Topic: IRS Reporting
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What is the best way to identify a new customer as a nonresident alien? Our customer identification program (CIP) policy requires foreign customers to provide an Illinois driver’s license and credit card statement for identification purposes, and we obtain their social security numbers. However, these documents do not indicate whether the customer is a resident or nonresident alien, which we need to know for IRS reporting and other purposes.
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To identify which of your customer are nonresident aliens for tax reporting purposes, we recommend asking the customer whether or not they are a U.S. person (which would include U.S. citizens and resident aliens) as part of your account opening process. As you noted, collecting a social security number or driver’s license will not help…
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A customer with a traditional IRA made an impermissible $5,000 contribution that we plan to return to him. On the 1099-R form, should we use Code 8 or Code P to reflect the return of this excess contribution? He made the contribution in 2018 for 2017.
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In our view, the appropriate code to reflect the return of the excess contribution is Code 8. The instructions for form 1099-R require the use of Code 8 for excess contributions for the 2017 taxable year. In this case, the customer made the contribution for tax year 2017. Consequently, we believe that the Code 8…
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Some of our customers have a Matricula Consulate card issued by Mexico and an Individual Taxpayer Identification Number (ITIN) issued by the IRS. Should we have them sign the W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting) or W-9 (Request for Taxpayer Identification Number and Certification)? What about a customer who presents a Matricula Consulate card but does not have an ITIN?
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We recommend using the W-9 form for customers who are resident aliens and the W-8BEN form for nonresident aliens. The W-9 form itself states that it may be used by a U.S. citizen “or other U.S. person.” A “U.S. person” includes “an individual who is a U.S. citizen or U.S. resident alien.” On the other…
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Are we required to file a 1099-MISC when a title company acts as the settlement agent for a loan and issues payments to service providers (such as appraisers or title companies) from an escrow account on behalf of a loan customer? Or does the title company have to file the form?
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In our view, neither the title company nor your bank would be responsible for filing the 1099-MISC form for the disbursements to providers of services related to the loan. When your bank makes payments to such non-employees on behalf of someone else (for example, on behalf of a borrower), the IRS rules require you to…
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Are we required to file a 1099-MISC when we issue a check to a contractor or vendor for over $600 from construction loan proceeds on behalf of a loan customer? We understand there is an exemption for payments to corporations and limited liability companies treated as corporations.
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Yes, we believe that most construction loan disbursements to contractors will require a 1099-MISC form, although whether the form is required will depend on the specific facts and circumstances of each construction loan. The IRS generally requires a 1099-MISC form for non-employees (excluding corporations and LLCs taxed as corporations) to whom your bank has paid…
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Do we have to file a 1099-MISC form to report payments to vendors and contractors who provide a service to the bank, such as lawn mowing or painting? Are payments to corporations and to limited liability companies treated as C or S corporations exempt from the 1099-MISC filing requirement? What about when our total payments to a contractor are less than $600 for the year?
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Yes, your bank generally should file a 1099-MISC form for payments to contractors and vendors who provide services to your bank. The IRS requires a 1099-MISC form for each non-employee your bank has paid at least $600 during the year for services performed for your bank. Payments to corporations or limited liability companies treated as…
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Our bank’s holding company is organized as an S corporation. Does our bank need to have a tax allocation agreement with our holding company?
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No, we do not believe that you need a tax allocation agreement with your holding company. In an interagency policy statement on tax allocations, the federal banking agencies recommended that all financial institutions with a holding company structure have a written, comprehensive tax allocation agreement to address intercorporate tax policies and procedures. However, in an…
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If we are removing a joint owner from a joint account because that individual has died, can we rely on a newspaper obituary as confirmation of their death? We don’t always have a copy of a death certificate. Also, if the deceased joint owner was the primary account holder for tax reporting purposes, should we begin reporting taxes to the surviving owner as the primary account holder?
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Yes, we believe that your bank may rely on a newspaper obituary, although we recommend checking with the living joint owner to confirm that the obituary refers to the deceased joint owner and not to someone else with the same name. We think you should treat the surviving joint owner as the primary account holder…
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We plan to start offering health savings accounts (HSAs), initially to employees, and later to the public. Do we need to list the bank as custodian on HSAs? Do we need to list the bank as a custodian on individual retirement accounts (IRAs)?
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We recommend consulting with a tax professional, but in our view, your bank can serve as either a custodian or trustee of an HSA, but it must serve as a trustee of an IRA. Under the Internal Revenue Code and IRS guidances, an HSA is a “trust” that must be established with a “qualified trustee”…
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We want to start maintaining health savings accounts (HSAs) for our customers. We would hold the accounts, but we would not invest the funds or otherwise manage the accounts. Does Illinois law establish whether we should we set these up as custodial or trust accounts?
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No, there is no Illinois law that specifically defines a bank’s role with respect to an HSA. We recommend consulting with a tax professional to clarify your bank’s role and requirements regarding HSAs, but we believe that a bank may serve as either a trustee or custodian for such accounts. Under the Internal Revenue Code…