U.S. Tax Information Reporting: Impacts, Deadlines & Preparation Tips

As we begin the third quarter of 2025, it’s clear that U.S. tax information reporting continues to evolve at a fast pace. In this blog, we will be sharing key updates from the U.S. Internal Revenue Service (“IRS”), trends we’re seeing in the market, and what this means for current and future tax information reporting seasons.

E-Filing Regulations

Historically, the IRS has permitted withholding agents to file certain tax returns on paper.  The e-filing regulations introduced on February 23, 2023, imposed a mandatory electronic filing obligation on all withholding agents (refer to IRS Notice 2024-26 for details).  In response to industry feedback the IRS recently extended the mandatory Form 1042 e-filing requirement for U.S. withholding agents to match that of foreign withholding agents. Therefore, all withholding agents are exempt from the mandatory Form 1042 e-filing requirement for tax years prior to 2025.

The electronic Form 1042 is filed via an XML schema through the IRS Modernized e-File (“MeF”) platform, which is not available to all withholding agents. The IRS maintains a list of approved 1042-MeF filers on its website.

The above e-filing requirement applies to all withholding agents (excluding an individual, trust or estate) that:

1. Is required to file 10 or more returns of any type during the calendar year in which Form 1042 is required to be filed.

2. Is a partnership with more than 100 partners (no minimum no. of returns filing requirement in a calendar year).

3. Is a financial institution (no minimum no. of returns filing requirement in a calendar year).

As a reminder, the requirement for withholding agents who hold status as a Qualified Intermediary (“QI”), Qualified Securities Lender (“QSL”) or Qualified Derivatives Dealer (“QDD) to file their Form 1042-S returns through the IRS FIRE system, remains unaffected.

Publicly available QI List

The 2023 QI Agreement imposed a requirement for all entities wishing to obtain or renew status as a QI, to agree to be included on a public register updated by the IRS on a quarterly basis (the “QI List”).  The QI List comprises entities that have maintained a Qualified Intermediary - Employer Identification Number (QI-EIN) two months or more before the first week of each quarter.  It contains the entity name, Foreign Account Tax Compliance Act Global Intermediary Identification (FATCA GIIN), last two digits of the QI-EIN and an indicator as to whether the entity holds QDD status.

We noted several cases where a QI is not on the list due to timing issues (as entities who obtain QI status in the first month of a quarter may not appear on the subsequent quarterly update), errors of omission by the IRS or due to a failure by the entity to adequately respond to IRS inquiries during their QI status renewal process. We therefore encourage QI’s check the quarterly list as they are released (Q2 2025 QI list). There is currently no regulatory requirement to verify claimed QI status on an annual basis (unlike the obligation to verify the FATCA GIIN).

Interestingly, we have noticed two seemingly unintended uses of this quarterly QI list:

1. Industry comparison: Speaking with several banks, exchanges, brokers and custodians, we understand many of these financial institutions are using this list to identify if their competitors, that offer access to U.S. equities and instruments, have obtained QI status.  Discovering that a competitor has obtained QI status, may spark conversations within these financial institutions to develop business cases to also obtain QI status.

2. Reduced access to omnibus account structures: More and more, we are observing that custodians will not permit banks/brokers without QI status to open and maintain omnibus accounts. Custodians are utilizing the QI list to immediately rule out potential new business if the counterparty is not a QI. Generally, custodians want to reduce their operational and regulatory risk while benefiting from the advantages of servicing other QI’s. These benefits include:

• Simplified documentation flow where the QI provides a Form W-8IMY and applicable withholding statement. There is no requirement for the QI to pass up account holder documentation which in turn lowers the administrative burden for the custodian, whilst maintaining privacy for the QI customer.
• The ability to pay QI counterparties U.S. source income either gross or net of U.S. withholding taxes. This contrasts with the regulatory obligation to calculate the withholding tax liability based on underlying customer tax documentation provided by the Non-Qualified Intermediary (“NQI”), or absent disclosure of this documentation, to apply the maximum tax withholding rates.
• Reputational credibility amongst the market as QI status signals strong tax compliance governance.

S&P Global Tax Solutions has assisted several banks and brokerage houses apply for QI status, as more and more institutions offer access to international markets. Our subject matter experts have performed impact assessments for the interested party to support internal projects and budget for becoming a QI themselves.

Withholding Foreign Partnership (“WP”) & Withholding Foreign Trust (“WT”)

The IRS further extended the WP/WT Agreement contained in Revenue Procedure 2017-21 by a further calendar year. The IRS has signaled the changes contained in the 2023 QI Agreement will be incorporated in the revised WP/WT Agreement. The introduction of a mandatory reconciliation of U.S. source income similar to the Appendix III reconciliation in the 2023 QI Agreement, may pose a significant challenge. Therefore S&P Global recommends WPs & WTs to review the Appendix III requirements and prepare accordingly.

It is likely that the QI List will be expanded to include details of entities with WP/WT status in the future.

QI Appendix III reconciliation

Appendix III of the 2023 QI Agreement introduced a requirement for Qis to complete and file a reconciliation of their annual U.S. information reporting as part of the QI Responsible Officer Certification of Compliance. We understand this was introduced to assist the IRS assessment of the QI’s reporting compliance. The reconciliation should identify any variances between the reported income and tax withheld on the Forms 1042-S issued to and by the QI and reported on their respective Form 1042.

S&P Global Tax Solutions has assisted several QI’s in completing the Appendix III reconciliation and observed the following:

1. Impact of documentation/coordination errors on accuracy of Form 1042-S reporting – We observed several cases where upstream withholding agents issued Forms 1042-S treating an entity with QI status as an NQI, as it did not associate the Form W-8IMY issued in a QI capacity to the correct accounts.

2. Claim for withholding tax liability credit  – In certain cases, QIs received Forms 1042-S  listing  ‘Unknown Recipient’ in box 13a rather than the QI’s name. This made it difficult for the QI to claim credit for the withholding. The QI may receive a Penalty Notice from the IRS as they are unable to grant a QI a credit for taxes withheld on Forms 1042-S issued incorrectly.

3. Variance Explanation – S&P has noted variances in reporting where QI personnel struggle to identify the reasons for the variances due to the elapsed time since they occurred. S&P recommends QIs complete the reconciliation annually as part of the Form 1042 filing cycle, rather than at the end of the certification cycle to ensure variances are known and reasonable.

Section 871(m) compliance

The §871(m) regime became effective on January 1, 2017. Although full implementation and QDD activities are not subject to an independent periodic review, the IRS requires entities to certify 'best efforts' compliance with the regime for all applicable transactions when filing the QI Responsible Officer Certification.

The long-awaited effective date for the non-delta one threshold under §871(m) to move to 0.8 or above appears no closer. Having had an initially proposed implementation date of 1 January 2018, the non-delta one threshold provisions have already been delayed five times:

It remains to be seen whether there will be further extensions.

Entities who offer equity linked instruments that are in scope of the §871(m) regime (e.g., Contract for Differences (“CFDs”), options, and futures) to retail investors are encouraged to review their current processes and assess whether QI-QDD status would be beneficial. As a reminder, entities engaged in securities lending and repo transactions should review their §871(m) compliance processes and assess whether upgrading their status to QI-QDD would be beneficial.

The expiration of the transitional relief requires entities to have regard to the following:

• The expiration of the delta one threshold transitional relief will result in more equity linked instruments being subject to U.S. withholding and information reporting.
• The required QDD reconciliation described in section 7.01 of the 2023 QI Agreement.
• Excess dividend income identified by the QDD  in the section 7.01 reconciliation will be subject to withholding tax. This is separate from the existing QI-QDD withholding obligation, which remains unchanged.

[Source: Instructions for Form 1042-S (2025)]

Conclusion

The Tax Solutions business within S&P Global has developed a range of tailored solutions that directly address the challenges highlighted throughout this blog. Such as, the S&P Global Tax Reporting tool which generates the electronic returns (1099 series, 1042-S and 1042), and S&P Global’s §871(m) screening tool to identify which financial instruments are in scope for these provisions. S&P is one of a limited number of business providers authorized to file the Form 1042 electronically.

By leveraging advanced technology and industry expertise, we have successfully streamlined processes that were once complex and time-consuming. These innovations not only enhance operational efficiency but also provide financial institutions with the agility and precision needed to navigate an ever-evolving landscape.