Guide to Global Payroll Management - 2020 - D-65

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Appendix D--Federal Forms and Instructions

applicable (see instructions for lines
64b through 64d, later).
Withholding and depositing of tax
is not required under both
CAUTION chapters 3 and 4 for the same
payment. In the case of a payment for
which withholding is required under
chapters 3 and 4, a withholding agent may
credit the withholding applied under
chapter 4 against its liability for any tax
due under section 1441, 1442, or 1443.
For a payment subject to withholding
under section 1445 or 1446, withholding
under chapter 4 does not apply.

Foreign partners of U.S. partnerships
and foreign beneficiaries of U.S.
trusts. To the extent that a domestic
partnership has not distributed a foreign
partner's distributive share of income
subject to withholding under section 1441,
1442, or 1443, or under chapter 4, it
should not include any tax liability on lines
1 through 60 for tax relating to the
partner's distributive share in the year the
partnership earns the income. For
distributive shares not actually distributed,
the partnership must include any tax
liability on lines 1 through 60 of the Form
1042 for the following year. Include the tax
liability on the line that represents the
earlier of the following dates.
* The date on which the Schedule K-1
(Form 1065) is sent or otherwise furnished
to the foreign partner.
* The due date for furnishing
Schedule K-1 (Form 1065) to the partner.
Include such tax liability for the period
that includes the date the tax was required
to be withheld. See Regulations section
1.1441-5(b)(2)(i)(A).
A domestic trust should report on lines
1 through 60 in the same manner as a
U.S. partnership to the extent that it is
required to distribute, but has not actually
distributed, a foreign beneficiary's share of
distributable net income subject to
withholding under section 1441, 1442, or
1443, or under chapter 4, before the date
(without extensions) on which the income
is required to be reported on Form
1042-S. See Regulations section
1.1441-5(b)(2)(ii).
Example. In 2019, USP, a U.S.
partnership, has foreign partners that are
individuals and for which it has obtained
valid documentation to establish their
foreign status. The withholding tax under
section 1441 relating to the distributive
shares of the foreign partners was $120.
USP made no distributions in 2019. On
the 2019 Form 1042, USP did not enter
any amount as tax liability on lines 1
through 60 because it did not distribute
any amounts.
USP made a distribution on February
11, 2020, that related to the 2019

distributive shares of the foreign partners.
USP withheld $100 at the time of the
distribution. USP sent the 2019 Schedules
K-1 (Form 1065) to its partners on April 2,
2020.
On the 2020 Form 1042, USP entered
$100 on line 7. This is the tax liability for
the period (February 8 through 15) during
which it made a distribution. USP entered
$20 on line 16. This is the tax liability for
the period (April 1 through 7) during which
it furnished the Schedules K-1 (Form
1065) to the partners.
Use Form 8804 to report

TIP withholding tax liability on the

partnership's income effectively
connected with a U.S. trade or business.
Withholding and reporting in a
subsequent year. For 2019, proposed
regulations issued on December 18, 2018
(83 FR 64757) allow partnerships or trusts
that are permitted to withhold in a
subsequent year with respect to a foreign
partner's or beneficiary's share of income
for the prior year to designate the deposit
of the withholding as attributable to the
preceding year. In such a case, the
partnership or trust will be required to
report the associated amount and tax
withheld on Forms 1042 and 1042-S for
the preceding year. If a partnership
withholds on a foreign partner's share of
income after March 15 of the subsequent
year, the due date for filing the applicable
Form(s) 1042-S is September 15 of the
subsequent year. For example, if a
partnership withholds on April 1, 2020,
with respect to a foreign partner's share of
undistributed income for the 2019
calendar year, the partnership may
designate the deposit as made for 2019
and report the liability and tax withheld on
the 2019 Form 1042 and the 2019 Form
1042-S for the partner. The partnership or
trust must also ensure that its chapter 3
status code properly reflects its status as a
partnership or trust (including as a
Withholding Foreign Partnership (WP) or
Withholding Foreign Trust (WT)). The
associated liability should be reported on
line 59, with the share of income to the
partner or beneficiary reported on line 62,
and the amount withheld reported on
line 65b.
Note. Reporting in the preceding year is
also permitted when a partnership or trust
allocates a share of income allocable to a
partner or beneficiary attributable to the
preceding year that was not distributed
during that year provided that the
partnership meets the previously
referenced due date of September 15,
2020, for the applicable Form(s) 1042-S.
Note. A U.S. partnership or trust may
apply the proposed regulations for 2019 in
lieu of the reporting otherwise described
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above. The proposed regulation may also
be applied by a foreign partnership or trust
that itself withholds as described above.
Note. For rules that apply for WPs and
WTs, see Rev. Proc. 2017-21, 2017-6
I.R.B. 791. See also Notice 2020-2.

Corporate distributions. Do not include
on lines 1 through 60 any tax liability
caused by adjustments of underwithheld
tax on corporate distributions made in
calendar year 2019 if the following apply.
* The distributing corporation made a
reasonable estimate of accumulated and
current earnings and profits under
Regulations section 1.1441-3(c)(2)(ii)(A)
or 1.1474-6(c)(2)(ii).
* The distributing corporation or
intermediary immediately paid over the
underwithheld tax by March 16, 2020.
Instead, include these payments of
underwithheld tax on line 64a.

Excise tax on specified federal procurement payments. Section 5000C
imposes a 2% tax on any foreign person
that receives a specified federal
procurement payment. Include on lines 1
through 60 any withholding obligation
under section 5000C with respect to
specified federal procurement payments.
Report the amount on the line that
corresponds with the date the deposit was
due.
Specified federal procurement
payment. A specified federal
procurement payment means any
payment made pursuant to a contract with
the U.S. Government entered into after
January 1, 2011, for the provision of
goods, if such goods are manufactured or
produced in any country which is not a
party to an international procurement
agreement with the United States, or the
provision of services, if such services are
provided in any country which is not a
party to an international procurement
agreement with the United States.

QIs with no primary chapters 3 and 4
withholding responsibility. If you are a
QI that did not assume primary
withholding responsibility under both
chapters 3 and 4, enter the total amount of
the tax liability of U.S. withholding agent(s)
under both chapters 3 and 4 on line 59.
Report all other amounts on the line that
corresponds with the date the liability was
incurred.
Note. Reporting on line 59 as described
above also applies to any other entity that
reports on Form 1042 to the extent such
entity claims a credit on line 67 for
amounts withheld by another withholding
agent (whether under chapter 3 or 4).
Adjustments to withholding. If you
used procedures for adjusting
overwithholding or underwithholding, see

Instructions for Form 1042 (2019)

D-65

Guide to Global Payroll Management - 2020

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