Information Reporting on Form 1042-S: A New Challenge for Accounts Payable

1099, FATCA, ONESOURCE, Tax Information Reporting, W-8 & W-9 Foreign Reporting, Withholding Management Posted by Paula Singer 0 Comment

Posted on February 15, 2012

Reporting income and taxes withheld on payments made to corporate vendors recently became more challenging for accounts payable (A/P) departments of both for-profit and not-for-profit organizations with the new IRS compliance focus on payments to nonresident alien individuals, foreign entities and foreign governments (collectively, foreign persons). A/P departments familiar with the ins and outs of Form 1099 reporting now must master not only the long-standing (but long-ignored) withholding requirements for U.S.-source income payments to their vendors who are foreign persons (called NRA withholding), but also the requirements for reporting income and taxes withheld, if any, to their foreign vendors and the IRS on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.

Regardless of the name of the form, most U.S.-source income payments made to foreign vendors are subject to Form 1042-S information reporting, whether taxes were required to be withheld on the payment or not. Since only U.S.-source income is reportable, the determination of whether a payment is reportable or not must be made at the transaction level, not at the vendor level as has been the case historically for most payments to U.S. vendors.

Read my article to learn more about the challenges A/P deparments now face.

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Categories: 1099, FATCA, ONESOURCE, Tax Information Reporting, W-8 & W-9 Foreign Reporting, Withholding Management

About Paula Singer

Paula N. Singer, Esq. a practice leader with Thomson Reuters and award-winning author has over 30 years of experience as a tax lawyer specializing in cross-border tax issues for individuals, businesses, trusts, and estates. In 1994, Paula co-founded Windstar Technologies, Inc., to provide an easy-to-use and understand software solution for international tax compliance and reporting. A nationally recognized international tax attorney and partner in the law firm Vacovec, Mayotte and Singer LLP, in Newton, Massachusetts, Paula’s practice has concentrated in international tax matters for individuals, businesses, trusts, and estates. She has provided individuals and organizations with tax planning as well as compliance services for individuals relocating internationally since 1978. Paula is a frequent speaker and author of over 80 published articles and is the author of numerous tax guide books. Her articles on international tax topics have appeared in AILA publications, Tax Analysts’ Tax Notes International and Tax Notes as well as their online services, West and RIA publications, and bar association publications. Paula assisted the IRS and NAFSA with the development of Form 1040NR-EZ. Her comments on proposed regulations under section 7701(b) on the substantial presence test and under section 1441 on withholding on payments to foreign persons were incorporated into the final regulations under each section. Paula was a panelist with IRS International Issues Specialist, Lowell Hancock on two IRS webcasts on TaxTalkToday.tv “US Tax Withholding Issues in the Global Business Economy” Dec 2002 and on “Understanding U.S. Income Tax Treaties”, Mar 2008 and on a series of audio seminars in 2009 sponsored by the immigration portal ILW.com. The IRS has used Paula’s tax guidebooks to train their personnel. Paula is also co-author with Prof. Cynthia Blum of Rutgers Law School of two law review articles, “A Comprehensive Policy for U.S. Residence-Based Taxation of Individuals” published in 2008 by the Vanderbilt Journal of Transnational Taxation and “A Proposal for Taking the Complexities out of U.S. Retirement Distributions to Foreign Nationals’ published in 2012 by the Florida Tax Review, the law review of the University of Florida’s graduate tax program.