Handling Withheld Interest Refund Requests
Question
On March 1, First National Bank opened three accounts:
1) a savings account for Margaret Nelson, who did not have a TIN but signed a certification that she had applied for one;
2) a money market savings account for Linda Miller, who could not remember her TIN but promised to provide it at the earliest possible date; and
3) a certificate of deposit for John Whiteside, who completed a Form W-9 but provided a TIN with only eight numbers. Ms. Nelson provided her newly acquired TIN to the bank on April 15, Ms. Miller provided her TIN on April 5, and Mr. Whiteside provided his TIN to the bank on March 10. Interest was paid on all of these accounts on March 31, and the bank withheld 28 percent of the interest payments. On April 20 all the payees requested that the withheld interest be refunded.
What should the bank do?
Answers
Explanations
Click on the arrows to vote for the correct answer
A. B. C. D.B
The bank should refund the withheld interest to all payees, option A is the correct answer.
Explanation:
The bank withheld 28% of the interest payments on March 31, which is the backup withholding rate applicable to accounts with incomplete or missing taxpayer identification numbers (TINs).
For Margaret Nelson's account, she did not have a TIN but signed a certification that she had applied for one. As per the regulations, the bank may open an account in such a case, subject to the individual providing their TIN to the bank within a reasonable period. Ms. Nelson provided her newly acquired TIN to the bank on April 15, within a reasonable period. Therefore, the bank should refund the withheld interest to her.
For Linda Miller's account, she could not remember her TIN but promised to provide it at the earliest possible date. She provided her TIN on April 5, which is also within a reasonable period. Therefore, the bank should refund the withheld interest to her.
For John Whiteside's account, he provided a TIN with only eight numbers, which is an incomplete TIN. According to the regulations, if a TIN is incomplete, the bank must request the account holder to provide a complete TIN within 90 days. Mr. Whiteside provided his TIN to the bank on March 10, which is within the 90-day period. Therefore, the bank should refund the withheld interest to him.
Since all three account holders provided their TINs within a reasonable period, the bank should refund the withheld interest to all payees. Therefore, option A is the correct answer.
