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3.21.111  Chapter Three Withholding Returns

Manual Transmittal

November 08, 2016

Purpose

(1) This transmits revised IRM 3.21.111, International Returns and Documents Analysis - Chapter Three Withholding Returns.

Scope

This updates IRM 3.21.111, addressing code and edit procedures for Form 1042-T and Form 1042-S. These procedures have a direct impact on Error Resolution (ERS) processing and the Chapter Three Withholding (CTW) Database.

Material Changes

(1) Various editorial changes were made throughout the IRM.

(2) IRM 3.21.111.2 - Replaced "%" with "percent"

(3) IRM 3.21.111.3.1 - Updated Form 1042-T/S due dates

(4) IRM 3.21.111.4.1 - Update to include Taxpayer Bill of Rights (TBOR) information.

(5) IRM 3.21.111.5 - Updated editing instructions for dollars and cents.

(6) IRM 3.21.111.5.1 - Added "/" can be used when deleting a form or schedule.

(7) IRM 3.21.111.5.3 - Updated reference to IRM.

(8) IRM 3.21.111.6 - Removed reference to Exhibit 3.21.111-15

(9) IRM 3.21.111.6.1.3 - Added instruction for new Line 1a for Form 1042-T

(10) IRM 3.21.111.6.1.4 - Removed exhibit information from paragraph 3, added new Note after paragraph 5 referring to exhibit when characters are illegible only.

(11) IRM 3.21.111.6.1.6 - Updated Figure 3.21.111-1

(12) IRM 3.21.111.6.1.7 - Note was updated to circle out PO Box for a domestic address when both address and PO Box present.

(13) IRM 3.21.111.6.1.7 - Updated Figure 3.21.111-2, and corrected reference to Exhibit 3.21.111-10

(14) IRM 3.21.111.6.1.8 - Updated line number for new for Form 1042-T changes.

(15) IRM 3.21.111.6.1.9 - Updated line number for new for Form 1042-T changes

(16) IRM 3.21.111.6.1.10 - Updated line number for new for Form 1042-T changes

(17) IRM 3.21.111.6.1.28 - Corrected reference to Exhibit 3.21.111-10

(18) IRM 3.21.111.7 - Updated editing instructions for dollars and cents.

(19) IRM 3.21.111.7 - Removed reference to Exhibit 3.21.111-16

(20) IRM 3.21.111.7(3) - Removed previous Note verbiage, moved Exception to where Note was, clarified instructions - copies B-E of Form 1042-S to be sent back to recipients.

(21) IRM 3.21.111.7(5) - Removed "without a corresponding Form 1042-T" from this paragraph.

(22) IRM 3.21.111.7(7) - Replaced "%" with "percent"

(23) IRM 3.21.111.7.1.6 - Updated Figure 3.21.111-3, corrected to include blanks and numeric are valid. Note corrected.

(24) IRM 3.21.111.7.1.8 - Consolidated boxes 3 and 4 to just box 3 per new Form 1042-S

(25) IRM 3.21.111.7.1.8(4) - Replaced "%" with "percent"

(26) IRM 3.21.111.7.1.9 - Made changes to the order of paragraphs 4 and 5, added clarification for correcting Chapter 3 exemption codes.

(27) IRM 3.21.111.7.1.10(5) - Minor clarification added for correcting Chapter 4 exemption codes.

(28) IRM 3.21.111.7.1.11 - Added instructions for scenario when tax rate entry is not numeric.

(29) IRM 3.21.111.7.1.11(4) - Replaced "%" with "percent"

(30) IRM 3.21.111.6.1.12 - Updated line numbers 7a and 7b for new for Form 1042-S changes.

(31) IRM 3.21.111.7.1.12 - Deleted 3rd bullet.

(32) IRM 3.21.111.7.1.12 - Deleted 3rd row of IF AND THEN boxes in chart. Deleted references to Income Codes.

(33) IRM 3.21.111.7.1.13 - Updated Income Code 19 to 20, and Figure 3.21.111-5

(34) IRM 3.21.111.7.1.14 - Updated to new box number 7a

(35) IRM 3.21.111.7.1.15 - Updated to new box number 7b

(36) IRM 3.21.111.7.1.18 - Updated line numbers 7a for new for Form 1042-S.

(37) IRM 3.21.111.7.1.21(3) - Removed reference to Exhibit 3.21.11-5.

(38) IRM 3.21.111.7.1.22(3) - Removed reference to Exhibit 3.21.11-5.

(39) IRM 3.21.111.7.1.25 - Updated to leave Withholding Agent Country Code as is.

(40) IRM 3.21.111.7.1.27 - Note was updated to circle out PO Box for a domestic address when both address and PO Box present.

(41) IRM 3.21.111.7.1.28 - Updated Figure 3.21.111-6

(42) IRM 3.21.111.7.1.29 - Updated box from 13a to 13e.

(43) IRM 3.21.111.7.1.30 - Updated box from 13b to 13f.

(44) IRM 3.21.111.7.1.30 - Corrected chart to say if Box 13b is blank, leave blank, and added a Note to see Exhibit 3.21.111-10 for list of valid country codes.

(45) IRM 3.21.111.7.1.30(4) - Removed paragraph 4 and the accompanying chart.

(46) IRM 3.21.111.7.1.31 - Updated box from 13c to 13g, Figure 3.21.111-7.

(47) IRM 3.21.111.7.1.31 (2) - Reworded second paragraph.

(48) IRM 3.21.111.7.1.31(12) - Updated if a domestic address in box 13d, and the Country Code is blank, leave blank.

(49) IRM 3.21.111.7.1.32 - Updated box from 13d to 13a.

(50) IRM 3.21.111.7.1.33 - Deleted references to Exhibit 3.21.111-7, no longer using prior year codes. Deleted Note as well.

(51) IRM 3.21.111.7.1.33 - Updated box from 13e to 13b, Updated Figure 3.21.111-8.

(52) IRM 3.21.111.7.1.34 - Updated box from 13f to 13c and 13g to 13d.

(53) IRM 3.21.111.7.1.34 - Added note referencing Exhibit 3.21.111-6 and deleted references to Exhibit 3.21.111-7.

(54) IRM 3.21.111.7.1.37 - Added new field LOB code for TY2016, box 13j

(55) IRM 3.21.111.7.1.43 (1) - Corrected grammar, added new paragraphs to me consistent with the other Chapter 3 status code fields.

(56) IRM 3.21.111.7.1.44 (1) - Corrected grammar, added new paragraphs to me consistent with the other Chapter 4 status code fields.

(57) IRM 3.21.111.7.1.47 - Updated box from 16 to 13k.

(58) IRM 3.21.111.7.1.47 (3) - Updated paragraph 3 if country code is blank, leave blank.

(59) IRM 3.21.111.7.1.48 - Updated box from 17 to 13i.

(60) IRM 3.21.111.7.1.49 - Updated box from 18 to 16a, updated if box 15f is blank leave blank.

(61) IRM 3.21.111.7.1.50 - Updated box from 19 to 16b.

(62) IRM 3.21.111.7.1.51 - Updated box from 20 to 16c.

(63) IRM 3.21.111.7.1.52 - Updated box from 21 to 17a.

(64) IRM 3.21.111.7.1.53 - Added new field for TY2016, 16d

(65) IRM 3.21.111.7.1.53 - Updated box from 22 to 17b.

(66) IRM 3.21.111.7.1.54 - Added new field for TY2016, 16e

(67) IRM 3.21.111.7.1.54 - Updated box from 23 to 17c.

(68) IRM 3.21.111.7.1.55 - Added accept whole dollar portion and ignore the cents.

(69) IRM 3.21.111.8 - Removed reference to Exhibit 3.21.111-16

(70) Exhibit 3.21.111-5 - Added status code 34 U.S. Withholding Agent—Foreign branch of FI

(71) Exhibit 3.21.111-6 - Added status code 50 U.S. Withholding Agent—Foreign branch of FI

(72) Exhibit 3.21.111-7 - Exhibit has been deleted.

(73) Exhibit 3.21.111-10 Updated the country code list to match up with MeF country code list, added note.

(74) Exhibit 3.21.111-15 - Exhibit has been deleted.

(75) Exhibit 3.21.111-16 - Exhibit has been deleted.

Effect on Other Documents

IRM 3.21.111, dated November 06, 2015 (effective 01-01-2016), is superseded.

Audience

Wage and Investment - Ogden Submission Processing Campus (OSPC) - Tax Examiners in Document Perfection Branch

Effective Date

(11-08-2016)

Linda J. Brown
Director, Submission Processing
Wage and Investment Division

3.21.111.1  (03-30-2015)
Chapter Four Withholding Legislation

  1. For 2014, the Form 1042-S has been modified to accommodate reporting of payments and amounts withheld under the provisions of the Foreign Account Tax Compliance Act (FATCA) or Chapter 4, and Regulations section 1.1474-1(d).

  2. Beginning July 1, 2014, FATCA requires a withholding agent to deduct and withhold a tax equal to 30 percent from a withholdable payment made to a foreign financial institution (FFI), unless the FFI agrees to and complies with the terms of an FFI agreement (a participating FFI), is deemed to comply with FATCA (a deemed-compliant FFI), or is treated as an exempt beneficial owner (i.e., entities to which Chapter 4 withholding does not apply). FATCA also requires a withholding agent to deduct and withhold a tax equal to 30 percent from a withholdable payment made to a nonfinancial foreign entity unless such entity provides a certification that it does not have any substantial U.S. owners, provides information regarding its substantial U.S. owners, or an exception to these requirements otherwise applies under the FATCA regulations. See Treas. Reg. § 1.1473-1(a) for the definition of withholdable payment, which generally includes, for example, U.S. source dividends, interest, insurance premiums and other payments that may also be amounts subject to Chapter 3 withholding.”

3.21.111.2  (11-08-2016)
Chapter Three Withholding Legislation

  1. IRC Section 1441 through IRC Section 1464, Chapter Three Withholding (CTW) changes to IRC Section 1441 and IRC Section 1442, state, a person that makes a payment of an amount subject to Chapter 3 withholding (for example, U.S. source interest, dividends, royalties, and certain other types of U.S. source income) to a foreign person must generally deduct and withhold 30 percent from the payment. A lower rate of withholding may apply under the Code, the regulations, or an income tax treaty. Generally, a payor of these types of income must also report the payments on Form 1042-S.

  2. Significant changes were implemented by the regulations under Chapter 3 (IRC Section 1441 through IRC Section 1446) and Chapter 61 (IRC Section 6041 through IRC Section 6050N) effective January 1, 2001 that resulted in the current Chapter 3 reporting and withholding framework. The current framework, found in the regulations, together with the Qualified Intermediary (QI) agreement in Revenue Procedure 2000-12 (as amended) and the Withholding Foreign Partnership (WP) and Withholding Foreign Trust (WT) agreements in Revenue Procedure 2003-64 (as amended) represented the culmination of a major effort that had begun in 1992 to revamp the withholding and reporting on payments of U.S. source income to foreign persons.

  3. The regulations under Chapter 3 and Chapter 61 have been revised to coordinate with Chapter 4. In addition, a new QI agreement has been published in Revenue Procedure 2014-39, and new WP and WT agreements have been published in Revenue Procedure 2014-47.

  4. The regulations required both U.S. and foreign financial institutions to change their tax withholding and information reporting systems.

  5. If a payment that is withheld upon under Chapter 4, a withholding agent is not required to withhold under Chapter 3 with respect to such a payment.

3.21.111.3  (01-01-2015)
Purpose of Document Perfection

  1. The purpose of Document Perfection is to code and edit (perfect) returns and other documents for input through the Integrated Submissions and Remittance Processing (ISRP) System.

  2. In addition, Document Perfection forwards any other documents or attachments, not related to the processing of the return, to the appropriate function.

  3. Document Perfection is not responsible for the mathematical verification of the return or for checking the validity of the documents being processed.

  4. The Chapter Three Withholding database will perform math verification, validity, and consistency checks after the returns and other documents are coded and edited, as prescribed in this Section.

3.21.111.3.1  (11-08-2016)
Purpose of Section

  1. This section of the Internal Revenue Manual (IRM) provides procedures for reviewing and processing:

    • Form 1042-T, Annual Summary and Transmittal of Forms 1042-S,Exhibit 3.21.111-1

    • Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding,Exhibit 3.21.111-2

  2. This IRM is designed to be used by Ogden Code and Edit Tax Examiners.

    Note:

    Paper Form 1042-T and Form 1042-S are filed at the Ogden Submission Processing Campus (OSPC) only. Those erroneously filed at other locations are to be forwarded to OSPC (Ogden) daily.

  3. The IRM can't address all issues that may present themselves. In some cases, it may be necessary to refer them to your Subject Matter Expert (SME), lead, and/or manager, to make a determination for corrective action to be taken.

  4. The Form 1042-T is processed under:

    • Program Code: 71700

    • File Source: Payor Master File (PMF)

    • Tax class: 5

    • Master File Transaction (MFT): 88

    • Document Code: 01

    • Document Locator Number (DLN): 60501ddd000-999 - (OSPC paper only)

    • DLN: 29501ddd000–999 (OSPC - filed electronically)

    • Return Due Date: March 15, 2017

    • Extended Return Due Date: May 15, 2017

  5. The Form 1042-S is processed under:

    • Program Code: 71720

    • File Source: Information Returns Master File (IRMF)

    • Tax Class: 5

    • MFT: 12

    • Document Code: 02

    • DLN: 60502ddd000-999 - OSPC - Paper ONLY

    • DLN: 29502ddd000-999 (first 100,000 filed *) - OSPC

    • DLN: 81502ddd000-999 (second 100,000 filed *) - OSPC

    • DLN: 82502ddd000-999 (third 100,000 filed *) - OSPC

    • DLN: 83502ddd000-999 (fourth 100,000 filed *) - OSPC

    • DLN: 84502ddd000-999 (fifth 100,000 filed *) - OSPC

    • DLN: 85502ddd000-999 (sixth 100,000 filed *) - OSPC

    • DLN: 86502ddd000-999 (seventh 100,000 filed *) - OSPC

    • DLN: 87502ddd000-999 (eight 100,000 filed *) - OSPC

    • DLN: 88502ddd000-999 (ninth 100,000 filed *) - OSPC

      Note:

      * Indicates files received through Enterprise Computing Center - Martinsburg (ECC-MTB) in one processing day. The DLN will loop if the File Location Code (FLC) is not changed after each 100,000 records identified. This DLN's range are the FLCs limited to work processed by the Ogden Submission Processing Campus (OSPC) only. Specific DLNs will be utilized which are unique to Ogden (See list above).

    • Return Due Date: March 15, 2017

    • Extended Return Due Date: May 15, 2017

3.21.111.4  (01-01-2015)
IRS Employee Contacts Section 3705(a)

  1. Background - The Restructuring and Reform Act of 1998, Section 3705 provides identification requirements for all IRS employees working tax related matters. IRS employees are required to give their name and unique identification number during taxpayer telephone, face-to-face and written contact. In addition, a telephone number is required on all taxpayer correspondence. This will provide taxpayers with enough information to identify an IRS employee who has previously assisted with tax related matters.

  2. Key points- All IRS employees who communicate, by telephone, correspondence or face-to-face, with taxpayers, or their personal representatives, on tax related matters are required to provide (at a minimum) the following information:

    1. Telephone Contact: Their title (e.g., Mr., Mrs., Ms., Miss), their last name, and their badge identification (ID card) number.

    2. Face-to-Face: Their title (e.g., Mr., Mrs., Ms., Miss), provided as appropriate during the conversation, their last name and their badge identification (ID card) number.

    3. Correspondence: All correspondence must include a telephone number where the taxpayer's question can be answered. In addition, manually generated and handwritten correspondence must have their title (e.g., Mr., Mrs., Ms., Miss), last name, and Integrated Data Retrieval System (IDRS), letter system, or their badge identification (ID card) number.

    4. The IDRS number and numbers for certain letter systems are automatically generated. If it is not generated, or a handwritten note is prepared, the badge identification (ID card) number must be used. Toll-free employees may also provide their location for identification purposes. E-mail and faxes to taxpayers, on tax related matters, are considered manually-generated correspondence and must include the required information. See IRM 11.3.1.11, Records Disposition For Disclosure, for faxing guidance.

    5. Correspondence, whether sent directly to the taxpayer or to the taxpayer’s personal representative, must contain the required information.

    6. When a taxpayer insists on speaking with a specific employee who previously handled their inquiry or request, or complains about the level of service previously provided, every attempt should be made to resolve the taxpayer’s inquiry. If the issue cannot be resolved, the employee should refer the inquiry, using established procedures, to his or her manager.

    7. Correspondence letters will require a specific employee name and telephone number only if the employee initiating the correspondence is in the best position to respond to any questions that the taxpayer may have about the correspondence or the employee is asking the taxpayer to provide additional case-related information.

    8. Otherwise, if the taxpayer does not need to contact a specific employee, the correspondence needs only an IRS telephone number and standard signature.

    9. Secretaries, receptionists or other people who answer the telephone in functional offices need to identify themselves and should provide their badge identification (ID Card) number only if they are answering telephones which are routinely used to provide tax or account information.

    10. It is not necessary to repeat the badge identification (ID Card) number on a subsequent contact, when the nature of an employee’s work involves multiple contacts with the same taxpayer, and the employee has given the taxpayer (either by telephone or in-person) their aforementioned number on the first contact.

3.21.111.4.1  (11-08-2016)
♦Taxpayer Advocate Service (TAS)♦

  1. Per the Taxpayer Bill of Rights (TBOR), taxpayers have the right to expect a fair and just tax system which provides taxpayers with the opportunity to have their facts and circumstances considered when it might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service (TAS) if they are experiencing  financial difficulty or if the IRS has not resolved their tax issues properly and timely through normal channels. For additional information on the Taxpayer Bill of Rights, visit http://taxpayeradvocate.irs.gov/About-TAS/Taxpayer-Rights

  2. Refer taxpayers to the Taxpayer Advocate Service (TAS) when the contact meets TAS criteria (see IRM 13.1.7, Taxpayer Advocate Service (TAS)Case Criteria) or when Form 911 ,Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), is attached, and steps cannot be taken to resolve the taxpayer’s issue the same day. "Same day" includes cases that can be completely resolve in 24 hours, as well as cases where steps can be taken within 24 hours to begin resolving the taxpayer's issue. (See also IRM 13.1.7.4, Same-Day Resolution by Operations.) When making a TAS referral, use Form 911, "Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order)" , and forward to TAS in accordance with your local procedures.

3.21.111.4.2  (01-01-2015)
Correspondence Imaging Systems (CIS) Returns

  1. Correspondence Imaging system (CIS) is an inventory system for scanning all Accounts Management (AM) receipts into digital images and working the cases from those images.

  2. CIS returns are identified with "CIS Image...Do not correspond for Signature" stamped below the signature line or annotated on the front of the document.

  3. Accounts Management is required to ensure CIS returns are complete for processing. If the CIS return is incomplete, void the DLN and return to AM to secure any missing information.

    Note:

    Do not correspond for missing information on CIS returns.

3.21.111.4.3  (01-01-2015)
Correspondence Action

  1. Correspondence includes all written communication from a taxpayer or their representative, excluding tax returns, whether solicited or unsolicited, and includes:

    • Responses to IRS requests for information or data;

    • requests for information, including that which may accompany tax returns;

    • annotated notice responses; or

    • other correspondence providing additional information or disputing a notice.

  2. Completely examine the form to ensure that all conditions requiring correspondence can be included in the same letter. The taxpayer should not be subjected to repeated contact for missing data. However, if you fail to get all the data the first time, and there is no way to properly process the form without it, you must not penalize the taxpayer for the oversight made by IRS. Instead, write the taxpayer a letter of apology and secure the data.

    Note:

    For more information on Correspondence, see IRM 3.0.273, Administrative Reference Guide.

  3. Initiate correspondence with a 1791C Letter, U.S. Annual Return Of Income Paid at Source Incomplete for Processing Form 1042, where applicable, unless other instructions are given in the IRM.

  4. Code and Edit will correspond on unnumbered documents and when the withholding agent has submitted a Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, as a transmittal document for Form 1042-S.

  5. Prepare Form 13653, Request for Missing Information for Form 1042, Annual Withholding Tax Return for US Source Income of Foreign Persons. See IRM 3.21.111.4.3.1 below for additional information.

3.21.111.4.3.1  (01-01-2015)
Form 13653, Request for Missing Information for Form 1042, Annual Withholding Tax Return for US Source Income of Foreign Persons

  1. Prepare Form 13653 when the withholding agent has completed a Form 1042 as a transmitting record for Form 1042-S, and it is not possible to dummy all of the required fields on the Form 1042-T.

  2. When preparing Form 13653, take the following actions:

    1. Attach completed Form 13653 to the Form 1042 below the entity area, and

      Reminder:

      Complete the "For IRS Use Only" box by inputting your Computer Assisted Pipeline Review (CAPR) stamp and current date.

    2. Circle the original Received Date, if shown, and withdraw the Form 1042 from the batch along with any associated Form 1042-S and place in the designated area to be returned to the taxpayer.

      Caution:

      Carefully review for all correspondence issues before completing Form 13653. This will ensure that you correspond with the taxpayer only once for multiple issues.

  3. The following table will provide guidance on using the Form 13653:

    IF THEN on Form 13653
    Form 1042 is being used as a transmittal record for Form 1042-S, Check box 4, provide a Form 1042-T and return all associated Form(s) 1042-S to the withholding agent, continue processing.
    Any other correspondence conditions exist, Check box 8, and write the condition in the space provided, continue processing.

    Note:

    Be sure to write clearly.

3.21.111.5  (11-08-2016)
General Processing Procedures

  1. General - Enter all edit marks with an erasable, red pen. Never obliterate the original entry on a document when deleting or correcting an entry. Care should be exercised to insure that the original entry remains legible.

  2. The only items to be edited are those to be transcribed, except where the instructions require editing of a non-transcribed item. The following criteria should also be considered when editing a document:

    1. A zero, dash, or none should be considered as a significant entry unless otherwise specified for the particular line item.

    2. If a money amount must be entered, edit the field in dollars only. When there is no clear separation between dollars and cents, edit a slash between dollars and cents (i.e. If the amount was entered as $510.75, edit to $510/.75).

      Note:

      If any dollar amounts are reflected in foreign currency (i.e., Pound Sterling, Euro Dollars, Lira, etc.), return to the withholding agent advising them to submit all monetary information in U.S. dollars.

    3. Edit any misplaced or illegible transcription entry to the proper transcription line (T-Line). A carefully edited arrow (or double arrow) may be used if it will leave no room for doubt as to where the entry belongs.

      Note:

      The entry may have to be computed from other figures on the return or attachment.

    4. Delete any misplaced or extraneous information from T-Line(s).

    5. If numeric line items contain alpha characters, convert to numerics (i.e., line contains "One," Tax Examiner (TE) should delete the entry and enter "1" ).

    6. All entry fields should reflect positive amounts (Entry fields should never show negative amounts). Delete any negative entry.

    7. Delete all titles from name lines, such as those listed in the table below:

      Title Abbreviation
      Mister, Misses, Miss Mr., Mrs., Ms.
      Reverend Rev.
      Captain, Sergeant, General, etc. Cpt., Sgt., Gen., etc.
      Doctor Dr.
      Honorable Hon.
      Governor Gov.
  3. If a Form 1042-T or Form 1042-S has been filed on a form, or in a format, that does not exactly match the official IRS form, correspond with the withholding agent using Letter 1791c for the correct documents. If contact is not possible or there is no reply, dummy the information provided to a blank, current year Form 1042-T or Form 1042-S, as appropriate.

    Note:

    Follow no-reply procedures until further notice.

  4. Only one Income Code may be present on each Form 1042-S. If the Form 1042-S information is filed in a consolidated format (i.e. listing, multiple Income Codes on one form), contact the withholding agent using Letter 1791c to request separate forms for each Recipient and Income Code. If contact is not possible or if there is no reply, dummy a Form 1042-S for each Recipient.

    Note:

    Follow no-reply procedures until further notice.

  5. Prior year forms will be edited to the current year format. All forms that are nine years prior to the current year will be accepted. All other prior year forms will be destroyed by following procedures for Classified Waste (CW).

3.21.111.5.1  (11-08-2016)
Types of Edit Marks

  1. The tax examiner should use the following types of edit marks:

    1. "X" to the left of an entry -The "X" indicates to the terminal operator that the item to the right of the "X" should not be transcribed but rather the edited entry should be transcribed. The "X" is the preferred marking on returns. A / can be used when deleting a form or schedule not being transcribed.

    2. Circled entry -This edit mark indicates to the terminal operator that the entry should not be transcribed. If the taxpayer circles an entry, edit the amount circled.

      Note:

      Generally speaking, an "X" is used on tax data entries and a circle is used on entity data.

    3. Underlined entry -This edit mark is a signal to the terminal operator to be sure to transcribe the item.

    4. Arrow -This edit mark is used to show a misplaced entry. Use the arrow if the taxpayer has misplaced an item that is close to the correct line and there is no room for doubt as to where the entry belongs. A double arrow may be used if the same figure is to be transcribed in two different places provided local management has established that ISRP will transcribe the data in both places as well as any required transcription data between the two arrows.

3.21.111.5.2  (01-01-2015)
Document Controls

  1. Block Control Documents - Each block of documents processed by the Automated Data Processing (ADP) System is required to have a Block Control Document attached for control and identification purposes.

  2. The total number of returns is usually shown by a circled number for a partial block or blank for a full block of 100.

    IF THEN
    The block is partial and the number is not shown, Circle one number higher than the last sequence number of the form.
    Blocks, or unblocked documents which should have been blocked, are received without a Block Control Document, Return the block to the originating area (through Accounting) for correction.
  3. Form 1332, Block and Selection Record- Used for batch transmittal of Non-Remittance documents (NR).

    Note:

    Do not circle the total number of documents for an unnumbered block.

3.21.111.5.2.1  (01-01-2015)
Document Locator Number (DLN)

  1. Document Locator Number (DLN):

    1. The DLN is the basic identification number assigned to each document processed by the ADP.

    2. This number is assigned when the document is blocked and brought under Accounting Control.

    3. It will be used to locate the document as long as it (or a substitute document) remains in the files.

    4. The parts of the DLN are:

      1 2 3 4 5 6 7
      FLC Tax Class Doc Code Julian Date Block Series Serial # List Year
      DLN part Description
      1 The first two digits of the DLN is the FLC (or Campus Code).
      2 The third digit is the tax class.
      3 The fourth and fifth digit is the doc code.
      4 The sixth, seventh, and eighth digits represent the control (Julian) date.
      5 The ninth, tenth and eleventh digit represents the block number.
      6 The twelfth and thirteenth digit are the serial numbers.
      7 The fourteenth digit is the last year digit of the year the DLN was assigned. This digit is computer generated.

3.21.111.5.2.2  (01-01-2015)
Verification of Numbered Blocks of Returns

  1. On numbered blocks, compare the first return in the block to the Form 813-C or Form 1332.

    IF THEN
    The documents have not been blocked,

    Note:

    All documents in a block or a batch should be of the same type.

    Notify your manager of the discrepancy and follow local Submission Processing Campus procedures for correction.
    1. The type of document is determined by a specific Tax Class and Document Code,

    2. The first eleven digits of the DLN of each document in a block should be the same as the corresponding digits stamped on the face of the Form 813-C or Form 1332.

      IF THEN
      There is a difference, Give the block to your manager to reassociate the documents with the correct block control document. It is necessary to check only the DLN of the first document in a block to make the above comparisons of DLNs.
    3. A document may have two different DLNs stamped on it because of re-blocking.

      IF THEN
      Multiple DLNs are present, Circle the incorrect DLN. The correct DLN can be determined from the Form 813-C or Form 1332.
  2. Blocking Returns and Documents - All returns and documents to be input through ISRP are assembled into blocks of 100 documents or less.

3.21.111.5.3  (11-08-2016)
IRM Deviation Procedures

  1. IRM deviations must be submitted in writing following instructions from IRM 1.11.2.4, Internal Management Documents System - Internal Revenue Manual (IRM) Process, When Procedures Deviate from the IRM, and elevated through appropriate channels for executive approval.

3.21.111.6  (11-08-2016)
Form 1042-T, Annual Summary and Transmittal of Forms 1042-S - General Information

  1. Form 1042-T is used to transmit Copy A of paper Form 1042-S. There are different types of Form 1042-S filed (Chapter 3, Chapter 4, original, amended, pro-rata or amended pro-rata).

  2. Form 1042-T is to be filed by the withholding agent responsible for reporting U.S. Source Income to Foreign Person's on Form 1042-S.

  3. There are different types of Forms 1042-S filed (Chapter 3, Chapter 4, original, amended, pro-rata, and amended pro-rata). One Form 1042-T must be submitted for each type of paper Form 1042-S attached. Ensure the type of Form 1042-T indicated matches the type indicated on the associated Form(s) 1042-S (Example: If Form 1042-S, Amended Box is checked, the Form 1042-T, Line 1b, Amended box must be checked).

  4. Withholding agents are required via regulations to file 250 or more Form 1042-S electronically. Penalties will be issued by Compliance when Submission Processing receives and processes over 250 paper Form 1042-S.

  5. See Training Job Aid 2544-702 (ELMS 10878/22104) for Prior Year Conversion for tax years 2007 and prior, 2013-2008, 2014 and 2015.

  6. Form 1042-T and the attached Form(s) 1042-S will be batched and forwarded to Code and Edit.

  7. Form 1042-T and 1042-S will be edited and envelopes removed. The entire batch will be forwarded to numbering.

  8. Numbering will stamp the 1042-T unique DLN in the upper right corner of the Forms 1042-T.

  9. The Form 1042-T DLN will be entered on each associated Form 1042-S in the lower left hand corner.

  10. The Form 1042-S unique DLN will be placed in the upper right corner of the Forms 1042-S.

  11. Numbering will forward the Forms 1042-T and 1042-S to ISRP.

  12. Form 1042-T must be processed through ISRP before Form 1042-S.

  13. DO NOT process any Form 1042-T filed without corresponding Form(s) 1042-S. Form 1042-T should be destroyed, per local procedures, if no Form(s) 1042-S are attached.

    Note:

    See IRM 3.21.111.7, paragraphs (4) and (5), for instructions when Form 1042-S is received with no corresponding Form 1042-T.

3.21.111.6.1  (01-01-2015)
Form 1042-T, Line by Line Editing

  1. The following sections will provide editing procedures for the Form 1042-T. See Exhibit 3.21.111-3 for Form 1042-T transcription lines.

3.21.111.6.1.1  (01-01-2015)
Tax Year

  1. The period for which the withholding agent is submitting the Form 1042-T.

    1. If Then
      Tax year is other than the current year, missing, or incomplete, Research attached forms to determine correct Tax Period and edit the Tax Period (to the left of the pre-printed tax year) in the YYYY format, per the filer's intent. Circle out the preprinted tax year to delete it.
      Determined from attached forms that Tax Period is other than current year, Remove from current year batch. Forward for batching as prior tax year.
      Tax period is a future year, Edit as current year unless removed from an early filed return.
      Tax year is missing or incomplete and unable to determine, Edit as current year.

      Note:

      The 1042-T is used as a transmittal document for the 1042-S. The 1042-T must be edited or dummied to match the associated 1042-S documents.

      Note:

      If filer has used a prior year form revision, correct all line numbers to conform with current year format.

3.21.111.6.1.2  (01-01-2015)
Received Date

  1. Identifies the received date of the Form 1042-T.

    1. This is an 8 position field that must be present.

    2. Only numeric characters (0-9) are valid.

    3. The date must be in MMDDYYYY format.

    4. The date must be stamped/edited below the signature area.

    If Then
    Missing, incomplete, or illegible, Research document or attachments for the Received Date and edit accordingly.
  2. If the received date is not stamped on the Form 1042-T, determine the date in the following order of priority:

    1. The earliest legible postmark date on the envelope.

    2. Service Center Automated Mail Processing System (SCAMPS) date

    3. The Revenue Officer's date of signature.

    4. The taxpayer's date of signature

    5. The DLN Julian Date.

    6. The current date minus 10 days.

    7. For certified mail, If a postmark is not present, look for a USPS.com Track & Confirm record that has been attached to the return. Use the acceptance date on the record to determine timeliness and follow normal editing procedures. If the USPS.com Track & Confirm record is not attached, no action is required.

3.21.111.6.1.3  (11-08-2016)
Line 1a - Chapter Three and Chapter Four Indicator

  1. Identifies the type of 1042-T and the corresponding 1042-S forms that the agent is filing.

  2. This is a 1 position field.

  3. The only valid characters are 3 or 4.

    IF Then
    If Line 1a is blank and only the Chapter Three Status Code field has an entry, Edit a 3 in Line 1a

    Note:

    Forms for 2015, edit a 3 at the top center of Form 1042–T.

    If Line 1a is blank and only the Chapter Four Status Code field has an entry, Edit a 4 in Line 1a.

    Note:

    Forms for 2015, edit a 4 at the top center of the Form 1042–T

    If Line 1a is blank and neither Status Codes fields has an entry, Research the attached 1042-S forms to verify if Line 3 has an entry and edit appropriately.

    Note:

    Forms for 2015, edit a 3 or a 4 at the top center of the Form 1042–T

    If Line 1a is blank and both Status Code fields have entries, Only one can be checked, research the attached 1042-S forms to verify if Line 3 has 3 or 4. Separate the Chapter 3 and 4 1042-S Forms and create another Form 1042-T for the Chapter 4 filings. These will be recorded on a spreadsheet given to you by the HQ analyst.

    Note:

    Forms for 2015, edit a 3 or a 4 at the top center of the Form 1042–T

    Note:

    Forms for 2013 and prior will always be Chapter 3, and there are no Chapter 3 or 4 Status Code fields. If a prior year revision is used to file a current year form, research the attached 1042-S forms to verify if boxes 3 or 4 are checked. Edit a 3 or 4 at the top center of Form 1042-T accordingly.

3.21.111.6.1.4  (11-08-2016)
Chapter 3 and 4 Status Codes

  1. Identifies the status of the withholding agent under chapters 3 and 4.

  2. This is a 2 position field.

  3. Only numeric characters (0-9) and blanks are valid.

  4. Forms for 2013 and prior will always be Chapter 3.

  5. If unable to determine the correct code from attached documents, continue processing. If other than numeric, “X” out.

    Note:

    See Exhibit 3.21.111-5 for Chapter 3 Status Codes and Exhibit 3.21.111-6 for Chapter 4 Status Codes for illegible characters only.

3.21.111.6.1.5  (01-01-2015)
Employer Identification Number (EIN) - Withholding Agent

  1. This is a 9 position field.

  2. Only numeric characters (0-9) are valid, however, all 0's or all 9's are invalid characters.

    If Then
    Employer Identification Number (EIN) is missing, invalid, incomplete or illegible, or Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) is present, Circle the incorrect entry. Research associated Form(s) 1042-S to find Withholding Agent EIN.
    • If found, edit the valid EIN to the left of the incorrect taxpayer entry.

    • If not found, continue processing.

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

3.21.111.6.1.6  (11-08-2016)
Withholding Agent Name Line

  1. Withholding Agent Name Line - Identifies the Withholding Agent Name as established when filing EIN, QI-EIN, WP-EIN, or WT-EIN. This field consists of three line entries.

    1. This field consists of 40 characters for each line (Name Line 1, Name Line 2 and Name Line 3).

  2. Valid characters for name and address fields are:

    • Alpha (A-Z)

    • Numeric (0-9)

    • Blank

    • Ampersand (&)

    • Hyphen (-)

    • Slash (/)

    • Period (.)

    • Comma (,)

    • Apostrophe (')

    • Pound (#)

    • Percent (%)

    Note:

    The percent (%) sign is used to identify "In Care of" and is valid in the first position only.

    Figure 3.21.111-1

    This image is too large to be displayed in the current screen. Please click the link to view the image.

3.21.111.6.1.7  (11-08-2016)
Withholding Agent's Address

  1. Withholding Agent's Address - Identifies the withholding agent's address of record. This field consists of entries which identify street, city or town, state, province (if applicable), country (if applicable), and zip or foreign postal code. The withholding agent must have a complete address.

  2. Use the Foreign Address Job Aid (2324-002) for address information and to reduce entries to the appropriate field length, as necessary. The table below lists the field descriptions and lengths:

    Field Length
    Street Line 1 - Required field that identifies the address of record for the withholding agent. The address must consist of number, street and/or apartment or suite number (P.O. Box if mail is not delivered to a street address). See Exhibit 3.21.111–5, for Street Abbreviations.

    Note:

    If both a street address and a PO Box are present for a domestic address, circle out PO Box.

    40
    City - Required field which identifies the city or town (or other locality name) of the withholding agent. This field is also used to indicate Army Post Office (APO), Fleet Post Office (FPO) or Diplomatic Post Office (DPO). Enter APO/FPO/DPO in this field, if applicable. 40
    State (Code) - Required field if withholding agent has a domestic address. If the state name is spelled out, do not edit the two digit state code. ISRP will enter the two digit state code. See Exhibit 3.21.111-6, for State Code abbreviations.

    Note:

    If not a U.S. state, territory, or APO/FPO/DPO address, then no State Code will be present.

    2
    Province (Code) - Required field if the withholding agent's country of record is Canada. Only enter a Province Code when the country is Canada. Edit the two character code from the Province Code table above the name of the Province. See Exhibit 3.21.111-9, for Canadian Province Codes. 2
    Country (Code) - Required field if withholding agent has a foreign address. Edit the two character code, from the Country Code table. Edit a slash (/) before the country code and a slash (/) and dollar sign ($) after the country code. See Exhibit 3.21.111-10, for Country Code Table for editing entity/address. See Figure 3.21.111–9, for Country Code editing procedures.

    Note:

    Possessions, APO, FPO and DPO are not considered as foreign addresses. If a domestic address is present for the recipient, See IRM 3.21.111.6.1.21(10).

    2
    Foreign Postal/Zip Code - Identifies the foreign or domestic zip code for the withholding agent. See Figure 3.21.111–2, for foreign address editing. Valid characters for the Postal/Zip Code field can be Alpha (A-Z), or Numeric (0-9), and may include a hyphen (-). See Job Aid 2543–702 for additional information on Zip Code ranges. 5-9
  3. Arrow data to the correct position in the series, (i.e., City, Province, Country, Foreign Postal Code.)

  4. If any of these fields are missing, then perfect from attached documents.

  5. If foreign address and country name is Abu Dhabi, Hong Kong, Luxembourg, Malta, Mexico, Monaco, San Marino, Singapore, Panama (City) or Vatican City, then edit the country name in the city field position and country code in the country name position.

  6. A Foreign Postal Code must be present for all Australian addresses. If the Foreign Postal Code field is blank then edit the field per the table below:

    Note:

    If Postal Code is blank and the state/territory cannot be determined, enter 0000 for the postal code.

    Australian State/Territory State Abbreviation Postal Code
    New South Wales (NSW) and Australian Central Territory (ACT) NSW and ACT 2000 - 2999
    Victoria VIC 3000 - 3999
    Queensland QLD 4000 - 4999
    South Australia SA 5000 - 5799
    Western Australia WA 6000 - 6799
    Tasmania TAS 7000 - 7499
    Northern Territory NT 0800 - 0899
  7. European postal systems frequently do not spell out the name of the country, instead, they will use a prefix to the postal code. Listed below are the prefixes frequently used, along with the number of digits allowed for those countries:

    Country Name Prefix Length
    Austria A 4
    Belgium B 4
    Denmark DK 4
    Finland SK 5
    France F 5
    Germany D 4 or 5
    Hungary H 4
    Italy I 5
    Liechtenstein FL 4
    Norway N 4
    Sweden S 5
    Switzerland CH 4

    Figure 3.21.111-2
    This image is too large to be displayed in the current screen. Please click the link to view the image.

3.21.111.6.1.8  (11-08-2016)
Line 1b - Original or Amended Check Box

  1. This is a 1 position numeric field that must be blank or 1.

  2. Edit a 1 to the left of the Amended box if it is checked, otherwise, leave blank.

3.21.111.6.1.9  (11-08-2016)
Pro-rata Basis Reporting Checkbox - Line 1c

  1. Pro-rata Reporting - Identifies whether the withholding agent is reporting pro-rata withholding on attached Form(s) 1042-S.

  2. If the withholding agent checked the box under Line 1a "Also check here if pro-rata (see instructions)," then edit a "1" to the left of the word "Also" and directly under Line 1a.

3.21.111.6.1.10  (11-08-2016)
Number of Paper Forms 1042–S - Dotted Line 1d

  1. This is a 5 position numeric field that must be present.

  2. Withholding agents are required to specify the number of paper Form 1042-S they are submitting via Form 1042-T.

  3. Count the number of paper Forms 1042-S attached to Form 1042-T. If the number on Line 1b is incorrect, edit the correct amount.

    Note:

    Form 1042-T should be destroyed, per local procedures, if no Forms 1042-S are attached.

3.21.111.6.1.11  (03-30-2015)
Total Gross Income, Line 2

  1. Gross Income - Line 2 - Identifies gross income as a total from all associated Form 1042-S. Gross income is the starting point for computing net income and tax withheld.

    1. This is a 15 position numeric field that must be present.

    2. All amounts must be positive. If editing amount, edit in whole dollars only.

    3. If Line 2 is blank (or zero), determine the entry as follows: calculate the Gross Income Paid total by adding the Box 2 amount from each of the attached Form 1042-S.

3.21.111.6.1.12  (11-08-2016)
Total Federal Tax Withheld - Lines 3a and 3b

  1. Identifies the Federal Tax withheld from all associated Form 1042-S for either Chapter 4 or Chapter 3.

    1. These are 15 position numeric fields that must be present.

    2. All amounts must be positive. If editing amount, edit in whole dollars only.

      IF Then
      Both are filled in, Create a Form 1042-T for the Chapter 4 withholding. Separate the attached Form 1042-S forms according to Chapter 3 or Chapter 4. There will be a 1042-T for the Chapter 3 1042-S and a 1042-T for all of the Chapter 4 1042-S. These will be recorded on a spreadsheet given to you by the HQ analyst.
      Line 3a is blank, and should have an entry, Calculate the total of Federal Tax Withheld from Box 7a on all attached Chapter Four declared Form 1042-S that are attached. Line 3 on Form 1042-S will have a 4.
      Line 3b is blank, and should have an entry, Calculate the total of Federal Tax Withheld from Box 7a on all attached Chapter Three declared Form 1042-S that are attached. Line 3 on Form 1042-S will have a 3.
      Line 7a is blank, Then Line 7b should have a check on the Form 1042-S. Enter one dollar in the Form 1042-T field.
      All amounts are blank on the attached form 1042-S documents Take to your lead or manager to contact the HQ analyst.

3.21.111.6.1.13  (01-01-2015)
Final Return Checkbox

  1. This is a one (1) position field that may or may not be present. No editing is required.

3.21.111.6.1.14  (01-01-2015)
Signature Area

  1. The withholding agent should sign in the space provided, below the perjury statement.

  2. Facsimile signature submitted as a rubber stamp, mechanical device, or computer software program is acceptable.

  3. Do not question any signature on the return.

  4. Presume that the signature on the return, statement or document is the true signature of the person who actually signed the document.

    Note:

    If signature is missing, do not correspond, continue processing.

3.21.111.6.2  (01-01-2015)
Preparation of Form 1042-T for Transcription and Routing of Associated Form 1042-S

  1. Edit Form 1042-T and attached Form(s) 1042-S.

3.21.111.7  (11-08-2016)
Form 1042-S - Foreign Person's U.S. Source Income Subject to Withholding

  1. Form 1042-S data can be filed on paper if there are fewer than 250 income recipients for which data must be reported.

  2. Due to the addition of IRC Section 1471 through IRC Section 1474 and the regulations under those sections, the Form 1042-S has been completely revised. The Form 1042-S is a five part document with a copy each for the Internal Revenue Service and the withholding agent and three copies for the recipient.

  3. Copy A of the Form 1042-S, for each recipient, should be filed with the Form 1042-T. If multiple copies (Copies B, C, D, and/or E) have been filed, along with Copy A, for a recipient, process ONLY Copy A. Delete all additional copies, for that recipient, by lining though each copy.

    Note:

    If a Form 1042-S (Copies B, C, D, and/or E) is received from a recipient, requesting a refund of taxes withheld, refer to lead. The Form 1042-S must be returned to the recipient with instructions to file a Form 1040NR with the Austin Campus.

  4. If Copy A, of the Form 1042-S, is received without a corresponding Form 1042-T, create a dummy Form 1042-T.

    Note:

    Only one 1042-T will be prepared for all of the IRS Commissioners issued paper Forms 1042-S, Copy A. In addition, the withholding agents address on the IRS Commissioners 1042-S will vary from Form to Form and perhaps even the 1042-T because of the many IRS offices that contribute to the IRS Commissioners Form 1042. See IRM 3.17.79, Accounting Refund Transactions, for more information on Accounting refund practices for Chapter Three Withholding.

  5. If only Copy B, C, D, and/or E, is received, do not process. Follow procedures for Classified Waste (CW).

  6. Form 1042-S indicates the amount of U.S. income tax,

    • which was withheld at source, and

    • which can be claimed by the recipient as a credit against tax liability on Form 990-PF, Form 990-T, Form 1040NR, Form 1041, Form 1120-F, Form 1120-FSC, Form 1040-NR Trust/Estate, Form 1042 or Form 8804.

  7. Any gross income from U.S. sources that is not effectively connected with the conduct of trade or business in the U.S. is taxed at 30 percent or a lower treaty rate.

  8. Income effectively connected with the conduct of trade or business in the U.S. (foreign corporations engaged in a trade or business in the U.S.) is taxed at either:

    1. Regular corporate rates, or

    2. Graduated individual rates.

  9. Form 1042-S must be filed even if income was paid but was exempt from withholding.

  10. The tax data extracted from Form 1042-S processing is exchanged with foreign countries with which the U.S. has a tax treaty or exchange of information agreement using Form OECD (Organization for Economic Cooperation and Development).

  11. For those Form 1042-S that are filed electronically, all money fields are reported in dollars only. However, for those Form 1042-S that are filed on paper, money fields can be reported in dollars only or dollars and cents. If a money amount must be entered, edit the field in dollars. When there is no clear separation between dollars and cents, edit a slash between dollars and cents (i.e. If the amount was entered as $510.75, edit to $510/.75)

  12. If you receive a prior year Form 1042-S you must edit Form 1042-S to conform with the current tax year line numbering sequence (Training Job Aid 2544-702 (ELMS 10878/22104)). If unable to edit, then prepare a dummy 1042-S using the current year form.

3.21.111.7.1  (01-01-2015)
Form 1042-S Editing

  1. Edit Form 1042-S while they are still associated to the Form 1042-T. See Exhibit 3.21.111-4, for Form 1042-S transcription lines.

3.21.111.7.1.1  (01-01-2016)
Tax Year

  1. Identifies the tax period for which the withholding agent is submitting the Form 1042-S.

    1. This is a 4 position field that must be present.

    2. Only numeric characters are valid.

      If Then
      Prior year revision used to file current year form, Edit current tax year in YYYY format to the left of preprinted tax year. Circle the preprinted tax year to delete it.
      Determined from attached forms that Tax Period is other than current year, Remove from current year batch. Forward for batching as prior tax year.
      Tax year is a future year, Edit as current year unless removed from an early filed return.
      Tax Year missing, incomplete, illegible, or unable to determine, Edit as current year.

3.21.111.7.1.2  (01-01-2015)
Received Date

  1. Identifies the received date of the Form 1042-S.

    • This is an 8 position field that must be present.

    • Only numeric characters (0-9) are valid.

    • The date must be in MMDDYYYY format.

    • The date must be stamped/edited to the bottom right corner.

      Note:

      Do not edit over entries already present. If a multi pack, all documents require the received date.

      If Then
      Missing, incomplete, illegible, or unable to determine, Research document or attachments for the received date and edit accordingly.
      Two Form 1042-S documents are on one page, One stamped or edited received date between the two forms is acceptable.

3.21.111.7.1.3  (01-01-2015)
Cross Reference DLN

  1. Identifies the DLN of the Form 1042-T transmitting record associated with this Form 1042-S. This field is located in the bottom left corner of paper Form 1042-S. On electronically filed records the cross-reference DLN is computer generated.

    1. This is a 13 position field that must be present.

    2. If missing from paper filed Form 1042-S, then research other Form 1042-S within multi-pack to locate Withholding Agent DLN and edit accordingly.

      Note:

      If not found, continue processing.

3.21.111.7.1.4  (01-01-2015)
Amended Checkbox

  1. Identifies the type of 1042-S forms that are being submitted. The forms have been amended from the original.

  2. This is a 1 position numeric field that may be blank or 1.

  3. Edit a 1 to the left of the Amended box if it is checked, otherwise, leave blank.

3.21.111.7.1.5  (01-01-2015)
Pro-rata Basis Reporting Checkbox

  1. Identifies pro-rata bases reporting.

  2. This is a 1 position numeric field that must be blank or 1.

  3. Edit a 1 to the left of the Pro-Rata Basis Reporting box if it is checked, otherwise, leave blank.

3.21.111.7.1.6  (11-08-2016)
Income Code, Box 1

  1. Identifies the type of income paid to the recipient, see Figure 3.21.111–3, Income Code, Box 1.

    • This is a 2 position field.

    • Blanks and numeric characters are valid.

      Note:

      If only one character is present, precede it with a zero. You may also research the document to determine if the income type is present elsewhere on the document. If an explanation of income type is provided, determine the correct code from the table below:

      Income Code Definition
      01 Interest paid by U.S. obligors - general
      02 Interest paid on real property mortgages
      03 Interest paid to controlling foreign corporations
      04 Interest paid by foreign corporations
      05 Interest on tax-free covenant bonds
      06 Dividends paid by U.S. corporations-general
      07 Dividends qualifying for direct dividends rate
      08 Dividends paid by foreign corporations
      09 Capital gains
      10 Industrial royalties
      11 Motion picture or television copyright royalties
      12 Other royalties (for example, copyright, recording, publishing)
      13 Royalties paid on certain publicly offered securities
      14 Real property income and natural resources royalties
      15 Pensions, annuities, alimony, and/or insurance premiums
      16 Scholarship or fellowship grants
      17 Compensation for independent personal services
      18 Compensation for dependent personal services
      19 Compensation for teaching
      20 Compensation during studying and training
      22 Interest paid on deposit with a foreign branch of a domestic corporation or partnership
      23 Gross income—Other
      24 Real estate investment trust (REIT) distributions of capital gains
      25 Trust distributions subject to IRC Section §1445
      26 Unsevered growing crops and timber distributions by a trust subject to IRC Section §1445
      27 Publicly traded partnership distributions subject to IRC Section §1446
      28 Gambling winnings
      29 Deposit interest
      30 Original issue discount (OID)
      31 Short-term OID
      32 Notional principal contracting income
      33 Substitute payment-interest
      34 Substitute payment - dividends
      35 Substitute payment - other
      36 Capital gains distributions
      37 Return of capital
      38 Eligible deferred compensation items subject to IRC section 877A(d)(1)
      39 Distributions from a nongrantor trust subject to IRC section 877A(f)(1)
      40 Other dividend equivalent under IRC section 871(m)
      41 Guarantee of indebtedness
      42 Earnings as an artist or athlete - no central withholding agreement
      43 Earnings as an artist or athlete - central withholding agreement
      44 Specified Federal procurement payments
      50 Income previously reported under escrow procedure
      51 Interest paid on certain actively traded or publicly offered securities
      52 Dividends paid on certain actively traded or publicly offered securities
      53 Substitute payments-dividends from certain actively traded or publicly offered securities
      54 Other income
  2. Correspond if the withholding agent is reporting more than one income code on Form 1042-S. If contact is not possible or there is no reply, delete all income codes but the first.

    Exception:

    If a Form 1042-S is received from a recipient with a statement attached with a breakdown of amounts related to each specific income code. Create copies that will need to be processed using the following steps below:

    • Perfect the income code information to reflect the code not left on the original Form 1042-S. Perfect the rest of the copy and add it to the back of the pack.

    • Edit the "Number of paper Forms 1042-S attached" on the Form 1042-T to reflect the additional copies added to the batch.

    • Process the Form 1042-T and the copies of Form 1042-S.

    Note:

    Follow no-reply procedures until further notice.

    Figure 3.21.111-3
    This image is too large to be displayed in the current screen. Please click the link to view the image.

3.21.111.7.1.7  (01-01-2015)
Gross Income, Box 2

  1. Identifies the total gross income paid to the recipient.

    • This is a 12 position field.

    • Only numeric characters (0-9) are valid. No periods.

    • Enter amount in whole dollars only.

    • If the gross income is less than $1.00, then edit 1.

    • If the gross income is negative, X the entry, then edit 1.

    • If the gross income is omitted, take no action and continue processing.

3.21.111.7.1.8  (11-08-2016)
Chapter Three or Four Indicator, Box 3

  1. Identifies that the agent is filing a Chapter 3 or 4 Form 1042-S.

  2. This is a one position field.

  3. This field should contain a 3 or a 4 only.

  4. If neither a3 or a 4 is present, and there is no entry in Box 7a, Federal Tax Withheld, edit a 3 next to this field. If there is an entry in Box 7a, use the Chapter 4 tax rate box (box 4b) to determine the appropriate entry. If box 4b is less than 30 percent (30, 30.00, 3000), zero, or blank, edit a 3 next to this field. If box 4b is 30 percent (30, 30.00, 3000), edit a 4 next to this field.

  5. If both a 3 and a 4 are present, research the Chapter 4 Tax rate box (box 4b) to determine the appropriate entry. If box 4b is less than 30 percent (30, 30.00, 3000), zero, or blank, edit a 3 next to it. Circle out the 4. If box 4b is 30 percent (30, 30.00, 3000), edit a 4 next to it. Circle out the 3.

  6. If both a 3 and a 4 are present, and you are unable to determine which chapter, please see your lead or manager. They will contact the H.Q. analyst for further instructions.

    Note:

    Forms for 2013 and prior will always be Chapter 3, and there are no Chapter Three or Four checkboxes. Therefore, edit 1/3 just above the form name. If a prior year revision is used to file a current year form, edit 1/3 for Chapter Three or edit 1/4 for chapter Four. (See Training Job Aid 2544-702 (ELMS 10878/22104)).

    Figure 3.21.111-4
    This image is too large to be displayed in the current screen. Please click the link to view the image.

3.21.111.7.1.9  (11-08-2016)
Chapter 3 Exemption Code, Box 3a

  1. Identifies when the agent is applying an exemption from Chapter 3 withholding.

  2. This is a 2 position field.

  3. Only numeric characters (0-9) or blanks are valid.

  4. May be filled in if Chapter Four Checkbox is marked.

  5. If only one digit is present, use the chart below as part of your research to determine the two digit code. If unable to determine, keep processing.

    Code Chapter 3 Exemption Codes
    01 Effectively connected income
    02 Exempt under IRC (other than portfolio interest)
    03 Income is not from U.S. sources
    04 Exempt under tax treaty
    05 Portfolio interest exempt under IRC
    06 QI that assumes primary withholding responsibility
    07 Withholding foreign partnership or withholding foreign trust
    08 U.S. branch treated as a U.S. person
    09 Territory FI treated as U.S. person
    10 QI represents that income is exempt
    11 QSL that assumes primary withholding responsibility
    12 Payee subjected to chapter 4 withholding

3.21.111.7.1.10  (11-08-2016)
Chapter 4 Exemption Code, Box 4a

  1. Identifies when the agent is applying an exemption from Chapter 4 withholding.

  2. This is a 2 position field.

  3. Only numeric characters (0-9) or blanks are valid.

  4. May be filled in if Chapter Three Checkbox is marked.

  5. If only one digit is present, use the chart below as part of your research to determine the two digit code. If unable to determine, keep processing.

    Code Chapter 4 Exemption Codes
    13 Grandfathered payment
    14 Effectively connected income
    15 Payee not subject to chapter 4 withholding
    16 Excluded nonfinancial payment
    17 Foreign Entity that assumes primary withholding responsibility
    18 U.S. Payees—of participating FFI or registered deemed-compliant FFI
    19 Exempt from withholding under IGA
    20 Dormant account
    21 Excluded offshore payment
    22 Excluded payments on collateral

3.21.111.7.1.11  (11-08-2016)
Chapter 3 and 4 Tax Rates, Boxes 3b and 4b

  1. Identifies the tax rate percentage applicable for the income reported.

  2. This is a 4 position field.

  3. Only numeric characters (0-9) or blanks are valid.

    Chapter Three Tax Rate Table

    00.00 07.00 14.00 27.50
    04.00 08.00 15.00 28.00
    04.90 10.00 17.50 30.00
    04.95 12.00 20.00 35.00
    05.00 12.50 25.00 39.60
  4. The Chapter 4 Tax Rate is 30 percent. If another rate is entered, continue processing.

  5. Use the table below to edit both Tax Rate boxes into the correct format.

    If Then
    Percent sign ("%" ) is entered or the word "percent" is present Circle out "%" sign or the word "percent" (i.e. 15%, circle "%" and edit 1500).
    The tax rate is spelled out Convert to a numeric value. (i.e., Fifteen Percent, "X" entry and edit 1500).
    Only one digit is present, Refer to tax rate table and edit accordingly (i.e., 5% or 5, edit 0500.)
    Only two digits are present, Refer to tax rate table and edit accordingly (i.e., 14% or 14, edit 1400).
    If 0 or 00 is present, Edit 0000.
    If blank, Continue processing.
    Entry is not numeric and tax rate is spelled out Refer to your Subject Matter Expert (SME), lead, and/or manager, to make a determination for corrective action to be taken.

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