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

IRS and Other Tax Authority Audit Observations

There were a couple sessions led by Big Four experts as well as IRS and Financial Institution representation which provided updates on key items that have been discussed and observed during recent audit activity. Key points highlighted:

• 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.

• Form 1042 Audits: Typical Information Document Requests (IDRs) include requests for copies of Forms 1042, 1042-S, internal controls, and procedures. There is a strong focus on leveraging data analytics to identify a sample population, looking closely for data anomalies. It was verbally emphasized that Income reclassification and return of capital payments have a strong focus. Make sure that payment identification is documented clearly as an artifact.

  • Voluntary Disclosures: Forms 1042/1042-S Voluntary Disclosure Program and Forms 1099 Voluntary Disclosure Program are available and a useful tool to get to compliance if there has been an historical gap in withholding and reporting.

  • 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 K1 is captured on Form 1042-S for foreign partners. There have been penalties issued even when K1’s tie to 1042-S, however, there does not appear to be a reason why.

• 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.

1042-S and 1042 Updates

Every year the IRS evaluates the 1042-S form for gaps in use and updates directions for withholding agents and filers to comply. The 2025 Form and Instructions are available for all to see and there are some changes that may impact your business.

• Form 1042-S for Tax Year 2025: Updates include new income codes, status codes, and procedures for extensions and amendments.

  • 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.

• Temporary Exemption for Form 1042 Electronic Filing: The IRS required 1042 forms to be filed electronically for all withholding agents. Relief provided under Notice 2024-26, extending deadlines for electronic filing.

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

• Exemption Code Changes TY2026: Per the IRS instructions for this year’s 1042-S, there is a Note that “the IRS intends to update the instructions for calendar year 2026 to require that a chapter 3 exemption code be provided in all cases where the tax withheld is less than 30%.”

  • For example, a 1042-S reflecting a 15% withholding rate for dividend income will not report a Chapter 3 exemption code of 00, instead will be 04 unless other changes are made.

2024 Year in Review

Key items which occurred in 2024 that will have an impact to our platform and clients:

• 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.

• US and Other Jurisdiction Tax Treaties:

  • 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 negotiation progress.

  • US-Russia and US-Belarus Treaty Suspensions: Partial suspensions affecting withholding rates for some or all FDAP income.

  • US-Taiwan Expedited Double-Tax Relief Act: 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.

• FATCA Updates:

  • 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.

• America First Trade Policy: Defending American Jobs and Investment Act (DAJI) calls for an investigation into discriminatory or extraterritorial taxes on US citizens or corporations, potentially doubling tax rates under section 891.

• 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. However, the current administration is discussing moving the threshold back up to $10,000.

• Securities (stock) settlements have been updated to a “T+1” cycle, increasing the need for automated tax operations to avoid costly delays and burdens to customers in W-9 or W-8 form collection.

Digital Assets and CARF Updates

IRS Digital Assets:

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

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

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

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

CARF

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

  • Is the US going to require the collection of self-certification forms by brokers eligible for CARF guidelines?

• OECD Guidance on CRS and CARF: New XML schemas and user guides for automatic exchange of information between tax authorities were published in 2024. All jurisdictions which plan to participate need to have legislation by the end of 2025 to begin tracking of transaction in 2026 for reporting starting in 2027.

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 self-certification forms for 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.