We believe that you will have to report the value of the gift certificates on IRS 1099-INT forms. As the IRS explained in a ruling, all payments of interest over $10 in a calendar year must be reported on a 1099-INT form. IRS Rev. Proc. 2000-30 (December 31, 1999). The ruling states that non-cash premiums must be reported on 1099 forms as well, because such premiums fall under the IRS definition of “interest” (26 CFR 1.6049‑2). However, the ruling carves out an exemption for “de minimis” premiums, defined as non-cash inducements provided to a depositor to open or add to an account that have a value of $10 or less for a deposit of less than $5,000 or $20 or less for a deposit of $5,000 or more. Based on the value of the gift certificates, which is over $20, we believe that you would have to report their value on a 1099-INT form.
However, we do not believe that you will have to report the gift certificates’ value on a 1099-MISC form. The IRS requires that any gift valued at $600 or more should be reported under “Other Income” on a 1099-MISC form (see the instructions here). See also the IRS Guide to Information Returns.
We are not aware of any regulations that would require you to disclose in an advertisement that the amount of the gift certificate will be reported to the IRS. However, we do believe it is a best practice to do so.
In addition, we note that Regulation DD’s advertising requirements would apply to the gift certificates being offered. The gift certificates fall under the Regulation DD definition of “bonus,” which is any premium worth more than $10, regardless of its form. 12 CFR 1030.2(f). Any advertisement stating that a bonus will be provided must also clearly and conspicuously state the following information:
(1) The “annual percentage yield,” using that term;
(2) The time requirement to obtain the bonus;
(3) The minimum balance required to obtain the bonus;
(4) The minimum balance required to open the account, if it is greater than the minimum balance necessary to obtain the bonus; and
(5) When the bonus will be provided.
Here, the annual percentage yield (APY) disclosure is likely not applicable, as you have indicated that the accounts will not be interest bearing, and for purposes of Regulation DD, an account bonus is not included in the APY calculation. See Official Interpretations, 12 CFR 1030, Paragraph 2(n), Comment 1: “Bonuses are not interest for purposes of this part.” However, the disclosures in paragraphs (2)–(5) will likely apply.