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Business and Policy Areas
Business and Policy Areas

Taxpayer Advocate Urges Streamlining of International Student Refund Claims

February 2, 2018

Comparable to an employee's Form W-2, international students in the United States receive a Form 1042-S, which is filed by the withholding agent (colleges and universities, among others) to verify amounts of scholarship or other income they receive.

In her annual report to Congress, National Taxpayer Advocate Nina Olson urged the IRS to abandon its broad-brush approach to identifying noncompliance and fraud among 1042-S filers, and adopt a more qualitative approach.

Olson report includes data showing that compared to U.S. taxpayers, international taxpayers pose a minimal risk of noncompliance or revenue loss. She noted the IRS is currently redesigning the tools and processes for administering 1042-S refunds, based on errors in recent years that led to "freezing" and long delays of 1042-S refund claims. However, she is concerned that "the program's philosophy remains unchanged and its underlying assumption unchallenged. The IRS continues to treat 1042-S filers as ‘tax cheats' anytime a mismatch arises (between what the taxpayer reports on Form 1040NR or 104NR-EZ and what appears on the Form 1042-S, even if that mismatch is beyond the taxpayer's control or is based on some other good faith error."

This undifferentiated approach, according to Olson's report, wastes scarce IRS resources and needlessly burdens taxpayers. She recommends that instead the IRS should focus on high-risk taxpayer categories that would benefit from increased scrutiny and enforcement.

  • The National Taxpayer Advocate's four key recommendations to the IRS in this area:
    Compile and internally publish data relating to the results of manual review of frozen Form 1042-S credits and use this data to better understand and identify the sources and income stratifications generating increased risks of noncompliance.
  • Implement a policy that relies on data as the basis for developing effective programs and systems for validating the credit and refund claims of those relatively few Chapter 3 and Chapter 4 filers for whom such scrutiny is statistically justified.
  • Energetically enforce the withholding, reporting, and remittance obligations of withholding agents, rather than attempting to shift this obligation to nonresident taxpayers in ways that create hazards of litigation.
  • Consider more effective ways of discouraging noncompliance by, and collecting unremitted funds from, foreign withholding agents, including exploring cooperative agreements with foreign jurisdiction.


Liz Clark
Senior Director, Federal Affairs