Now that we’ve all relaxed after the IRS notification that electronic filings of US tax returns (Form 1042) have been exempted for 2 years, it’s time to return our focus to the thornier issue of 1042-S information returns reporting. There’s a lot that can be said on the topic, but there’s one issue that’s been causing a lot of commotion in tax circles this year, so we’re going to dig into it a bit today. But first, a reminder.

Deadlines and Extensions

Both 1042 and 1042-S reports have a deadline of March 15^th for reports on the previous calendar year. That deadline is incredibly close, so by now you can (and should have) filed for an extension of these deadlines by now. If you haven’t, you really don’t have a lot of time left!

If you have filed your extension requests, your new deadline for the 1042-S should be April 14^th, and September 14^th for the 1042. You may also have to request an extension of time to supply recipient copies of the 1042-S returns if you have certain types of customers – like partnerships, trusts and other financial institutions that gave you a W-8IMY, which is done separately from your 1042-S and 1042 extension requests

What Is a TCC Exactly?

TCC stands for Transmitter Control Code, and this is the identifier for the person or organisation accessing the IRS reporting system. This is a unique number that tells the IRS who is sending the file, and each institution needs its own unique TCC. In most cases the person submitting the file will be the same as the withholding agent. So Bank A would get a TCC so they could file their 1042-S forms, for which it’s also the withholding agent.

Where it gets a bit complicated is when third parties get involved. There are several firms out there (including us) who will file on behalf of the withholding agents. Since the person filing the return doesn’t need to be associated with any of the payments or tax withheld being reported, the TCC might be different. After all, the organisation with the TCC is just transmitting the file to the IRS.

Why Do I Need A TCC?

A TCC is essentially your access code for filing your 1042-S. All information returns 1042-S are filed with the IRS using their FIRE Portal. FIRE stands for Filing Information Returns Electronically – have I mentioned that the IRS isn’t the most inventive with names? The 1042 tax return form will be filed electronically at a different portal, the Modernized e-file portal (MeF), Just to make life interesting, but as mentioned at the start of the article, the 1042 tax return can also be submitted via the Form 1042 to the IRS for at least the next two years

Your 1042 is essentially a summary of all the US-sourced FDAP (Fixed, Determinable, Annual or Periodic) income you received. Alongside it, if you are not using extensions, you file a 1042-S, which is a detailed breakdown of the summary. In the 1042-S return, you will separate all of that FDAP income into income types, tax rates, exemption codes, withholding chapters and withholding agents. There’s a guide on how to do this in Publication 1187, and we’re available if needed, so you’re not on your own. Once you’ve completed them, you will need to submit them to the FIRE Portal, and for that, you will need a TCC.

The Problem With TCCs

Here’s the catch with TCCs. They are only valid as long as you use them, and you have to either use or renew them every year. So even if you don’t have a return to file in a given year, you will need to renew your TCC to keep it active. You would think that when you need a TCC code to file, the IRS would make it simple to get one for your organisation. But sadly, that’s not the case. Let’s walk through the process together.

First, you’ll need to get an ID.me account, which will verify your identity as a responsible and authorised individual. You have to do this before you can even start applying for a TCC.

Right now, that’s as far as you can get. At the time of writing, there is a bug in the IRS system, and so a lot of people are getting an error message (8016) when they try to move on to stage 2. To bypass it, you will need to have either a US Social Security number (SSN) or an ITIN (Individual Taxpayer Identification Number). You can get an ITIN using a W-7 form, but you’ll need to provide originals or certified copies of your identity verification documents along with your ITIN application. Once you have an ID.me account with a connected SSN or ITIN, you will be able to access the IR-TCC application to make your application for your TCC.

All of this takes a lot of time. So if you have a 1042-S reporting obligation and you haven’t managed to navigate the TCC process by now, you’ll need to find someone who already has a TCC to help you file. Thankfully, you don’t have to look far to find one!

What If I Don’t Have a TCC?

If you don’t have a TCC, or you can’t get one in time, then you won’t be able to file your 1042-Ss electronically with the IRS. Oh and by the way, paper filing isn’t allowed. This means you’ll be hit with a late penalty (assuming you eventually get a TCC and file), or even a non-filing penalty. This number could be as high as $640 per form that should have been submitted on time.

Remember that if you’re not a QI you need to submit a 1042-S for each client and each income type that received US sourced FDAP in 2023, so the penalties can rack up very fast because the number of forms will be much larger. The biggest penalty we’ve seen issued is $900,000, which dates back to 2016. The IRS have long memories!

At TConsult we support financial institutions in compiling and filing their 1042 and 1042-S documentation. We are fully registered with the IRS with a TCC of our own, which means we can help you file your documentation with the IRS FIRE Portal if you’re having trouble. If you need some support, or would like to know more, click here to book an appointment with one of our experts.