US fund advisors who must provide their foreign investors with a Form 1042-S may find the task more arduous after the Internal Revenue Service (IRS) rewrote the form to accommodate changes required by the Foreign Accounts Tax Compliance Act (FATCA).
Only three questions (1, 2 and 7) remain unchanged on the updated Form 1042-S – a tax document provided to foreigners who earn income in the US. All 27 other questions were altered, and a further 21 questions were added.
“New requirements to collect and report more data than ever before on activity by nonresidents will mean both more volume of 1042-S reporting and more complexity as well,” said Jeff Cronin, vice president of product strategy for Convey Compliance Systems.
The new required information includes payment recipient's account number, date of birth, foreign taxpayer identification number, payments subject to Chapter 4 (FATCA requirements) and tax assumed by withholding agent.
FATCA, passed in 2010 to clamp down on tax avoidance, requires GPs to submit tax information on their LPs or face a punitive 30 percent withholding tax on income travelling outside the US. The law is scheduled to come in effect this July.
The new Form 1042-S can be found by clicking HERE.
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