Episode 18: Can't E-File Form 1042? Skip the Waiver — Do This Instead

Form 1042 is due March 16th, and e-filing it is more complicated than you might expect. Jason Dinesen explains why Form 1042 uses the IRS's MeF system instead of IRIS or FIRE, what the e-file mandate means for your organization, and why filing a Form 7004 extension is likely your best move if you don't have a clear path to electronic filing.

Sponsored by IOFM — iofm.com.

Transcript

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Form 1042 is coming due on March 16th and could prove to be a problem for some organizations as far as getting it filed electronically. That's what we're going to talk about today on Information Return Intelligence. Information Return Intelligence is brought to you by IOFM, the Institute of Finance and Management. Find out more at IOFM.com. Welcome to this week's episode of Information Return Intelligence. I'm Jason Dynason. This is a fast-moving weekly podcast where we talk about all things relating to information returns, 1099s, 1042s, etc., etc. And today we want to talk about Form 1042 and a unique filing problem that some organizations might have this year with this form. So first let's set the stage. What is Form 1042? That's one of those forms where if you have to file it, you probably know about it. If you don't ever have to deal with Form 1042 S, then you don't have to deal with Form 1042. So what is it? Well, Form 1042S is like a 1099 equivalent. It's not exactly, but I think that that's a very brief elevator pitch type of explanation. If something could be reported on a 1099 and you are paying a foreign person, then that's where Form 1042S comes into play. Instead of a 1099, that foreign person gets a 1042s. So that part, you file that with that foreign person. Then you have Form 1042, which is a summary form. So basically, everything that's going on the 1042s, all of your 1042s get rolled together and you put the summary information on Form 1042. So with that crash course, in what we're talking about here, let's talk about the issue with filing Form 1042, which some of our listeners may run into this year. The IRS maintains several different systems for taking in returns electronically when you e-file. Anytime that you have ever e-filed a 1099 or a 1042s, it is going to the iris or fire systems at the IRS. Logins to Iris and FIRE are common for organizations, meaning organizations have their own login and go in and upload filings. There are file specifications, file formatting, and such that you have to meet. And then you upload that filing, and that takes care of your e-file obligation for the year with the IRS as far as information returns go. Or you can use software or an online platform where you're interacting with that software or platform, and then you push submit, and the platform is connected to iris or fire. So that's why I say if you've ever e-filed, you're using iris or fire. The IRS has several other systems. Most notably for what we want to talk about today is MEF, Modernized e-file system. When your organization files its corporate or partnership or nonprofit return, it's going to MEF. Form 1042 is considered a tax return filing. Therefore, the IRS has it sent to MEF. That's a bigger deal than you might think because that means you're e-filing your 1042s forms in iris or fire, and then you have to use a completely different system. Like I said, organizations having their own direct login to iris or fire is very common. It's probably close to zero for having a login to MEF. MEF really is intended for like software providers, software companies. And this becomes a big deal with Form 1042, because we have what's called the e-file mandate, which has been with us for several years now, which says with information forms such as 1099 and 1042s and W2s, if you are filing 10 or more of those forms in total, you have to e-file all of them. And form 1042 is part of that. So it is subject to the e-file mandate. If you are required to e-file your 1099s and 1042s, you're required to e-file your 1042. In prior years, this has not been a problem because the IRS has come out with announcements which have said you can mail in Form 1042 if you want to. So maybe they still will give that dispensation for 2025 versions of the 1042, which you're filing now in 2026. Maybe, but I wouldn't count on that. So that means you're gonna have to e-file Form 1042, and there may not be a lifeline coming where the IRS says, Oh, you don't have to e-file it. You can mail it to us. What are your options? Well, I was doing some research for this podcast and came across an article on Tax Notes, taxnotes.com, which is a great website. I use it for a lot of things. It came across a procedure that they think you could use to get a waiver of electronic filing. And at first, when I read this article, I thought, did I miss something? I panicked actually, because I thought I must have missed something. I try to be on top of all of this stuff in the information return world. And I did some digging, and what I found is there is no such official procedure for getting an e-file waiver for Form 1042. What tax notes did is they took the waiver that might be granted sometimes for partnership tax returns. Before we go further, a quick word from our sponsor, IOFM, the Institute of Finance and Management. If you're interested in information returns, which you must be if you're here on this podcast, IOFM is a great place to be. IOFM also helps people who work in accounts payable, procurement, peer-to-peer accounts receivable, credit and collections. All of those folks, including you, are facing mounting pressures to improve your performance. And IOFM can help you with webinars, which are CPE approved, conferences in the spring and fall. I'm at those conferences, you can say hi to me, and white papers, research, all sorts of different things from IOFM. Now, back to the show. So partnerships, Form 1065, has an e-file requirement, and there's a way to get a waiver if you're an organization that is unable to e-file your Form 1065. And it involves sending in a waiver request to the IRS. And the IRS actually has this procedure. It's a 10-step procedure that's on the IRS website for partnerships. And basically, what Tax Notes was saying is you could try doing this with Form 1042. And I would say that while you could, I suppose, try to get an e-file waiver, I don't know that I would do this procedure because this procedure is only really form 1065. You would be filing it for Form 1042, hoping that the IRS would approve the waiver and let you mail in the form. Here's the other thing. If you look on this page, I've got it pulled up here. This page that talks about partnerships that are trying to get an e-file waiver. The IRS lists two situations in which e-file waivers will generally be granted. One is catastrophic events. So you have to have had a disaster that like destroyed your records, destroyed your building, and prevents you from operating like normal. The other is chapter seven bankruptcy. Here's a key thing where the IRS says situations in which e-file waivers will generally not be granted, software limitations. If the software purchased or licensed does not include all the features necessary to comply with the MEF requirements, you will generally not get a waiver from the IRS. So if this is going to be a problem for you, what should you do? Well, first of all, when is it not going to be a problem? One, if you don't have to file Form 1042, then hooray, none of this applies to you. Two, if you know that you can e-file the Form 1042 with whatever solution you're using for electronic filing, go ahead and file it. If this is a problem though, what I would do, rather than attempting to get a waiver of electronic filing, I would file an extension. Form 7004 is the form. For form 1042, you get an extension from Form 7004. That buys you six months. It kicks the can all the way to mid-September and gives you six months to figure out how you're going to file Form 1042 electronically. So that's what I would do is file Form 7004. That gives you time to think about what you want to do here. That'll do it for this week's episode of Information Return Intelligence, brought to you by IOFM. Check out their website at IOFM.com. I'm Jason Dynason. Thanks so much for joining us, and we'll talk to you again next week. Dinason Media Ventures.