How to Evaluate Your Provider’s Electronic 1042 Filing Readiness

This blog was last updated on February 28, 2024

Changes announced: Click here for the most up to date Form 1042 information.

With the IRS changing the filing requirements for Form 1042 to be electronic, businesses must ensure that they are working with a provider that is properly prepared for those updates. Here are key things to keep in mind when evaluating your provider’s electronic 1042 filing readiness.

Verify your provider is an Approved IRS Modernized e-File Vendor

For a provider to be able to submit your organization’s 1042 information electronically, it must go through rigorous testing with the IRS to become approved as an IRS Modernized e-File (MeF) business provider. This approval process shows that the IRS has vetted the vendor’s people and systems to ensure they are providing compliant solutions and services. If the IRS has not provided a list of approved providers for the upcoming tax year, it is recommended to go with a vendor that has previously been approved. This shows that the vendor has an established track record, has experience navigating the approval process and has system outputs already built and previously tested to ensure compliance.

Align on electronic reporting requirements

Simply selecting any vendor could introduce your organization to unwanted penalties or audits downstream if they have different interpretations of the new 1042 electronic filing requirements. Below are some suggested topics to bring up with your future provider, or verify on their website, to make sure you are both aligned on how your filings will be processed:

1. Confirm they are filing 1042 returns through the IRS MeF system
   Because the IRS and the Treasury buried this new filing requirement into TD 9972 it has been challenging for businesses and vendors to get on the same page regarding the electronic filing requirement. Ensure your vendor understands the 1042 filing return is to be filed electronically and that they have taken the proper steps to get registered with the IRS MeF System as an approved filer.
2. Understand how they are handling Line 67’s Claim Credit
   If you are filing Line 67 on Form 1042, then it’s important to verify a couple items. First, you’ll want to understand if they will support Line 67 or the ability to upload 1042-S forms to your 1042 filing. If they can support this, it’s also important to understand if they support filing six-month extensions (Form 7004) and/or if they’ll honor the six-month extension when filing 1042 filing returns in the month of September instead of March.
3. Confirm if they require and retain Form 8879, IRS E-File Signature Authorization
   If a vendor is reporting on your organization’s behalf, they need to get your consent to electronically sign and file on your company’s behalf. To do this, most organizations will capture that electronically within a product – or they will require your organization to provide a completed Form 8879 providing them access to file. Without either of these two authorizations in place, the provider should not be electronic filing on your company’s behalf.

Understand their end-to-end process

Understanding the end-to-end process is important so you are aligned on what to expect from the provider, but also to ensure you are getting the information you need to protect your organization from penalty or audit situations. With Form 1042 being a Tier 1 audit item for the IRS, it is considered an enforcement priority. As most audits go, if the IRS finds that you were non-compliant with your 1042 filing returns, they will continue to poke around your business to find additional areas of non-compliance on which they can assess hefty penalties. Some questions you can ask your provider to ensure your company is protected in the event of penalties or audits include:

1. Will your provider give you submission receipts showing that your file has been uploaded to the IRS MeF system and an acknowledgement file with status record indicating accepted or rejected?
2. Will your provider have access to a complete audit trail that documents when and where changes were made, who made them and what changed?
3. If you need to make adjustments to your filing return, will the vendor support amendments?