Topic: IRS Reporting
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Under the Taxpayer First Act (TFA), are we required to obtain a taxpayer’s express permission to share their tax return information only if we obtain it from the IRS, as opposed to receiving it directly from the taxpayer?
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Yes, the TFA’s consent requirement applies only to tax return information provided by the IRS. However, a customer’s tax return information remains subject financial privacy laws, which may require the customer’s consent before disclosure to a third party, unless an exception applies. The TFA amended the Internal Revenue Code to require that “[p]ersons designated by…
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Under the Taxpayer First Act, are we required to obtain taxpayer consents from non-borrowing spouses? Also, is there any guidance for banks related to a borrower who refuses to sign a taxpayer consent form? Can a loan be denied on this basis, and would such a denial present any fair lending concerns?
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We recommend obtaining a taxpayer consent form for any taxpayer whose tax return information you will be requesting from the IRS. For a non-borrowing spouse, your bank may be requesting a joint tax return that will include tax return information for both spouses, and in that case, we recommend obtaining both spouses’ consent. If a…
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Regarding the Taxpayer First Act (TFA), if we have a commercial loan with twelve guarantors, must all twelve sign taxpayer consent forms, or can we add a signature addendum allowing all guarantors to sign the same form? If borrowers or guarantors provide updated tax return information after loan origination, do we need to obtain new consent forms, or would the original consent form cover all future tax returns? Also, if we have a loan participation that was originated before Act’s consent provisions became effective, but sold after the effective date, is the consent form required at the time of the sale?
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Yes, we believe that your bank can have all twelve guarantors sign the same consent form. The TFA requires express consent from each taxpayer before obtaining their tax return information, but there is no requirement that each taxpayer provide their consent on a separate form. We believe that your bank can structure a consent form…
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Are we required to notify our customers of an over contribution to a health savings account (HSA)? Are we required to distinguish between individual and family HSAs?
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No, your bank is not required to notify HSA customers when they have exceeded their annual contribution limit. Under the IRS requirements for HSA trustees, your bank generally should monitor contributions to HSAs and reject contributions that exceed a maximum amount, which is the sum of the maximum family coverage deductible plus the maximum catch-up…
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Would the Taxpayer First Act (Act) require us to obtain a taxpayer’s express permission to share their tax return information if we obtain this information directly from the taxpayer and did not obtain it from the IRS?
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No, we do not believe that the Act’s consent requirement applies to tax return information provided by a taxpayer — it applies only to tax return information provided by the IRS. However, note that a customer’s tax return information remains subject financial privacy laws, which may require the customer’s consent before disclosure to a third…
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Would the Taxpayer First Act (Act) require us to obtain a taxpayer’s express permission to share their tax return information if we obtain this information directly from the taxpayer — as opposed to obtaining it from the IRS? Also, would providing taxpayer information to an examiner or an auditor for the sole purpose of reviewing or auditing a loan file constitute “sharing” under the Act?
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No, we do not believe that the Act’s consent requirement applies to tax return information provided by a taxpayer — it applies only to tax return information provided by the IRS. 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,…
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Under the new Taxpayer First Act, is it necessary to obtain a taxpayer’s consent to share their tax return information with third parties in connection with a business purpose loan? We do not sell business purpose loans or their servicing. However, we pledge business purpose loans to the Federal Home Loan Bank (FHLB) and the Federal Reserve, and our external loan reviews include reviewing tax information. Would obtaining a taxpayer’s consent be necessary for these types of activities? What risks would a bank face for not implementing a taxpayer consent form in connection with these types of loans?
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Yes, the taxpayer consent provisions of the Taxpayer First Act (Act) apply to business taxpayers. We recommend obtaining consent from a business before sharing tax return information obtained from the IRS with third parties, such as an external loan reviewer or even an FHLB or Federal Reserve Bank. The Act amended the Internal Revenue Code…
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The new Taxpayer First Act, which takes effect December 28, 2019, requires persons receiving tax return information to obtain the taxpayer’s express permission before disclosing their return information to any other person. We often receive tax information from the IRS, especially in our mortgage business. This could be a significant requirement if we must have signed permission before sharing customer tax information with participating banks, auditors, contract underwriters, Fannie Mae and Freddie Mac, etc. Does this requirement apply to both consumers and businesses, and will there be a required uniform disclosure?
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We believe that both consumers and businesses would be covered taxpayers under the Taxpayer First Act (Act). The Taxpayer First Act amended the Internal Revenue Code to require that “[p]ersons designated by the taxpayer under this subsection to receive return information shall not use the information for any purpose other than the express purpose for…
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Our understanding is that foreign customers presenting a W-8BEN Form have a three-year period after opening an interest-bearing account to obtain either a social security number or an ITIN, and until such time, we do not have to report the interest to the IRS. Is that correct? We had an issue where we reported accounts that had earned more than $10 in interest.
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The general rule is that interest income paid by a U.S. bank to a nonresident alien is nontaxable and nonreportable, but note that there are several exceptions to this rule. Exceptions include interest income that is “connected with a U.S. trade or business” or is paid to a resident of Canada (interest paid to Canadian…
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Can we accept payments after sending a customer a 1099-C cancellation of debt form? In 2017, after determining we were unlikely to collect anything more from a borrower who is a farmer, we issued the borrower a 1099-C, listing identifiable event code “G.” We recorded the debt as “charged off” but did not make any alterations to the face of note or surrender it to the borrower. Recently, we were notified by a grain elevator that it has a $9,000 check payable to the borrower and our bank. Assuming we have the right to deposit the check, may we credit these funds to the outstanding loan balance, including uncollected interest, collection costs, and attorney’s fees that were incurred prior to issuing the 1099-C?
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In our view, accepting payment on this debt after issuing a 1099-C due to “identifiable event G” may expose your bank to a claim that it can no longer collect on the debt, in which case it would not be entitled to apply the check to the outstanding loan balance. For debts exceeding $600, a…