Credit unions were previously required to file IRS Form 1042-S (“Foreign Person’s U.S. Source Income Subject to Withholding”) for Canadian residents only. After Jan. 1, 2013, credit unions will have to report all cases of interest (of $10 or more) paid to nonresident aliens from countries that have an exchange-of-information agreement with the U.S. (IRS Revenue Procedure 2012-24 currently lists 78 countries that have information-sharing agreements with the U.S.). Alternatively, the rule allows a credit union to report interest payments made to all nonresident aliens.
Credit unions should note there’s significant opposition to this regulation in Congress. The House Ways and Means Oversight Subcommittee Chairman Charles Boustany, Jr., R-La., requested additional information from Treasury in May. The regulation “could drive foreign investment out of our economy and burden banks with unnecessary reporting requirements, in turn hurting individuals and small businesses,” he said.
Monitor cuna.org for developments.