Letter 5904C: when the IRS matches your 1042-S against your payee's return

What the program compares

"The IRS administers a program to verify that the Form 1042-S submitted by a recipient is valid for refund. ... The program evaluates certain data elements from the withholding agent's Form 1042-S (Copy A) submitted to IRS against the recipients Form 1040-NR" (IRM 21.8.1.12.14.3, Oct. 1, 2026). The comparison checks seven things: that you filed Copy A at all; that the gross income in box 2 is on the payee's return; that the withholding (box 7a plus box 8, minus box 9, or box 10 if completed) equals what the payee claims; whether you checked the escrow box (7b); that the recipient name in box 13a matches; that the country code in box 13b matches the country on the payee's Schedule OI; and that the TIN matches.

While the comparison runs the credit sits under a freeze. If everything agrees, Compliance releases the refund by hand, in part or in full, or "The freeze systemically releases at the end of the 154- day freeze" (IRM 21.8.1.12.14.3). If anything disagrees, "Compliance reverses the credit (CRN 330) using TC 767" with a reason code, and the payee may end up with a balance due rather than a refund.

The letters the payee receives

• Letter 5887C, Notification of Preliminary Action Regarding Chapter 3 or Chapter 4 Withholdings Shown as Payments on Your Tax Return. Sent when the credit is frozen for review. The payee is told they "don't need to do anything at this time" and that the review "can take up to six months from the date we received the return, the due date of the return, or the correspondence received date whichever is later" (IRM 21.8.1.12.14.4, May 24, 2024).
• Letter 5904C, Notification of Preliminary Claim Disallowance Regarding Chapter 3 or 4 Withholding. Sent when the credit is reversed. It "advises the taxpayer to contact their WA to correct any inconsistencies," and "The letter will specify all reasons for the mismatch" (IRM 21.8.1.12.14.3, 21.8.1.12.14.5). An adjustment notice follows when the reversal posts.

The manual's script for the call that follows is short: if the payee "has not contacted their Withholding Agent," the assistor tells them to, and "The taxpayer and Withholding Agent will need to determine the reason for the mismatch, and if identified, the Withholding Agent may need to submit an accurate Form 1042-S with the IRS and provide a corrected copy of Form 1042-S to the taxpayer" (IRM 21.8.1.12.14.5). The phone call or email you get from a foreign student, contractor or annuitant after a 5904C is the program working as designed.

The five reason codes and the fix for each

For codes 166 to 169 the assistor tells the payee: "The taxpayer should allow 6 weeks for IRS to process the amended Form 1042-S filed by the WA" (IRM 21.8.1.12.14.5). A payee whose 1042-S was issued before they had an ITIN is a recognized case; the manual notes "Individual taxpayers are not required to have a TIN or ITIN at the time a Form 1042-S is issued by a Withholding Agent," and the assistor compares the payee's copy against your filing using your EIN.

One substitute for a corrected form exists, and it is not yours to give: "A letter from the United States Competent Authority is acceptable proof of withholding in lieu of Form 1042-S, the letter must contain a signature and state the withholding amount allowed and the correct tax year."

Before matching: what Code and Edit rejects

Paper 1040-NRs pass through Code and Edit before any matching, and the 1042-S attached to them is checked there. "If the TIN on any Form 1042-S is missing, incomplete, partially masked (e.g. XXX-XX-1234) ... 'X' line 25g" (IRM 3.21.3.84.13.5, Oct. 30, 2024), which sends the credit to error resolution. There, a 1042-S with no TIN but a recipient name that matches the return is allowed; one with no TIN and no recipient name is deleted from the return (IRM 3.22.3.264.4.6, Mar. 3, 2023), and the payee gets taxpayer notice code 441: "We cannot allow your Form 8805 or Form 1042-S credit because the Social Security number shown on your Form 1040-NR and the credit document do not match" (IRM 3.22.3.283, Jan. 1, 2026).

The practical lesson for a withholding agent is the opposite of the habit many payroll systems have: do not truncate the recipient TIN on the 1042-S you furnish, and never leave box 13a blank. The privacy truncation that is allowed on some 1099 payee statements costs a 1042-S recipient their credit.

The income code sets the rate

The international notices manual adds how the IRS reads your form when it reviews the payee's return: "The Income Code in Box 1 determines the correct rate of withholding regardless of the entry in Box 3b (tax rate). Most non-effectively connected income is taxed at the 30 percent rate unless a treaty applies" (IRM 3.38.147.22, Jan. 1, 2025). A wrong income code is not a cosmetic error; it changes the tax the IRS computes for your payee.

The same section singles out J-1 Camp Counselor and Summer Work Travel participants. The examiner is told to "Disallow the treaty exemption" where the payee "Has wages for summer type seasonal work (e.g., retail, casinos, resorts, or (restaurants)" or is "present in the U.S. for 4 months or less." A seasonal employer that accepted a treaty claim from such a worker and withheld nothing has handed the worker a tax bill; the employer's own exposure is the subject of accepting a tax treaty claim.

How long the payee waits

Refunds of chapter 3, chapter 4 and section 1446 withholding carry a longer interest-free period than ordinary refunds. Under IRC 6611(e)(4), added by the HIRE Act in 2010, "any refunds issued based on credits from Chapter 3 or Chapter 4 and section 1446 withholding due to amended returns filed after the date of enactment now carry a 180- day interest-free period instead of a 45- day interest-free period," and "The 180- day interest-free period also applies to original returns and IRS-initiated adjustments" (IRM 21.8.1.12.14, Oct. 1, 2026). Combined with the 154-day matching freeze and six weeks for an amended Copy A to post, a payee whose 1042-S had to be corrected can wait most of a year for money that was withheld in good faith.

What it means for a withholding agent

• File Copy A, and file it under the EIN on the recipient copy. No Copy A on the IRS file means no credit for the payee, whatever the recipient copy says.
• Check box 7b only when the escrow procedure actually applies. A checked box stops the refund by design.
• Match the payee's own spelling and TIN. The name and TIN on the 1042-S should be the ones the payee will put on the 1040-NR; when an ITIN is issued after you filed, a corrected 1042-S with it heads off a reason code 168.
• One recipient, one total. Code 169 compares the payee's claim with every 1042-S filed for them. A second 1042-S for the same income, or a correction that was furnished but never filed, produces a mismatch.
• Answer the call. A payee holding a 5904C has been told to contact you. The fix is an amended Copy A and a corrected recipient copy, and the IRS clock for the payee starts when the amended form posts. The mechanics are in what happens to a paper 1042-S and foreign vendors, W-8s and the 1042-S.

Questions people ask