ISSUE
March 15 is the annual filing deadline for those schools required to file Form 1042-S for payments to foreign students in amounts that are not QTREs. Do you know how to extend these filings, if necessary?
SITUATION
Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii). They are required to file Form 990 annually.
DCC’s CFO calls us to say that they have made their IRS EFTPS payments during the year for the required withholding from “Form 1042-S” (non-“qualified tuition and related expenses”) scholarship payments to foreign students from non-U.S. Tax Treaty countries. (How’s that for a tangle?)
Now, the accounting team at DCC is wondering what to file for 2017 with the IRS and what to give to the various students.
We answer that, because they are filing fewer than 250 Forms 1042-S, they may file their Forms 1042-S in paper form with Form 1042-T (Annual Summary and Transmittal of Forms 1042-S) with the IRS by March 15 (unless extended). In addition, they must file Form 1042, “Annual Withholding Tax Return for U.S. Source Income of Foreign Persons” by March 15 (unless extended separately). Also, copies of Form 1042-S must be given to the “recipients” (students, scholars, etc.)
“RULES”
From 2017 Instructions for Form 1042-S (under “Amounts Subject to Reporting on Form 1042-S”):
Students, teachers, and researchers. Amounts paid to foreign students, trainees, teachers, or researchers as scholarship or fellowship income, and compensation for personal services (whether or not exempt from tax under an income tax treaty), must be reported. However, amounts that are exempt from tax under section 117 are not subject to reporting.
From I.R.C. section 117(b)(2):
(2) Qualified tuition and related expenses.
For purposes of paragraph (1) , the term “qualified tuition and related expenses” means-
(A) tuition and fees required for the enrollment or attendance of a student at an educational organization described in section 170(b)(1)(A)(ii) , and
(B) fees, books, supplies, and equipment required for courses of instruction at such an educational organization.
From 2017 Instructions for Form 1042-S:
Extension of time to file. To request an extension of time to file Forms 1042-S, file Form 8809, Application for Extension of Time To File Information Returns. See the Form 8809 instructions for where to file that form. You should request an extension as soon as you are aware that an extension is necessary, but no later than the due date for filing Form 1042-S. By filing Form 8809, you will get an automatic 30-day extension to file Form 1042-S. If you need more time, a second Form 8809 may be submitted before the end of the initial extended due date.
From 2017 Instructions for Form 1042:
Extension of time to file. If you need more time to file Form 1042, you may submit Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.
Form 7004 does not extend the time for payment of tax.
BOTTOM LINE
- Payments and scholarships to foreign students that are not “qualified tuition and related expenses” (i.e. room, board, etc.) must be reported on Form 1042-S annually.
- Three forms are involved: 1) Form 1042-S (copies to IRS and student/scholar); 2) Form 1042-T (transmittal form for paper-filed Forms 1042-S); 3) Form 1042, “Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.” Deadlines for all = March 15.
- For non-“QTREs” to students/scholars from countries that do not have an applicable tax treaty with the U.S., withholding of 14% is generally required.
- For more on U.S. Tax Treaties, see IRS Publication 901, especially the sections, “Students and Apprentices” and/or “Professors, Teachers, and Researchers.”
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
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