Topic: IRS Reporting
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What documents should we be retaining for charged-off loans that are over ten years old now? Also, do you have any guidance available for loan record retention?
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We do not believe that you need to retain any records for charged-off loans that are over ten years old. The Illinois Code of Civil Procedure contains a ten-year statute of limitations to initiate collection proceedings for written contracts (with some exceptions), and the Federal Financial Institutions Examination Council (FFIEC) recommends that banks maintain supporting…
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We have a customer who would like to open an account to fund donations for a relative that has recently passed away. How can such an account be opened under Illinois law? Additionally, what tax ID should the bank use and who should the checks be made payable to?
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We recommend that your bank request that the individual opening the account obtain a separate EIN for the account, rather than using the individual’s social security number. Using a separate EIN with the memorial or benefit fund’s name in your account records should help to avoid confusion for IRS reporting and other purposes. Additionally, checks…
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Can we turn off IRS Form 1098 notices, either for the year or permanently, for loans that we have charged off when the customer has paid no mortgage interest on the loan during the year?
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We believe that you may turn off IRS Form 1098 notices for the year if no mortgage interest has been paid on the loan during the year, but we do not recommend turning off IRS Form 1098 notices permanently for loans that have been charged off until your institution has cancelled or sold the loans.…
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We received two IRS levies for business customers and would like to know if Illinois Executive Order 2020-55 (EO-55) would prevent us from freezing their accounts. An individual from the IRS told us that they believe EO-55 only affects state agencies, not federal.
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We do not believe EO-55 would prevent you from complying with the IRS levies. Illinois Executive Order 2020-25, as amended by EO-55, suspends the provisions of the Illinois Code of Civil Procedure that permit the service of a garnishment summons, wage deduction summons, or a citation to discover assets on a consumer debtor or garnishee.…
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We serve as trustee for two trusts that annually file Form 990-PF tax returns for private foundations. Generally, the rules governing private foundations under Section 501(c)(3) of the Internal Revenue Code require the trusts to annually distribute funds for their charitable purposes equal to at least 5% of the fair market value of the trusts’ assets. In this case, the majority of the trusts’ assets are farmland, and the only way to distribute funds equal to 5% of their assets would be to sell the farmland. Is there a way to avoid this? Can the type of the trusts be changed to preserve the assets, since the grantor did not intend for the land to be sold?
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We do not believe that the trusts you have described would qualify for any exceptions related to the requirement of a private foundation to make distributions for charitable purposes. Additionally, trusts may be modified by the settlor only if the trust expressly provides that the trust is revocable or amendable, or by a court according…
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We are creating an employee checking account for which we would credit a small amount to the account for each point of sale (POS) signature- or PIN-based debit card transaction. ATM withdrawals would not qualify for the credit. Would this credit be considered interest, and would we need to track these funds and issue an IRS Form 1099-INT or 1099-MISC?
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No, we do not believe these credits would be considered interest or income necessitating the filing of a 1099-INT or 1099-MISC. Generally, payers of interest income must issue a 1099-INT when interest income exceeds $10 in a calendar year, and payers of income must issue a 1099-MISC when income exceeds $600 in a calendar year.…
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If a customer asks us to reprint a tax form (such as a Form 1099), can we email a copy to the customer, or must we reprint the form on paper that has the necessary disclosures preprinted on the back?
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We believe you may email a customer a copy of an IRS Form 1099-INT, 1099-OID, 1099-MISC or 1099-NEC, with appropriate technological safeguards to protect the customer’s personal information. The instructions for these forms indicate that for the purposes of furnishing statements, a fillable online form in a PDF format may be completed and furnished to…
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Does the Taxpayer First Act (TFA) apply only to customers who complete Form 4506-T, providing consent to us obtaining a copy of their tax return information directly from the IRS, or does it also apply to the redisclosure of information received directly from the taxpayer? Also, does the TFA apply to commercial loan participations when we share the taxpayer’s information with participating banks? If so, should we provide a written disclosure to commercial loan applicants requesting they consent to the sharing of financial information with other financial institutions for loan participation purposes?
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The TFA’s consent requirement applies only to tax return information provided by the IRS. It does not apply to the redisclosure and use of information received directly from the taxpayer. However, a customer’s tax return information remains subject to financial privacy laws, which may require the customer’s consent before disclosure to a third party, unless…
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When posting a tax refund to a customer’s account, must the account numbers on the tax refund and the customer’s account match? Must the names on the tax refund and the account also match? For example, if we receive a tax return in a husband’s name with an account number matching his wife’s account (on which he is not a joint owner), should we post the payment or return it?
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We believe that banks are required to return payments for tax refunds to the IRS when the account number on the tax refund does not match the customer’s account number, and we also recommend returning tax refunds when the name on the payment does not match the name on your account. The Treasury Department’s Guide…
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We have a customer who has dual citizenship in the U.S. and Jordan and is a resident of Jordan. She would like to set up a trust and serve as both the grantor and income beneficiary of the trust. Our bank will serve as trustee. Are there any special tax withholding or tax return filing issues we need to address, since the customer resides in Jordan?
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No, we are not aware of any tax withholding or tax return filing concerns related to a U.S. citizen living abroad. While we are not accountants and are not experts in questions of international taxation, the IRS has made clear that for U.S. citizens, “the rules for filing income, estate, and gift tax returns and…