Form 1042-S (2017) Checklist
Purpose
Form 1042-S reports U.S. source income paid to foreign persons subject to Chapter 3 or Chapter 4 withholding. The 2017 version expanded Chapter 4 FATCA compliance requirements and introduced Global Intermediary Identification Number (GIIN) reporting fields.
The form refined income code definitions for substitute payments and derivative financial instruments. These changes aligned with updated Treasury Regulations Section 1.1441-6(c)(2).
Reporting Requirements
Identify Chapter Indicator (Box 3) per 2017 FATCA Rules
Enter "3" for Chapter 3 (income tax withholding on fixed or determinable annual income) or "4" for Chapter 4 (FATCA withholding on withholdable payments). The 2017 instructions clarified that notional principal contracts (Income Code 32) and dividend equivalents under IRC Section 871(m) (Code 40) must identify the correct chapter based on the nature of the underlying payment.
Withholding agents must determine chapter classification based on the recipient's FFI/NFFE status. This distinction differs from requirements in prior years.
Complete Withholding Agent GIIN (Box 12e) and Status Codes (Boxes 12b–12c)
Enter the withholding agent's GIIN if the agent is a participating FFI or registered deemed-compliant FFI. Enter Chapter 3 status codes ranging from 01 to 50, with code 50 designated for U.S. withholding agents that are foreign branches of financial institutions.
Enter Chapter 4 status codes ranging from 01 to 41, with additional pooled reporting codes 42 through 49 for specific account holder categories. Beginning in 2016, withholding agents must enter both a Chapter 3 and a Chapter 4 status code regardless of the type of payment being made.
Document Recipient FATCA Status (Boxes 13f–13g) and GIIN (Box 13h)
Complete both Chapter 3 and Chapter 4 status codes for the recipient. If the recipient is a participating FFI, registered deemed-compliant FFI, or other FFI subject to Chapter 4 reporting, enter the recipient's GIIN.
The 2017 instructions required withholding agents to confirm GIIN validity via the IRS FFI List updated quarterly. This represented a procedural shift that year.
Exemption and Income Codes
Apply Exemption Codes (Boxes 3a and 4a) Based on 2017 Regulatory Authority
If the tax rate in Box 3b or 4b is 00.00, enter the corresponding exemption code (01–22 for Chapter 3; 13–21 for Chapter 4). The 2017 instructions added Exemption Code 20 (dormant account under Regulations Section 1.1471-4(b)(6)) for Chapter 4 reporting purposes.
The instructions also clarified Code 17 (foreign entity assuming primary Chapter 4 withholding responsibility) to align with Model 1 and Model 2 IGA requirements. These clarifications reflected regulatory standards finalized that year.
Report Income Codes With Updated Substitute Payment and Derivative Rules
- Use Income Codes 33, 34, 35, 40, and 51 through 54 to classify substitute payments and dividend equivalents.
- Income Code 40 applies to dividend equivalents under IRC Section 871(m), reflecting the statutory redesignation from Section 871(l) enacted through the HIRE Act.
- Income Codes 51 through 54 for actively traded or publicly offered securities require the withholding agent to hold a foreign TIN or U.S. TIN for the recipient unless a treaty reduction applies under Regulations Section 1.1441-6(c)(2).
- Income Code 54 was revised for 2017 reporting to mean substitute payments representing interest from certain actively traded or publicly offered securities rather than “other income.”
Determine Tax Rate (Boxes 3b and 4b) Per 2017 Treaty and Chapter 4 Standards
Enter the applicable federal withholding tax rate (e.g., 30% under Chapter 3 default rate; treaty-reduced rates; or 0% for exempt income). The 2017 instructions clarified that Chapter 4 withholdable payments default to 30% unless the recipient is a U.S. person, exempt beneficial owner, or flow-through entity.
The rate must reflect any treaty benefit claimed via proper documentation with the LOB code in Box 13j. Withholding agents must verify documentation before applying reduced rates.
Intermediary and Flow-Through Reporting
Complete Intermediary and Flow-Through Entity Information (Boxes 15a–15i)
If the payment flows through a qualified intermediary (QI), withholding foreign partnership (WFP), withholding foreign trust (WFT), or non-QI intermediary, enter the intermediary's name, EIN, GIIN, and Chapter 3/4 status codes. The 2017 instructions added clarification that QIs acting as qualified derivatives dealers (QDD) must report pooled recalcitrant accounts separately using recipient code 35 for QDD status.
Pooled reporting codes 36, 37, and 38 for dividend equivalent offsetting payments are no longer valid under Revenue Procedure 2017-15. Withholding agents must not use these invalidated codes.
Verify Escrow Procedure Checkbox (Box 7b) per 2017 Income Code 50 Rules
Check Box 7b only if federal tax was not deposited with the IRS under an escrow procedure (e.g., tax held pending resolution of a treaty claim or Chapter 4 status). The 2017 instructions introduced Income Code 50 to report gross income previously escrowed.
If used, Box 7b must be checked only for the current-year escrow deposit, not for the prior-year reported amount. Do not check this box if Chapter 3 or 4 tax was withheld and deposited—instead, enter Chapter indicator "3" or "4" and complete the corresponding tax rate box.
Treaty Benefits and Primary Withholding
Report Primary Withholding Agent (Boxes 14a–14b) When Applicable
If a primary withholding agent assumes responsibility for Chapter 3 or Chapter 4 withholding on behalf of secondary withholding agents or intermediaries, enter the primary agent's name and EIN. The 2017 instructions specified that only withholding foreign partnerships or trusts, certain QIs, and foreign financial institutions designated in tiered-payment scenarios must complete these boxes.
Blank entries are permitted if no primary agent exists. This requirement applies only to specific payment structures.
Select Recipient LOB Code (Box 13j) per 2017 Treaty Benefit Requirements
Enter the limitation on benefits code that best describes the recipient’s treaty eligibility:
- Code 01: Individual
- Code 02: Government or political subdivision
- Code 03: Tax-exempt pension trust or pension fund
- Code 04: Tax-exempt or charitable organization
- Code 05: Publicly traded corporation
- Code 06: Subsidiary of a publicly traded corporation
- Code 07: Company meeting the ownership and base erosion test
- Code 08: Company meeting the derivative benefits test
- Code 09: Company meeting the active trade or business test
- Code 10: Discretionary determination with specific IRS approval
- Code 11: Other
The 2017 instructions clarified that withholding agents must complete Box 13j when they receive documentation establishing the applicable limitation on benefits provision under which the entity qualifies for treaty-reduced rates. Withholding agents are not required to obtain new documentation unless they must renew such documentation under existing requirements. Code 10 requires specific IRS authorization before use.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
