Is 1042-S and 1042 still needed under fifth protocol?

[Acacia]

Hello to everyone,

I have been a silent reader of this forum for a while and it helped me a lot. It's a great place to get info about cross-border issue. Thank you Nelsona and others.

I am a Canadian citizen and US resident. I have had OSAP and student (personal) Line of Credit from Canadian Bank which I continued to pay during 2011. I became US resident for 2011. It seems that as a US resident the Interest that I pay to a foreign person (individual or entity) is considered US- source income for them and subjected to 30% tax withholding or lesser rate due to treaty. I also know that Fifth protocol eliminates cross-border interest tax withholding.

Facts:

---I didn't get any W-8BEN or other relevant form from my Bank or OSAP authority and I don't think if I had asked, they would have given it.
---1042-S instruction reads as “However, withholding agents who are individuals are not required to report a payment on Form 1042-S if they are not making the payment as part of their trade or business and no withholding is required to be made on the paymentâ€￾
---BUT few lines lower it reads as “You must file a Form 1042-S even if you did not withhold tax because the income was exempt from tax under a U.S. tax treaty or the Codeâ€￾ BOTH these two sentences are under “Who Must Fileâ€￾

Question
What should I do right now? Do I need to file 1042-S by March 15? What do people do in these situation? I am sure there are lots of US resident who have a kind of loan or mortgage in Canada paying interest form it. It is very confusing.

Thanks for your time.

[Acacia]

[quote="Acacia"]Hello to everyone,

I have been a silent reader of this forum for a while and it helped me a lot. It's a great place to get info about cross-border issue. Thank you Nelsona and others.

I am a Canadian citizen and US resident. I have had OSAP and student (personal) Line of Credit from Canadian Bank which I continued to pay during 2011. I became US resident for 2011. It seems that as a US resident the Interest that I pay to a foreign person (individual or entity) is considered US- source income for them and subjected to 30% tax withholding or lesser rate due to treaty. I also know that Fifth protocol eliminates cross-border interest tax withholding.

Facts:

---I didn't get any W-8BEN or other relevant form from my Bank or OSAP authority and I don't think if I had asked, they would have given it.
---1042-S instruction reads as “However, withholding agents who are individuals are not required to report a payment on Form 1042-S if they are not making the payment as part of their trade or business and no withholding is required to be made on the paymentâ€￾
---BUT few lines lower it reads as “You must file a Form 1042-S even if you did not withhold tax because the income was exempt from tax under a U.S. tax treaty or the Codeâ€￾ BOTH these two sentences are under “Who Must Fileâ€￾

Question
What should I do right now? Do I need to file 1042-S by March 15? What do people do in these situation? I am sure there are lots of US resident who have a kind of loan or mortgage in Canada paying interest form it. It is very confusing.

Thanks for your time.[/quote]

[Acacia]

Sorry I try to correct the title , but it seems I post the whole message again and I don't know how to delete the duplicate, sorry.

[nelsona]

Are the banks asking for more money from you? If not, then don't worry about it.

[Acacia]

Thanks for your reply.
No they are not asking for more money. I am more concerned of IRS. With all these FBAR and FATCA, sooner or later, Uncle Sam will find about all my accounts in Maple Leaf land and then, they can impose penalties on me for not filing 1042-S for the interest I have given to Banks. Also, they can hold me responsible for 30% Tax withholding will all interest and penalties and argue that because of the lack of paperwork (W-8Ben and other forms and also 1042-S) , the zero rate of fifth protocol will not be applicable.
Maybe it is just me with my far-fetched conclusion or this really can happen. I have heard IRS is getting over-zealous of enforcing 1042-S filing requirement for payment for foreign person by a US resident. Thanks for any insights?

[nelsona]

Since, as you know, interest paid to Cdn residents in no longer taxble by IRS I wouldn't worry.

Besides, there are so many exceptions to 1042-s filing, that even if there was supposed to be withholding, you would be exempt.

Just nmake ure you keep reporting INCOME and ASSETS and you won;t get swept into hysteria that was all the vogue this year.

Regular followers of this board collectively yawned at all these "new" requirements, since they were following them for years anyways.