WASHINGTON (4/20/12)--Changes to the Internal Revenue Service's (IRS) 1042-S reporting requirements will create a new compliance burden for credit unions, Credit Union National Association (CUNA) Deputy General Counsel Mary Mitchell Dunn has warned.
The IRS this month approved new tax reporting requirements that will impact credit unions, banks, savings institutions, securities brokerages, and insurance companies that pay interest on deposits. Under the IRS rule, credit unions and other financial institutions will be required to report on their forms 1042-S interest of $10 or more earned annually on deposit accounts held by nonresident aliens who are residents of any foreign country. The current nonresident reporting requirement only applies to Canadian expatriates.
The IRS rule change is an attempt to combat tax evasion.
Dunn said some credit unions may not have the data processing abilities needed to identify affected accounts and prepare the required IRS forms.
Overall, Dunn said, the costs that the rule change would create for financial institutions and consumers would far outweigh any benefit to the IRS, and CUNA last year said the IRS has not proven that the new regulation is needed.