholdable payment made to an entity, 20% of the payment is treated as paid to a nonparticipating FFI. WA must complete three Forms 1042-S. First, a Form 1042-S for dividends subject to 15% withholding, showing “00” in box 3a (chapter 3 exemption code), chapter 4 exemption code 15 (payee not subject to chapter 4 withholding) in box 4a, QI as the recipient in box 14a, recipient code 12 (qualified intermediary) as the chapter 3 status code, and recipient code 10 (registered deemed-compliant FFI-reporting model 1 FFI) as the chapter 4 status code (because the payment is a withholdable payment). Second, a Form 1042-S for dividends subject to 30% withholding, showing “00” in box 3a (chapter 3 exemption code), chapter 4 exemption code 15 (payee not subject to chapter 4 withholding) in box 4a, QI as the recipient in box 14a, recipient code 12 (qualified intermediary) as the chapter 3 status code, and recipient code 10 (registered deemed-compliant FFI – reporting model 1 FFI) as the chapter 4 status code. Third, a Form 1042-S for dividends subject to 30% withholding, showing chapter 3 exemption code 12 (payee subjected to chapter 4 withholding), “00” in box 4a (chapter 4 exemption code), “Unknown Recipient” as the recipient in box 14a and recipient code 24 (unknown recipient) as the chapter 3 status code and recipient code 47 (nonparticipating FFI pool) as the chapter 4 status code. Also, QI's name, country code, address, GIIN, and QI-EIN must be entered in boxes 15-16f.

Amounts paid to qualified securities lenders.   A withholding agent that makes payments of substitute dividends to a qualified securities lender (QSL) should complete Form 1042-S treating the QSL as the recipient. Use income code 34. Use recipient code 16 or 17 (qualified securities lender – qualified intermediary or qualified securities lender – other) as the chapter 3 status code.

  The withholding agent is not required to withhold on a substitute dividend payment that is part of a series of dividend equivalent payments if it receives, at least annually, a certificate from the QSL that includes a statement with the following information.
  • The recipient of the substitute dividend is a QSL, and

  • With respect to the substitute dividend it receives from the withholding agent, the QSL states that it will withhold and remit or pay the proper amount of U.S. gross-basis tax. Use exemption code 11.

  If the QSL is also a QI with primary withholding responsibility, use exemption code 11 and not exemption code 06 for chapter 3 purposes.

Amounts paid to certain U.S. branches.   A U.S. withholding agent making a payment to a U.S. branch of an FFI or NFFE completes Form 1042-S as follows:
  • If a withholding agent makes a payment to a U.S. branch that has provided the withholding agent with a Form W-8IMY stating that it has agreed to be treated as a U.S. person, the U.S. withholding agent treats the U.S. branch as the recipient.

  • If a withholding agent makes a payment to a U.S. branch that has provided a Form W-8IMY to transmit information regarding its chapter 4 reporting pools when the payment is a withholdable payment or the branch provides a chapter 4 withholding rate pool of U.S. payees and, to the extent applicable, recipient specific information for chapter 3 purposes, the U.S. withholding agent must complete a separate Form 1042-S for each chapter 4 reporting pool treating the U.S. branch as the recipient or, for chapter 3 purposes, for each recipient that is a foreign person whose documentation is associated with the U.S. branch's Form W-8IMY. If a payment cannot be reliably associated with recipient documentation, the U.S. withholding agent must complete Form 1042-S in accordance with the presumption rules.

  • If a withholding agent cannot reliably associate a payment with a Form W-8IMY from a U.S. branch, and if a withholding agent has an EIN for the branch, then the payment may be reported on a single Form 1042-S treating the U.S. branch as the recipient and reporting the income as effectively connected income.

Amounts paid to a foreign estate.   If a U.S. withholding agent makes a payment to a foreign estate, a Form 1042-S must be completed showing the estate as the recipient. Use recipient code 20 (estate), as the chapter 3 status code and the applicable recipient code for the chapter 4 status code.

Dual claims.   A U.S. withholding agent may make a payment to a foreign entity (for example, a hybrid entity) that is simultaneously claiming an exemption from chapter 4 withholding and a reduced rate of tax under chapter 3 on its own behalf for a part of the payment and an exemption from chapter 4 withholding and a reduced rate of tax under chapter 3 on behalf of persons in their capacity as interest holders in that entity on the remaining part. If the claims are consistent and the withholding agent has accepted the multiple claims, a separate Form 1042-S must be filed for the entity for those payments for which the entity is treated as claiming a reduced rate of withholding and separate Forms 1042-S must be filed for each of the interest holders for those payments for which the interest holders are claiming a reduced rate of withholding. The Forms 1042-S must include the chapter 4 status of the payee (including the applicable chapter 4 exemption). If the claims are consistent but the withholding agent has not chosen to accept the multiple claims, or if the claims are inconsistent, a separate Form 1042-S must be filed for the person(s) being treated as the recipient(s).

Special instructions for U.S. trusts and estates.   Report the entire amount of income subject to reporting, regardless of estimates of distributable net income.

Payments Made to Persons Who Are Not Recipients

Disregarded entities.   If a U.S. withholding agent makes a payment to a disregarded entity (other than a limited branch of an FFI) that is not a hybrid entity making a treaty claim, and receives a valid Form W-8BEN-E or W-8ECI from a foreign person that is the single owner of the disregarded entity, the withholding agent must file a Form 1042-S in the name of the foreign single owner. The taxpayer identifying number (TIN) on the Form 1042-S, if required, must be the foreign single owner's TIN.

Example.

WA, a withholding agent, makes a withholdable payment of interest to LLC, a foreign limited liability company that is not an FFI. LLC is wholly-owned by FC, a foreign corporation that is an excepted non-financial foreign entity. LLC is treated as a disregarded entity. WA has a Form W-8BEN-E from FC on which it states that it is the beneficial owner of the income paid to LLC. WA reports the interest payment on Form 1042-S showing FC as the recipient. The result would be the same if LLC was a domestic entity.

  A disregarded entity can, however, claim to be the beneficial owner of a payment if it is a hybrid entity claiming treaty benefits. See Form W-8BEN-E and its instructions for more information. If a disregarded entity claims on a valid Form W-8BEN-E to be the beneficial owner, the U.S. withholding agent must complete a Form 1042-S treating the disregarded entity as a recipient and using recipient code 18 (corporation) as the chapter 3 status code and the applicable recipient code for the chapter 4 status code of the single owner when the payment is a withholdable payment and chapter 4 withholding does not apply.

Amounts paid to a nonqualified intermediary or flow-through entity.   If a U.S. withholding agent makes a payment to an NQI or a flow-through entity (other than a nonparticipating FFI) with respect to a withholdable payment, it must complete a separate Form 1042-S for each recipient on whose behalf the NQI or flow-through entity acts as indicated by its withholding statement and the documentation associated with its Form W-8IMY. If a payment is made through tiers of NQIs or flow-through entities, the withholding agent must nevertheless complete Form 1042-S for the recipients to which the payments are remitted. A withholding agent completing Form 1042-S for a recipient that receives a payment through an NQI or a flow-through entity must include in boxes 15a through 16f of Form 1042-S the name, country code, address, TIN, if any, and GIIN, if any, of the NQI or flow-through entity from whom the recipient directly receives the payment.

  If, however, a U.S. withholding agent makes withholdable payments to an NQI or a flow-through entity that is a participating FFI or registered deemed-compliant FFI that is allocable to a chapter 4 withholding rate pool as indicated by the FFI’s withholding statement, the U.S. withholding agent should complete a separate Form 1042-S for each chapter 4 reporting pool (i.e., pool of recalcitrant account holders, pool of nonparticipating FFIs, pool of payees that are U.S. persons) treating the participating FFI or registered deemed-compliant FFI as the recipient and must include the GIIN of the FFI and the applicable chapter 4 reporting pool code as the chapter 4 status code. If a payment is made through tiers of NQIs or flow-through entities that are participating FFIs or registered deemed-compliant FFIs, the withholding agent must nevertheless complete Form 1042-S for each chapter 4 reporting pool to which the payments are allocated and must report, as the recipient, the FFI from whom the recipients included in the chapter 4 reporting pool directly receive the payment.

Example.

WA, a withholding agent, makes a withholdable payment of interest to FFI 1, a reporting model 1 FFI. FFI 1 provides WA with a valid Form W-8IMY with which it associates a withholding statement that allocates 80% of the payment to FFI 2, a participating FFI, and 20% of the payment to a pool of nonparticipating FFIs. FFI 1 also provides WA with FFI 2's Form W-8IMY with which it associates a withholding statement that allocates 100% of the payment to recalcitrant pool-no U.S. indicia. WA must complete a Form 1042-S for the interest allocated to a pool of nonparticipating FFIs with FFI 1 as the recipient and must complete another Form 1042-S for the interest allocated to a pool of recalcitrant account holders-no U.S. indicia with FFI 2 as the recipient.

  If a U.S. withholding agent makes withholdable payments to an NQI or flow-through entity that is a participating FFI or deemed-compliant FFI, and cannot reliably associate the payment, or any part of the payment, with a withholding statement, or to the extent required, a valid withholding certificate (Forms W-8 or W-9) or other valid appropriate documentation from a recipient, the withholding agent must follow the appropriate presumption rules for that payment. For this purpose, if the allocation information provided to the withholding agent indicates an allocation of more than 100% of the payment, then no part of the payment should be considered to be associated with a Form W-8, Form W-9, or other appropriate documentation. The Form 1042-S should be completed by entering “Unknown Recipient” in box 14a and recipient code 24 (unknown recipient) as the chapter 3 status code and recipient code 47 (nonparticipating FFI pool) as the chapter 4 status code. Also, the name, country code, address, GIIN, if any, and TIN, if any, of the FFI should be entered in boxes 15a through 16f.

  If a U.S. withholding agent makes withholdable payments to an NQI or flow-through entity that is a nonparticipating FFI, the withholding agent must treat the payment as made to an unknown recipient regardless of whether it can reliably associate the payment, or any part of the payment, with a valid withholding certificate (Forms W-8 or W-9) or other valid appropriate documentation from a recipient (see Regulations section 1.1471-3(d)(8)). The withholding agent should complete a Form 1042-S showing “Unknown Recipient” in box 14a and recipient code 24 (unknown recipient) as the chapter 3 status code and recipient code 32 (unknown recipient) as the chapter 4 status code. Also, the name, country code, address, chapter 4 status, and TIN, if any, of the nonparticipating FFI should be entered on Form 1042-S in boxes 15a through 16f.

  If, however, an NQI or flow-through entity that is a nonparticipating FFI provides documentation described in Regulations section 1.1471-3(d)(8)(ii) to establish that the withholdable payment or a portion of the payment is beneficially owned by an exempt beneficial owner, then the withholding agent should complete a Form 1042-S for each exempt beneficial owner showing the chapter 4 exemption code 15 (payee not subject to chapter 4 withholding), the exempt beneficial owner as the recipient in box 14a, and the name, country code, address, chapter 4 status, and TIN, if any, of the nonparticipating FFI in box 15a through 16f. For any remaining portion of the payment, the withholding agent should complete a Form 1042-S to an unknown recipient as described directly above.

Pro-rata reporting.

If the withholding agent has agreed that an NQI (other than a nonparticipating FFI) may provide information allocating a payment to its account holders under the alternative procedure of Regulations section 1.1441-1(e)(3)(iv)(D) (no later than February 14, 2015) and the NQI fails to allocate more than 10% of the payment in a withholding rate pool to the specific recipients in the pool or an applicable chapter 4 withholding rate pool, the withholding agent must file Forms 1042-S for each recipient in the pool on a pro-rata basis. If, however, the NQI fails to timely allocate 10% or less of the payment in a withholding rate pool to the specific recipients in a pool, the withholding agent must file Forms 1042-S for each recipient for which it has allocation information and report the unallocated part of the payment on a Form 1042-S in accordance with the presumption rules.

Payments allocated, or presumed made, to U.S. non-exempt recipients.

You may be given Forms W-9 or other information regarding U.S. non-exempt recipients from an NQI or flow-through entity together with information allocating all or a part of the payment to U.S. non-exempt recipients. You must report income allocable to a U.S. non-exempt recipient on the appropriate Form 1099 and not on Form 1042-S, even though you are paying that income to an NQI or a flow-through entity. If, however, a participating FFI or registered deemed-compliant FFI provides a withholding statement allocating all or part of the payment to a pool of U.S. payees along with a certificate that it is reporting its U.S. accounts under chapter 4, you must report the income allocable to such pool on Form 1042-S.

Example 4.

FP is a nonwithholding foreign partnership (flow-through entity) that is a certified deemed-compliant FFI. FP receives from WA, a U.S. withholding agent, a withholdable payment of interest described by income code 01 (interest paid by U.S. obligors – general). FP has three partners, A, B, and C, all of whom are individuals. FP provides WA with a Form W-8IMY certifying that it is transmitting Forms W-9 for U.S. non-exempt recipients and Forms W-8BEN from A and B and a Form W-9 from C, a U.S. non-exempt recipient. In addition, FP provides a complete withholding statement in association with its Form W-8IMY that allocates the interest payments among A, B, and C. WA must file two Forms 1042-S, one each for A and B, and a Form 1099-INT for C.

Example 5.

The facts are the same as in Example 4, except that FP does not provide any documentation from its partners. Because WA cannot reliably associate the withholdable payment of interest with documentation from a payee, it must apply the presumption rules of Regulations section 1.1471-3(f) to treat the interest as paid to a nonparticipating FFI. A Form 1042-S should be completed by entering “Unknown Recipient” in box 14a and recipient code 24 (unknown recipient) as the chapter 3 status code and recipient code 18 (nonparticipating FFI) as the chapter 4 status code. Also, the name, country code, address, and TIN, if any, of the certified deemed-compliant FFI should be entered in box 15a through 16f.

Example 6.

The facts are the same as Example 5 except that FP is a participating FFI and provides WA with a Form W-8IMY certifying that it is reporting its U.S. accounts under chapter 4 and a withholding statement allocating 100% of the payment to a pool of U.S. payees. WA must file one Form 1042-S showing FP as the recipient in box 14a and must include FP's GIIN and recipient code 48 (U.S. payees pool) as the chapter 4 status code.

Specified Federal Procurement Payments Made to Foreign Persons

For purposes of section 5000C, a payor of a specified Federal procurement payment to a foreign person must complete a Form 1042-S for payments withheld upon in the name of the foreign person. Use income code 44 to report payments subject to withholding under section 5000C. Box 2 should include the amount of the specified Federal procurement payments subject to withholding and Box 7 should include the amount of tax withheld under section 5000C.

If you are reporting tax withheld under section 5000C, check box 3 as if the tax were a chapter 3 tax, enter “00” in box 3a, and report the tax withheld in box 3b. You do not need to complete box 4a, 4b, or any box for a chapter 3 or 4 status code. On line 14, include the name and the address of the foreign person withheld upon. If known, include the TIN (if any) on line 13g.

Amounts Paid byQualified Intermediaries

In general.   For purposes of chapter 4, the QI must complete a Form 1042-S for payments withheld under chapter 4 determined in accordance with the income codes used to file Form 1042-S. A QI that is a participating FFI or registered deemed-compliant FFI may use the chapter 4 pooled reporting codes 42 through 48 to allocate payments made to its recalcitrant account holders, payees that are nonparticipating FFIs, and payees that are U.S. persons. A QI that is an NFFE or an FFI treated as deemed-compliant under an applicable IGA (as described in Regulations section 1.1441-1(e)(5)(ii)(A)) may use chapter 4 reporting pool code 47 to report payments allocable to a pool of nonparticipating FFIs. QI may also use the chapter 4 pooled reporting codes to report payments allocable to account holders, payees, or owners of another participating FFI or registered deemed-compliant FFI that is an NQI, NWP, or NWT and provides its chapter 4 withholding rate pools on its withholding statement. In such case, the QI must include the NQI, NWP, or NWT as the recipient in box 14a. For payments that are exempt from chapter 4 withholding, and made by the QI directly to foreign beneficial owners (or that are treated as paid directly to beneficial owners), the QI may report on the basis of chapter 3 reporting pools, in most cases. A QI may not report on the basis of reporting pools in the circumstances described in Recipient-by-Recipient Reporting, later. For payments not subject to chapter 4 withholding, a QI may use a single chapter 4 exemption code 15 (payee not subject to chapter 4 withholding) and a single chapter 3 reporting pool code 33 (Withholding rate pool – general) as the chapter 3 status code for all reporting pools, except for amounts paid to foreign tax-exempt recipients for which chapter 3 reporting pool code 34 should be used. Note, however, that a QI should use recipient code 34 only for pooled account holders that have claimed an exemption based on their tax-exempt status and not some other exemption (tax treaty or other Code).

Example 7.

QI, a qualified intermediary and participating FFI, has four direct account holders, A and B, foreign individuals, and X and Y, foreign corporations. The withholdable payments made to these direct account holders are exempt from chapter 4 withholding because of the chapter 4 status of each account holder. A and X are residents of a country with which the United States has an income tax treaty and have provided documentation that establishes that they are entitled to a lower treaty rate of 15% on withholding of dividends from U.S. sources. B and Y are not residents of a treaty country and are subject to 30% withholding on dividends. QI receives U.S. source dividends on behalf of its four customers. QI must file one Form 1042-S for the 15% withholding rate pool. This Form 1042-S must show income code 06 (dividends paid by U.S. corporations – general) in box 1, “15.00” in box 3b (chapter 3 tax rate), chapter 4 exemption code 15 (payee not subject to chapter 4 withholding) in box 4a, “00.00” in box 4b (chapter 4 tax rate), “Withholding rate pool” in box 14a (recipient's name), and chapter 3 reporting pool code 33 (withholding rate pool – general) as the chapter 3 status code. QI also must file one Form 1042-S for the 30% withholding rate pool that contains the same information as the Form 1042-S filed for the 15% withholding rate pool, except that it will show “30.00” in box 3b (chapter 3 tax rate).

Example 8.

The facts are the same as in Example 7, except that Y is an organization that has tax-exempt status in the United States and in the country in which it is located, and B is a recalcitrant account holder with U.S. indicia. QI must file three Forms 1042-S. One Form 1042-S (for amounts allocable for A and X) will contain the same information as in Example 7. The second Form 1042-S (for amounts allocable to Y) will contain information for the withholding rate pool consisting of the amounts paid to Y. This Form 1042-S will show income code 06 (dividends paid by U.S. corporations – general) in box 1, exemption code 02 (exempt under IRC (other than portfolio interest)) in box 3a, “00.00” in box 3b (chapter 3 tax rate), chapter 4 exemption code 15 (payee not subject to chapter 4 withholding) in box 4a, “00.00” in box 4b (chapter 4 tax rate), “Zero rate withholding pool-exempt organizations,” or similar designation, in box 14a (recipient's name), and chapter 3 code 34 (withholding rate pool – exempt organization). The third Form 1042-S will contain information for the recalcitrant pool consisting of amounts paid to B. This Form 1042-S will show income code 06 (dividends paid by U.S. corporations-general) in box 1, exemption code 12 (payee subjected to chapter 4 withholding) in box 3a, “00.00” in box 3b (tax rate), “00” in box 4a (chapter 4 exemption code), “30.00” in box 4b (chapter 4 tax rate), “recalcitrant pool – U.S. indicia” or similar designation, in box 14a (recipient's name), and chapter 4 recipient code 43 (recalcitrant pool-U.S. indicia) as the chapter 4 status code.

  
Under the terms of its Qualified Intermediary (or QI) agreement with the IRS, a QI that is an FFI may be required to report the amounts paid to U.S. non-exempt recipients on Form 1099 or Form 8966 using the name, address, and TIN of the payee to the extent those items of information are known. These amounts must be reported on Form 1042-S if allocated to a chapter 4 withholding rate pool of U.S. payees.

Amounts Paid to Private Arrangement Intermediaries

In most cases, a QI must report payments made to each private arrangement intermediary (PAI) (defined earlier in Definitions) as if the PAI's direct account holders were its own. For purposes of chapter 4, a QI that is a participating FFI, registered deemed-compliant FFI, or an FFI treated as deemed-compliant under an applicable IGA (as described in Regulations section 1.1441-1(e)(5)(ii)(A)) may use the chapter 4 reporting pool code 47 to allocate payments made to the PAI's payees that are nonparticipating FFIs, and may treat the PAI as the recipient on Form 1042-S with respect to each such pool. For chapter 3 purposes, if the payment is made directly by the PAI to the recipient, the QI may report the payment on a pooled basis. A separate Form 1042-S is required for each withholding rate pool of each PAI. However, the QI must include the name and address of the PAI and use reporting pool code 35 or 36 (PAI withholding rate pool – general and PAI-withholding rate pool-exempt organization) as the chapter 3 status code. If the PAI is providing recipient information from an NQI or flow-through entity, the QI may not report the payments on a pooled basis for chapter 3 purposes. Instead, it must follow the same procedures as a U.S. withholding agent making a payment to an NQI or flow-through entity.

Example.

QI, a qualified intermediary, pays U.S. source dividends to direct account holders that are foreign persons and beneficial owners. It also pays a part of the U.S. source dividends to two private arrangement intermediaries, PAI1 and PAI2. The private arrangement intermediaries pay the dividends they receive from QI to foreign persons that are beneficial owners and direct account holders of PAI1 or PAI2. All payees are exempt from chapter 4 withholding and the dividends paid are subject to a 15% rate of withholding. QI must file a Form 1042-S for the dividends paid to its own direct account holders that are beneficial owners. QI also must file two Forms 1042-S, one for the dividends paid to the direct account holders of each of PAI1 and PAI2. Each of the Forms 1042-S that QI files for payments made to PAI1 and PAI2 must contain the name and address of PAI1 or PAI2 and recipient code 35 (PAI withholding rate pool – general) as the chapter 3 status code.

Amounts Paid toCertain Partnershipsand Trusts

A QI that is applying the special pool reporting allowance provided in the QI agreement for certain partnerships or trusts must file separate Forms 1042-S reflecting reporting pools for each partnership or trust that has provided reporting pool information in its withholding statement. For purposes of chapter 4, a QI that is a participating FFI or registered deemed-compliant FFI may use the chapter 4 reporting pool code 47 to allocate payments made to the partnership or trust's payees that are nonparticipating FFIs, and may treat the partnership or trust as the recipient on Form 1042-S. For chapter 3 purposes, if the payment is made directly by the partnership or trust to the recipient, the QI may use reporting pool code 37 or 38 (Agency withholding rate pool – general and Agency withholding rate pool-exempt organization) as the chapter 3 status code. However, to the extent required in the QI agreement, the QI must file separate Forms 1042-S for partners, beneficiaries, or owners of such partnership or trust that are indirect partners, beneficiaries, or owners, and for direct partners, beneficiaries, or owners of such partnership or trust that are intermediaries or flow-through entities.

Recipient-by-Recipient Reporting

If a QI is not permitted to report on the basis of reporting pools, it must follow the same rules that apply to a U.S. withholding agent. For chapter 3 purposes, a QI may not report the following payments on a reporting pool basis, but rather must complete Form 1042-S for each appropriate recipient and must provide the applicable chapter 4 exemption code.

Payments made to another QI, QSL, WP, or WT.   The QI must complete a Form 1042-S treating the other QI, QSL, WP, or WT as the recipient.

Payments made to an NQI (including an NQI that is an account holder of a PAI).   For chapter 3 purposes, the QI must complete a Form 1042-S for each recipient who receives the payment from the NQI. A QI that is completing Form 1042-S for a recipient that receives a payment through an NQI must include in boxes 15a through 16f the name, country code, address, TIN, if any, and GIIN, if any, of the NQI from whom the recipient directly receives the payment. In the case of an NQI that is a participating FFI or registered deemed-compliant FFI, the QI must complete a Form 1042-S for the chapter 4 withholding rate pool of the NQI provided in a withholding statement associated with its Form W-8IMY and must report the NQI as the recipient. In such a case, the QI must include the name and address of the NQI as the recipient and use chapter 4 pool reporting codes 42 through 48 as the chapter 4 status code. If the NQI fails to provide sufficient allocation information with respect to a withholdable payment, the QI must complete a Form 1042-S with the recipient as "Unknown Recipient" using reporting pool code 47 (nonparticipating FFI pool) and must include the NQI's information (name, address, country code, TIN, if any, and GIIN) in boxes 15a through 16f.

Example 1.

QI, a qualified intermediary, has NQI, a nonqualified intermediary that is a participating FFI, as an account holder. NQI has two account holders, A and B, both recalcitrant account holders with U.S. indicia who receive a withholdable payment of U.S. source dividends from QI. NQI provides QI with a valid Form W-8IMY and a complete withholding statement that allocates the dividends paid to NQI to recalcitrant pool- U.S. indicia for both A and B. QI must complete one Form 1042-S reporting NQI as the recipient and using reporting pool code 43 (recalcitrant pool – U.S. indicia) as the chapter 4 status code.

Example 2.

QI has NQI, a nonqualified intermediary that is a reporting model 2 FFI, as an account holder. NQI has two account holders, A and B, who receive a withholdable payment of U.S. source dividends from QI. A is a nonparticipating FFI. NQI treats B as a non-consenting U.S. account under the applicable IGA and is not required to withhold on payments to B under chapter 4. NQI provides QI with a valid Form W-8IMY and a complete withholding statement that allocates 50% of the dividends paid to A and 50% to B. NQI designates B as a individual exempt from withholding under an IGA but cannot include B in a chapter 4 withholding rate pool of U.S. payees because the payment is subject to chapter 3 withholding and under the presumption rules of Regulations section 1.1441-1(b)(3) the payment is presumed made to an unknown, undocumented foreign payee. QI must complete two Forms 1042-S. One Form 1042-S showing NQI as the recipient and using reporting pool code 47 (nonparticipating FFI pool). The second Form 1042-S showing the recipient as “Unknown Recipient” and NQI in box 15a-16f with chapter 4 exemption code 19 (exempt from withholding under IGA) and 30% withholding under chapter 3 for the payment allocated to B as a presumed foreign person under chapter 3.

Payments made to a flow-through entity.   The QI must complete a Form 1042-S for each recipient who receives the payment from the flow-through entity. A QI that is completing a Form 1042-S for a recipient that receives a payment through a flow-through entity must include in boxes 15a through 16f the name, country code, address, GIIN, if any, and TIN, if any, of the flow-through entity from which the recipient directly receives the payment.

   For chapter 4 purposes and in the case of a flow-through entity that is a participating FFI or registered deemed-compliant FFI (other than a WP or WT), the QI must complete a Form 1042-S for each chapter 4 withholding rate pool provided in the withholding statement associated with the Form W-8IMY of the flow-through entity. The QI must include the name, address, and GIIN of the flow-through entity as the recipient and use pooled reporting codes 42 through 48 as the chapter 4 status code.

Example.

QI, a qualified intermediary, has FP, a nonwithholding foreign partnership that is a registered deemed-compliant FFI, as an account holder. QI pays interest that is a withholdable payment described by income code 01 (interest paid by U.S. obligors – general) to FP. FP has three partners, A, B, and C, all of whom are exempt from withholding under chapter 4. FP provides QI with a Form W-8IMY with which it associates the Forms W-8BEN from each of A, B, and C. In addition, FP provides a complete withholding statement in association with its Form W-8IMY that allocates the interest payments among A, B, and C. QI must file three Forms 1042-S, one each for A, B, and C. The Forms 1042-S must show information relating to FP in boxes 15a through 16f along with the chapter 4 status and exemption code for A, B, and C.

Amounts Paid by Withholding ForeignPartnerships and Trusts

In general.   For chapter 4 purposes, payments that are made by a withholding foreign partnership (WP) or withholding foreign trust (WT) that is an FFI directly to its recalcitrant account holders, payees that are nonparticipating FFIs, and payees that are U.S. persons may be reported on the basis of chapter 4 reporting pools. A WP or WT may also use the chapter 4 pooled reporting codes to report payments allocable to account holders, payees, or owners of another participating FFI or registered deemed-compliant FFI that is an NQI, NWP, or NWT and provides its chapter 4 withholding rate pools on its withholding statement. In such case, the WP or WT must include the NQI, NWP, or NWT as the recipient in box 14a. If a WP or WT has not made a pooled reporting election, for chapter 3 purposes, a WP or WT must file a separate Form 1042-S for each direct partner, beneficiary, or owner that is exempt from chapter 4 withholding and to whom the WP or WT distributes, or in whose distributive share is included, an amount subject to withholding under chapter 3, in the same manner as a U.S. withholding agent. However, if the WP or WT has made a pooled reporting election in its WP or WT agreement, the WP or WT may instead report payments to such direct partners, beneficiaries, or owners on the basis of chapter 3 reporting pools and file a separate Form 1042-S for each reporting pool. For payments not subject to chapter 4 withholding, a WP or WT may use a single chapter 4 exemption code 15 (payee not subject to chapter 4 withholding) and a single chapter 3 reporting pool code 33 (withholding rate pool – general) as the chapter 3 status code for all chapter 3 reporting pools, except for amounts paid to foreign tax-exempt recipients for which a separate recipient code 34 must be used. For this purpose, a foreign tax-exempt recipient includes any organization that is not subject to withholding and is not liable to tax in its country of residence because it is a charitable organization, pension fund, or foreign government. See the WP and WT agreements for when a WP and WT can pool report payments to an indirect partner, beneficiary, or owner.

Amounts Paid by Nonqualified Intermediaries and Flow-Through Entities

An NQI and a flow-through entity are withholding agents and must file Forms 1042-S for amounts paid to recipients. However, an NQI or flow-through entity is not required to file Form 1042-S if it is not required to file Form 1042-S under the Multiple Withholding Agent Rule,later. An NQI or flow-through entity may report payments made to recipients to the extent it has failed to provide to another withholding agent the appropriate documentation and complete withholding statement for either chapter 3 or 4 purposes. If the NQI or flow-through entity chooses to or must file Form 1042-S, as described above, the NQI or flow-through entity must also file Form 1042 and, if applicable, attach the Form 1042-S it received from the withholding agent to establish any credit for amounts withheld by the withholding agent. See Instructions for Form 1042.

If another withholding agent has withheld tax on an amount that should have been exempt (for example, where the withholding agent applied the presumption rules because it did not receive proper documentation or other required information from the NQI or flow-through entity), and the payee or beneficial owner will make a claim for refund, the NQI or flow-through entity must report on Form 1042-S the correct tax rate and the combined amount of U.S. federal tax withheld with respect to the recipient and should enter the applicable chapter 3 and 4 exemption codes.

If another withholding agent underwithholds, even though it received proper documentation from the NQI or flow-through entity, the NQI or flow-through entity must withhold additional amounts to bring the total withholding to the correct amount.

Multiple Withholding Agent Rule

A withholding agent is not required to file Form 1042-S if a return is filed by another withholding agent reporting the same amount and the withholding agent has withheld correctly.

The multiple withholding agent rule does not relieve withholding agents from Form 1042-S reporting responsibility in the following circumstances.

  • Any withholding agent making a payment to a QI, QSL, WP, or WT must report that payment as made to the QI, QSL, WP, or WT.

  • Any withholding agent making a payment to a U.S. branch treated as a U.S. person must report the payment as made to that branch.

  • Any withholding agent that withholds an amount from a payment under chapters 3 or 4 must report that amount to the recipient from whom it was withheld.

Furthermore, the multiple withholding agent rule does not relieve the following from Form 1042-S reporting responsibility.

  • Any QI, WP, or WT required to report an amount to chapter 4 withholding rate pool or chapter 3 withholding rate pool.

  • An NQI or flow-through entity that knows, or has reason to know, that the correct amount has not been withheld by another withholding agent.

Example 1.

NQI, a foreign bank that is a participating FFI, acts as a nonqualified intermediary for four different foreign persons (A, B, C, and D) who own securities from which they receive interest that is a withholdable payment. The interest is paid by a U.S. withholding agent (WA) as custodian of the securities for NQI. A, B, C, and D each own a 25% interest in the securities. NQI has furnished WA a Form W-8IMY to which it certifies its status as a participating FFI and has attached Forms W-8BEN from A and B. NQI's Form W-8IMY contains an attachment stating that 25% of the securities are allocable to each of A and B, and 50% to a pool of recalcitrant account holders with U.S. indicia. WA pays $100 of interest during the calendar year. WA treats the $25 of interest allocable to A and the $25 of interest allocable to B as portfolio interest and completes Forms 1042-S for A and for B as the recipients. WA includes information relating to NQI in boxes 15a through 16f on the Forms 1042-S for A and B. WA subjects the remaining $50 of interest to 30% withholding under chapter 4 and reports the interest on a Form 1042-S by treating NQI as the recipient in box 14a (using reporting pool code 43 (recalcitrant pool – U.S. indicia) as the chapter 4 status code, “30.00” in box 4b (chapter 4 tax rate), and $15 as the amount withheld in box 7 and box 10. Under the multiple withholding agent rule, NQI is not required to file a Form 1042-S, but must file a Form 1042-S if, for example, C and D seek to make a claim for refund and NQI has not filed a collective refund claim on behalf of C and D for the tax withheld under chapter 4 on the payment (see Regulations section 1.1471-4(h)).

Example 2.

WA, a U.S. withholding agent, makes a $100 dividend payment that is a withholdable payment to a foreign bank (NQI) that is a participating FFI and acts as a nonqualified intermediary. NQI receives the payment on behalf of A, documented as a foreign individual exempt from chapter 4 withholding and a resident of a treaty country who is entitled to a 15% rate of withholding under chapter 3, and B, documented as a foreign individual exempt from chapter 4 withholding and a resident of a country that does not have a tax treaty with the United States and who is subject to 30% withholding under chapter 3. NQI provides WA with its Form W-8IMY that certifies its status as a participating FFI to which it associates the Forms W-8BEN from both A and B and a complete withholding statement that allocates 50% of the dividend to A and 50% to B. A's Form W-8BEN claims a 15% treaty rate of withholding. B's Form W-8BEN does not claim a reduced rate of withholding. WA, however, mistakenly withholds only 15%, $15, from the entire $100 payment. WA completes a Form 1042-S for each A and B as the recipients, showing on each form $50 of dividends in box 2, a withholding rate of “15.00” in box 3b (chapter 3 tax rate), and $7.50 as the amount withheld in boxes 7 and 10. Under the multiple withholding agent rule, NQI is not required to file a Form 1042-S for A. However, because NQI knows (or should know) that B is subject to a 30% rate of withholding, and assuming it knows that WA only withheld 15%, the multiple withholding agent rule does not apply to the dividend paid to B, and NQI must withhold an additional 15% from the payment to B. NQI then must file a Form 1042-S for B showing $50 of dividends in box 2, “00” in box 3a (chapter 3 exemption code), “30.00” in box 3b (the correct chapter 3 tax rate), $7.50 withheld by NQI in box 7, $7.50 withheld by WA in box 8, and $15 in box 9 (the combined amount withheld). NQI also must enter chapter 4 exemption code 15 (payee not subject to chapter 4 withholding) in box 4a and “00.00” in box 4b (chapter 4 tax rate). See the instructions for box 3a, later.

Penalties

The following penalties apply to the person required to file Form 1042-S. The penalties apply to both paper filers and electronic filers.

Late filing of correct Form 1042-S.   A penalty may be imposed for failure to file each correct and complete Form 1042-S when due (including extensions), unless you can show that the failure was due to reasonable cause and not willful neglect. The penalty, based on when you file a correct Form 1042-S, is:
  • $30 per Form 1042-S if you correctly file within 30 days after the required filing date; the maximum penalty is $250,000 per year ($75,000 for a small business). A small business, for this purpose, is defined as having average annual gross receipts of $5 million or less for the 3 most recent tax years (or for the period of its existence, if shorter) ending before the calendar year in which the Forms 1042-S are due.

  • $60 per Form 1042-S if you correctly file more than 30 days after the due date but by August 1; the maximum penalty is $500,000 per year ($200,000 for a small business).

  • $100 per Form 1042-S if you file after August 1 or you do not file correct Forms 1042-S; the maximum penalty is $1,500,000 per year ($500,000 for a small business).

  If you intentionally disregard the requirement to report correct information, the penalty per Form 1042-S is increased to the greater of $250 or 10% of the total amount of items required to be reported, with no maximum penalty.

Failure to furnish correct Form 1042-S to recipient.   If you fail to provide statements to recipients and cannot show reasonable cause, a penalty of up to $100 may be imposed for each failure to furnish Form 1042-S to the recipient when due. The penalty also may be imposed for failure to include all required information or for furnishing incorrect information on Form 1042-S. The maximum penalty is $1,500,000 for all failures to furnish correct recipient statements during a calendar year. If you provide the correct statement on or before August 1, reduced penalties similar to those for failing to file a correct Form 1042-S with the IRS may be imposed. See Late filing of correct Form 1042-S., earlier. If you intentionally disregard the requirement to report correct information, each $100 penalty is increased to the greater of $250 or 10% of the total amount of items required to be reported, with no maximum penalty.

Failure to file electronically.   If you are required to file electronically but fail to do so, and you do not have an approved waiver on record, penalties may apply unless you establish reasonable cause for your failure.

Avoid Common Errors

To ensure that your Forms 1042-S can be correctly processed, be sure that you:

Note.

You may leave box 3b or 4b blank if you are reporting a payment to an artist or athlete and there is a central withholding agreement. See Exception for central withholding agreements in the instructions for boxes 3b or 4b. You may leave box 5 blank if you are applying backup withholding to the payment being reported.

  • Carefully read the information provided in Pub. 515 and these instructions.

  • Comply with the requirements in Pub. 1187 if you are an electronic filer.

  • Complete all required fields. At a minimum, you must enter information in boxes 1, 2, 7, 10, 12a, 13a, 13e, 13f, and 14a. Other boxes must be completed if the nature of the payment requires it.

  • If the amount reported in box 2 is a withholdable payment, you must enter information in boxes 4a, 4b, 12c, and 13i. If the amount reported in box 2 is an amount subject to chapter 3 withholding, you must enter information in boxes 12b and 13h.

  • If the amount reported in box 2 is a withholdable payment and an amount subject to chapter 3 withholding and the tax rate in box 4b is 00.00, you must enter information in boxes 3a and 3b. If the amount entered in box 4b is 30.00, you may enter information in boxes 3a and 3b. If you are a QI, WP, or WT that is pool reporting for its direct account holders only a chapter 3 (box 13h) or chapter 4 status code (box 13i) is required.

  • If the recipient in box 14a or entity in box 16a is a participating FFI, registered deemed-complaint FFI, sponsored FFI, direct reporting NFFE, or sponsored direct reporting NFFE, you must enter the entity's GIIN or the GIIN of the sponsoring entity in box 17 or 16g.

  • Use only income, status, exemption, and country codes specifically listed in these instructions.

  • Use only tax rates that are allowed by statute, regulations, or treaty. Do not attempt to “blend” rates. Instead, if necessary, submit multiple Forms 1042-S to show changes in tax rate. See the Valid Tax Rate Table,later.

All information you enter when reporting the payment must correctly reflect the intent of the statute and regulations. In most cases, you should rely on the withholding documentation you have collected (Form W-8 series, Form 8233, etc.) to complete your Form 1042-S submissions.

Income Codes

Box 1. Enter the appropriate income code.
       
Code Interest Income 15 Scholarship or fellowship grants
 
01 Interest paid by U.S. obligors – general 16 Compensation for independent personal services1
02 Interest paid on real property mortgages 17 Compensation for dependent personal services1
03 Interest paid to controlling foreign corporations 18 Compensation for teaching1
04 Interest paid by foreign corporations 19 Compensation during studying and training1
05 Interest on tax-free covenant bonds 20 Gross income – Other
22 Interest paid on deposit with a foreign branch of a domestic corporation or partnership 24 Real estate investment trust (REIT) distributions of capital gains
29 Deposit interest 25 Trust distributions subject to IRC section 1445
30 Original issue discount (OID) 26 Unsevered growing crops and timber distributions by a trust subject to IRC section 1445
31 Short-term OID 27 Publicly traded partnership distributions subject to IRC section 1446
33 Substitute payment – interest 28 Gambling winnings2
   
Code Dividend Income 32 Notional principal contract income3
    35 Substitute payment – other
06 Dividends paid by U.S. corporations – general 36 Capital gains distributions
07 Dividends qualifying for direct dividend rate 37 Return of capital
08 Dividends paid by foreign corporations 38 Eligible deferred compensation items subject to IRC section 877A(d)(1)
21 Gross income-Capital gain dividend 39 Distributions from a nongrantor trust subject to IRC section 877A(f)(1)
34 Substitute payment – dividends 41 Guarantee of indebtedness
40 Other dividend equivalents under IRC section 871(m) (formerly 871(l)) 42 Earnings as an artist or athlete – no central withholding agreement4
Code Other Income 43 Earnings as an artist or athlete – central withholding agreement4
09 Capital gains 44 Specified Federal procurement payments
10 Industrial royalties 50 Income previously reported under escrow procedure5
11 Motion picture or television copyright royalties 51 Other income
12 Other royalties (for example, copyright, recording, publishing)    
13 Real property income and natural resources royalties    
14 Pensions, annuities, alimony, and/or insurance premiums    
1 If compensation that otherwise would be covered under Income Codes 16 through 19 is directly attributable to the recipient's occupation as an artist or athlete, use Income Code 42 or 43 instead.
2 Subject to 30% withholding rate unless the recipient is from one of the treaty countries listed under Gambling winnings (Income Code 28) in Pub. 515.
3 Use appropriate Interest Income Code for embedded interest in a notional principal contract.
4 If Income Code 42 or 43 is used, Recipient Code 25 (artist or athlete) should be used instead of Recipient Code 19 (individual), 18 (corporation), or 08 (partnership other than withholding foreign partnership).
5 Use only to report gross income the tax for which is being deposited in the current year because such tax was previously escrowed for chapters 3 and 4 and the withholding agent previously reported the gross income in a prior year and checked the box to report the tax as not deposited under the escrow procedure. See the instructions to this form for further explanation.
 

Exemption Codes and Recipient Codes

Boxes 3a and 4a. Exemption code (applies if the tax rate entered in boxes 3b and 4b is 00.00). 04 Territory FI – not treated as U.S. Person
Code Authority for Exemption 05 U.S. branch of Participating FFI – treated as U.S. Person
Chapter 3   06 U.S. branch of Participating FFI – not treated as U.S. Person
01 Effectively connected income 07 U.S. branch of Registered Deemed-Compliant FFI – treated as U.S. Person
02 Exempt under IRC (other than portfolio interest) 08 Partnership other than Withholding Foreign Partnership
03 Income is not from U.S. sources 09 Withholding Foreign Partnership
04 Exempt under tax treaty 10 Trust other than Withholding Foreign Trust
05 Portfolio interest exempt under IRC 11 Withholding Foreign Trust
06 QI that assumes primary withholding responsibility 12 Qualified Intermediary
07 WFP or WFT 13 Qualified Intermediary – Branch under Qualified Intermediary Agreement
08 U.S. branch treated as U.S. Person 14 Qualified Intermediary – Branch not under Qualified Intermediary Agreement
09 Territory FI treated as U.S. Person 15 Qualified Intermediary – Foreign Branch of U.S. FI
10 QI represents that income is exempt 16 Qualified Securities Lender – Qualified Intermediary
11 QSL that assumes primary withholding responsibility 17 Qualified Securities Lender – Other
12 Payee subjected to chapter 4 withholding 18 Corporation
Chapter 4   19 Individual
    20 Estate
13 Grandfathered payment 21 Private Foundation
14 Effectively connected income 22 International Organization
15 Payee not subject to chapter 4 withholding 23 Tax Exempt Organization (Section 501(c) entities)
16 Excluded nonfinancial payment 24 Unknown Recipient
17 Foreign Entity that assumes primary withholding responsibility 25 Artist or Athlete
18 U.S. Payees – of participating FFI or registered deemed-compliant FFI 26 Pension
19 Exempt from withholding under IGA1    
20 Dormant account2 27 Foreign Government – Integral Part
21 Excluded offshore payment 28 Foreign Government – Controlled Entity
       
    29 Government of U.S. territory
Code Type of Recipient, Withholding Agent, or Intermediary 30 Foreign Central Bank of Issue
    31 Nonqualified Intermediary
Chapter 3 Status Codes 32 Hybrid entity making Treaty Claim
    Pooled Reporting Codes
01 U.S. Withholding Agent – FI 33 Withholding Rate Pool – General
02 U.S. Withholding Agent – Other 34 Withholding Rate Pool – Exempt Organization
03 Territory FI treated as U.S. Person 35 PAI Withholding Rate Pool – General
    36 PAI Withholding Rate Pool – Exempt Organization
    37 Agency Withholding Rate Pool – General
    38 Agency Withholding Rate Pool – Exempt Organization
1 Use only to report a U.S. reportable account or non-consenting U.S. account that is receiving a payment subject to chapter 3 withholding.
2 Use only when tax not withheld under chapter 4 because escrow procedure for dormant accounts applied under chapter 4 but tax withheld under chapter 3.
 

Recipient Codes (continued)

Code Type of Recipient, Withholding Agent, or Intermediary 25 Active NFFE
Chapter 4 Status Codes 26 Excepted NFFE – Other
01 U.S. Withholding Agent – FI 27 Individual
02 U.S. Withholding Agent – Other 28 Section 501(c) Entities
03 Territory FI –not treated as U.S. Person 29 Excepted Territory NFFE
04 Territory FI – treated as U.S. Person 30 Exempt Beneficial Owner
05 U.S. branch of Participating FFI – treated as U.S. Person 31 Entity Wholly Owned By Exempt Beneficial Owners
06 U.S. branch of Participating FFI – not treated as U.S. Person 32 Unknown Recipient
07 U.S. branch of Registered Deemed-Compliant FFI – treated as U.S. Person 33 Recalcitrant Account Holder
08 Participating FFI – Other 34 NFFE – WP or WT
09 Participating FFI – Reporting Model 2 FFI 35 Nonreporting IGA FFI
10 Registered Deemed-Compliant FFI – Reporting Model 1 FFI 36 Direct reporting NFFE
11 Registered Deemed-Compliant FFI – Sponsored Entity 37 U.S. reportable account
12 Registered Deemed-Compliant FFI – Other 38 Non–consenting U.S. account
13 Certified Deemed-Compliant FFI – Other 39 Sponsored direct reporting NFFE
14 Certified Deemed-Compliant FFI – FFI with Low Value Accounts 40 Excepted Inter-affiliate FFI
15 Certified Deemed-Compliant FFI – Non-Registering Local Bank 41 Undocumented Preexisting Obligation
16 Certified Deemed-Compliant FFI – Sponsored Entity Pooled Reporting Codes
17 Certified Deemed-Compliant FFI – Investment Advisor or Investment Manager 42 Recalcitrant Pool – No U.S. Indicia
18 Nonparticipating FFI 43 Recalcitrant Pool – U.S. Indicia
19 Owner-Documented FFI 44 Recalcitrant Pool – Dormant Account
20 Limited Branch treated as Nonparticipating FFI 45 Recalcitrant Pool – U.S. Persons
21 Limited FFI treated as Nonparticipating FFI 46 Recalcitrant Pool – Passive NFFEs
22 Passive NFFE identifying Substantial U.S. Owners 47 Nonparticipating FFI Pool
23 Passive NFFE with no Substantial U.S. Owners 48 U.S. Payees Pool
24 Publicly Traded NFFE or Affiliate of Publicly Traded NFFE    

Also note the following:

  • The gross income you report in box 2 cannot be zero.

  • The income code you report in box 1 must correctly reflect the type of income you pay to the recipient.

  • The withholding agent's name, address, EIN, QI-EIN, WP-EIN, WT-EIN, and GIIN, if any, must be reported in boxes 12a, 13a, 13b, 13e, and 13f in all cases.

  • The recipient's name, address, U.S. TIN, if any, GIIN, if any, and country code must be reported in boxes 13g, 14a, 14c, 14d, and 17. In most cases, you must report a foreign address. See the instructions for box 14, later.

  • The country code that you report in boxes 14b and 16c must be present and correctly coded and cannot be “US.” Additionally, do not use “OC” or “UC” except as specifically allowed in these instructions.

  • For direct account holders, you must report the recipient's account number in box 19. You may also be required to report the recipient's foreign TIN and date of birth in boxes 18 and 20 (see instructions for boxes 18 and 20, later).

  • The exemption code you report in box 3a must correctly identify the proper tax status for the type of income you pay to the recipient. The exemption code you report in box 4a must correctly identify the proper tax status for the type of income you pay to the recipient or if exemption code 15 is used (payee not subject to chapter 4 withholding), the chapter 4 status code of the recipient must correctly reflect this exemption.

    Note.

    If you use exemption code 04 (exempt under tax treaty), the country code that you report in box 14b must be a valid treaty country. Countries with which the United States has a tax treaty are shown in bold italics in the country code list, later.

You, the withholding agent, are liable for the tax if you know, or should have known, that underwithholding on a payment has occurred.


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