Form 1042-s Project – Incorrect Reporting – Due Diligence

Chief Counsel Memorandum 201615012 (https://www.irs.gov/pub/irs-wd/201615012.pdf)  provides guidance on whether penalties can be assessed for providing an invalid taxpayer identification number on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, when discover on audit. 

New in 2015, name and EIN of primary withholding agent is required. Withholding agents that report amounts withheld by another withholding agent are to report that in box 8. Form 1042-S also requires reporting of the name and EIN of the withholding agent that withheld the tax in boxes 14a and 14b. This information was optional for 2014, but is required for amounts paid in 2015 and subsequent years.

The memorandum emphasizes that penalties should be asserted based on the facts and circumstances of each individual case as well, as if the withholding agent had knowledge of whether the TIN was invalid.  When appropriate IRC § 6721 penalties may be assessed. 

In cases like this, evidence of due diligence generally would be a defense resulting in penalty abatement.

Due Diligence - Use Form W-9 or similar Form to obtain TIN information on penalties of perjury.