In the ever-evolving landscape of tax reporting, data reconciliation has become an essential step to ensure accuracy and prevent rejection and rework. The IRS introduced the Form 1042-S Data Integrity Tool over a year ago, offering taxpayers with Form 1042-S filing obligations the opportunity to reconcile their forms before submission. While the tool is free and the IRS does not have access to the submitted data, industry concerns remain regarding the potential insights gained from the analytics and how the IRS may utilize them.

The Importance of Data Reconciliation:

If data reconciliation is not already a part of your process for tax reporting, we urge you to consider implementing this crucial step. By reconciling your data, you can identify and address any discrepancies or errors before submitting your forms. This proactive approach not only helps prevent rejections and rework but also ensures compliance and accuracy in your tax reporting.

New Compliance Requirements for QI/QDDs: For QI/QDDs there is a new compliance requirement in Section 7.01(C) of the 2022 QI (Qualified Intermediary) Agreement. This requirement mandates a reconciliation schedule containing the total amounts received as a QDD (Qualified Derivatives Dealer), and payments generating outbound 1042-S reporting.  This reconciliation requires long and short positions, as well as equity and equity derivatives.  While currently only Delta 1 contracts fall under scope under 871(m), but if the rollout goes as planned, it is anticipated that beginning in 2025, all contracts with a Delta of 0.8 will need to be included.

S&P Global Market Intelligence's Tax Reconciliation tool:

To simplify the data reconciliation process and ensure clean and reconciled data for Form1042-S and Form 1042 submissions, S&P Global Market Intelligence (S&P Global) offers a highly configurable reconciliation engine. This engine is structured to look for data breaks across inbound and outbound payments, deposits, and remittances. As a bonus, the reconciliation tool also enables the preparation of Form 1042 directly in the application, streamlining your tax reporting workflow.

Data reconciliation is a critical step in the tax reporting process, allowing you to identify and rectify any discrepancies before submitting your forms. With S&P Global's reconciliation tool, you can streamline this process and ensure clean and accurate data for your Form 1042-S and Form 1042 submissions. Stay ahead of compliance requirements and minimize the risk of rejections and rework.

Contact us today to learn more about how S&P Global's Tax Reconciliation Tool can help your organization optimize your tax reporting efficiency.

Read the previous two blogs in our 3-part series:

• Blog 1: Streamlined Compliance with Real-Time Taxpayer Identification Number (TIN) Matching
• Blog 2: The Future of Tax Filing: Embracing Modernized e-Filing

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.