The Internal Revenue Service (IRS) has recently released new versions of three critical forms to help financial institutions and withholding agents meet the requirements of the Foreign Account Tax Compliance Act, including draft versions of the Form 8966 and Form 1042-S, and a final version of Form 1042. All three forms are posted to the IRS’s website www.IRS.gov.
FATCA Report (Form 8966)
Form 8966 is a new form that foreign financial institutions (FFIs) would use to report information on their U.S. account holders under the 2010 law. The statute requires FFIs to report accounts held by U.S. taxpayers to the IRS or face, in some cases, a 30% withholding tax on certain U.S. source payments that are made to them.
Updates to the Foreign Person’s U.S. Source Income Subject to Withholding Form (Form 1042-S)
Form 1042-S, is used to indicate that a foreign person has received U.S. source income, how the payments were made and what tax was withheld. Revised draft Form 1042-S now incorporates FATCA and includes ways to account for withholding under Chapter 4 of the Internal Revenue Code (“IRC” or the “code”). In one specific update to the new draft, the IRS added a space for a payer’s Global Intermediary Identification Number in situations where the payer and the withholding agent aren’t the same.
Annual Withholding Tax Return for U.S. Source Income of Foreign Persons Finalized (Form 1042)
Form 1042, is essentially a withholding agent’s tax return. Form 1042 summarizes the payments made by withholding agents and the taxes they withheld, and is intended to show that they withheld the right amount and paid deposits on time. The final version of Form 1042 contains some slight modifications to include couple new line. The final version form 1042 continues to include a new section released in the most recent draft that deals with reconciling U.S. source payments indicates the importance for the numbers on Form 1042 and Form 1042-S to agree.
Brand-New Form 8966 & User Guide for Schema
Form 8966 requires FFI filers to provide information to identify the filer, account holder or payee information, and identifying information of U.S. owners that are specified U.S. persons. Form 8966 includes direct-reporting nonfinancial foreign entities. To date, the Federal Register has yet to release a version of the guidance for the brand-new Form 8966.
User Guide for Schema – Also during the first week of March 2014, the IRS issued a new technical user guide for a FATCA schema that describes how to prepare an electronic filing of Form 8966 data. The Intergovernmental FATCA Schema Version 1.1 User Guide explains the information required to be included in each data element of the FATCA XML Schema v1.0. According to the guide, it is divided into logical sections based on the schema and provides information on specific data elements and any attributes that describe that data element.
If you believe you may need to file any of these forms, you should talk to an international tax specialist to discuss your international tax needs.