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Sovos Comply & Connect 2023 Key Takeaways
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Sovos Comply & Connect 2023 Key Takeaways

The Comply and Connect Reporting Summit hosted by Sovos brought together tax professionals, compliance experts, and industry leaders to discuss information on emerging trends in tax, regulatory reporting and compliance. Read below as we summarize some key takeaways and reminders from the conference.

Our Takeaways


(Expect Expanded 1099 Reporting | Kelly Conner, Sovos; Wendy Walker, Sovos)

The tax gap represents the difference between the taxes owed and the taxes actually paid to the IRS. It’s broken down into three main components: nonfiling, underreporting, and underpayment.

  • The gross tax gap increased from $441 billion in tax years 2011-2013 to $496 billion in tax years 2014-2016, with underreporting contributing to 84% of this growth. There is a strong connection between business income, particularly pass-through entities, and the tax gap.

To address the tax gap and its growth, the IRS is focusing on improving reporting compliance, expanding third-party reporting, digitizing tax returns, and enhancing enforcement programs. The agency is also modernizing its systems and investing in technology to provide better customer service and reduce the backlog.


(Jessica Metts, Comply Exchange; Lauren Pierce, Comply Exchange)

Collecting accurate tax-related information begins during the onboarding process. This data is crucial for year-end tax reporting and drives withholding and reporting decisions. Non-compliance with U.S. tax reporting and withholding requirements can lead to penalties and additional taxes.

  • The government has increased efforts to enforce compliance, such as hiring and training experts for withholding enforcement and utilizing improved data analytics for identifying incorrect reporting information. Additionally, penalties are on the rise, making it even more crucial for businesses to manage IRS Forms W-8 & W-9 effectively.
  • The IRS released draft versions of the Form W-9 and Form W-8EXP earlier this year and are expected to have an October 2023 revision date. Note: They have yet to go final!
    • The Form W-9 introduces a Line 3b checkbox for entities who checked “Partnership” or “Trust/Estate” on Line 3a to indicate if they have any foreign partners, owners, or beneficiaries.
    • The Form W-8EXP includes a few more changes namely a new Chapter 3 status of “Withholding qualified holder under section 1445”, new certifications (10d and 10e) for Controlled Entity of a Foreign Government, new certifications on Line 15 to accompany the new Chapter 3 status, and splitting out the certifications under Line 19 into two checkboxes differentiating between beneficiaries or participants as current or former employees vs. not current or former employees.


(Top “Red Flags” that Trigger IRS Audits | Tara Ferris, Principal, EY)

The IRS is expanding their coverage through increased enforcement, audits, potential and/or increased penalties, and levels of automation.

  • IRS audits can be triggered by various “red flags,” including discrepancies in tax forms, numbers not matching, failure to report specific income types, and issues with Form 1099 filings.
  • To prepare for an IRS audit, businesses should review draft Information Document Requests (IDRs), manage response timelines, request penalty relief when necessary, and ensure compliance with best practices like TIN matching, data validations, and reconciliations to avoid potential penalties and fines.


(Accounts Payable | Paul Ogawa, Sovos)

The Form 1042-S is used to report payments of U.S. sourced income to non-U.S. individuals and entities.  It’s a comprehensive form that uses codes to identify and validate various aspects, including income, exemption, and status. The form is different from 1099 reporting and requires payee information on Forms W-8, not Form W-9.

  • It is important to understand the reporting codes on the 1042-S form. It highlights the use of codes to categorize payment types, exemption reasons, the status of parties involved, countries of residence, tax rates, and limitation of benefits (LOB). The use of codes is subject to validations, and compliance with these codes is crucial to avoid noncompliance.
  • 1042-S Updates for TY23: There are some updates to the form this years reflecting final regulations from TD 9926.

    • New Income Codes:
      • 57 – Amount realized under IRC section 1446(f)
      • 58 – Publicly traded partnership distributions—undetermined

    • New Chapter 3 Status Code:
      • 39 – Disclosing Qualified Intermediary

  • “10 or more” are the magic words on the reporting threshold for mandated Form 1042-S electronic filing. Financial institutions (FIs) must file electronically regardless of the threshold, while non-FIs are subject to this threshold.

(Financial Services | Kelli Wooten, KPMG)

The IRS is increasingly scrutinizing Form 1042 compliance and withholding agents’ adherence to §1441 withholding rules through hiring and training new examiners and campaigns specifically targeting Form 1042 & 1042-S compliance, as well as FATCA compliance. They have also updated the Internal Revenue Manual, outlining IRS policies and procedures for conducting Form 1042 audits.

  • Reconciliation is critical, including across chapter 3 and chapter 4 tax rates, GIINs, TINs, FTINs, # of forms, and amounts reported, and the IRS is using data analytics to identify discrepancies between Form 1042 and Forms 1042-S.
  • The IRS is reviewing Forms 1042 and 1042-S in conjunction with Forms 5471, Schedule M for controlled foreign corporations to ensure comprehensive reporting.


A special thanks to Sovos for hosting such a great conference, and to all of the speakers for their engaging sessions at this years Comply & Connect conference. We hope that these key insights and takeaways, together with emphasizing the importance of technology for managing tax compliance, are useful for you.

Make sure to follow Comply Exchange for more industry updates and subscribe to the Comply Connect for a full industry round-up at the end of each month!

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