Form 1042 Compliance and Audit Strategies

Navigating Rules on Withholding on U.S.-Source Income for Foreign Persons

Recording of a 110-minute CPE webinar with Q&A


Conducted on Wednesday, July 20, 2011

Recorded event now available

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Program Materials

This teleconference will prepare advisors to U.S. corporations to evaluate potential Form 1042 withholding and filing responsibilities, avoid late-filing or non-filing penalties, and get ready for rigorous IRS Tier 1-level audits.

Description

Since the IRS made withholding tax compliance a Tier 1 audit issue, U.S. taxpayers making cross-border payments have faced tougher scrutiny of Form 1042 (as well as forms 1042-S and 1042-T) compliance. Companies are fielding an increasing number of IDRs on Form 1042-related FDAP income.

Most often, Form 1042 filing and withholding at a 30% rate are required for scenarios involving a controlled foreign corporation (CFC) and royalty, interest and other payments; or compensation for personal services performed by a foreign individual. Numerous withholding exemptions apply.

Due to the IRS raising the stakes for proper withholding on FDAP payments to non-resident entities and the complexity of this area of the Internal Revenue Code, corporations and advisors must continue to familiarize themselves with 1042 requirements and learn from auditors' information demands.

Listen as our panel of experienced federal tax advisors prepares you to evaluate whether Form 1042 and withholding is required, fine-tune your company's 1042 and W-8 compliance, and offer lessons from experience with demands of rigorous IRS exams.

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Outline

  1. When withholding and forms 1042, 1042-S and 1042-T are required
    1. Certain FDAP payments to non-resident individuals, foreign corporations, foreign partnerships, certain foreign fiduciaries/estates/trusts.
      1. Examples: Interest, dividends, rent, salaries, premiums, annuities, compensation
      2. When foreign beneficial owner of OID sells or exchanges the information
      3. U.S. person who is shareholder of a CFC must withhold on payments to CFC
      4. Situations with foreign hedge funds
    2. Exemptions from withholding
  2. Evolution of IRS enforcement in Form 1042 area
    1. December 2008 designation of withholding tax as Tier 1 issue
    2. Recent sending of IDRs or other informal requests related to Form 1042 to U.S. taxpayers
      1. Concerning proper classification of payments subject to withholding, proper classification of income-sourcing, proper validation of documentation of non-U.S. persons
      2. Potential more-specific issues
        1. Hybrid instruments
        2. Foreign tax credits
        3. Gain recognition agreements
        4. Dual consolidated losses
        5. Transfer pricing

Benefits

The panel will examine these and other relevant topics:

  • Evaluating the need to withhold: Which payments to related parties trigger withholding obligations and which don't, under the IRC?
  • Sharpening compliance: Are your Form 1042s and W-8s being completed correctly? Are W-8s being issued to only qualifying foreign entities and individuals?
  • Preparing for IRS audits: What aspects of FDAP payments are most vulnerable to the Service's more critical exams, according to recent experience? What level of documentation is being required?

Following the speaker presentations, you'll have an opportunity to get answers to your specific questions during the interactive Q&A.

Faculty

Adam Konrad
Adam Konrad

Reinhart Boerner Van Deuren

Mr. Konrad is a member of Reinhart's Business Law, International and Tax Practices. He advises foreign and...  |  Read More

Cynthia Hoffman
Cynthia Hoffman
Director of International Tax Advisory Services
Schneider Downs & Co.

She specializes in tax planning for international business expansions and has more than 25 years of experience in tax...  |  Read More

Laurie Hatten-Boyd
Laurie Hatten-Boyd
Principal, Information Reporting Practice
KPMG

She specializes in cross-border withholding and reporting issues. Before coming to the firm, she was an...  |  Read More

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