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The Information Guidance for 1042 S 2018 Form

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Guide of 1042 S 2018 Form

good morning and welcome to today's.webcast forms 10 42 and 10 42 s what you.need to know before filing before we.begin I'm going to play a brief.housekeeping video welcome and thanks.for joining us we're pleased to present.another in our ongoing series of.continuing professional education.webcasts to help companies and.individuals conquer challenges as they.plan for what's next our presentation.will start in a few moments before you.begin here are a few things to keep in.mind you can customize how you both view.our presentation and interact with the.presenter for better viewing close all.other applications and turn up your.speaker volume you can also adjust.window size and placement or enter.full-screen mode using the controls at.the top of the window or dragging the.bottom right hand corner to resize at.the bottom of your screen you'll see a.series of icons each relating to a.different aspect of our session you can.download the group attendance sheet and.a PDF copy of today's slides from the.slide deck and handouts widget to the.right of the slide view you can ask our.presenter questions during the webcast.by typing a question in the Q&A window.below the slide view and clicking submit.we'll do our best to answer all.questions during the presentation or.follow up via email if you experience.technical difficulty during today's.presentation refresh your browser by.hitting the f5 key today's session will.offer you 1 CPE credit to receive credit.you must meet the requirements as.specified by the National Association of.state boards of Accountancy.you must attend at least 50 minutes of.the session and respond to at least 75%.of the polling questions which will ask.throughout today's presentation to.respond to a poll click the button next.to your answer will track your progress.and alert you when you've earned CPE.credit you can then click the.certificate icon in the CPE progress.widget to open a PDF file that you can.save to your computer don't worry if you.can't download your PDF certificate.today will email a copy to you in two.weeks if you're attending this webcast.in a group you must complete our.attendance sheet to receive CPE credit.the attendance sheet is available in the.slide deck and handouts widget please.have all group members sign it and send.only one sheet per group also note that.CPE credit can be awarded only to.participants.as themselves and isn't available to.participants who view the on-demand.version as a reminder the presentation.you're about to see isn't legal.investment or accounting advice we.encourage you to seek the counsel of a.professional service provider to apply.this content to your specific.circumstances I'm pleased to introduce.today's presenters from Moss Adams Aaron.Fenimore information reporting and.withholding director in our San.Francisco office and Jill Jim TRO.information reporting and withholding.director in our Southern California.office with that Aaron I'll turn it over.to you to get us started thanks Emily hi.everyone my name is Aaron Fenimore and.as mentioned I sit in our San Francisco.office today we're going to be going.over everything that you need to know.for your 1040 2's and 1042 reporting.just looking briefly at the things we're.going to cover first we're going to.touch upon this upcoming filing.deadlines and if this is the first time.you're hearing that you have an.obligation to file we do have extensions.available so we will go over that second.we're going to turn to what payments are.actually in scope for 1042 S reporting.then depending on whether you have.payments that are actually in scope.we're going to look at those actual.forms 1042 s and the 1042 and all the.very detailed codes and information.that's required one of those topics that.can be a bit confusing is that foreign.tax payer identification number and the.date of birth and whether or not you.should be listing those on the ten for.forms 1042 S and then lastly we're going.to run through a few case studies these.are based upon common scenarios that we.see and we're hoping that they'll be.helpful so with that I'm going to turn.it over to Jill jumpto thanks Erin all.right first up we have we have a lot to.cover today so first up we're going to.talk about filing deadlines and.extensions that are available so.essentially your forms 1042 S which is.the information return report one copy.goes to the IRS and one copy goes to the.payee.and 1040 2 which is the tax return are.all due on March 15th so essentially.what this means for timely filing for.those forms that are mailed to the IRS.they must be postmarked by that date and.forms that are mailed to the recipient.must also be postmarked by that date an.important note here is that the IRS.doesn't permit electronic mailing of.forms 1040 to s recipient statements so.that means that sometimes we have.companies that want to send 1040 to us.electronically to their pay ease for for.any number of reasons and that's okay.but there is still an obligation to.execute a paper copy mailing to the.payee so you can do them both but there.is a requirement to go ahead and mail a.hard copy to recipients electronically.you're allowed to electronically file.forms come free to us with the IRS in.fact if you have more than 250 of those.forms you must electronically file them.with the IRS if you have less than 250.you can mail them to the IRS but then.you need that cover sheet of the form.1040 to tee the transmittal to go along.with that mailing now automatic.extensions are available and will extend.the deadlines it's a 30-day extension.but because April 14th falls on a.weekend this year you have until April.15th to actually file the forms 1040 to.us with the IRS and the recipient if you.apply for that extension so we say that.it's automatic which is great but it.just means that you still have to apply.for it and they're not going to reject.it if you apply for it appropriately an.extension is available for the form 1040.to it that is a six-month extension so.you get until September 15th keep in.mind that is a an extension to file the.actual return not an extension of time.the tax due would be able to be paid so.you still have the deposit requirements.as they naturally occur even if you file.for the extension for the 1040 - the way.to request those extensions for forms.1040 2's that go to the.IRS there's a form 88 oh nine it can be.filed really easily through the IRS fire.system automatically online or you can.mail that in to the IRS if you need an.extension for the ten free to s.recipient copies that is a different.extension request it's a letter sent to.the IRS the information and requirement.for what needs to be in that letter is.in the 1040 to s instructions.essentially you know you give them given.the basics name address and tin tell me.that you need an extension and you send.that into the kearneysville IRS office.and in the seven zero zero four must be.filed on paper and that's an extension.request for the 1040 - so if you're.planning on filing later than March 15th.for these forms you do need to file.extensions for each piece of this filing.and turning it back over to Aaron to.talk about payments and scope thanks.Jill all right so if you're asking.yourself what is this concept of 1042 SN.1042 at a very high level if you are.making payments of us sourced fixed.determinable annual or periodic.otherwise known as the adapt income that.is subject to 1042 s and 1042 reporting.now depending on those types of fadap.payments that are being made which we're.going to get into there could be a.corresponding withholding obligation the.1042 S is required to be issued and.filed regardless of whether there was.actually withholding required so that's.kind of a common confusion point where.okay well I didn't have any withholding.do I still need to file that form 1040.to us and the answer is yes and if you.have filed one 1040 to us you also have.to file the form 1040 - the way I kind.of think of these concepts you know if.you have a 1099 with backup withholding.you got a file that 945 it's similar if.you have a 1040 2's the 1042 is also.required so just make sure that if you.are making payments of us source income.sedap income you are looking into the.fact have we ever done these filings of.1040 to s and 1042 now taking a step.back I have a lot of clients and say.okay well that's great to know but how.do I even figure out if I need to if I.have those types of payments should I be.withholding so I always tell my clients.you should be asking two things when.you're making payments first RUP making.a payment of food Act income second what.is the source so right now we're going.to touch upon what is considered a fadap.payment so at the you know most common.interest dividends and royalties if.you're making any type of interest.dividend or royalty payment whether it's.being paid to a third party you know.that could be an investor a vendor a.contractor or a foreign related a.related foreign entity which is going to.be your intercompany payments you should.be looking at those and we're going to.move on to the source next but you know.first and foremost if you're making.those types of payments you should put.those on your radar second is bank.deposit interest and you know this is.really going to apply specifically to my.fund clients and my banking clients and.it's really confusing the way the IRS.has set this up because there's a lot of.special rules that apply first this is.the only type of fadap payment that.actually has a threshold for all these.other types of payments we're talking.about if there was one dollar paid of.that US or set up income it is subject.to reporting and potentially withholding.but that's not the case with bank.deposit interest so first inform us have.you paid over ten dollars then secondly.you have to look at who you're paying.that bank deposit interest to entities.there's no corresponding reporting.obligation individuals there is but to.make it just that much more confusing.that IRS keeps updating the list of the.countries with which apply to that to.those payments of BDI to individuals so.currently the most current list is in.Rev proc 2018 - 36.and there's a listing of all the.countries with which the United States.have an information sharing agreement.and those are the countries that you.would be subject to reporting bank.deposit interest so if you are paying.you know big deposit interest to an.individual that's not listed in one of.those countries then you don't have to.report next we're going to turn to board.of director payments so this is a you.know a big area that's commonly.overlooked if you're paying board.members for services that are being.performed in the United States almost.always it's for u.s. meetings that is.subject to not only reporting but.withholding so almost all of the.treaties that are out there they don't.have that carve out for the exemption of.withholding so typically it's a 30%.withholding for any US source payments.being made to board of directors so pay.careful consideration to that the next.you know any payments that are being.made to foreign independent contractors.that are performing services in the u.s..those are also fadap income and then you.know breaking that down into even more.detail okay well what are payments that.you could be making to foreign.independent contractors this is going to.be for consulting legal services those.type of payments and you know it applies.to both individuals and entities and the.way that you you know get around that.withholding and the documentation you.have to collect can vary depending on.whether you're B whether you're paying a.non-us individual versus an entity so.again play pair of sorry excuse me.play paid careful consideration to those.types of payments and then just your.general foreign vendor payments so again.consulting legal services rents leases.of real property software and license.payments is an area that is very tricky.because depending on the type of.software that you're making payments for.it can be treated as a good which.wouldn't even be subject to reporting.best case scenario no withholding nor.reporting or it could be consider.royalty because you're paying that.annual license and you know most.countries do not have zero percent.withholding for royalty payments and.they can vary depending on the type of.royalty payments so you just want to pay.careful consideration to those and then.conference attendance or sponsorships.royalty payments again advertising.payments and then transportation and.courier payments again another area that.has you know specific details on how you.classify those types of payments and the.corresponding withholding so now that.I've fully confused you on the type of.setup payments we're going to look at.the next question.so you've you've determined yes I'm.paying I am paying a Spanish legal law.firm for legal work okay your next.question is going to be where are those.services performed so once you determine.you have set out payments you have to.look at the sourcing because what we're.specifically looking for here is us.source without payments if it's foreign.source is not subject to your reporting.or withholding and and each type of.sedap can have different sourcing rules.so I'm just going to go over you know a.few general ones the most common ones.that will hopefully apply to the.payments you're making for any type of.services so these are going to be your.independent contractors you know it's.going to be a consulting work your legal.work you know anything else that you're.paying that involves services it's the.location of where those services are.being provided where it can get tricky.and where you have to make sure that.you're really tracking and customizing.those invoices you're receiving is when.there's a hybrid so 50% of the work is.being done outside of the United States.but then 50% is also being done in the.United States so pay careful.consideration to those and make sure.your invoices are reflecting you know.$10,000 for work performed outside of.the US $10,000 for work performed inside.the u.s. if you want to detail that out.because if there is a withholding.obligation it's only on with respect to.the US.sourced portion of that payment and then.your reporting would also be with.respect to that u.s. source portion so.you know it's a good thing to look at.and make sure the way that you're making.those payments and receiving the.invoices is very specific to that and.then royalties it's going to be sourced.where that IP is being used rent it's.going to be location of the property.interest it's going to be the domicile.of the payor and dividends the domicile.of the company so all considerations.that you know should be accounted for in.your analysis of whether or not you have.payments that are subject to 1042 s.reporting all right Emily we have our.first polling question all right our.first question how many payments of us.source fadap is your company making per.year and your options are one to five.five to ten ten or more or I don't know.and I'll give everyone a few moments to.respond to participate in our polls.today please click the button next to.the answer you choose and hit submit if.you're having any trouble seeing our.polling questions simply refresh your.browser with f5 let's give everyone a.couple more seconds here and let's go.ahead and take a look at the results.back to you.all right thanks Emily so for those that.have answered 30 36 percent have.answered I don't know so this is a great.time to do a query of you know the.payments depending on the type of system.that you're using do a query of those.vendors or you know payees that have.been paid for 2018 try and extract as.much data as possible in terms of what.you're paying for and if you do have you.know typically we sort by the country of.that payee you want to pay careful.consideration to those also any payee.with a nine eight with a tin which is a.tax payer ID number beginning in that.nine eight pull those out of that.population and you're going to want to.start taking a much closer look also a.consideration.to be made you know you want to look at.whether or not there are some.improvements to your onboarding process.that can be made to ask these questions.up front so that you know the answers.and you're not trying to determine your.1042 s population you know in March when.the reporting is almost due for those.people that know they actually have.those payments I'm hoping that you know.you've already done the kind of due.diligence of making sure that they're.documented looking at the source making.sure there's no one holding applicable.and if there is withholding you have.already done it and you are ready to go.for your reporting season and with that.I'm going to turn it back to Jill and.we're going to going to get into the.details of the actual forms.thank you for that reminder I was.talking on mute.alright sorry about that so anything.anyways I'll take over and kind of go.over some of the form 1120s form 1040 to.s mechanics reporting and one thing I.wanted to touch on is that there were.some questions about a statement I had.made previously about hardcopy recipient.statements being required for forms 1042.s that is traditionally how it's been.required but I did check out the new.publication 1179 that was updated in.September of 2018 and now it does.include the form 1040 2's for allowance.of electronic recipient statements along.with a bunch of the forms 1099 and 1098.so update this is new but you are.allowed to include a 1040 to us to a.recipient you are allowed to deliver.that electronically now you can't just.email it out it has to be kind of a.push-pull process but it is in that.publication now for allowance all right.so general rules of forms 1042 s a lot.of times we work with people who do a.lot of 1099 filing and are trying to be.used to the those general rules and then.they look to 1042 S filing and there's a.lot of differences there so we like to.point those out in case you are you know.someone who has a lot of experience with.1099 reporting and now you're moving.over to 1040 to us so one common.misconception that we find is that.inform on the form 1099 there are a lot.of types of exempt recipients you.wouldn't have to report like.corporations and state and government.entities and things like that on 1040.2's reporting exempt recipients making a.payment to an exempt foreign recipient.does not get you out of 1042 s reporting.so foreign corporations foreign.government entities and even.international organizations like the.United Nations.are all reportable I'm not exam is.conceptions about what things like.international organizations are.and then you know obviously corporations.are subject to withholding tax when.you're making payments offshore so there.are a lot of reasons why they do want.all those payee types reported on forms.10:42 us there is also no de minimis.threshold for reporting on forms 1040 to.us unless we're talking about bank.deposit interest so bank deposit.interest is is kind of a weird outlier.for a lot of this I know Aaron touched.on it before about you know you report.in individual payees if they are.residents of specific countries but bank.deposit reporting does have that $10 de.minimis amount that if you pay less than.$10 to an individual you wouldn't issue.them a form 1040 to us but for.everything else forms 1040 to s are.issued upon the first dollar paid so.this can be quite burdensome for fund.clients who have you know a significant.payment but they're distributing it to a.lot of a lot of foreign investors but.that's the rule so the first dollar that.you pay does get make its way to a form.1042 s all right so next polling.question I'll turn it over to Emily for.that thank you our next polling question.how many forms 1042 s is your company.issue each year your options are 1 to 5.5 to 10 10 or more or I don't know and.as a reminder if you would like to.receive CPE credit for today's webcast.you will need to respond to at least.three of the four polling questions we.are on our second question I'll give.everybody a few more seconds and let's.take a look at their results still back.to you all right thanks Emily really.similar to the results of the making.payments of adapt income question funny.enough so that's it that's kind of good.and that it aligns with if you're making.payments it looks like you're probably.reporting them all right moving on for.the standard required data elements for.forms 1040 to us so there is.lots of data elements on that form and.there are different scenarios in which.you would be required to complete.different ones but as a standard when.you're filing a form 1040 to us you.would always include an income code to.let the IRS know what type of income.you're paying you're reporting the gross.income paid so this is the total amount.that was owed prior to withholding so if.you owed somebody $100 but you only paid.72 that person because you put $30 into.the IRS withholding account you would.still report $100 as the income paid.you'll need a chapter 3 chapter 4.indicator we'll talk about that more.detail you'll be required to enter in a.tax rate for both chapter 3 and chapter.4 you'll need an exemption code for.chapter 3 and chapter 4 and we'll talk.about that a bit more but you know in.general where you have a zero percent.withholding rate you do need to.substantiate that with an exemption code.otherwise the exemption code would be.zero zero so tax withheld important.field this form is a receipt for the tax.that has been withheld from that filer.they can use this form to file a US tax.return and potentially make a reclaim of.any tax withheld so that's really.critical you'll want to put the.recipients identifying information.including name address u.s. or four and.ten if they have provided one and the.data first if you're making a payment to.an individual a recipients country of.residence and country code and then the.recipients chapter 3 and chapter 4.status code you'll also need to include.the withholding agents information so.name address tin country code a gin if.that's applicable and then a withholding.agent chapter 3 in chapter 4 code so.moving on to more detail on income codes.so the form 1040 to us is specific to.income type so if you are making a.payment of dividends and interest to a.single investor you would ask you to.form 1040 2's so you know kind of the.most traditional codes that we.you have have used over the years for.investment payments as you know.portfolio interest of zero one dividends.paid by a u.s. corporation have.traditionally been a zero six in the.form 1099 series you see you know the.misc be the div the end you don't have.those forms 1042 s everything goes on to.the single form which is why the coding.can get complicated another thing that.makes it makes the coding quite.complicated is that the IRS often times.shuffles those codes around so there's.codes that we've used for years and.years for a certain type of income and.then it'll change to something different.and each year we try to lobby against.that saying you know there's there's 99.options here and they're not all used so.where you need to use new income codes.maybe just use one that wasn't something.different last year but we've not been.successful in that effort so.particularly where you're coding your.systems to identify income types and.using those for 10:42 us reporting be.really careful about how you're doing.that and that it's reviewed annually.when the instructions come out new codes.for 2018 and this is really critical and.it kind of is going to inform us a bit.about the the new foreign US or foreign.ten requirement so interest in dividend.codes have been added for interest in.dividends that are paid on actively.traded securities what's the difference.between you know interest and dividends.that are not paid on actively traded.securities is that where you have these.in these income types that are paid on.actively traded securities you don't you.are not required to have a u.s. or four.in ten in order to substantiate that.treaty if you are reporting recipie our.dividend income as a zero six code.that's telling the IRS this is not.actively traded income so reporting that.without a US or foreign ten wouldn't.allow for a reduced rate of withholding.so where you are making payments have.actively traded interest or dividends.the.very careful to use the codes 51 or 52.there's a lot of new requirements that.have come through on the forms w8 and.kind of the way that this works is.generally there's a you'll find a new.data element on the forms w8 that you're.required to collect from your foreign.payees and that field eventually makes.its way onto the form 1040 2's initially.it's not a required field on the 1040.2's because they are making an exception.for the fact that your forms w8 will.expire in three years and then you'll.have to get a new one and then you'll.have to follow the new instructions that.have been issued that requires that data.element but just be really careful about.this because as you see additional data.elements that arise on the forms w 8.bann + w 8 then e you'll need to you'll.need to identify how to capture and.validate those because eventually they.will they're very likely to make their.way onto the 1040 2's as a requirement.another field that we will look at as a.chapter indicator an exemption code so.these can be confusing the chapter.indicator will identify whether an.amount was withheld under chapter 3 or.chapter 4 and basically the rule for.this is if you have applied FATCA.withholding that's going to be.demonstrated in box for be as 30% then.then you put a 4 in that box of chapter.indicator everything else is a chapter.is a 3 so if you made a payment you.didn't withhold anything that's a 3 if.you made a payment and it wasn't a FATCA.payment and you would held under chapter.3 of essence rate if you made a payment.that that wasn't scope of FATCA but they.were documented for FATCA and so you.didn't withhold under FATCA that's a 3-2.so essentially only if you have a FATCA.withholding applied will you put a 4 in.that box the validations of forms ow8.instructions to the 1040 2's provide the.required codes for exemption codes.and the exemption code rule is pretty.straightforward in that if you have a.tax rate that is zero.you will need a corresponding exemption.code so if you have reduced the tax rate.to zero because of a treaty it's you.know the exemption code is zero for for.chapter 3 if you have reduced the.chapter 3 tax rate for treaty but it.doesn't go all the way down to zero so.say you're withholding on dividends at.fifteen percent your exemption code is.still zero zero so either where you look.at boxes 3 a 3 B 4 a 4 B one of those is.going to be zero on each side so either.exemption code zero zero and you have a.tax rate greater than zero or you have a.tax rate of zero zero and you are.required to put in an exam and an.exemption code so that can be a little.bit confusing but in general one of.those is going to be zero all right some.new data elements that we've seen.popping up on the forms 1040 2's unique.file or ID was on there as of 2017 and.what that is is a 10 digit numeric it.shouldn't be the account number it.shouldn't be a taxpayer ID number it.should just be a unique form identifier.that will identify that form not that.payee not that income type just that.specific form so if you've got a payee.that you know receives dividends and.interest or issuing them two forms 1040.2's you need two different unique form.identifiers and the only thing the IRS.is using this for is to be able to track.amendments so when you issue a form and.you're going in to amend it it wants to.connect the amendment with the original.filing and that's the only reason for.this unique form ID and in most.reporting systems will just.automatically fill that in for you and.randomly generate one for you and I.recommend using that mechanism so if you.are issuing original form 10 digit.numeric if you're amending that original.form that same 10 digit numeric plus the.amendment box plus number 1 in the.amendment.and so on just increasing the amendment.number each time you have to amend it.[Music].the next thing we can talk about that's.required for 2018 in most circumstances.is payees documented with forms w8 Ben.II in the 2016 or 2017 revision date.with the treaty claim will need to.provide an lob provision code in box 13.J so let's take a look at what that is.it is conceivable that you will not you.will have treaty benefits provided that.are listed on the form 1040 2's without.an lob code for the year 2018 because.you may still have some 2015 forms wfn.ii that are still valid and that's what.you're reporting but starting next year.any of those 2015 forms will be expired.your payees will all if we've done it.correctly be documented on a 2016 or.2017 version of the form and in order.for a treaty benefit to be valid they.will have had to fill out this.limitations of benefits box so this year.you have a pass if you have some of.these without LOV codes but but it may.be a good project to as your docking.those investors to make sure you're.collecting these lob codes and storing.those for 1042 s reporting purposes.essentially the box that they check off.and not 14 B will correspond with a code.on the instructions.I don't expect these to change over the.years but always keep an eye out for.that and that code gets listed in box 13.J so this is for entities that have.received a treaty benefit on that on.that tax form alright a few common.errors if a reduced rate of withholding.is provided a 10 hour u.s. Center for.and 10 should be on that 1042 S unless.it is actively traded dividends or.interest and if so you must use those.income codes 51 or 52 a recipients.country of residence if that treaty.has been granted should be a tax treaty.country so if you're using exemption.code 0 for or even using exemption code.0 0 but I have a 15% rate on dividends.it would be a really good idea to make.sure that that recipient has a a treaty.country listed as their country of tax.residents if you're using exemption code.0 1 this means they've made a claim that.the income is effectively connected with.their US trade or business they've given.you a form w8e CI which would not be.valid without a u.s. 10 you've got to.include that u.s. 10 on the form tax.rate the formula for tax rate is growth.income times the tax rate should equal.the tax withheld this isn't always the.case whereas sometimes there's over.withholding applied that you wouldn't.have been able to return to the payee so.that you need to make sure that the.correct amount of tax withheld is.demonstrated on the form because it is.their receipt for reclaiming tax and the.tax rate should always be demonstrated.as a four-digit code so you know zero.zero point zero zero 15.00 30.00 etc and.it should be one of the the rates listed.in the valid tax rate table in the 1040.2s instructions so you wouldn't if you.would have you over withheld you.wouldn't listed a straight as like 34.percent that is not a valid entry and if.you're a filing that would get rejected.all right and I'm turning it over to.Erin for to talk about the 1042.mechanics thanks Jill.so now that we've gone through the.actual form 1040 to us we're going to.look at this form 1040 2 and what the.1042 is is really the tax return that's.a summary of all those payments you've.made the better sub you know that are.classified under chapter 3 or chapter 4.and then withholding tax liability if.there is any so it's really that annual.snapshot whereas the 1040 to S is that.specific payment and that specific payee.looking at the actual form the first.page is really going to be a record of.all of the withholdings that were due.throughout the year so if you look at it.you know it breaks down January through.December into quarterly periods and you.will have to then list that withholding.that was due depending on the type of.payment that was made and you know one.thing to note that was holding is due at.the time of payment this is on a cash.basis so you know if you make that.payment on January 5th.you got to list that corresponding.withholding if there is any on that.January 7th date you need to make sure.it's deposited within the timeframes.prescribed which is going to vary.depending on the size of the payment and.you know at the end as we go through.this form you're going to see how that.all is listed out in summary so what the.IRS does is that they take this.withholding schedule and the deposits.and they reconcile that with the 1040 to.account and one common mistake we see.with a lot of our clients is every year.there is a different ton for you to.account so it's per year so 2017 1040 to.account 2018 1040 to account and that.can get a bit confusing and so we have.clients that for 2018 actually deposited.all of the was holding that let's do for.2018 in their 2017 1040 to account so.one thing that we always recommend is.getting your account transcript prior to.completing this form 1042 because it's.going to highlight a couple issues it's.going to highlight did I actually.deposit the withholding into the correct.1040 to account did I actually deposit.the correct amount of withholding and.that's going to help you with the.reconciliation and how to complete this.form 1040 - you basically want to do.everything that the IRS is going to do.behind the scenes reconciling upfront so.you're not surprised by any.discrepancies - moving on to the next.part of the form this is where we get.into all of the the some of the actual.withholding done for the entire.and the actual payments made to the IRS.for that withholding and the payments.deposited so it's just a reconciliation.to make sure I owed this much for.withholding this was my you know.withholding liability and these are the.funds I deposited sometimes there can be.a deficient deficiency so you would.enter you know the balance due or.sometimes you pay too much and you.didn't actually owe that much to the IRS.and so that's where you're going to.claim the over withholding and you can.either get that as a credit which rolls.forward to the next year or you can get.it refunded now with the rise of FATCA.the form 1040 too used to be one page.and then came FATCA so this whole notion.of chapter 3 versus chapter 4 and when.we talk about fact over talking about.payments made under chapter 4 and.whether or not they're subject to FICA.in general you know they're financial.payments but now there's a whole new.section just on classifying whether or.not those payments and the withholding.was due under chapter 4 so this is what.section 2 is really aiming to identify.all of the chapter 4 liabilities Emily.we have another polling question okay.our third polling question if your.company makes a payment for a contractor.that performs work in the UK is that.reportable and your options are yes no.or I don't know and for those of you.that would like a copy of today's slide.deck you can download them from the.folder that says slide deck and handouts.to the right of the slide view we will.also be sending slides via email after.the webcast I don't give everybody a few.more moments to make a selection and.let's take a look at their results Erin.back to you.alright thanks Emily so if a company is.making a payment for a contractor that.performs work only is the in the UK is.that reportable for all those answered.no it is not reportable you are correct.so.this goes to that second question in my.two prong questions that one this is fit.up so you're paying for services.personal services by a contractor but my.second question was where is it being.performed in this case it's being.performed outside of the United States.specifically in the United Kingdom.therefore it's not us source so it that.payment kind of fails that second prong.so it's not subject to reporting or.withholding for 1042 us purposes moving.on I'm going to turn it back to Jenn.Jenn Jill and we're going to look at the.four and ten and date of birth.requirements thanks Erin so for intended.date of birth have been something that.the IRS has focused on in the past few.years for the purpose of data sharing.with other countries that we have.information sharing information exchange.treaties with so really critical for in.order to perform jurisdictions to be.able to identify their residents who are.making income in the US so there's been.a lot has been a lot of back and forth.on these roles and in extensions and.things like that so we thought that.these warranted their own section so.first of all when are you required to.list eight recipients F 10 on the form.1040 to F because the IRS thinks that.the greatest risk of tax evasion occurs.with financial payments that's really.where a lot of this is focused so if.you're a US financial institution and.the IRS will would know that you're a US.financial institution if you have.assigned yourself withholding Asian a.chapter 3 code of zero one and you're.reporting a financial payment interest.dividend things like that to a foreign.entity or individual whose account was.opened January 1st of 2018 forward then.you have to include the foreign ten.there's a few exceptions that apply for.residents of certain jurisdictions but.that's that's the rule and in here you.have another scenario where you can kind.of squeak by something in 2018 for your.reporting but after but in 2019.you'll there's there's really not going.to be any relief so so for your newer.accounts if you're a financial.institution you will have been required.to collect that foreign ten for any.accounts open starting January of last.year now if you have older accounts that.you didn't ever collect at in from now.the IRS is giving you through this year.to collect that tin and it better be.included on your 2019 form 1040 to F.exceptions for this are for indirect.account holders so when you're making a.payment to a foreign partnership or.trust and you collect the form w8 I my.from that foreign partnership or trust.and then you have the underlying.recipient the ten is not required for.that underlying rate or the foreign ten.is not required for that underlying.recipient and they will know that it is.an underlying recipient because of what.is the information that's reported in.box 15 in the 1040 2s and then residents.of certain jurisdictions who don't issue.tins or don't require 10 so the IRS has.talked to a bunch of different.jurisdictions and they are comfortable.with the fact that residents of the.cayman islands British Virgin Islands.Australia and Bermuda do not require.tents so other than that you would have.to get you know a specific statement.from that investor but at the end of the.day not reporting an F 10 on a 1040 to s.starting next year would be done at your.own peril if you are a u.s. financial.institution reporting financial payments.the second issue we're discussing is the.recipients date of birth now this is a.little bit easier because presumably all.of the individuals should have one right.it's not like an F 10 where some will.and some won't if you're a US financial.institution once again and you're.reporting a financial payment to a.foreign individual whose account was.opened just last year you were required.to have collected the date of birth for.them and now you're required to include.it on your form 1040 to S however if.this is an older account and you'll have.through this year to collect it and then.you'll need to put it on the form 1040.to us in 2019 there is the exception.here for your indirect.accountholders so when you you do not.have your direct account holder you have.you open an account for a partnership.and these are the underlying owners you.would not need to be required to collect.this so if if you have not been.capturing these hopefully you know if.you are a financial institution you.would have it in your perhaps AML kyc.documentation you do need to be.capturing and storing those for.reporting purposes.all right another polling question take.it over to Emily all right thank you.and our last polling question you have.to file a Form 1040 to s if there was no.withholding but a payment of US sports.sedap was paid your options are yes no.and I don't know once you have completed.all CPE requirements today you will be.able to download a PDF of your CPE.certificate from the CPE progress widget.to the right of the slide view give.everybody a few more seconds here now.let's go ahead and take a look at the.results go back to you great okay thank.you for this I did see a few questions.on this as well do you have to file a.Form 1040 to us if there's no.withholding but a payment of u.s. source.fadap was made yes you do even if.there's zero withholding you have to.file the form 1040 to us and if you file.a form 1040 to us even if there was no.withholding reflected you still have to.file the 1040 two tax return to report.that there was no withholding there were.payments made but they were no.withholding so so yes when there's no.withholding 1040 to us reporting is.required 1042 reporting is required as.well and then I will we're going to.start the case studies to talk over a.few scenarios and let Erin tick that off.with foreign independent contractors.thanks Jill so we try to pick four of.the most common scenarios that we see.and the first I get this question almost.every day at least once a week is.payments made to.independent contractors so a US company.hires two new contractors in 2018.contractor one lives and works in.Ireland he never travels to the u.s..office contractor two lives in works in.Ireland but he comes to the u.s. office.quarterly so what is your 10 42 s.reporting obligation first contractor.one is living and working only in.Ireland so foreign source no withholding.or reporting obligation for that number.one contractor now assuming contractor.two has been properly documented on a.form 8233 so the 8233 is going to be.what's required to reduce withholding.when you're paying foreign individual.contractors so you collect that form.8233.and the appropriate treaty claim has.been made you won't have a withholding.obligation but you must file that form.1040 to us for the income paid to this.contractor number two for those services.provided in the US if contractor 2 is.not able to provide you with that form.8233 filling it out properly you know to.the required elements are going to be.that treaty claim and also the inclusion.of the US taxpayer ID just keep in mind.that you should be collecting the w8.been instead and withholding at a rate.of 30 percent now this is in the context.of paying a non-us individual stay your.contractor was actually being paid.through a corporate entity the.documentation would be different the.treaty claim would be different and you.know you're reporting codes would be a.little bit different but hopefully this.gives kind of a high-level concept of.how to analyze the reporting to.independent contractors.Angele and they turn it over to you for.board of director payments all right as.Erin mentioned earlier Bordeaux director.payments are generally outside of the.treaty and there's exemptions in each of.the treaties for director payments so in.this scenario we've got us tech co they.have a new director who's a resident of.Australia they collect and validate the.form w8 Bend and it even has the treaty.section completed they make a payment on.June 1st and the amount of $500,000 they.don't take out any withholding taxes.should they have do they have to report.on a form 1040 to us.so the first you know we have a we have.a character answer this is services but.we're looking for the sourcing answer.here so where were those meetings that.he was compensated for held were they.within the US or outside of the US so in.this scenario we have a tech tow they.they have had five meetings that he was.paid $500,000 for attending those five.meetings but four of them were outside.of the US and one of them was within the.u.s. so they would they have a 30.percent withholding obligation on that.portion of the payment that was us.source it's great that they have that.Bend because they have certified his.foreign status but any treaty.information completed on that then is.not valid or would be would reduce the.withholding on this payment so they've.got the 30 percent withholding on the.hundred thousand dollars they've got to.remit that to the IRS.they're going to file a Form 1040 to us.evidencing the payment of a hundred.thousand well as withholding of 30 and.then put that on their 1042 as well all.right moving over to Erin's favorite.topic fund David thanks Jill so I work.with a lot of funds so I always find.that it's helpful to run through.different scenarios because a lot of.times that LPS and the GPS have.completely different tax characteristics.so in this ABC partnership has three.limited partners Kelly Smith a u.s..individual Ryan Tang is a Canadian.individual and then they have Albert LLC.a Cayman Islands Corporation the.partnership is paying out.u.s. source dividend what are going to.be the withholding and reporting.implications first for Kelly Smith this.is a u.s. individual so you don't have.1042 s reporting obligations obviously.you're going to be it's going to be more.to a k1 reporting issue ryan ting the.partnership is going to make me to make.sure that they have you know a properly.filled lw8 been and if it has a treaty.claim for a dividend the withholding.would be reduced to 15% if it doesn't.have a treaty claim then it would be 30%.or if it's not valid it would genuinely.be 30% and then the 1042 s is going to.be required in addition to the k1 so.there's multiple layers of reporting in.this case and then turning to our.corporate LP scenario that Albert LLC.will need to ensure that we have that w8.bene on file to certify the foreign.status you know there's no K min us.treaty so we can't get the withholding.down past 30 percent in this case.unfortunately so 30 percent withholding.will apply and then you're going to have.that corresponding 1042 s reporting.obligation as well as your k1 reporting.obligation all right moving on I know.we're running out of time to bake.deposit interest all right and bank.deposit interest is my favorite topic.that works out okay so bank deposit into.our the u.s. banks open opens to foreign.accounts in 2018 account number one is.held by Marla maven and she's a British.tax resident account number two is held.by Jim Smith and he lives in Fiji the.bank collects and validates forms w8 Ben.from each account holder well done bank.does the US bank have a 1040 to us.reporting obligation for the bank.deposit interest paid so the first page.is a place at u.s. bank would look would.be to the balance at the end of the year.on what they've been paid for bank.deposit interest it's over $10 then.they're going to look to revenue.procedure 2018 - 36 for this year's full.list of countries that require bank.deposit interest reporting on that list.they will find the UK they will not find.Fiji so they're going to issue a 1040 to.us tomorrow maven you.the income code 29 bank deposit interest.and they will not report Jim Smith on.the form 1040 2's regardless of how much.he made in bank deposit interest for the.year 2018 and just a side note on bank.deposit interest before we move to.penalties is that it this is us this is.a FATCA payment as well as in scope for.FATCA so if you're making payments of.bank deposit interest to non individuals.to entity accounts then you do have to.collect that bene with effect.certification in order to do not have.that payment be subject to facto.withholding all right moving on Aaron.your go at penalties all right so why do.you care about everything that we're.saying it's typically because of the.penalties that you could potentially.face so every year the IRS has had a.steady increase for these information.returns I remember with similar to 1099.1040 to us when you have a situation.where you have a recipient copy and the.IRS copy penalties are assessed.individually so effectively they are.doubled so if we look at this next.schedule you think well $50 per.occurrence isn't that bad but that's.really being doubled because you have.your payee your recipient copy and your.IRS copy and they can go all the way up.to 270 which can get extremely expensive.so a lot of times when people are.assessing you know what's the liability.of not complying you know we look at two.things just take 30% off the top of all.those payments and that could be your.potential liability for an IRS audit and.then add in all of these penalties for.non filing and late deposit or no.deposit all right so we have about five.minutes for questions so I will turn it.back to you Emily all right thank you we.do have a lot of questions in the queue.here we'll try to get to as many as we.can with the time we have left first.question can you explain a bit more read.the annual software license renewal for.software used in the US for a UK company.the software.hardest thing outside a financial.institution reporting software is really.difficult it's off a purchase of.software can be a good it can be a.service it could be a royalty depending.on the characteristics.there's also pre wrapped software rules.that you know would lean towards it.being good so essentially you have to.look at you know how you're using this.and you know what you're actually.getting out of it and then go with the.sourcing rules for you know whether it's.a service or royalty so if it's.something this is a pretty detailed.detailed question so we're happy to talk.more about it but it's probably there's.a lot more detail than we can be covered.in the four minutes we have left all.right thank you.next question for corporations are ten.42s audited as a part of the 1120 audit.or are they separately connected audits.outside of the 1120 audit if separate.will they audit one legal entity at a.time or will they audit all legal.entities under common ownership but that.it used to be recently in the last maybe.five years or so they were including it.as part of the 1120 on it but the IRS.has recently in the past year created.regional audit teams specific for for.audits of forms 1042 what was happening.was the 1120 auditors were really good.at auditing 1120s.and then they'd get to kind of the end.of the audit and they maybe it issued a.1040 IDR but they weren't that.comfortable with the content so they.would just not get to it so now that the.audit has the IRS has created regional.audit teams we have seen more audits.going on in the west coast in the in the.past year or so so these people are.really good at auditing forms 1042 they.know what to do and it would be it's a.good time to make sure you're getting.into compliance if you are nervous that.you haven't been in the past thank you.probably have time for one more here.what's the difference between when the.form 8233 should be used for.is the form w8 BEM so for this one this.goes to who you are paying so if you are.paying a foreign individual for personal.services performed about 8233 is.required and you typically get that when.they are resident in a treaty country so.that will give them the basis to reduce.the withholding in the independent.contractor situation say that.independent contractor an individual.doesn't reside in a treaty country well.then you would only need to collect the.w8 been to certify that they're foreign.because you can't reduce withholding.it's all about your paying an individual.who resides in a treaty country and of.course you want to try and get that.withholding or they would want to try.and get that withholding down as much as.possible otherwise you know they're.simply receiving less income thank you.and that is about all we have time for.today if you had a question that we.didn't get to we will follow up with you.after the webcast or you can reach out.directly to Aaron or tails and Thank You.Aaron and Jill for a great presentation.today as a reminder if you attended.today's presentation in a group and.would like to receive CPE credit you.must complete the group attendance.sheets found in these slide deck and.Hannah's icon to the right of the slide.view if you participated as an.individual and met all certification.requirements your certificate is.available to download now in the cpe.progress window also to the right to.slide view I'll keep the webcast console.open for a few minutes to give you time.to download your CPE certificate a copy.will be emailed within two weeks should.you have any difficulty downloading it.now and here is a link to an online.survey where you can provide feedback.for today's presentation please take a.moment to complete this survey as your.feedback is very important to us thank.you for joining us today and we hope.you'll join us again next time.

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1042 S 2018 Form FAQs

Here are the answers to some common problems regarding 1042 S 2018 Form . Let us know if you have any other problems.

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How do I fill out the IIFT 2018 application form?

The IIFT application form process is in online mode only while to make the payment, candidates can opt for the online as well as offline mode. The end date to submit the IIFT application form has also been extended till September 15, 2017. Check the steps to register for IIFT Application Form 2018 .

How do I fill out the CAT 2018 application form?

There is a detailed instruction on how to fill up the form on the CAT website. Both written and a video format. The instructions are easy to follow. If you still find it difficult talk to a faculty if you are taking coaching in any institute or anyone known to you who has already filled the form.

Is it advantageous to fill out the JEE Mains 2018 form as soon as possible?

There shouldn't be hurry but never be too late either , fill in time . No question of advantage or disadvantage ; fill properly & carefully so that no mistake occurs .

Where do I report income from 1042 s?

Simple answer, nowhere. A 1042 S is intended to report investment income from US sources to noncitizen, non tax residents. A 1040 is a tax form for US Nationals and Tax Residents. The form you are looking for is a 1040-NR. But if your only US income is from investing there is no need to file the form. Your tax is going to equal your withholding.

Where does 1042 S go on 1040?

Simple answer, nowhere. A 1042 S is intended to report investment income from US sources to noncitizen, non tax residents. A 1040 is a tax form for US Nationals and Tax Residents. The form you are looking for is a 1040-NR. But if your only US income is from investing there is no need to file the form. Your tax is going to equal your withholding.

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