Why You Need to Pay Attention to Form 1042 Changes Right Now

Sovos
November 14, 2023

This blog was last updated on August 13, 2024

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

If in reading this blog you are realizing for the first time that the IRS made changes to the reporting requirements for Form 1042 by no longer accepting paper filings starting with tax year 2023 filings, you are unfortunately already considerably behind in your preparation.

Here’s why.

To electronically file Form 1042, you need access to the IRS Modernized e-File (MeF) system. This is a different system than the IRS Filing Information Returns Electronically (FIRE) system. The process for completing and submitting your application to the IRS MeF system through the IRS e-Services system is a long and arduous process. It requires, for starters, you to assign two responsible officers to own your account and process. These people must be a licensed professional in one of the following areas: attorney, bank official, CPA, EA or an officer of a publicly owned corporation. If they don’t meet one of these criteria, they will be required to go through an extensive background check, which includes a fingerprinting process.

How long does it take?

Well, it depends. It will take at least 45 days from the date of submission for your application to be reviewed and processed. After this process, you are required to test your MeF transmittal with the IRS to get final approval to file, which can take as long as it takes for your organization to build a compliant transmittal that is accepted through the IRS testing process. However, as we get closer to the deadline and organizations are beginning to realize the significance of this change, we are hearing reports of applications and testing processes taking much longer. If you’ve had to get a passport issued or renewed in the past year, you know what I’m talking about.

Can’t I just use my current provider to file for me?

You can if they have been approved by the IRS. However, seeing as only two providers have been approved to date the chances of yours being one of them is unlikely. In fact, your current provider may not even be aware of this development at this time as we still see a number of companies offering this service on their website when we know for a fact, they are not IRS approved for e-Filing.

Why is this such a big deal?

The 1042 Form has been identified by the IRS as a Tier 1 audit. Transactions involving U.S. income and non-U.S. payees have been a Tier 1 audit focus for the IRS since the Foreign Account Tax Compliance Act (FATCA) was implemented.

Per IRS guidelines, failing to file Form 1042 electronically can trigger an IRS examination/audit of all transactions involving non-U.S. payees. This passage is taken directly from the Internal Revenue Manual for IRS Auditors related to Form 1042 and Forms 1042-S audits:

An examination should verify that all payments subject to reporting and withholding are identified, withheld upon if necessary, paid to the U.S. Treasury, and that required forms are properly and timely filed with the IRS. An examiner should look at various payment streams (such as vendor payments, treasury, and custodial) to ensure that all applicable payments are captured by the reporting system used to compile Form 1042 reporting. Internal controls should also be reviewed to verify that systems and procedures were in place to meet Chapter 3 and 4 requirements. 

In simple terms, this means they are looking very closely at these filings and if they are not completed in the time and manner required it is more probable than not that an audit will be initiated. And once they are in your records, they will be extremely thorough in identifying any and all inconsistencies.

Where do I go from here?

We get it, this one kind of snuck up on a lot of filers this year. However, there is an easy solution. Sovos has already done the hard part for you and is fully tested, verified and approved by the IRS to handle e-Filing for all of your 1042 forms.

Take Action

Get in touch with us today and we’ll get you started on the path towards 1042 compliance.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Sovos

Sovos is a global provider of tax, compliance and trust solutions and services that enable businesses to navigate an increasingly regulated world with true confidence. Purpose-built for always-on compliance capabilities, our scalable IT-driven solutions meet the demands of an evolving and complex global regulatory landscape. Sovos’ cloud-based software platform provides an unparalleled level of integration with business applications and government compliance processes. More than 100,000 customers in 100+ countries – including half the Fortune 500 – trust Sovos for their compliance needs. Sovos annually processes more than three billion transactions across 19,000 global tax jurisdictions. Bolstered by a robust partner program more than 400 strong, Sovos brings to bear an unrivaled global network for companies across industries and geographies. Founded in 1979, Sovos has operations across the Americas and Europe, and is owned by Hg and TA Associates.
Share this post

Hungary Supplemental Insurance Premium Tax
EMEA IPT
July 11, 2022
Extra Profit Tax: An Introduction to Supplemental IPT in Hungary

This blog was last updated on October 28, 2024 Update 7 October 2024 by Edit Buliczka Hungarian Tax Office Updates IPT Declaration Form for 2023 The procedure necessary to correct an underdeclared premium figure in Hungary can be complicated. The complexity of a correction for return form 2320 has become even more challenging. Following a […]

sales tax vs. use taxes
North America Sales & Use Tax
November 8, 2024
Demystifying Tax Types: Sales Tax vs. Seller’s Use Tax vs. Consumer’s Use Tax

This blog was last updated on November 8, 2024 One of the core concepts in sales tax compliance is also one of the most frequently misunderstood: the differences between sales tax and use tax. These tax types may look similar on the surface, but knowing the differences is essential for staying compliant and avoiding costly […]

2025 bond project
North America Tax Information Reporting
November 4, 2024
The Insurer’s Guide to the 2025 Bond Project

This blog was last updated on November 4, 2024 The regulatory landscape for insurance companies is undergoing significant changes with the Principles-Based Bond Project which is set to take effect on January 1, 2025. These changes, driven by the National Association of Insurance Commissioners (NAIC), will impact how insurance companies classify and value bond investments, […]

E-Invoicing Compliance EMEA VAT & Fiscal Reporting
November 1, 2024
VAT in the Digital Age Approved in ECOFIN

This blog was last updated on November 7, 2024 The long-awaited VAT in the Digital Age (ViDA) proposal has been approved by Member States’ Economic and Finance Ministers. On 5 November 2024, during the Economic and Financial Affairs Council (ECOFIN) meeting, Member States unanimously agreed on adopting the ViDA package. This decision marks a major […]

what is peppol
E-Invoicing Compliance North America
October 29, 2024
What it is PEPPOL?

This blog was last updated on October 29, 2024 Peppol E-invoicing explained: What it is and how it works The global adoption of electronic invoicing is accelerating. Governments worldwide are pushing to adopt e-invoicing to digitally transform their national systems and, often, to close the VAT gap. While many countries have introduced their own e-invoicing […]

remote sellers sales tax
North America Sales & Use Tax
October 28, 2024
Will Congress Act to Simplify Remote Seller Sales Tax Collection

This blog was last updated on November 5, 2024 When the United States Supreme Court ruled in 2018, that South Dakota’s law imposing sales tax collection requirements on sellers without in-state physical presence was constitutional, it did not grant states free reign. States are still responsible for ensuring that their sales tax requirements are manageable, […]