Proper Reporting Status of Bank Gift

D

The proper reporting status of a gift given by a bank to a customer for opening a deposit account depends on the value of the gift and the requirements of the Internal Revenue Service (IRS).

Option A states that if the cost of the gift is under $20.00, it is not reportable to the IRS. However, this is not entirely accurate. The IRS requires that all gifts or bonuses with a fair market value of $10 or more, that are given in connection with the opening or maintenance of an account, must be reported as interest to the recipient on Form 1099-INT. Therefore, if the fair market value of the gift is $10 or more, it must be reported to the IRS.

Option B is incorrect because the cost of the gift cannot be credited to the customer's account as a bonus. A bonus is an amount paid to the customer as an incentive to open or maintain an account, while a gift is a tangible item given to the customer. The fair market value of the gift can be used to calculate the customer's interest earned, but it cannot be credited to the account as a bonus.

Option C is partially correct. The fair market value of the gift is not reported to the customer on the periodic statement, but the account balance can be increased by the fair market value of the gift.

Option D is the correct answer. The fair market value of the gift is added to the interest paid and reported on Form 1099-INT. This form is used to report all taxable interest income to the IRS and to the recipient of the income. The recipient must report the income on their tax return and pay any taxes owed on the income.

In summary, if a bank gives a customer a merchandise gift with a fair market value of $10 or more for opening a deposit account, the fair market value of the gift must be reported as interest to the recipient on Form 1099-INT. Option D correctly describes the proper reporting status of the gift.