One of my clients who played in the World Series of Poker asked me to prepare his Form 1042-S’s to show the required withholding for some of his backers. The 2012 form is available, and it looks identical to the 2011 form. I always look at the instructions just to make sure that nothing has changed. Well, I noticed this instruction:
You must file a Form 1042-S even if you did not withhold tax because the income was exempt from tax under a U.S. tax treaty or the [Tax] Code, including the exemption for income that is effectively connected with the conduct of a trade or business in the United States, or you released the tax withheld to the recipient.
While there are exceptions for reporting, gambling proceeds subject to a treaty exemption is not one of the exceptions.
Let’s look at how this plays out. Suppose Russ is backed by Jon in a poker tournament. Jon is a resident of the United Kingdom, has an ITIN, and has provided me with a correctly completed Form W-8BEN. I play in the poker tournament and do well; Jon’s share of my winnings is, say, $100,000. While there is no withholding required under the US-UK Tax Treaty, I must still complete a Form 1042-S and submit that to the IRS. The 1042-S is due by March 15, 2013. It must be submitted with a Form 1042-T (Annual Summary and Transmittal of Forms 1042-S); the 2012 Form 1042-T is not yet available.
This appears to be yet another consequence of FATCA. Under FATCA, the IRS wants international banks and tax agencies to send information to the IRS on Americans. Well, turnabout is fair game; other countries want data on their taxpayers, too.
This is yet more paperwork being sent for no particularly good reason, and yet more work for tax professionals. Well, I keep telling my friends I have lifetime employment–this is yet another example of why.
[…] Note: Even if no withholding is required a Form 1042-S must be submitted to the IRS. See this post. […]