On November 6, the IRS has released the instructions for the draft Form 1042. The draft Form 1042 for 2014 was released in April 2013. These instructions provide withholding agents with information regarding the many new fields introduced on the draft Form 1042. The draft Form 1042 included changes that incorporated new reporting requirements under the FATCA rules.
The instructions provide additionally that section 2 of the Form (the FATCA detail section) will be optional for 2014. Section 2 was added to provide detail regarding U.S. source FDAP income that is “withholdable” and “non-withholdable” under FATCA and includes a requirement to provide the reason why withholding is not required (e.g., not required to withhold on recipient, nonfinancial payment, grandfathered obligation, effectively connected income, etc.). The section also includes lines to reconcile U.S. source FDAP income that is FATCA reportable with what is actually reported on Forms 1042-S. If the two fields differ, an additional line is provided for an explanation.