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"False Positives" on 1042-S Spur IRS to Action for Foreign Students

A recently completed review by the IRS shows some foreign students have difficulty getting a refund of the withholding tax they reported on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. So the Internal Revenue Service is working to remedy the situation.

The review showed the IRS processing system was generating “false positives” by flagging some foreign students’ returns for further review and validation for issues that carry a minimal risk of fraud or erroneous refunds. At first, it was thought the problem stemmed from the IRS software, but now appears more due to the process itself.

A statement from the IRS says work is going on in several areas to make the necessary corrections.

“We are working as quickly as possible to identify all the taxpayers whose refunds are being held as a result of this process.  As they are identified, we will release the hold and issue the refunds (with interest, in instances where we have exceeded the 180-calendar-day period for processing these refunds).”

Those taxpayers whose withholding credits were denied will have that credit restored. This will eliminate any balance due and stop any fines or penalties. The IRS also promises not to put a hold on any more 1042-S returns until the revamped process is in place.

As for the taxpayers, no additional action is needed by anyone who has filed Form 1040NR to request a refund of their 1042-S withholding.

Source: Internal Revenue Service

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