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Opening Accounts for "Civic Associations"

Question: 
We have a noninterest bearing account designed for "civic associations" e.g., girl scout troop #25; north metro soccer league, etc. Most of the time, the individual opening the account for this association wants to use their own social security number as the tax ID on the account as opposed to applying for a TIN in the name of the group. My CEO wants us to allow customers to do this so that it is "easy for the customer". These are "obviously incorrect" tax ID numbers in that the name of the account and the name of the individual do not match. Is this a problem?
Answer: 

Answer by John Burnett:


While it may at the outset be easier to accept an individual's SSN for these "civic organizations," as you call them, the fallout could be less than fun.

Suppose you pay interest to the organization and send a 1099INT with the SSN of the individual? How happy will he or she be that the IRS will be expecting to see that interest included on his or her tax return, unless there is a corrected 1099 issued?

When the person who opened the account gets tired of handling the books, and passes them along to someone else, how will you know to update the SSN? You won't!

How much fun is it to respond to Bnotices from the IRS and chase customers for correct TINs?

How do you know the "group" is even sanctioned? One way to be more comfortable with the group's existence is to see an IRS letter issuing an EIN.

With the USA PATRIOT Act looming large on the horizon, now is not the time to get sloppy with elements of the account opening process, in the name of "customer service."

Answer: 

Answer by Ken Golliher:


From the IRS "BNotice" (Notification of Incorrect TIN):


For most nonindividuals (such as trusts, estates, partnerships and similar entities), the TIN is the employer identification number (EIN). The EIN on your account may be incorrect because it does not contain the number of the actual owner of the account. For example, an account of an investment club or bowling league should reflect the organization's own EIN and name, rather than the SSN of a member.

From Ken: Whatever "customer" time you save, you will spend more "bank" time chasing this issue. Also, the penalty for an incorrect information return is $50, unless the error was "willful." Then, the penalty is $100. It's going to be pretty difficult to say you did not know this was wrong.

First published on BankersOnline.com 7/1/02

First published on 07/01/2002

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