Topic: IRS Reporting
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For purposes of reporting interest to the IRS, should we use the social security number found on an ID card stating “Valid for work only with DHS authorization”?
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Yes, a social security card stating “valid for work only with DHS authorization” is a valid type of social security card. The IRS suggests that you obtain taxpayer identification numbers from your customers using either a Form W-9 for resident aliens or a Form W-8 for other foreign persons. For resources related to our guidance,…
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We recently received an IRS levy, which asked us to freeze the property of an individual who serves as a trustee for a trust account. The trust is a revocable trust, and the trust account uses the individual’s social security number. The scope of the levy covers property and rights to property, such as deposits. Should the bank report and freeze the revocable trust deposit account?
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No, the bank should not report and freeze the revocable trust deposit account, provided that the trustee is not the grantor or a beneficiary of the revocable trust. A federal tax levy attaches to all property or “rights to property” of a delinquent taxpayer. State law determines whether a person has a right to property,…
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Does the Shankar v. Commissioner of Internal Revenue case require us to report on IRS Form 1099-MISC the reward points that we give to deposit customers? We intend to provide either a cash back option or rewards points that would be redeemable for noncash gift cards or merchandise.
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The Shankar case does not change the reporting requirements for interest paid on deposit accounts, including non-cash account rewards. In Shankar, the bank issued a 1099-MISC to report that its customer had traded in rewards points for airline tickets with a value of $668 (exceeding the $600 threshold for 1099-MISC reporting), and the court held…
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We would like to encourage check writers to use their debit cards more by rewarding them by depositing a certain amount into their accounts after they have incurred 20 debit card transactions in a month. Can we do this under Illinois law? Do we need to report this to the IRS?
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Yes, we believe you may create such a rewards program – we are not aware of any law or regulation that would prohibit it. If rewards paid to a particular customer exceed $10 in value in a calendar year, you will have to report the rewards on the 1099-INT Form. For resources related to our…
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A check-cashing company has been depositing out-of-state IRS tax refund checks in its account at our institution. One of the payees on the checks told us that he never cashed the check and that he will be filing a complaint with the IRS. What are the chargeback rights of the IRS and what is its look-back period?
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The general rule is that the IRS may reclaim the amount of a check payment from a guarantor of the check until the end of the one-year period beginning on the date that a check is processed for payment by a Federal Reserve Processing Center. If the IRS determines that a guarantor of the check…
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We want to gift iPad minis to borrowers who are eligible for secondary market financing and close a home purchase or a home refinancing loan. Do we need to disclose the value of the gift in our marketing? Are there any disclosures related to the gift that we must provide the customer?
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No, we do not believe Regulation Z’s closed-end credit advertising rules would require you to disclose the value of the gift, and we are not aware of any other disclosure requirements that might apply to such gifts. In addition, we note that you will not have to report the gift on IRS Form 1099-MISC if…
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We are providing a bonus credit of over $10 for new checking accounts. Do we need to disclose the bonus using any special wording, and do we need to disclose that the bonus will be reported as interest to the IRS?
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Regulation DD requires you to disclose the amount of any bonus and other related information in your account opening disclosures. No special wording is required, although the following is provided in the model clauses for account disclosures: You will [be paid/receive] [$_____ (description of item)] as a bonus [when you open the account/on (date) ____].s You must maintain a…
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We would like to offer a gift certificate to our customers who open a free checking account. Is the value of the gift certificate reportable on a 1099-INT form? Should we disclose that it may be tax reportable in our advertisements? Or, even if not required, would it be prudent to do so?
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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…
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We received a tax refund by ACH transfer for a grandson, who directed the tax refund into an account owned by his grandmother. The grandson has no ownership interest in the account, but he is behind on a loan he has with our institution. Can we exercise a right of setoff against the amount of the tax refund?
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First, we must note that the IRS rules prohibit the recipient of a tax refund from depositing the refund into an account that the recipient does not own: “You can direct your refund to any of your checking or savings accounts, but you cannot direct your refund to someone else's account, except for your spouse's…
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When an IRA has early withdrawals that are subject to the 10% penalty tax, and we withdraw additional money from the IRA to cover the 10% taxes, would those withholding amounts also be subject to the 10% penalty tax?
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We believe that any amounts distributed from the IRA, including amounts distributed to cover taxes, are subject to the 10% penalty tax (unless an exception applies). See IRS Publication 590-B, Distributioins from Individual Retirement Arrangements (IRAs) (“Generally, if you are under age 59½, you must pay a 10% additional tax on the distribution of any…