Treasury IRS - Data Integrity Software Program - MRAS

The Department of the Treasury, in collaboration with the General Services Administration (GSA), is conducting market research to develop a software tool aimed at enhancing the accuracy of reporting on IRS Form 1042-S. This initiative is part of a broader effort by the IRS Foreign Payments Practice function to improve compliance and ensure correct tax withholding from U.S. source income paid to foreign persons. The goal is to create a software program that identifies errors or inconsistencies in data before submission, thereby assisting both Withholding Agents and the IRS in maintaining data integrity.

Withholding Agents, which include a wide range of entities such as banks, insurance companies, universities, and other financial institutions, are required to file Form 1042-S for payments made from U.S. sources to foreign persons. The form collects various codes and information that help determine whether proper tax amounts have been withheld according to applicable laws and treaties. The proposed software will enable agents to conduct pre-submission checks on their electronic files for potential reporting errors.

The software program will serve as a standalone tool available at low cost for taxpayers or withholding agents, particularly beneficial for those filing fewer than 500 forms annually. This tool aims not only to enhance data quality submitted to the IRS but also educate taxpayers by explaining detected inconsistencies through user-friendly reports. Common error types include mathematical discrepancies, documentation issues like missing Taxpayer Identification Numbers (TINs), coding errors such as invalid country codes or Global Intermediary Identification Numbers (GIINs), and failures to follow instructions.

By implementing this solution, the IRS seeks not only to reduce its own administrative burden but also minimize taxpayer burden by facilitating compliance with existing regulations. The software will be designed with input from IRS Subject Matter Experts who will focus on ensuring legal compliance across data fields while leaving technical implementation aspects open for development through this solicitation process.