Explain IRS Form 1042-S

IRS Form 1042-S is an information return that serves as a record of income payments made to foreign persons within the United States. Here's a breakdown of the form and its significance: 1. **Purpose**: Form 1042-S reports payments and amounts withheld under the provisions commonly known as FATCA (Foreign Account Tax Compliance Act) or chapter 4 of the Internal Revenue Code (chapter 4). It also includes information related to specified federal procurement payments, distributions of effectively connected income (ECI), and certain interest payments. 2. **Who is Required to File**: Every withholding agent, which includes U.S. businesses, universities, and other organizations making payments to foreign individuals or entities, must file Form 1042-S. Additionally, foreign individuals or entities receiving certain types of income may also receive a Form 1042-S from the withholding agent. 3. **Information Reported**: The form requires reporting of the following: * Payments made to foreign persons that are subject to withholding under section 5000C (specified federal procurement payments). * Distributions of ECI by a publicly traded partnership or nominee. * Amounts realized paid on certain transfers of PTP (partnership taxable) interests. 4. **Exemptions**: The form requires reporting of applicable exemptions to the extent withholding under chapter 4 did not apply to a payment of U.S. source fixed or determinable annual or periodical (FDAP) income (including deposit interest) that is reportable on Form 1042-S. It also provides instructions for reporting payments to intermediaries, flow-through entities, and recipients. 5. **Electronic Filing**: Withholding agents are required to file electronically if there are 250 or more Forms 1042-S. Electronic filings are made using the Filing Information Returns Electronically (FIRE) System. In summary, Form 1042-S is a crucial document that helps the IRS track income payments to foreign individuals and entities, ensuring compliance with tax laws and regulations.