Tax Reporting & Withholding Conference 2025 Takeaways

Tax Reporting Group - Tax Reporting & Withholding 2025 Conference

The week of May 5th, TAINA representatives attended and spoke at the Tax Reporting and Withholding Conference in Washington, D.C., hosted by the Tax Reporting Group. In addition to Sean Sutton speaking on a great panel about Technology and Operational Controls, there included several key topics and noteworthy takeaways that piqued the interest of the audience of tax professionals and experts.

Conference Key Takeaways

• IRS and other Tax Authority Audit observations

• 1042-S and 1042 updates

• 2024 Year in Review

• Digital Assets and CARF regulation updates

Hot Topics

Regulatory and Other IRS Updates

• Final Regulations Reporting on Digital Assets: New reporting requirements for digital asset transactions, including custodial and non-custodial brokers.

• Temporary Relief to Model 1 FFIs: Extended relief for Reporting Model 1 FFIs regarding US TIN collection for pre-existing accounts.

• Extension of Phase-in Period for Section 871(m): Extension of compliance requirements for certain transactions until 2027.

• Withholding on Pension Distributions: Clarifications on when payees can elect out of withholding on pension and IRA distributions.

Reporting Updates

• Form 1099-DA: Finalized form for reporting digital asset transactions, with mandatory reporting of gross proceeds and basis information starting in 2026.

• Form 1042-S: Updates include new income codes, status codes, and procedures for extensions and amendments.

• Form 15397: Application for extension of time to furnish recipient statements, with updated criteria for extensions.

• Temporary Exemption for Form 1042 Electronic Filing: Exemption from e-filing requirements for certain withholding agents.

Qualified Intermediaries (QIs), Withholding Foreign Partnerships (WPs), and Withholding Foreign Trusts (WTs)

• Application and Renewal Timelines: Extended deadlines for periodic certifications and renewals of WP and WT agreements.

• QI List: Updated list of entities with approved QI status, including new requirements for disclosure.

• New QI Issues: Clarifications on primary withholding responsibilities and documentation requirements for PTP interests.

Treaty Updates

• US-Chile Treaty: Effective February 1, 2024, with reduced rates for dividends, interest, and other income.

• US-Hungary Treaty: Expired at the end of 2023, with a new treaty in progress.

• US-Russia and US-Belarus Treaty Suspensions: Partial suspensions affecting withholding rates and compliance requirements.

• US-Taiwan Expedited Double-Tax Relief Act: Proposed reduced withholding tax rates for certain income from US sources.

FATCA Updates

• FATCA Registration System Update: Transition to more secure sign-in methods using The public’s one account for government. | Login.gov or ID.me .

• US-Switzerland FATCA Agreement: Transition from Model 2 to Model 1 expected by January 1, 2027.

• New US-Thailand FATCA Agreement: Model 1 IGA entered into force on April 29, 2024.

CRS and CARF

• OECD Guidance on CRS and CARF: New XML schemas and user guides for automatic exchange of information between tax authorities.

• UK Draft Amendments to International Tax Compliance Regulations: Implementation of CARF and CRS amendments effective January 1, 2026.

Legislative Developments

• Crypto Regulations: Repeal of DeFi regulations issued in December 2024, with significant revenue implications. Digital asset reporting regulations from July 2024 remain unaffected.

• America First Trade Policy: Investigation into discriminatory or extraterritorial taxes on US citizens or corporations, potentially doubling tax rates under section 891.

• Defending American Jobs and Investment Act (DAJI): Proposed increase in withholding rates for countries with discriminatory taxes, potentially reaching 50%.

Treaty Changes

• Suspensions and Terminations: Suspension of treaties with Russia and Belarus, termination of the Hungary treaty, and new treaty with Chile.

• Taiwan and UK RND: Proposed Taiwan treaty benefits and repeal of UK RND rules affecting treaty claims.

Swiss IGA Change

• Model 2 to Model 1: Transition effective January 1, 2027, streamlining FATCA reporting and requiring re-registration of Swiss FFIs.

Recent FAQs

• Withholding Foreign Partnerships (WPs): Documentation requirements and relief from automatic termination if "best efforts" are made.

• Credit Forward Framework: IRS will not challenge use of the framework for periods before January 1, 2025.

Form 1042-S Updates

• New Income Codes: Introduction of codes for consent fees, loan syndication fees, and settlement payments.

• Chapter 3 Recipient Code Changes: Updates to partnership and government entity codes.

Electronic Filing and Extensions

• Form 1042 Electronic Filing: Relief provided under Notice 2024-26, extending deadlines for electronic filing.

• Form 15397: New form for requesting payee statement extensions, replacing the letter approach.

Digital Asset Reporting

• International Provisions: Upcoming regulations for US implementation of CARF, focusing on sales outside the US and potential reporting requirements for non-US brokers.

Crypto ETFs

• Tax Reporting and Withholding: Reporting requirements for Crypto ETFs structured as grantor trusts, including sales to cover expenses and income from hard forks or airdrops.

Qualified Intermediary (QI) Agreement

• Nominee Reporting: Challenges with nominee reporting for non-US PTPs and potential presumption rules.

• Substitute Dividends: Clarifications on withholding responsibilities for QIs acting as intermediaries.

Section 871(m) Relief

• Extension through 2026: Continued transition relief for US equity derivatives, with simplified combination rules and QDD requirements.

Audit

Further highlights which may result in future impacts:

• New form W-9 with revision date of March 2024 is available and currently accepted in TAINA’s validation platform.

• State withholding and reporting requirements continue to cause operational issues in light of more frequent enforcement.

• With new QI Agreement in effect, expect to see similar updates to the Withholding Partnership agreement.

• 1099-K reporting threshold for third party network transactions will be updated in 2024 to a lowered $5,000 amount, gradually transitioning to the $600 threshold as outlined in the American Rescue Plan Act of 2021.

• Securities settlements have been updated to a “T+1” cycle, increasing the need for automated tax operations to avoid costly delays and burdens to customers.

• Taiwan and US tax convention to mirror a treaty benefit eliminating dual taxation on certain income payments has passed through Committee review but still waiting on votes in Congress.

• Hungary and US tax treaty expired at the end of 2023; however, a new tax treaty has been proposed and needs to go through the standard approval process which may take many years.

IRW Enforcement Background

• IRS Large Business and International (LB&I) Division Compliance Campaigns: Focus on compliance for payments of US source income to foreign persons, verification of withholding at source, and nonresident alien tax treaty exemptions.

• Campaigns as a Return Selection Tool: Campaigns can lead to comprehensive audits and are used to identify high-risk compliance issues.

Form 1042 Audits

• Typical Information Document Requests (IDRs): Include requests for copies of Forms 1042, 1042-S, 5471, 5472, 8858, debt instruments, internal controls, and procedures.

• Nonfinancial Services Audits: Focus on vendor and intercompany transactions, sourcing documents, and characterization of payments.

• Partnership Audits: Link between Form 1042 and Form 1065, ensuring income reported on Schedules K is captured on Form 1042-S.

FATCA Audits

• Global Scrutiny: Review of financial account documentation, due diligence procedures, and training of responsible staff.

• On-site and Desktop Reviews: Conducted in various regions including APAC, Americas, Europe, and Oceania.

Voluntary Disclosures

• Forms 1042/1042-S Voluntary Disclosure Program: Procedures for submitting delinquent returns, limitations, and benefits of the program.

• Forms 1099 Voluntary Disclosure Program: No formal program, but IRS may require a compliance fee for submitting delinquent Forms 1099.

Qualified Intermediaries

• Compliance Deadlines: Deadlines for QI/WP/WT certifications and periodic reviews.

• QI Certification Guidance: FAQs providing guidance for completing certifications in the QAAMS portal.

Form 1099 Enforcement

• Enforcement Focus: Notices for missing or incorrect TINs, backup withholding requirements, and penalties for non-compliance.

• Backup Withholding: Conditions under which backup withholding is required and procedures for responding to IRS notices.

Refund Claims

• Overwithholding Refunds: Procedures for claiming refunds for overwithheld taxes, including required documentation and filing deadlines.

Penalties

• Types of Penalties: Failure to file, failure to pay, accuracy-related penalties, and information return penalties.

• Safe Harbor Exception: Exception for de minimis errors in information reporting.

How Can TAINA Help?

In summary, many items discussed will drive a change in policies and procedures, plus create new documentation requirements. Now more than ever it is important to think of an automated solution in the tax operations space. There are limits to how much we can stretch internal resources.

Let's focus on automating repetitive processes. The TAINA Platform takes care of your Form W-8 and W-9 collection and validation, as well as maintaining FATCA and CRS reporting compliance in a seamless end-to-end process. Attending these types of events ensures TAINA is maintaining an up to date, robust and detailed ruleset meeting our clients' needs. 

We would love to talk to you more about your current documentation validation process and how our award-winning Forms W-8 and W-9, FATCA and CRS self-certification form Validation platform may add value to your organization.

For more information on how our fully automated platform can add value to your business, get in touch or request a demo to see it in action.