First National Bank receives a notice from the IRS to begin withholding 28 percent of the interest payments on the money market savings account of Myra Wilcox because of payee underreporting. What is the most proper action for First National Bank to take?
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A. B. C. D.B
The correct answer to this question is option A: Send a notice to Ms. Wilcox within 15 days of the receipt of the IRS notice and begin withholding; stop withholding if Ms. Wilcox can prove to the bank that she is not underreporting.
Explanation: The IRS requires banks to withhold a certain percentage of interest payments on accounts of payees who have been identified as underreporting their income to the IRS. This withholding is known as backup withholding.
In this scenario, the IRS has notified First National Bank to begin backup withholding of 28% of the interest payments on Myra Wilcox's money market savings account due to underreporting. The bank must take appropriate action as per the IRS notification.
Option A is the correct answer as it states that the bank should send a notice to Ms. Wilcox within 15 days of receiving the IRS notification and begin withholding. The bank should also stop withholding if Ms. Wilcox provides proof to the bank that she is not underreporting her income to the IRS.
Option B is incorrect because it does not require the bank to send a notice to Ms. Wilcox before beginning the withholding.
Option C is also incorrect because it requires the bank to send a notice to Ms. Wilcox at least 15 days before the first payment from which funds are to be withheld. However, the bank has already received an IRS notice to begin withholding, and there is no need to wait for the first payment.
Option D is incorrect because it requires the bank to begin backup withholding with the first payment following 30 days after the notice. However, the IRS notice does not mention a 30-day waiting period, and there is no need to wait for 30 days before beginning the withholding.
In summary, the most proper action for First National Bank to take in this scenario is to send a notice to Ms. Wilcox within 15 days of receiving the IRS notification and begin withholding. The bank should stop withholding if Ms. Wilcox provides proof to the bank that she is not underreporting her income to the IRS.