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withholding, must file an annual return for

For purposes of chapter 3, if you fail to

indicate on the form that it will assume

the preceding calendar year on Form 1042

withhold and the foreign payee fails to

primary chapters 3 and 4 withholding

unless an exception to filing applies. Also,

satisfy its U.S. tax liability, then both you

responsibilities and primary Form 1099

any PTP or nominee making a distribution

and the foreign person are liable for tax,

reporting and backup withholding

of ECI under section 1446, or any entity

as well as interest and any applicable

responsibilities for certain payments it

required to report a distribution on Form

penalties. The applicable tax will be

makes and receives as a QDD. See

1042-S that is subject to withholding under

collected only once. If the foreign person

Regulations section 1.1441-1(e)(6) and

section 1445, must file Form 1042 for the

satisfies its U.S. tax liability, you are not

the QI Agreement for more information.

preceding calendar year.

liable for the tax but remain liable for any

Qualified securities lender. A qualified

interest and penalties for failure to

securities lender (QSL) is a foreign

You must file Form 1042 if any of the

withhold.

financial institution that is a bank,

following applies.

custodian, broker-dealer, or clearing

You are required to file or otherwise file

Intermediary

organization subject to regulatory

Form(s) 1042-S for purposes of either

An intermediary is a person who acts as a

supervision in its home jurisdiction and

chapter 3 or 4 (whether or not any tax was

custodian, broker, nominee, or otherwise

that is:

withheld or was required to be withheld to

as an agent for another person, regardless

the extent reporting is required). File Form

1. Regularly engaged in the business

of whether that other person is the

1042 even if you file Form(s) 1042-S

of borrowing securities of U.S.

beneficial owner of the amount paid, a

electronically.

corporations and lending such securities

flow-through entity, or another

You file Form(s) 1042-S to report to a

to unrelated customers; and

intermediary.

recipient tax withheld by your withholding

2. Subject to audit by the IRS under

agent.

Qualified intermediary. A QI is an

section 7602 or, in the case of a QI, an

You pay gross investment income to

intermediary (or in the case of a QDD, a

external auditor.

foreign private foundations that are

principal) that is a party to a QI agreement

subject to tax under section 4948(a).

For further information about

with the IRS described in Regulations

You pay any foreign person specified

requirements for QSL status and the

section 1.1441-1(e)(5)(iii). For information

federal procurement payments that are

withholding requirements for substitute

on the QI agreement, see

IRS.gov/

subject to withholding under section

dividend payments, see Notice 2010-46,

Businesses/International-Businesses/

5000C.

2010-24 I.R.B. 757, available at

IRS.gov/

Qualified-Intermediary.

You pay an eligible deferred

irb/2010-24_IRB/ar09.html. Note that an

Withholding foreign partnership or

compensation item to a covered expatriate

entity will no longer be able to claim QSL

withholding foreign trust. A WP or WT

or you are a trustee making a distribution

status as of January 1, 2018.

is a foreign partnership or trust that has

from a nongrantor trust to a covered

Foreign financial institution. A foreign

entered into a withholding agreement with

expatriate.

financial institution (FFI) is a foreign entity

the IRS described in Regulations section

You are a qualified intermediary (QI),

described in Regulations section

1.1441-5(c)(2) and (e)(5) in which it

withholding foreign partnership (WP),

1.1471-5(d).

agrees to assume primary withholding

withholding foreign trust (WT),

responsibility under chapters 3 and 4 for

participating foreign financial institution

Registered deemed-compliant FFI. A

all payments that are made to it for its

(FFI), or reporting Model 1 FFI making a

registered deemed-compliant FFI is a

partners, beneficiaries, or owners.

claim for a collective refund under your

foreign financial institution (as defined in

respective agreement with the IRS. See

Regulations section 1.1471-5(f)(1)) that is

Nonqualified intermediary. A

Regulations section 1.1471-1(b)(114) for

deemed to satisfy the requirements of

nonqualified intermediary (NQI) is any

the definition of a reporting Model 1 FFI.

section 1471(b) of the Code. This includes

intermediary that is not a U.S. person and

a reporting Model 1 FFI or branch of an

that is not a QI.

Withholding Agent

FFI that is a reporting Model 1 FFI (see

Nonwithholding foreign partnership. A

Regulations section 1.1471-1(b)(114) for

Any person required to withhold tax is a

nonwithholding foreign partnership (NWP)

the definition of reporting Model 1 FFI).

withholding agent. A withholding agent

is a foreign partnership that is not a

may be an individual, trust, estate,

Participating FFI. A participating FFI is

withholding foreign partnership.

partnership, corporation, nominee,

a foreign financial institution that has

government agency, association, or

Nonwithholding foreign trust. A

agreed to satisfy the obligations of an FFI

tax-exempt foundation, whether domestic

nonwithholding foreign trust (NWT) is a

agreement under chapter 4 with respect to

or foreign. For purposes of chapter 4, a

foreign trust that is not a withholding

all of its branches of the FFI, other than a

withholding agent includes a participating

foreign trust.

branch that is a reporting Model 1 FFI or a

FFI or registered deemed-compliant FFI to

U.S. branch. This includes a reporting

Qualified derivatives dealer (QDD). A

the extent such FFI is required to withhold

Model 2 FFI (that has entered into an FFI

QDD is a qualified intermediary (QI) that is

tax. See Regulations section 1.1473-1(d)

agreement with respect to a branch) and a

an eligible entity that agrees to assume

for the definition of a withholding agent for

QI branch of a U.S. financial institution

the requirements of a QDD and the other

purposes of chapter 4.

unless such branch is a reporting Model 1

requirements in the QI Agreement. Any

FFI.

Liability for tax. As a withholding agent,

applicable home office or branch that

you are personally liable for any tax

seeks to be a QDD must qualify and be

Nonparticipating FFI. A

required to be withheld as well as interest

approved for QDD status. A QDD must

nonparticipating FFI is a foreign financial

and any applicable penalties. A

document itself to a withholding agent with

institution that is not a participating FFI,

withholding agent acting through an agent

a Form W-8IMY indicating that it is acting

deemed-compliant FFI, or exempt

is liable for any failure of the agent to

as a QDD for payments with respect to

beneficial owner.

deposit any tax required to be withheld

potential section 871(m) transactions and

Recalcitrant account holder.

and deposited even if the agent is also a

underlying securities that it receives in a

Generally, a recalcitrant account holder is

withholding agent and is itself separately

principal capacity, separately identify the

an account holder of a participating or

liable for the failure to comply with the

home office or branch as the recipient on a

deemed-compliant FFI that failed to

provisions of chapter 3 or 4.

withholding statement (if necessary), and

Instructions for Form 1042 (2017)

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Instructions For Form 1042 - Annual Withholding Tax Return For U.s. Source Income Of Foreign Persons - 2016 Page 2

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