SIFMA Comments on E-Filing Regs, Cites Concerns With FIRE Changes

September 21, 2021

Mr. Casey Conrad
Office of the Associate Chief Counsel, Procedure and Administration
Attorney
CC:PA:LPD:PR (REG-102951-16), Room 5203
Internal Revenue Service
P.O. Box 7604, Ben Franklin Station
Washington, DC 20044

Re: Comment Request for Proposed Regulations for Electronic-Filing Requirements for Specified Returns and Other Documents (REG–102951–16)

Dear Mr. Conrad:

The Securities Industry and Financial Markets Association (“SIFMA”)¹ would like to take this opportunity to provide comments under the Internal Revenue Service (“IRS”) request for comments on the proposed regulations for electronic-filing requirements for specified returns and other documents.² In addition to our specific comments on these proposed regulations, SIFMA also wishes to express concerns regarding the recent IRS announcement to update the Filing Information Returns Electronically (“FIRE”) application process by requiring new users to authenticate their identities and create a new account through the IRS Secure Access (“SA”) Account to access the new online Information Return (“IR”) Application to obtain a Transmitter Control Code (“TCC”).

Comments on Electronic-Filing Requirements for Form 1042

Pursuant to Proposed Treasury Regulation § 301.6011–15(a), a withholding agent required to file Form 1042 (other than an individual, estate or trust) will be required to file its return electronically. This electronic-filing requirement will apply to Forms 1042 required to be filed for taxable years ending on or after the date of publication in the Federal Register of the Treasury decision adopting these rules as final regulations.

SIFMA supports the IRS's efforts to modernize the tax return filing process to require electronic filing of Form 1042 and shares the desire of the IRS to improve the timeliness and accuracy of refund and credits claimed by foreign persons that have amounts withheld. However, we wish to express two considerations with respect to the adoption of these proposed rules.

First, we believe it is appropriate to provide for an effective date to file Form 1042 electronically for the taxable year at least one year after the adoption and publication of final regulations. We believe the current effective date is too aggressive to permit the IRS and withholding agents to prepare for the electronic filing of this return. For example, if these proposed regulations are finalized later in 2021, withholding agents will be required to file Form 1042 electronically by March 15, 2022, with respect to the 2021 tax year. We respectfully request that the IRS provide the specifications for electronic filing of Forms 1042 as soon as possible, and once provided, more time to allow for the development of necessary schema, processes and system enhancements both by the IRS and withholding agents to file Form 1042 electronically.

Second, we request that the IRS give specific consideration to the process by which withholding agents will file Form 1042 electronically and submit attachments used to substantiate information contained on Form 1042. For example, a withholding agent that is required to file Form 1042 and that claims a credit for withholding performed by other withholding agents on Line 67 of the return, must provide Forms 1042-S received from such other withholding agents in order to substantiate the credit claimed. Other attachments that may be submitted with Form 1042 include, but are not limited to, Schedule Q required to be provided by a Qualified Derivative Dealer, explanations required under Section 9.04(B) of the Qualified Intermediary Agreement for making a Collective Refund claim, and cover letters. We ask that in developing the process by which Form 1042 is filed electronically that the IRS give specific consideration to how a withholding agent can submit these attachments to its electronically-filed Form 1042, and furthermore that the IRS remove the current requirement to provide copies of Forms 1042-S to support the claim for credit on Line 67 of the Form 1042. Because the IRS already has electronic copies of the Forms 1042-S from the other withholding agent that withheld the tax, it is duplicative to require these Forms 1042-S also be provided by the withholding agent claiming the credit.

Comments on the FIRE System Update to Improve the Information Return (IR) Application for Transmitter Control Code (TCC)

Earlier this year, the IRS announced intentions to improve the FIRE application process for new users.³ Specifically, beginning September 26, 2021, the IRS will replace the current Form 4419 (including the fill-in form) on the FIRE system and require new users to authenticate their identities and create a new SA Account to access the new online IR Application to obtain a TCC. Existing users will be able to use their current SA Account until late 2022, after which time these users will similarly be required to transition to a stronger identity proofing authentication process. Two Responsible Officials (ROs) required to be listed on the IR Application for TCC each must have an SA Account or sign up for one.

In order to obtain an SA Account, a user is required to provide the following information:

• An email address;

• The user's Social Security number (SSN) or Individual Tax Identification Number (ITIN);

• The user's tax filing status and mailing address from the most recently filed tax return;

• A financial account number linked to the user from one of these accounts:

  • Credit card (other than American Express, debit cards, or corporate cards);

  • Student loan;

  • Mortgage or home equity loan;

  • Home equity line of credit (HELOC); or

  • Auto loan; and

• A U.S.-based cell phone in the name of the user (for faster registration) or a mailing address where the user can receive an activation code by mail. (The IRS notes that a mailed activation code will take up to 10 business days to arrive and is valid for 30 days.)

SIFMA recognizes the need for the IRS to improve security features to maintain taxpayer information, but we are concerned that the information required to be provided by an RO in order to obtain an SA Account will significantly impede the ability for non-U.S. applicants to be able to obtain a TCC. Many of our members maintain significant U.S. tax operations outside the U.S., including teams responsible for QI filings, and the requirements to obtain an SA Account cannot be realistically satisfied by these non-U.S. employees. For example, a non-U.S. applicant who does not qualify for an SSN may find it difficult to acquire an ITIN and arguably should not be required to obtain an ITIN solely for the purpose of using the FIRE system. A non-U.S. applicant is unlikely to have a financial account maintained in the U.S. that is linked to their name. Also, a non-U.S. applicant that does not have a U.S.-based cell phone should not be required to rely on receiving via international mail a one-time code that is only valid for 30 days. Given the aforementioned proposed additional requirements for filing information returns and tax returns electronically using the FIRE system, we strongly encourage the IRS to evaluate ways to make the SA Account process more easily accessible to non-U.S. applicants.

Until the IRS is able to change the SA Account process to accommodate non-U.S. users, we recommend that any Form 1042 (once the proposed regulations described above are finalized), Form 1099 or Form 1042-S electronic filings by non-U.S. persons be exempt from the new SA Account process.

We note that, in response to industry comments about the SA Account process, the IRS recently issued an FAQ that non-U.S. filers have the option “to enlist a third party to file on their behalf or purchase a software package to support their electronic filing.” See “Frequently Asked Questions About the Information Returns (IR) Application for Transmitter Control Code (TCC),” FAQ #17. In light of client confidentiality and related issues, however, SIFMA does not believe it is feasible to require all non-U.S. filers to engage outside parties in order to “file on their behalf” where the requirements of the enhanced SA Account process cannot be satisfied.

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We appreciate your consideration of our recommendations. As always, SIFMA member firms will continue to work diligently and in earnest to comply with all regulatory changes and requirements. If you have questions and would like to discuss this matter, please do not hesitate to contact me at wcardon@sifma.org or 202-962-7465.

Respectfully submitted,

Liam Cardon
Assistant Vice President, Federal Government Affairs
Securities Industry and Financial Markets Association
Washington, DC

Cc:
John Sweeney
Kim Schoenbacher
Yuen Chan
Charles Rioux