Topic: IRS Reporting
-
Are we required to file a 1099-MISC for a payment our bank makes to an attorney representing the borrower at a loan closing? We typically would file a 1099-MISC in such situations, be we recently were advised that we should not do so. The attorney’s fees were paid by the settlement agent out of the loan proceeds and listed as a borrower-paid cost on the Closing Disclosure.
—
by
No, we do not believe your bank would be responsible for filing a 1099-MISC form as the payor for a payment made to an attorney who provides settlement services for a loan closing. When your bank makes a payment of $600 or more to a non-employee on behalf of someone else (such as a borrower),…
-
We have a local municipality that is inquiring about obtaining a tax-exempt loan, rather than a bond. Are there any forms or paperwork that we need to fill out or any specific wording or language that we need to include in our loan documents in order to extend a tax-exempt loan to this municipality?
—
by
Yes, you will need to file either IRS Form 8038-G or 8038-GC in order to extend a tax-exempt loan to the municipality. Additionally, there are other Illinois and IRS requirements that must be met before you may extend such a loan. The IRS has issued guidance on tax-exempt government “bonds,” a term that it uses…
-
Our bank wants to offer existing customers a minimal referral bonus if they bring someone in who opens a new checking account that remains open for a specified minimum time period. Is there any guidance on advertising such a bonus? Also, are there any associated IRS reporting requirements?
—
by
We are not aware of any guidance specific to advertising a checking account referral program for existing customers. We note that Regulation P’s privacy requirements generally prohibit your bank from disclosing “the fact that an individual is or has been one of your customers or has obtained a financial product or service from you.” To…
-
How should we report mortgage interest paid by nonresident aliens to the IRS?
—
by
The IRS provides guidance for reporting mortgage interest paid by nonresident aliens within the United States in its instructions for Form 1098. For mortgage loans secured by property located in the United States, you must request a Form W-8 and report the interest based on the payer’s applicable Form W-8. If the interest is paid…
-
We have a customer who is a designated beneficiary (but not an “eligible designated beneficiary”) of an inherited IRA. The IRA owner was the customer’s father, who died in 2020 after taking his required minimum distribution (RMD) for 2020. Our understanding was that under the 2021 IRA rules, our customer had ten years to empty the inherited IRA — either by taking annual distributions or a lump sum before the ten-year deadline. However, we recently viewed a webinar indicating that when an IRA owner dies in 2020 (or later) after reaching their required beginning date for taking RMDs, their designated beneficiary must take annual distributions and cannot wait to take a lump sum. Will our customer be penalized for not taking an annual distribution in 2021, and must they begin taking annual distributions in 2022?
—
by
No, we do not believe your customer will be penalized for not taking a distribution in 2021 or be required to begin taking annual distributions in 2022. We do not believe that the IRS’s IRA rules require designated beneficiaries to take annual distributions from inherited IRAs. IRS Publication 509-B for use in preparing 2021 returns…
-
A deceased customer’s non-spouse IRA beneficiary came into our bank to close out the IRA. On request, we cut a check to the beneficiary and coded it as a death distribution in our system. The beneficiary’s bank had misinformed them that they should obtain and deposit the check to roll the funds over into a beneficiary IRA account and the beneficiary’s bank, which they did. This bank now realizes that it should have done a trustee-to-trustee transfer of the funds. It wants to send us transfer papers and have us change the coding in our system from a death distribution to a trustee-to-trustee transfer to avoid us issuing a form 1099-R reflecting the death distribution, which would result in a sizeable tax burden for the beneficiary. Can we make this change if the other bank agrees to sign a hold harmless agreement protecting our bank?
—
by
No, we do not recommend signing the transfer papers or changing the coding in your system. We also caution that a hold harmless agreement might not protect you from potential IRS penalties if you purport to make a trustee-to-trustee transfer of the IRA funds after making a death distribution to the beneficiary. We spoke with…
-
We are an Illinois savings bank considering offering minor savings accounts. We would like to provide a gift at account opening, with the exact gift (cash or swag, for example) determined by spinning a wheel that lands on a certain prize. Can minors open savings accounts in their name if they are old enough to sign the signature card? Also, is there a dollar limit on account opening gifts, and would we need to describe the gift in our account disclosures and report it to the IRS for tax purposes?
—
by
Yes, minors are permitted to open savings accounts. While we are not aware of a dollar limit on account opening gifts, Regulation DD’s disclosure requirements apply if the gift is worth more than $10, and IRS reporting requirements apply to gifts valued at $10 or more and $600 or more. Both the Illinois Savings Bank…
-
Is there any Illinois law that would prevent banks from deducting overdraft fees from child tax credit payments? We are aware that child tax credit payments generally are subject to garnishment.
—
by
We are not aware of any Illinois law that would prevent your bank from deducting an overdraft fee from a child tax credit payment — provided your account agreement allows for the setoff of overdraft fees. The IRS has published guidance confirming that advance child tax credit payments are not exempt from garnishment by non-federal…
-
When should a deceased customer who is the primary account holder on a joint account be removed from the account for tax reporting purposes? Is there a specific timeframe for completing this process?
—
by
No, we are not aware of any law or regulation that requires a deceased owner of a joint account to be removed from the account within a specific timeframe. However, we recommend removing the deceased customer from the joint account as soon as you have confirmation of the death. Under Illinois law, when a joint…
-
The U.S. Department of the Treasury has announced that they will be processing advance Child Tax Credit payments authorized by the American Rescue Plan Act starting on July 15. Will there be a process for us if customers come to us after July/August or later in the year stating they didn’t want the credit or didn’t want an advance payment of the credit? Should we return ACH credits back to the Treasury as R-23, Credit Refused by Receiver?
—
by
We are not aware of any process currently set by the Treasury Department or IRS for assisting customers who wish to refuse payments of the 2021 Child Tax Credit after they have automatically received the payments. We recommend that you advise customers that wish to refuse the credit to unenroll from it through the Child…