US Income Tax withheld from Mexican Roads

ACACSO May 8, 2008 George A. Jones - CSXT

Law

 Any person having the control, receipt, custody, disposal, or payment of specific items of income (a “withholding agent”) must deduct and withhold U. S. income tax from those items, to the extent they are gross income from U. S. sources of foreigners subject to withholding. (IRC §1441(a)) The withholding agent is liable for the tax. (IRC § 1461)  U.S. Roads are withholding agents for Mexican Roads on Payable Car Hire.

Form 1042 – Reporting to IRS

Form 1042 is used to report tax withheld on certain income of foreign persons, corporations, etc. to IRS

Form 1042-S

 Form 1042 S, Foreign Person’s U.S. Source Income Subject to Withholding, (Copy A) is filed with the Form 1042, for each recipient from whom tax was withheld. Copies of Form 1042-S (Copy B, C & D) are also mailed to the recipients from whom tax was withheld. A copy of each Form 1042-S (Copy E) is retained for our records.  Mexican Roads are informed of the amount of U.S. Tax that has been withheld for them for each reporting Year.

Form 1042-T

 Form 1042-T, Annual Summary and Transmittal of Form 1042-S, is used to transmit paper Forms 1042-S to the Internal Revenue Service.

 Form 1042-T is a summary of all U.S. Tax withheld for companies and roads.

Who Must File

 Every withholding agent, person required to withhold tax, who receives, controls, has custody of, disposes of, or pays any fixed or determinable annual or periodic income must file an annual return for the preceding calendar year.

When to File

 March 15th of current year for preceding calendar year

Where to File

 Internal Revenue Service Center, Philadelphia, PA 19255-0607

Location of Forms

 Form 1042, Form 1042-S and Form 1042-T can be downloaded from the Internal Revenue Service’s website - http://www.irs.ustreas.gov/

Supporting Information

 Information from CSXT is supplied by Edward L. (Eddie) Weaver, II, Car Accounting Specialist, in the Controller’s Department – Car Accounting  Eddie provides a summary of Mexican Tax withheld from Appendix H as well as a summary of U.S. Tax due on Car Hire paid to Mexican Roads.

Accounting Process

    Car Accounting sends CSXT Payable Car Hire Report to Mexican Roads.

The Gross Car Hire amount is automatically booked from the Car Accounting file. The tax amount withheld from Mexican roads for the IRS is deducted from the Gross Car Hire and applied to the Foreign Mexican Tax Account. Car Accounting authorizes Accounts Payable to make tax deposit to the IRS via wire.

Foreign Tax Credit

 Most U.S. taxpayers who pay income taxes to foreign governments may deduct those taxes for U.S. income tax purposes, or they may credit them against their U. S. income tax liability dollar-for-dollar. The foreign tax credit is elective and is allowed against U.S. income tax for income tax paid to a foreign country or U.S. possession. (IRC § 901; Reg § 1.901-1(a)) Each year, taxpayers may choose between taking a credit or a deduction for foreign income taxes. (IRC § 27, IRC § 164) If a tax credit is claimed for any foreign income taxes, deductions may not be claimed for other foreign income taxes. (Reg § 1.901-1(c))

Questions?

 The intent was not to make you a tax expert, but to give a high level view of the U.S. Tax requirement.

 Please consult your Tax Advisor for your specific tax requirements.