Financial Institutions – Tips for Year End Information Returns and Related Workpapers

Who is impacted?


Any U.S. payors or withholding agents in the financial services industry will be interested in some tips for preparing year-end information returns and related workpapers for 2019.

What changed?


Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). Begin preparing for these automatic exchange of information processes set to begin in March of 2020. FATCA and CRS deadlines have been a moving target since initial implementation requiring significant attention and forward planning. Most recently, we saw the Cayman Islands move their reporting deadline from May 31 to July 31, so be sure to review all of your deadlines, rules, and guidelines early on, so that you are not surprised by any new rules.

Year-end workpapers. Consider documenting the following in year-end workpapers:


  • Demonstration of the steps taken to prepare information and tax returns.

  • Reconciliation of the amount of gross income paid and the systems that provide this information.

  • Reconciliation of the taxes that should have been withheld with the taxes actually withheld.

  • Schedule of timely deposited amounts with the IRS.

  • Identification of any amounts withheld by other withholding agents reported on Forms 1042-S and Form 1042.

  • Identification and details regarding the resolution of any issues related to the return preparation process, over/under withholding, out of balance items, corrections or reclassification to amounts reported, and any other items related to tax and information return procedures.


Documented Policies and Procedures. Were there any changes to your information reporting and withholding policies and procedures in 2019? Did you notice any workarounds that should be corrected or documented? It is important to document the methodologies you use when taking a position on those results and to update policies and procedures. Private equity companies might consider documenting methodologies for identifying effectively connected income (ECI) and U.S. source fixed, determinable, annual, or periodical (FDAP) income that they must report. Other financial institutions might consider documenting the usage of checklists or online validation applications for withholding certificate reviews. Where these tools do not yield the desired result, are you using a workaround? Do you sometimes ignore the validation result, because maybe it does not apply to the type of payment you are making? Document those instances and the support for each.


All of this documentation will come in handy in the event of an Internal Revenue Service Audit. Additionally, please see:


Internal Revenue Manual Section 4.10.21, U.S. Withholding Agent Examinations - Form 1042

Further, we have seen other countries take this same stance of requiring documented policies and procedures. Not only have they included this requirement in their own regulations and guidance on FATCA and CRS, they are now starting to conduct reviews and audits (Luxembourg, Cayman, etc.) that are fairly consistent, where applicable, with the Internal Revenue Manual. Be sure to document policies and procedures related to this type of reporting and confirm that your offshore counterparts in your organization have done the same.


Withholding Certificates. Confirm that you are using the most recent revisions of each type of withholding certificate (Form W-8, W-9 or self-certification) in both initial onboarding processes and re-solicitation processes.


Updates to Forms and Instructions. Forms and Instructions seem to be changing on a yearly basis. Be sure to confirm with your tax reporting vendors that they are aware of forthcoming updates to 2019 and 2020 Forms and withholding rates. There are updates to some of the new forms, for example Form 1065, and certain forms in the Form 1099 series are moving to continuous use forms. See the Instructions for Form 1097-BTC, Form 1098-C, Form 1098-F, Form 1098-MA, Form 1098-Q, Form 1099-CAP, Form 1099-LS, Form 1099-LTC, Form 1099-OID, Form 1099-Q, Form 1099-SA, and Form 1099-SB.


Electronic Recipient Statements. If you are sending electronic Forms 1099 or 1042-S, be sure you adhere to the rules for doing so. Be sure you have consent from your income recipients and confirm that the forms are in compliance with the formatting, posting, and notification requirements. Feel free to refer to our article on electronic delivery. Additionally, please see:

State Information Reporting and Withholding. These rules change all of the time! For those making retirement distributions requiring mandatory or voluntary withholding or payments subject to state backup withholding, be sure to check the latest updates to any procedures for that State. This type of research can be tedious as each State is different. Here is a link to all of the State websites for your reference:


IRS State Law Guide

How to Implement?

As you gather data, review issues, make decisions and get your information returns ready to report 2019 activity and prepare your information returns, consider the following:

  • Do your workpapers indicate the origin of your initial data?

  • Do you have a flow chart that details the location of your data sources and how they are used in the tax and information reporting process as well as the withholding and depositing process?

  • Are you able to reconcile information from each system and confirm all amounts were extracted and categorized as reportable and the relevant form vs not reportable?

  • Are all edits to the initial data documented and explained in the workpapers?

  • Are all issues and their resolutions documented?

  • Are out of balance amounts reconciled?

  • Did any recommendations surface to enhance procedures or indicate a need for training? If yes, have procedure manuals been updated and training scheduled?

Also, in general, here are a few additional tips:


  • Update policy and procedure manuals, training materials and presentations to staff!

  • Consider circulating a year end update to all areas in your organization at contribute payment information for year-end reporting reminding them of key dates, processes and any new procedures.

  • Use the updated IRS tax calendar and consider syncing the deadlines with your own calendar application for consistency. Now that we have a new DRAFT Tax Calendar, it is a great idea to coordinate the deadlines and update your procedures for 2020.

  • Confirm all areas submitting information at year end are included in your procedures. If any new areas were added, confirm they have been trained.

  • Confirm your systems and reporting applications are updated to date for the many new forms released this year!

  • Coordinate with your IT Department to make sure any year end system freezes are synced with yearend reporting needs.

  • Review all draft and new forms to identify changes that may impact your organization and update process and procedure manuals to incorporate any changes required.

Share your experiences with us in the comments or e-mail us!


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THIS DOCUMENT CONTAINS GENERAL INFORMATION ONLY AND IS NOT A SUBSTITUTE FOR ACCOUNTING, TAX, OR ANY OTHER PROFESSIONAL ADVICE OR SERVICES. BEFORE MAKING ANY DECISION OR TAKING ANY ACTION THAT MAY AFFECT YOUR BUSINESS, YOU SHOULD CONSULT A QUALIFIED PROFESSIONAL ADVISOR.

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