Tax & Accounting Blog

Information Reporting on Form 1042-S, A New Challenge for Accounts Payable – Part 3: Payments to Third Parties Recipient Code

ONESOURCE, Tax Information Reporting, W-8 & W-9 Foreign Reporting, Withholding Management July 30, 2012

Occasionally, the beneficial owner of the income will request that the income that they are owed be paid to a third party. Although the payer may make the payment to the third party as requested, under the assignment of income doctrine, the income must still be reported in the name of the beneficial owner. Under this doctrine (defined in case law), a beneficial owner of income may not transfer their tax obligation on that income to another party. For example, if an individual who performs a service in the U.S. directs that the payment be made to another party (such as to their corporation or to a charity), the Form 1042-S must still be issued in the name of the individual who is the beneficial owner of the income, with determinations of withholding or exemption from withholding based on the attributes and documentation of the beneficial owner, not the third party.