December 5, 2022

Mr. John Sweeney
Special Counsel, Office of Associate Chief Counsel (International)
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Mr. Subin Seth
Senior Counsel, Office of Associate Chief Counsel (International)
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

RE: Draft Instructions for Form 1042-S (2023)

Dear Gentlemen:

The Securities Industry and Financial Markets Association (“SIFMA”)1 is pleased to provide you with comments on the draft 2023 Instructions for Form 1042-S (“Draft Instructions”). We appreciate your continued engagement with SIFMA on guidance under section 1446(f), including the Form 1042-S instructions.

Reporting payments subject to withholding under sections 1446(a), 1446(f), and either 1441 or 1471

As previously commented by SIFMA2 regarding the final section 1446(f) regulations, a single publicly traded partnership (“PTP”) distribution may be subject to withholding under sections 1446(a), 1446(f), and either 1441 or 1471. For example, a PTP may designate on a qualified notice a $1,000 distribution as follows: $500 effectively connected income (“ECI”) subject to section 1446(a) withholding; $200 amount in excess of cumulative net income (“CNI”) subject to section 1446(f) withholding; $400 U.S. source FDAP income classified as dividends subject to section 1441 or 1471 withholding; and $100 U.S. source FDAP income classified as portfolio interest subject to section 1441 or 1471 withholding. Such a distribution to a foreign non corporate partner who is documented on a valid beneficial owner withholding certificate, is not treaty eligible, and is not subject to FATCA withholding would be subject to total withholding of $325, comprised of: (1) $185 ($500 x 37%) withholding under section 1446(a); (2) $20 ($200 x 10%) withholding under section 1446(f); (3) $120 ($400 x 30%) withholding under section 1441 (dividends); and (4) $0 ($100 x 0%) withholding under section 1441 (interest).

 

1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

2 Please see our comment letter dated February 24, 2021.