Information Returns - Utah's Credit Unions



Information ReturnsInformation returns made to the IRS by a credit union are used by the IRS to confirm the truthfulness of members’ tax returns.Credit unions should not give advice about how information returns affect a member’s tax liability. The credit union only reports information to the IRS. The individual member, along with his or her tax advisor, should determine how that information applies.IRS Form 1098 — Mortgage InterestRequired each calendar year in which a credit union receives $600 or more in mortgage interest and points from a member:Includes interest paid on HELOCSPoints are only reported under certain circumstances (consumer loan, purchase, principal residence)The $600 threshold applies separately to each mortgage.Optional to file a Form 1098 to report mortgage interest of less than $600. Include points paid by the seller.IRS Form 1098-E — Student Loan Interest StatementRequired if, during any calendar year, a credit union receives at least $600 in interest from a member on a “covered student loan.” A loan does not necessarily need to be made as part of a guaranteed student loan program in order to be a “covered student loan” for tax purposes. A “covered student loan” is one that is made to a member solely for that member’s (or that member’s spouse’s or dependent’s) educational expenses paid within a reasonable time before or after the loan was taken out and that either: Qualifies as part of a guaranteed student loan program of the federal, state, or local government; orIs documented by the member’s certification on IRS Form W-9S that the loan proceeds were used solely for educational expenses.IRS Form 1099-INT — Interest IncomeRequired if:A member was paid at least $10 in interest or dividends during a calendar year, or Federal income tax was withheld under the backup withholding rules regardless of the amount withheld. IRS Form 1099-C — Discharge of IndebtednessThe IRS considers a debt that is not repaid to be “income” to the non-repaying borrower. Financial institutions are required to provide information about debt that will not repaid if the unpaid amount is $600 or more.Form 1099-C is triggered by certain “identifiable events” that indicate a debt is not likely to be repaidThe following are identifiable events: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.A discharge of indebtedness pursuant to an agreement between the credit union and the member.A discharge of indebtedness as a result of a credit union decision to discontinue its collection activity against the debtor.A debt for which the 36-month “nonpayment testing period” has expired.A debt that is canceled or extinguished due to the expiration of the statute of limitations.A debt that is canceled or extinguished in receivership or foreclosure in a state or federal court.A debt that is canceled or extinguished pursuant to the credit union’s election of foreclosure remedies.A debt that is canceled or extinguished, rendering it unenforceable, pursuant to a probate or similar hearing.**Most debts discharged in bankruptcy must not be reported as income to members on a Form 1099-C **IRS Form 990 — Return of Organization Exempt from Income TaxRequired to be filed annually by state-chartered credit unions (not required for federally chartered credit unions).Public document used to obtain information about the operations of tax-exempt organizations.IRS Form 1042-S: Reporting Interest Paid to Nonresident AliensAdopted in 2012File IRS Form 1042-S for interest payments of $10 or more paid to a nonresident alien. Applies to nonresident aliens who are residents of a country with which the U.S. has an information-sharing agreement.May file on all nonresident aliens regardless of the information sharing agreement.May rely on the permanent residence address provided on the W-8BEN for purposes of determining the residence of a nonresident alien. DeliverySpecial Mailing RequirementsInformation returns must be either hand-delivered or sent by first-class mail to the member’s last known address. They can be attached by perforation to a member’s year-end statement, or sent separately. If an information return is attached to a member’s year-end credit union statement, the credit union statement must be stamped in bold and conspicuous type: “IMPORTANT TAX DOCUMENT ATTACHED.”No other enclosures are permitted with a mailing of an information return to a credit union member although the credit union’s logo may appear on the statement.The envelope that contains a member’s information return(s) must include on its face, also in bold and conspicuous type: “IMPORTANT TAX DOCUMENT ENCLOSED.” A credit union logo may also appear on the envelope.Electronic Delivery of Payee StatementsThe following IRS forms may be furnished to members electronically using E-sign rules:10981098-C1098-E1099-INT1099-C 1099- MISC5498W-2Penalties for Failure to File Information ReturnsWithin 30 days of the filing date, then the penalty is a maximum of $15 per return, with the total penalty not to exceed $75,000.After 30 days, but by August 1 of the year the return is required, then the penalty is a maximum of $30 per return with the total penalty not to exceed $150,000.After August 1 of the year the return is required, then the penalty is $50 per return, with the total penalty not to exceed $250,000.If the credit union fails to furnish a member with his or her information return by January 31, the penalties can range up to $50 per affected member, with a maximum penalty of $100,000.Inconsequential ErrorsCredit Unions will not be penalized for inconsequential errors on information returns. Inconsequential errors are any errors that do not prevent the IRS from processing a return, correlating the information with an individual’s tax return, or otherwise putting the return to its extended use. The following types of errors are never inconsequential:The member’s taxpayer identification numberThe member’s surnameAny dollar amountsSignificant omissions in the member’s address, if the member provided them previously to the credit unionThe manner in furnishing the information returns to the member Record RetentionCredit unions must retain all records that contribute to the creation of each member’s information returns, and a copy of each information return itself for four years.Backup WithholdingCredit unions are required to withhold a percentage of “reportable payments” (generally 28%) when certain conditions exist. Withholding ConditionsThe credit union must apply backup withholding when:A member fails to provide a TIN or certify that the TIN is correctThe IRS notifies the credit union that backup withholding must begin due to a missing or incorrect TINThe IRS notifies the credit union that the member is subject to backup withholding (C-Notice)The member fails to certify that he or she is not subject to backup withholding (unless the member qualifies for an exemption).The member fails to provide a W-8 BEN or does not renew the form after three years.Ending Backup WithholdingCircumstance that caused backup withholdingStop backup withholding when:The member failed to provide a TIN and W-9Credit union receives the TIN and a signed W-9Credit union received an IRS 2100 or 2100A NoticeFor missing TINS, backup withholding can stop when you receive the correct TIN and W-9 certification.For incorrect Name/TIN combinations, backup withholding can stop when you receive either SSA Form 7028 Notice to Third Party of Social Security Number Assignment or IRS Letter 147C from the memberCredit union received a “C-Notice” Backup Withholding NotificationCredit union receives an official notice from the IRS to stopThe member does not provide or renew IRS Form W-8BENCredit union receives a signed W-8BEN from the memberTIN certificationWhen a member opens a new account at a credit union, the account will not be subject to backup withholding if the member certifies, under penalty of perjury that:The TIN provided by the member is correctThe member is not subject to backup withholdingThe member is a U.S. person (including a U.S. resident alien). Note: Members with an ITIN also use Form W-9 Certification.Obtain certification byHaving the member complete IRS Form W-9 or a substitute W-9.Having members who are non-resident aliens complete Form W-8BEN, “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding.”Form W-8BEN must be retained by the credit union. It is valid for three calendar years after the year it was signed. ................
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