IRS INFORMATION REPORTING AND WITHHOLDING REQUIREMENTS Flashcards
Describe the general types of information required on IRS Forms 1098, 1098E, 1099-INT, and 1099-C.
-IRS Form 1098 Mortgage Interest — Each calendar year in which a credit union receives $600 or more in mortgage interest from a member, the credit union
must report the total amount of interest received from the member to the IRS.
-IRS Form 1098E Student Loan Interest Statement — Beginning in 1999 for the 1998 tax year, if during the calendar year, a credit union receives at least $600
in interest from a member on a “covered student loan,” the credit union must report the total amount of interest received from that member on that loan to the IRS.
- IRS Form 1099-INT Interest Income — dividends paid at least $10.00 and more to members must be reported to the IRS.
-IRS Form 1099-C Discharge of Indebtedness — lenders must report certain discharges of indebtedness each year to the IRS. Such as bankruptcy (for business/investment purposes), through an agreement with the member, or a decision to discontinue it collection. For 600.00 or more.
What types of loans create a duty for credit unions to file Form 1098-E Student Loan Interest Statement?
“Covered student loan” — loans made to members solely for that member’s or member’s spouse or dependent’s educational expenses paid within a reasonable time before or after the loan was taken out and that either: 1) qualifies as part of a guaranteed student loan program for federal, state, or local government; or 2) documents by the member’s certification on IRS Form W-9S that the loan proceeds were used solely for educational expenses.
There are eight “identifiable events” that trigger a duty to file a Form 1099-C Discharge of Indebtedness. List three of them.
The eight identifiable events include: 1) A debt discharged in bankruptcy, but only if the credit union knows from its books and records that the debt was for business or investment purposes; 2) A discharge of indebtedness pursuant to an agreement between the credit union and the member; 3) A discharge of indebtedness as a result of a credit union decision to discontinue its collection activity against the debtor; 4) A debt that is canceled or extinguished due to the expiration of the statute of limitations; 5) A debt that is canceled or extinguished in receivership or foreclosure in a state or federal court; 6) A debt that is canceled or extinguished pursuant to the credit union’s election of foreclosure remedies; 7) A debt that is canceled or extinguished, rendering it unenforceable, pursuant to a probate or similar hearing; 8) Other actual discharge before one of the identifiable events listed above.
There are six special mailing requirements for IRS Information Returns. List four of them.
Requirements for tax statements: 1) must be printed on the forms provided by the IRS or substantially similar forms; 2) must be hand delivered or sent by first class mail to the member’s last known address; 3) can be attached to the yearend statement if accompanied by the statement: “IMPORTANT TAX DOCUMENT ATTACHED” or sent separately; 4) may not include marketing materials unless they fall under the exceptions listed in the regulation; 5) the envelope must be stamped: “IMPORTANT TAX DOCUMENT ENCLOSED”; and 6) the credit union
logo must appear on the envelope.
Credit unions can be subject to penalties for failing to file information returns timely. The IRS provides some relief to credit unions for what they call
“inconsequential errors.” Define “inconsequential error” and list three errors that would NEVER fall under that definition.
“Inconsequential errors” — errors that do not prevent the IRS from processing a return, correlating the information with an individual’s tax return, or putting the return to its intended use.
-Errors involving these types of information would never be considered “inconsequential errors”: 1) member’s taxpayer identification number; 2) member’s surname; 3) dollar amounts; 4) significant omissions in the member’s address; and 5) the manner in which the information returns are furnished to the member.
List two of the five circumstances when a member’s account will be subject to backup withholding.
The credit union must apply backup withholding when: 1) a member fails to provide a TIN or certify that the TIN is correct; 2) upon receipt of a B-Notice
from the IRS which notifies the credit union that the name and TIN provided by the credit union on a previously filed 1099-INT do not match IRS and Social
Security Administration records; 3) upon receipt of a C-Notice from the IRS which notifies the credit union that the member has underreported interest and
dividend income; or 4) the member fails to certify that he or she is not subject to backup withholding.
When can a credit union stop backup withholding once it has begun?
Withholding must continue until the credit union receives specific notification from the IRS to stop. This can take the form of: 1) a notice received directly from the IRS or 2) the member can present to the credit union a copy of the written certification received directly from the IRS stating that the withholding is to stop.
When a member opens a new account, that account will not be subject to backup withholding if the member certifies that the TIN is correct , that he/she
is not subject to backup withholding, and that he/she is a U.S. person (including U.S. resident alien). How does the credit union obtain that certification from the member?
You can obtain this certification by having the member complete an IRS Form W-9 or a “substitute W-9 (account card)” that meets the IRS requirements.
