The purpose of Document Perfection is to code and edit (perfect) returns and other documents for input to the Master File (MF) through the Integrated Submission and Remittance Processing System (ISRP) or the Service Center Recognition Image Processing System (SCRIPS). In addition, Document Perfection forwards any other documents or attachments not related to the processing of the returns to function responsible for handling them.

It is not the purpose of Code and Edit to mathematically verify or to check the validity of the returns and other documents being processed unless otherwise specified in the applicable section. The computer and/or Error Correction (Resolution) performs these functions if the returns and other documents are coded and edited as prescribed in applicable subsections of this section.

Instructions in this manual are for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.

Authority for these procedures includes the following sections of the Internal Revenue Code (IRC) and their corresponding Treasury Regulations:

The Director, SP Office monitors operational performance for the Submission Processing campus.

The Operations Manager monitors operational performance for the operation.

The team manager/lead performance and ensures employees have the tools to perform their duties.

The team employees follow the instructions contained in this IRM and maintaining updated IRM procedures.

Program Reports: The Monitoring Section under Submission Processing Program Management/Process Assurance monitors the Code and Edit reports.

Program Effectiveness: The program goals are measured by the following reviews:

Annual Review: This IRM is updated and published annually after review by affected offices according to the clearance process established in IRM 1.11.9, Internal Management Documents, Clearing and Approving Internal Management Documents (IMDs).

Quality Review is conducted following Embedded Quality Submission Processing (EQSP) procedures in IRM 3.30.30. The EQSP system provides a method to monitor, measure, and improve the quality of the work throughout Submission Processing. Review data is used to identify trends, problem areas, training needs, and opportunities for improvement. A statistical valid sample size of returns are pulled weekly and input into the EQSP system for review and to ensure IRM guidelines are followed.

See Exhibit 3.21.110-8 for a list of terms and definitions used within this IRM.

The Submission Processing Design Center has created Job Aid 2544-701 to help tax examiners with processing this form.

The Form 1042 is processed under:

The National Taxpayer Advocate reached agreements with the Commissioners of the Wage and Investment (W&I) Division, Small Business and Self-Employed (SBSE) Division, Tax Exempt Government Entities (TEGE) Division, Criminal Investigation (CI), Appeals, and Large Business and International (LB&I) Division, that outline the procedures and responsibilities for processing Taxpayer Advocate (TAS) casework when either the statutory or delegated authority to complete case transactions rests outside of TAS. The agreements are known as Service Level Agreements (SLAs).

The SLAs are found at https://irsgov.sharepoint.com/sites/TAS/SitePages/SLA.aspx

Correspondence is all written communications from a taxpayer or their representative, excluding tax returns, whether solicited or unsolicited. This includes:

The key to identifying taxpayer correspondence is to ask the following questions:

Issue correspondence to resolve any conditions causing the return to be unworkable or unprocessable.

If the return is incomplete and doesn’t appear to be a return meant for filing or is a conduit for providing information (e.g., indicates "payment only" ), give the return to the lead. The lead must determine the correct course of action. The lead researches for a Transaction Code (TC) 150 and any other information necessary to determine if the return should continue processing, is as an amended return, or must be routed to another function. An incomplete return could include any of the following:

Examine the return for all unprocessable conditions before initiating correspondence.

If missing page 2, correspond using Letter 1791C CAS, and mark Line 22.

Correspondence Imaging Inventory (CII) is an inventory system for scanning Account Management (AM) receipts into digital images and working the cases from those images.

"CII" returns show a "CII Image - Do not correspond for Signature" stamped below the signature line or a "CII" annotation on the front of the return.

Verify all edit marks and ensure placement is correct on a "CII" return.

Follow the correspondence instructions below for "CII" returns:

Early-filed returns must be held for processing at the beginning of the appropriate processing year. See Figure 3.21.110-1.

An early-filed Form 1042 for Tax Period 2023 (filed before January 1, 2024) must be held for processing until January 2024.

Edit Action Code 480 on early-filed returns to suspend them to Rejects until the returns can be processed.

Figure 3.21.110-1

Early-filed Form 1042 returns must be held for processing until the beginning of the appropriate processing year. These returns cannot be processed prior to January of the proper processing year.This graphic shows a current Form 1042 return with the tax year crossed out in red and replaced with TY 2024 to indicate an early filer.The name of the withholding agent is William Shepherd Inc.The address is 107 Fisher Bay Drive, Jackson, MS 39205.The taxpayers EIN is 00-5684567.Lines 3 and 5 show an amount of 300.The received date stamp on the return is 02002024.Line 61 shows three Forms 1042-S returns were electronically filed.There is an entry of 3000 on lines 62a and 62c.The return is signed by Patricia Shepherd with the date of 1/20/24.Action Code 480 is edited in red on the lower left corner of the return.

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Process a signed return containing no line entries as a non-taxable return. This includes a signed return with notations such as Not Liable, etc.

Process as final any return stating Final, No longer in business, Do not file this form, etc. if the required signature is shown. A signature is not required if the taxpayer shows they received the wrong type of return, and another type of return is filed provided the following actions are taken before CCC "F" is entered:

If the Form 1042 shows it is a Fiscal Year return:

Any return with a received date two years and nine months or more after the Return Due Date is a potential statute control return.

Route Statute returns to the Statute Control Unit daily or more often if needed.

If any of the conditions listed below are present, don’t route to Statute Control Unit for clearance. Instead, edit CCC "W" , and continue processing.

If a return has any of the following computer paragraphs (CPs) or letters attached, do not route to Statute Control Unit for clearance. Edit CCC "W" if the return needs processing. See IRM 3.21.110.14, Routing Guide for Attachments, for more information.

If a return has a Form 12412, Operations Assistance Request (OAR), from TAS and is a potential statute control return but is not stamped, "Cleared by Statute" , give it to the lead. The lead contacts the TAS employee listed on the OAR for rejection of the return and sends it back to TAS for clearance by the Statute Control Unit.

Statute returns are unprocessable until cleared by Statute Control.

Edit CCC "W" if the Statute Control Unit stamps or shows clearance on the front of the return.

Follow the chart below to determine if CCC "W" is needed:

Reprocess a return posted to the wrong account or module to post it to the correct account module.

Some re-entry returns may have originally been filed electronically (E-File) or via Modernized E-file (MeF). These returns may be identified by the presence of Mod E-File printouts in lieu of the actual return. Do not correspond for missing signatures on these documents.

Each re-entry return must have a Form 3893, Re-Entry Document Control, or Form 13596, Reprocessing Returns, attached.

Always leave Form 3893 or Form 13596 on the front of the return. It must remain as a permanent part of the document.

Examine Form 3893 or Form 13596 to determine the action needed to make the return processable (See Figure 3.21.110-2)

If it is determined an unprocessable condition exists, edit the proper CCC. Circle out any incorrect CCC(s) and any other edit marks no longer applicable. Re-edit according to current processing instructions.

Line through DLN.

A return is considered Amended based on the following:

Examine the return for attachments:

Follow the instructions in the chart below when there is an indication of an amended return.

The following data must be present on all amended returns:

A return is normally delinquent if it is not received on or before the Return Due Date (RDD). However, accept the return as timely filed if the received date is within the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 3.10.72, Receiving, Extracting, and Sorting or IRM 3.10.73, Batching and Numbering.

Accept a return as timely if:

Consider a return timely if the Post Office might have sent it to another government agency in error, or if the original envelope bears a timely postmark or a timely date stamp by that agency. However, if the return was erroneously addressed to another agency, it is date stamped with the date when the IRS received it.

See IRM 3.21.110.16.4.1, for information on the due date of Form 1042.

If a return is delivered to the IRS after the date prescribed for filing, but the postmark date falls on or before the prescribed date for filing the return, then consider the return timely, and edit the timely postmark date in MMDDYY format on the dotted part of Line 62b(1).

If the Form 1042 is delinquent, check the return for an explanation of late filing. If the taxpayer attaches correspondence with a reasonable cause explanation for failure to file a timely return, take the following action:

Compliance functions secure returns from the taxpayer and prepare returns if the taxpayer does not provide them.

Compliance notates:

Businesses use frivolous arguments for expressing dissatisfaction with the substance, form or administration of the tax laws by trying to illegally avoid or reduce tax liabilities. See IRM 25.25.10, Frivolous Return Program, and Exhibit 3.21.110-7, Potential Frivolous Arguments for Examination Review, for a list of recognized frivolous arguments made by businesses.

Review the return to decide if it is a frivolous return.

Do not consider the following returns as frivolous, unless there is other evidence of a frivolous argument:

Document Perfection identifies refunds in jeopardy and requests manual refunds.

Upon receipt of a prior year Form 1042 return with a tax year prior to the current processing tax year, first determine if the return is for the year shown on the return or for the current year.

If the return is for the current processing tax year,

If the return is for a prior tax year:

Action Codes are used to indicate whether correspondence, research, or some other action is needed. The Action Code sets the suspense period for the return and places the return in the workable or unworkable suspense inventory.

When necessary, assign a three-digit Action Code.

Edit the Action Code in the bottom left margin of the return.

Assign Action Codes in the following priority:

Use the following table if more than one Action Code is needed:

Edit the following Action Codes when a return cannot be perfected:

Continue perfecting the return after editing the Action Codes. For a valid list of Action Codes, see Exhibit 3.21.110-6.

For more information and applicable Action Codes, see IRM 3.12.38.3.4, Error Resolution System (ERS) Action Codes, and the exhibit in IRM 3.12.38-1, Action Codes.

If the Form 1042 shows bankruptcy (e.g., shows "Receiver" , "Trustee" , or "Debtor in Possession" ) in the entity area or on an attachment, route to Entity Control. Follow local procedures using Form 13934, Entity Document/C&E Merge Transmittal.

Completely edit the return except the name control prior to routing to Entity Control.

Identifies whether the return is an amended return or original. See IRM 3.21.110.15.6 Amended Returns.

The IRS Use Only box is used to list:

Computer Condition Codes (CCC) identify special conditions or computations for the computer. CCCs post to the Master File.

CCC’s are edited on the CC line of the For IRS Use Only box in the upper right corner of Form 1042.

The date a document is received in the Campus or IRS Office is the date stamped as the "IRS Received Date."

All 1042 returns require an IRS received date.

When a Form 1042 is delinquent and the taxpayer explains the return is late due to the rejection of a timely filed electronic return, check the return for a MeF rejection notification.

If a MeF rejection notification is not attached, perfection of the Received Date is not necessary. If a notification is attached, edit the IRS Received Date in MMDDYY format as follows:

The received date may or may not be stamped on the face of the return.

A valid received date Stamp may consist of the following (MMDDYY):

If the IRS received date stamp is not present or the date is illegible or invalid, edit the IRS received date in MMDDYY format to the dotted part of Line 62b(1) on the Form 1042. Edit the IRS received date according to the following priority:

Edit the received date as follows:

If a return was faxed to another area of the IRS and then sent to Submission for processing, do not edit the Enterprise Electronic Fax (EEFax) Date as the IRS received date. Edit a received date according to normal procedures. See IRM 3.21.110.16.4.

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Valid characters are 1 and blank.

Edit this code on the "I" line of the For IRS Use Only box in the upper right corner of Form 1042 when the pre-computed delinquency penalty and/or interest is shown on a return with a received date (stamped or improvised) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

The EIN is a nine-digit number (XX-XXXXXXX) assigned to identify the taxpayer.

The EIN is in the upper right of Form 1042.

Determine the EIN as follows:

Figure 3.21.110-3

Figure 3 gives instructions for tax examiners when there is more than 1 EIN written on the Form 1042. The Figure shows a current Form 1042 return with two Employer Identification Numbers listed on the return and a sample of Form 4227, Intra-SC Reject or Routing Slip. The Form 4227 has the following entries: Date: current date enteredRoute: to Entity Control area checkedReason: Other data box checked, and Multiple EINs written as explanationTE stamp 924 is presentThe Form 1042 has the following entries:Name of Withholding Agent: James Harrier. The name control Harr is underlined.Street Address: 20 Elk AveCity/State/Zip: Kansas City, KS 66110EIN: 00-5692339, 00-8852647

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Figure 3.21.110-4

Figure 4 gives instructions to the tax examiners when a Partial TIN is entered on the return. The figure shows a current Form 1042 return with a partial EIN and a sample Form 4227, Intra-SC Reject or Routing Slip (inset).The Form 4227 has the following entries: Date: current dateRoute to: Entity Control box is checkedReason: Partial EIN is writtenTE StampForm 1042 has the following entries:Name of withholding agent: Barbara Pincher PCAddress: 68 Gopher StreetCity, state, zip: Pittsburgh, PA 15219EIN 00-96342Signature and date signed

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Listed below are the most common conditions indicating an entity change requiring a new EIN.

The type of entity present on the return determines the name control procedures.

The name control consists of four characters or less.

See Document 7071-A BMF Name Control Job Aid to properly determine the name control.

Edit the name control as follows:

An in-care-of name can be identified by the words "in-care-of" or the symbols "c/o" or "%" (percent).

Ensure the in-care-of name is located above the street address.

Determine a change in the in-care-of name by any of the following:

"Special Considerations"

Perfect the address when the mailing address (Street or P.O. Box) is not easily identified.

A business may have two addresses. One is the mailing address, and the other is the location address or physical location of the business.

Perfect the address as follows:

The U.S. Postal Service established new address requirements for APO/FPO/DPO addresses. If it is an old address (i.e., APO New York, NY 191XX), convert to the new state code abbreviation based on the zip code. (i.e., the previous example would be converted to APO AE 091XX). Consider APO/FPO/DPO addresses as domestic addresses. See the Conversion Chart below:

Figure 3.21.110-5

Figure 5 is an example of a taxpayer submitting a current Form 1042 with both a street address and a P.O. Box entered in the entity area of the return. The figure shows the top portion of a Form 1042 with the P.O. Box underlined on the address line and TC 014 edited in the upper-left hand margin. The name control of the withholding agent is underlined in red.

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Figure 3.21.110-6

Figure 6 is an example of a taxpayer entering more than one street address on a current Form 1042. The figure shows the top portion of a Form 1042 with two street addresses listed on the address line. The second street address is underlined, and a TC 014 is edited in the upper-left hand margin. Also, the name control of the withholding agent is underlined.

Please click here for the text description of the image.

Use Job Aid 2324–002, Coding and Editing BMF Tax Returns, Foreign Addresses Job Aid, to edit foreign addresses.

A foreign (international) address is any address not in the 50 states or the District of Columbia.

Consider returns with Army Post Office (APO)/Fleet Post Office (FPO)/Diplomatic Post Office (DPO) addresses as domestic addresses. See IRM 3.21.110.18.4, Entity Perfection - Domestic Address.

Route returns with a foreign address to Ogden Submission Processing Center (OSPC) for processing. Prepare Letter 86C, Referring Taxpayer Inquiry/Forms to Another Office, to inform the taxpayer IRS sent the return to Ogden.

Consider returns with addresses in the following U.S. possessions/territories as foreign for processing purposes. Edit in the same way as domestic addresses.

All other foreign addresses are edited the same as a domestic address with the following exceptions:

"X" any negative entries.

If blank, take the following action:

If required to edit, entries should be made in Dollars and Cents.

May or may not be present.

"X" any negative entries.

May or may not be present.

"X" any negative entries.

May or may not be present.

If blank and there are entries leading to a total, compute and enter by adding lines 62a-b.

If required to edit, entries should be made in dollars and cents.

"X" any negative entries.

May or may not be present.

All amounts must be positive.

"X" a negative entry.

If required to edit, entries should be edited in dollars and cents.

If the return is completely blank, follow instructions in IRM 3.21.110.15.2, Non-Taxable Returns With No Line Entries.

May or may not be present.

"X" any negative entry.

May or may not be present.

"X" any negative entry.

May or may not be present.

"X" any negative entry.

Line 63c is not a reporting field and contains header information only.

Reporting information is broken down in 63c(1) and 63c(2).

This line should match the total of amounts in box 9 on all Form 1042-S.

May or may not be present.

"X" any negative entry.

Delete entry if that line is being used as a subtotal line (i.e., Line 63a=63d=63e).

This line should match the total of amounts in box 11 on all Form 1042-S.

"X" a negative entry.

If Line 63e is blank:

May or may not be present.

May be positive or negative.

TY15 and prior: A statement justifying the adjustment must be attached. Correspond if missing using Letter 1791C CAS, and open paragraph 0 (zero) with the following literal: "Your Form 1042 for tax year xxxx contains an amount listed as an adjustment to total net tax liability. A statement justifying the adjustment must be attached. Please submit the required statement."

May or may not be present.

"X" any negative entries.

If Line 64a-64d are blank and 64e has an entry, edit the Line 64e amount to Line 64b.

May or may not be present.

"X" any negative entries.

May or may not be present.

"X" any negative entry.

Perfect Line 64e as follows:

May or may not be present.

X a negative amount.

May or may not be present.

X a negative amount.

Accept taxpayer's entry.

Section 2 Line 2 is not a reporting field and is header information only.

Reporting components are broken down into Lines 2a, 2b, 2c, 2d, and 2e.

Accept taxpayer's entry.

If blank and there are entries leading to a total, compute and edit by adding Lines 2a-2d.

Accept taxpayer's entry.

If blank and there are entries leading to a total, compute and edit by adding Lines 1 and 2e.

Accept taxpayer's entry.

If blank, compute and edit by adding Lines 62a, 62b(1) and 62b(2) in Section 1.

Accept taxpayer's entry.

If blank, compute and edit by subtracting Line 3 from Line 4.

Entry may be positive or negative.

If explanation is present, edit a "1" in the right margin area of Line 6. See Figure 3.21.110-10.

If explanation is NOT present, but is required, edit a "0" in the right margin area of Line 6.

Figure 3.21.110-10

Editing Line 6 of Section 2This figure shows a current year Form 1042 with a variance explanation on Line 6 of Section 2. The explanation of the variance between, Total U.S. source FDAP income reportable under chapter 4, and, Total U.S. source FDAP income reported on all Forms 1042-S, is a reflection from last year. An edited 1 is present in the right margin area of Line 6.

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The Third Party Designee checkbox is located above the taxpayer signature line. It shows whether the taxpayer has elected to allow the Third Party Designee to answer questions about the taxpayers return as it is processed. No action is required.

The Third Party Designee phone number is located below the checkbox. No action is required.

Circle out if illegible. This field can be up to 5 characters long. The entry may be any alpha (i.e., A to Z) numeric (0 to 9), or any combination of both. The PIN number is self-selected by the taxpayer or designee. It is not assigned by IRS.

The Preparer's EIN or PTIN is located to the right of the Preparer's Signature at the bottom of Form 1042.

No action is required on amended returns.

A valid PTIN begins with the alpha "P" followed by an eight-digit number (e.g., PXXXXXXXX). Circle the SSN/PTIN if it is invalid or any repeating 9 digits.

Valid characters are numeric (0 thru 9) and alpha "P" only.

Circle the entry if:

The FIRM's EIN (Paid Preparer's EIN - 2009 and prior revisions) must be a nine-digit numeric number. The FIRM's EIN is entered in NN-NNNNNNN format. The FIRM's EIN cannot be all zeros or all nines.

No action is required on amended returns.

Circle the FIRM's EIN (Paid Preparer's EIN - 2009 and prior revisions) if all zeros, all nines, or any repeating 9 digits.

The Paid Preparer's Phone Number is located below the Paid Preparer's EIN at the bottom right corner of Form 1042.

If the return is for a tax period prior to 2001, circle the telephone number.