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Business and Policy Areas
Business and Policy Areas
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IRS Notices Cause Tax Woes for Thousands of Foreign Students

March 7, 2016

Thousands of international students and scholars at U.S. colleges and universities are being denied withholding credits or assessed tax bills via one of the following types of correspondence from the Internal Revenue Service, NACUBO has learned:

  • Notice CP21C
  • Notice CP22A
  • Correspondence Letter 5532C

These notices convey to the student or scholar that they are being denied withholding credit amounts claimed, or a reduced amount than what was claimed, or informing them that they owe the IRS a certain amount of money based on discrepancies on the 2014 tax return filed on either the Form 1040NR or the Form 1040NREZ.

Correspondence Letter 5532C, which many international students have received, states:

"The information you supplied does not match the information we received from Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, filed by your withholding agent."

As withholding agents, colleges and universities have been fielding questions about these notices from distraught students. Attempts by students and institutions to seek clarification from the IRS have not shed any light on the rationale for these letters, nor resulted in any resolution or clear path ahead for taxpayers. 

On February 23, NACUBO's representative to the Information Reporting Program Advisory Committee Joel Levenson, from the University of Central Florida, raised the issue for IRS leadership during a meeting of IRPAC. 

On a March 4 conference call, NACUBO staff, campus representatives, and nonresident alien tax experts from Thompson Reuters and Arctic International explained the scope of the problem with several IRS officials and stressed the need to identify the cause and an appropriate solution.  Further concerns were voiced about the upcoming March 15 filing deadline for 2015 Forms 1042-S.

The IRS is taking steps, with the help of a handful of campuses, to nail down commonalities in either the tax returns submitted by students or a glitch related to the transmissions of the Form 1042-S that could trigger the IRS correspondence.

IRS Recommendations. In the meantime, the IRS suggests the following:

  1. Students with such notices should respond in writing via certified mail/return receipt, to the IRS address indicated on their correspondence.
  2. Institutions that have not yet submitted Forms 1042-S for the 2015 tax year should apply for a 30-day extension to file, while the IRS explores the current problem with 2014 returns. Institutions must distribute the Form 1042-S Copy B/C/D to the recipient on or before March 15 - there is NO extension of time allowed to provide to the taxpayer. The ONLY extension of time to file is with the IRS. 

NACUBO will report any developments in this area widely.

Contact

Mary Bachinger
Director, Tax Policy
202.861.2581
E-mail