Financial institutions occasionally encounter objections when they require a taxpayer identification number (TIN) as a condition of opening a deposit account. A refusal to provide a TIN may be based on the individual's personal or political philosophy. It is often characterized by a claim to be a "sovereign citizen." Nevertheless, federal regulations require the financial institution to obtain the number.
In some cases, a potential depositor provides a photocopy of a widely circulated memorandum purporting to explain why requiring a TIN is a violation of federal law and giving the financial institution "constructive notice" of the "violation." The memorandum selectively quotes The Privacy Act of 1974 (TPA), but does not accurately apply the law to this situation.
TPA, found at 5 U.S.C. 552a, prohibits government agencies from denying any "right, benefit, or privilege provided by law" to a person based solely that person's refusal to provide a TIN. However, TPA does not apply to a financial institution's refusal to open a deposit account because the depositor refuses to provide a TIN. Any one of the following reasons can be cited:
a financial institution is not a government "agency," a term clearly defined in TPA; and
opening a deposit account is not a "right, benefit or privilege provided by law"; and
any disclosure required by federal statute (illustrated below) is specifically excluded from TPA coverage.
The Bank Secrecy Act (BSA) predates the Privacy Act of 1974. (Under BSA, the definition of a bank includes banks, savings and loans and credit unions; it is clearly applicable to all three types of institutions.) The relevant portion of its implementing regulations reads:
31CFR103.31(a)(1) With respect to each certificate of deposit sold or redeemed after May 31, 1978, or each deposit or share account opened with a bank after June 30,1972, a bank shall, within 30 days from the date of such a transaction occurs or an account is opened, secure and maintain a record of the taxpayer identification number of the customer involved...
Recent developments in BSA enforcement, specifically the evolution of "Know Your Customer" and "Extended Due Diligence" underscore the importance of obtaining critical customer information.
The above discussion applies to all deposit accounts, including those that do not earn interest. (The Internal Revenue Code imposes additional documentation requirements on interest bearing accounts.) Nonresident aliens (NRAs) and some members of certain religious groups; e.g. the Amish, legitimately do not have TINs. However, under BSA, NRAs must document their status with evidence of foreign citizenship and the bank must make a written record of the documentation it received.
Understandably, many financial institutions enforce the policy "no TIN - no account." The policy is supported, not prohibited, by federal law.
Consumers objecting to the requirement may be referred to the bank's normal procedures for handling consumer complaints or provided with the address of the financial institution's primary federal regulatory agency so they can properly voice their dissatisfaction. However, elimination of the requirement would require a change in law or regulation, something the regulatory agency cannot do.
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