Owner of IRA has died and the POD of the account is her daughter - the amount in the IRA is less that $500 - she wants to close the IRA - should we report the withdrawal under her SS#? - she says she will not have to pay taxes on the funds because it is less than $500

The bank is not in a position to give tax advice nor does it change its processes for a death distribution based on what a customer claims their tax situation is.

Process the death distribution according to your procedures and send the beneficiary a 1099-R at the appropriate time. What the beneficiary does or does not do with that information is between them and the IRS.

It's odd that you would refer to an IRA beneficiary as "POD" and even more odd that there is a question as to how a distribution to an IRA beneficiary would be reported. I think you (the bank, not you personally) need to take a bigger step back and review your overall IRA procedures and who wrote them. This should not even be a question if you are an IRA custodian.