February 2015

Volume 3, Issue 5

Posted on 2/19/2015

We Got a Notice of Proposed Penalty

Remember in earlier newsletters we said there were two kinds of errors: Missing TINs and Incorrect TINs. You did the work, but you still got a penalty letter. What should you do now? This is confusing at best. You may want to look at IRA Publication 1586 on the IRA website.

 

Proposed Penalty Notice

Notice 972CG, with a listing of the information returns filed with missing or incorrect name/TIN combinations, will be sent to filers of information documents noncompliant with IRC section 6721. Notice 972CG proposes a penalty of $50 ($100 for information returns due on or after January 1, 2011) for each return not filed correctly. The listing should be compared with the filer's records to determine:

  • if appropriate action was taken to meet the requirements for establishing reasonable cause, and
  • if an annual solicitation should be made in the current year to avoid penalties in future years. 

Notice 972CG may include proposed penalties for late filing and/or failure to file information returns via electronic transmission. If a notice includes these penalties, a written explanation must substantiate reasonable cause in order to have the proposed penalties waived.

 

How to Answer Notice 972CG

  • The notice has to be answered within 45 days (60 days for foreign payers) from the notice date.
  • If more time is needed, submit a written request to the Philadelphia Campus Site address listed on the notice before the end of the 45 day (60 days for foreign payers) period.
  • Explanations should be as detailed as possible to limit the number of contacts required to establish reasonable cause, and should provide an explanation of the steps taken to comply with the Internal Revenue Code and regulatory provisions.
  • Do not submit copies of the solicitations unless requested by an IRS employee.
  • If reasonable cause is established, IRS Letter 1948C will be issued stating that the explanation given was accepted.
  • If the reply does not establish, or only partially establishes reasonable cause, a penalty will be assessed. A balance due notice will be sent (CP15/215) with a separate letter explaining any appeal rights.
  • Agreement to the proposed penalty should be submitted with a payment and the response page (or signed consent statement on the response page) and the payment slip to show agreement. A balance due notice (CP15/215) will be sent after receipt of the consent statement.

No response to the Notice 972CG within 45 days (60 days for foreign payers) will result in assessment of the full amount of the proposed penalty and a balance due notice (CP15/215) being issued.

 

Note: Interest accrues on the balance due from the date of the CP15/215 Notice (unless the penalty is paid within a specified number of days) and continues to accrue until the penalty is fully paid. Interest charged on any penalty amount that is later decreased will be reduced accordingly.  

 

IRS International Data Exchange Service

The International Data Exchange Service (IDES) is now open for enrollment. Financial institutions and host country tax authorities will use IDES to securely send their information reports on financial accounts held by U.S. persons to the IRA under the Foreign Account Tax Compliance Act (FATCA) or persuant to the terms of an intergovernmental agreement (IGA) as applicable.

 

More than 145,000 financial institutions have registered the IRA FATCA Registration System. The U.S. has more than 110 IGAs, either signed or agreed in substance. Financial institutions and host country tax authorities will use IDES to provide the IRS information on financial accounts held by U.S. persons.  

 

For more information, click here

Volume 3, Issue 4

Posted on 2/12/2015

What to Do If You Get a CP2100 - Incorrect TINs

There are two types of errors:  Missing TIN(s) and Incorrect Name/TIN Combinations.  Follow these IRS instructions to the letter if you receive a CP2100 or CP2100A Notice. This is extracted from IRS Publication 1281.

 

Incorrect Name/TIN Combinations (including not currently issued TINs) 

A Name/TIN combination is incorrect if it does not match or cannot be found on IRS or SSA files. You must follow different procedures depending on whether information on the listing(s) agrees ordisagrees with your business records. Compare the listing(s) with your records and take the following actions:

 

For account information that does not agree, check to see if you put the incorrect information on the return, if the information changed after you filed the return, or if the IRS misprinted the information when processing the return. In these situations, do not write to the IRS. However: 

  1. If you reported the incorrect information on the return, correct your records and include that information on any future information returns you file. Do not send a "B" Notice to the payee. Do not send the correction to the IRS.
  2. If the information changed after you filed the return, include that information on any future information returns you file. Do not send a "B" Notice to the payee. Do not send the correction to the IRS.
  3. If the IRS misprinted your information, make a note of it in your records and do not take any action. Do not send the correction to the IRS.

For account information that agrees with your records, determine whether this is the first or second time, within three calendar years, that we have notified you about an incorrect Name/TIN combination. Your first notification of an incorrect Name/TIN combination occurs when the payee TIN appears for the first time on the listing we send you. The second notification of an incorrect Name/TIN combination is when the same payee TIN appears for the second time within three calendar years on the listing.

 

Note: The 60-day exemption from backup withholding on presentation of an awaiting - TIN certificate applies only to interest and dividend payments, and certain payments made with respect to readily tradable instruments. Any other reportable payment, such as non-employee compensation, is subject to backup withholding immediately, even if the payee has applied for and is awaiting a TIN. Upon presentation of an awaiting TIN certificate, the payee must certify under penalties of perjury that he/she is not currently subject to backup withholding.

 

First "B" Notice

  1. Send the First "B" Notice, Form W-9, and an optional reply envelope to the payee within 15 business days from the date of the CP2100/CP2100A Notice or the date you received it (whichever is later). Date the "B" Notice no later than 30 business days after the date of the CP2100/CP2100A Notice or the date you received it (whichever is later). The outer mailing envelope must be clearly marked "IMPORTANT TAX INFORMATION ENCLOSED" or "IMPORTANT TAX RETURN DOCUMENT ENCLOSED."
  2. Make sure that necessary information such as the date, account number, and BWH rate are on the "B" Notice before mailing it to the payee. If you do not include the optional reply envelope be sure to provide return address information in your mailing.
  3. Update your records with the corrected information you receive from the payee and include it on any future information returns you file. Do not send the signed Form W-9 to the IRS.
  4. Begin backup withholding on payments made to payees who do not return a signed Form W-9 in response to the First "B" Notice, no later than 30 business days after the date of the CP2100/CP2100A Notice or the date you received it (whichever is later). However, you may begin backup withholding the day after the date you receive the CP2100 Notice. Stop backup withholding no later than 30 calendar days after you receive the signed Form W-9 from the payee. You may stop backup withholding any time within that 30 calendar day period.

Second "B" Notice

  1. Send the Second "B" Notice and an optional reply envelope to the payee within 15 business days after the date of the CP2100/CP2100A Notice or the date you received it (whichever is later). Date the "B" notice no later than 30 business days after the date of the CP2100/CP2100A Notice or the date you received it (whichever is later). Do not send a Form W-9. The outer mailing envelope must be clearly marked "IMPORTANT TAX INFORMATION ENCLOSED" or "IMPORTANT TAX RETURN DOCUMENT ENCLOSED."
  2. An individual payee must provide the payor with a copy of a Social Security card with his or her correct name and SSN. Payors may rely upon a Social Security card as being correct only if the name and SSN combination appearing on the card differ from the name and SSN combination appearing on the second B notice, or if there is a date appearing on the Social Security card that is no earlier than six months prior to the date of the second B notice. If the TIN is an EIN, the payee must contact the IRS to get his or her employer identification number validated on the IRS Letter 147C.
  3. Allow 30 business days after the date of the Second "B" Notice to receive a copy of a Social Security card described in paragraph 2 or Letter 147C from the payee. Begin backup withholding on payments made to the payee if you do not receive a copy of a Social Security card or Letter 147C by the 30th business day. You may, at your option, begin backup withholding anytime during the 30 business day period. You must continue to backup withhold until you receive the validation. Stop backup withholding no later than 30 days after you receive the required validation. You may stop backup withholding anytime within the 30 calendar day period after receiving validation. 

Note: You are not required to file a corrected Information Return unless you are also making a change to the dollar amount reported on Form 1099.

 

Note: It is your responsibility to send the appropriate "B" notice to the payee, when required, to solicit the correct Name/TIN. This information may not be solicited by telephone. You need a TIN validation (IRS Letter 147C or a copy of a Social Security cardas appropriate) in order to stop current backup withholding or prevent backup withholding from starting.

 

Third and Subsequent Notices

Generally, you may ignore a third or subsequent notice of missing or incorrect TIN(s) if you completed the actions for the First and Second "B" Notices and the incorrect payee name and TIN combination and account number remain the same. However, if the CP2100/CP2100A Notice and listing(s) relate to the same payee, but with a different Name/TIN combination than on the "first" and "second" notice, you must treat the notice as a "first" notice.

 

Who Completes a W-8-BEN?

A customer who is a nonresident alien who is the beneficial owner of an amount subject to withholding, or to claim an exception from domestic information reporting.  In other words, if the customer is not a US Person (including resident aliens) then he or she signs a W-8BEN. 

 

The W-8BEN must be absolutely complete.  You must have a permanent residence address, a US TIN or a Foreign tax identifying number and if the country does not have that then date of birth for the customer.

 

Your institution must have a W-8BEN on every NRA on the account.  If there is a US person on the deposit account, then that person's name and social security number will be first on the account for tax reporting.

 

W-8BENs expire every three years unless 1) Customer has a US TIN, Customer completes valid W-8BEN and the 1042S is reported for deposit interest. 

Volume 3, Issue 3

Posted on 2/6/2015

What to Do If You Get a CP2100 - Missing TINS

There are two types of errors:  Missing TIN(s) and Incorrect Name/TIN Combinations.  Follow these IRS instructions to the letter if you receive a CP2100 or CP2100A Notice. This is extracted from IRS Publication 1281

 

Missing TIN(s)

The IRS considers a TIN to be missing if it is not provided or if it is obviously incorrect. Examples are a TIN with more or less than nine digits, or with a mixture of digits and letters. For accounts with missing TIN(s), make sure backup withholding has begun and continue backup withholding until you receive a TIN. If you have not begun backup withholding, generally you must:

  1. Begin backup withholding on any reportable payment you make and continue backup withholding until you receive a TIN. Remember that in some cases, the TIN must be certified.
  2. Do not send a first or second "B" Notice in response to the CP2100 or CP2100A Notice. However, in order to avoid a penalty for filing an information return that omitted the payee's TIN, you must make a first annual solicitation for the TIN (generally by December 31 of the year in which the account is opened) and if a TIN is still not received make a second annual solicitation by December 31 of the following year. No annual solicitations are required in the years in which no reported payments are made.
  3. Report amounts withheld on Form 945, Annual Return of Withheld Federal Income Tax, and make the required deposits.

Note: Generally, you must obtain a TIN from a payee even for a "one-time" transaction. If you do not, the law allows us to charge a penalty. Publication 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TIN(s), has information on removing or reducing penalties due to reasonable cause.

 

Note: If you inadvertently did not include the TIN on the information return, do not contact the payee. Include the TIN on any future information returns filed.

 

Who Completes a W-9?

A W-9 is completed by a US Person who can be a US Citizen or Resident Alien.  A resident alien can be detected by one of two tests:  The Green Card Test or the Substantial Presence Test.

 

The Green Card Test

Your account holder is a resident for tax purposes if he/she is a lawful permanent resident of the U.S. any time during the calendar year.  This is known as the "green card" test.  Your account holder is a lawful permanent resident of the United States at any time if he/she has been given the privilege, according to the immigration laws, of residing permanently in the U.S. as an immigrant.  Youraccount holder  generally has this status if the U.S. Citizenship and Immigration Services (USCIS) has issued an alien registration card.  The account holder  continues to have this status unless the status is taken away or is administratively or judicially determined to have been abandoned.

 

Substantial Presence Test

Your account holder  will be considered a U.S. resident for tax purposes if he/she meets the substantial presence test for calendar year 2015. To meet this test, your account holder   must be physically present in the United States on at least:

  • 31 days during 2015, and
  • 183 days during the 3-year period that includes 2015, 2014, and 2013, counting:
    • All the days you were present in 2015, and
    • 1/3 of the days you were present in 2014
    • 1/6 of the days you were present in 2013.

Tools for Building a Complete Risk Assessment

How do you make a comprehensive risk assessment and follow the FDIC recent FILs? Are the other regulators in agreement? The FDIC issued guidance to encourage institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers. Your financial institution's risk assessment for AML/BSA may be the most important tool for prevention of financial crimes and developing a culture of compliance.  What are your institution's risks?  How are you mitigating those risks?  This program is a how-to with spreadsheets and risk-weighting tools to help you build the most comprehensive risk assessment for your institution.   

 

Join Debbie Crawford for this webinar on February 20 to learn the tools you need for building a complete risk assessment. For more information or to register, click here

Do you have a question or topic that you would like to see addressed in our monthly newsletter? If so, email us and let us know. Send questions and/or topic suggestions to info@bankersecampus.com.