Update to 2014 Form 1042-S Instructions The instructions provided below in this update are intended to supplement and, if indicated, replace the specified sections of the 2014 Form 1042-S instructions. Special Transitional Rule (page 1) Transitional Reporting of Chapter 3 Status Codes. The 2014 Form 1042-S instructions require a “chapter 3 status code” to be reported to identify the status of each recipient, withholding agent, and intermediary. This update provides that a filer may, with respect to a preexisting obligation (which includes a preexisting account) for which the filer has not obtained new documentation for chapter 3 or 4 purposes, report on Form 1042-S using the chapter 3 status code to identify the status of a recipient that was used to report the recipient in prior years or, if such code has been removed, the filer may use a chapter 3 status code that is the most similar to the code previously used. Additionally, for Forms 1042-S filed for the 2014 year, this update provides that the filer is not required to report the chapter 3 status code of an intermediary or flow through entity . These transitional rules are provided to allow withholding agents additional time to modify their information reporting systems to incorporate the new chapter 3 status codes and the expanded scope of persons for which a chapter 3 status code may be required (e.g., withholding agent and intermediary). Transitional Reporting of Box 16b “Intermediary or Flow-Through Entity’s GIIN” and Box 17 “Recipient’s GIIN”. With respect to a withholdable payment paid prior to the time in which a 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. This includes, among other things, reporting the intermediary or flow-through entity’s GIIN or the recipient’s GIIN and chapter 4 status code. The exception to report information with respect to chapter 4 does not apply if a withholding agent files Form 1042-S to report a participating FFI’s or registered deemed-compliant FFI’s chapter 4 withholding rate pool of U.S. payees. In such a case, the withholding agent is required to report the FFI’s GIIN in box 17 and must use chapter 4 pool reporting code 48 “U.S. Payees Pool.” Definitions (page 3) The instructions for an authorized agent that are included in the definition of an authorized agent should read as follows: “If an authorized agent is making deposits and tax payments or filing Forms 1042-S on behalf of its principal, the authorized agent should be reported as the withholding agent on Form 1042-S, boxes 12a through 13f.” Amounts Subject to Reporting on Form 1042-S (page 6) The descriptions for insurance premiums provided in “Amounts subject to reporting on Form 1042-S” should be read as follows: “Insurance premiums from U.S. sources (regardless of whether or not the premium payments are subject to the section 4371 excise tax) are withholdable payments and if the payment is actually withheld upon or should have been withheld upon (but the withholding agent failed to withhold), such amount must be reported on Form 1042-S. Insurance premiums from U.S. sources are amounts subject to chapter 3 withholding (excluding amounts subject to the section 4371 excise tax) that must be reported on Form 1042-S.” Thus, for chapter 4 purposes, reporting on Form 1042-S is only required if you are required to withhold (and report amounts in boxes 7 through 9 on Form 1042-S) with respect to a payment of insurance premiums. For chapter 3 purposes, reporting on Form 1042-S is required If the payment is an amount subject to chapter 3 withholding. Payments allocated, or presumed made, to U.S. non-exempt recipients (page 11) The last sentence of the paragraph describing the reporting requirements for payments allocated, or presumed made, to U.S. non-exempt recipients should read as follows: “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 the certification required for reporting such pool, you must report the income.” Boxes 3 and 4 (page 19) On each Form 1042-S, either box 3 or box 4 must be checked. If you are not reporting amounts in boxes 7 through 9 because you did not withhold under chapter 3 or 4, you should check box 3 (i.e., for electronic filers, enter 1 as the chapter 3 withholding indicator). This is consistent with the requirements of Publication 1187. Chapter 4 Exemption Codes (page 19) Use chapter 4 exemption code 16 “Excluded Offshore Payment” for a payment made with respect to a collateral arrangement (prior to 2017) that is excluded from the definition of a withholdable payment under to §1.1473-1(a)(4)(vii). Use chapter 4 exemption code 20 “Dormant Account” if you are applying the escrow procedure for dormant accounts under §1.1471-4(b)(6). If the income reported is an amount subject to chapter 3 withholding and tax is withheld and deposited under chapter 3, do not check box “Check if tax not deposited under escrow procedure”, instead you must check box 3 and complete box 3b to report the tax withheld under chapter 3. These instructions replace the footnote 2, page 17. Escrow Procedure (page 20) A withholding agent that withheld tax during calendar year 2014 and that was not required to deposit with the IRS the tax withheld during calendar year 2014 pursuant to the escrow procedure under §§1.1471-2(a)(5)(ii) and/or 1.1441-3(d) must check the box “check if tax not deposited under escrow procedure.” These instructions replace the description of the escrow procedure provided in the specific instructions for boxes 7 through 10, federal tax withheld. Also, the “caution” on page 21 should read “Box 7 must be completed in all cases, even if no tax has been deposited.” Box 13i, Recipient’s Chapter 4 Status Code (page 21) If you are reporting amounts paid to an account that is excluded from the definition of financial account for chapter 4 purposes (see §1.1471(b)(2)) use chapter 4 status code 41 “Undocumented Preexisting Obligation.” If you are reporting amounts paid to a specific recipient that is an NFFE that you (or another withholding agent) withheld upon under section 1472 (i.e., you are reporting amounts in boxes 7 through 9), use chapter 4 status code 32 “Unknown Recipient,” unless the NFFE is treated as a recalcitrant account holder under 1.1471-5(g), in which case, use code 33 “Recalcitrant Account Holder.” In future years, the form and instructions will include specific codes. Boxes 14e and 14f “Primary Withholding Agent” (page 23) If you report tax withheld by another withholding agent (the primary withholding agent), provide the name and EIN of the withholding agent that withheld the tax reported in box 8. If multiple withholding agents withheld amounts reported on the same Form 1042-S, report the name of any one of the withholding agent that withheld amounts. This box is optional for 2014 but will be required in 2015 and future years.