Regulatory Reporting Policy and Procedures 6/12

Regulatory Reporting Policy and Procedures 6/12

Exhibit 12.1
Sample Regulatory Reporting Policy

Applicable Laws/Regulations: Internal Revenue Code
Bank Secrecy Act, 31 CFR Chapter X
National Credit Union Administration (NCUA) Rules and Regulations, Section 741.6 Federal Reserve Act, Section 19, Bank Reserves, 12 USC 461 et seq.
Regulation D ¾ Reserve Requirements of Depository Institutions, 12 CFR 204

Areas of Responsibility: Finance/Treasury

Last Board Review: June 20XX

Last Revision: September 20XX

Background

Mindful of its fiduciary responsibilities, the board of directors of Hometown Federal Credit Union (Hometown FCU) adopts this regulatory reporting policy to provide guidance for the successful compliance with all reporting requirements and the maintenance of records mandated by the various agencies regulating the operations of the credit union. These agencies and their reporting requirements include, but may not be limited to:

· National Credit Union Administration. Requires semiannual reporting of the financial condition of the credit union, NCUA Form 5300 (call report).

· Federal Reserve System. Requires weekly preparation and filing of Form FR 2900, Report of Transaction Accounts, Other Deposits and Vault Cash.

· U.S. Treasury Department. Reports of foreign bank and financial accounts are required under the Bank Secrecy Act, using Form TD F90.22.1.

· Internal Revenue Service. Requires the following:

— Obtaining certified taxpayer identification numbers (TINs), Forms W-9 and W-8

— Bank Secrecy Act reporting forms: currency transaction reports, currency or monetary instrument reports, and suspicious activity reports

— Tax information reporting forms

· Social Security Administration. Requires the reporting of wage and tax information for credit union employees on Form W-2, Wage and Tax Statement.

Exhibit 12.1
Sample Regulatory Reporting Policy (cont.)

Purpose and Objective

The purposes of this policy are to assign responsibility for the proper preparation and timely reporting of information required by credit union regulators and to provide guidance to ensure that all regulatory reporting requirements are adhered to and properly administered.

Policy Statement

The overall responsibility for the administration of this policy will be vested with the chief financial officer (CFO) of the credit union. The CFO is expected to work closely with the chief operating officer (COO) when responsibilities for gathering and reporting information overlap into the operations area. This is especially true for the reporting required under the Bank Secrecy Act and the certification of TINs because the accumulation of this information will fall to operations personnel. IRS reporting, a function of the systems department, is also in the operations area.

The COO is directed to fully cooperate with the CFO in providing information to complete all reporting requirements and to direct all operations functions charged with reporting and information gathering to furnish the necessary assistance to the CFO to meet the requirements of this policy.

Certification of Taxpayer Identification Numbers

The TIN is used by the IRS as the main device for tracking income reporting. The credit union will obtain and retain on file a TIN whenever an account is opened. Procedures for the certification of TINs will be developed and included in the credit union’s procedures for IRS reporting.

Procedures will also be put into place for the following:

· To monitor those accounts “awaiting TINs”

· For backup withholding when a member fails to provide a TIN

· When the credit union is notified by the IRS that a TIN is incorrect or that the member has failed or underreported interest and dividend income

· When a member fails to certify that the member is not subject to backup withholding

Failure to obtain this important information subjects the credit union to severe penalties.

Exhibit 12.1
Sample Regulatory Reporting Policy (cont.)

Dividends and interest payments to members who are nonresident aliens will be exempt from information reporting and backup withholding when the member provides the credit union with a properly executed IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Resident aliens (green card holders) are subject to information reporting and backup withholding.

Mortgage TINs

Credit union personnel will obtain the member-borrower’s TIN before the mortgage is closed. The member-borrower is not required to certify the TIN under penalty of perjury except in the case of filing Form 1099-S, Proceeds from Real Estate Transactions. The TIN must be solicited on a separate piece of paper. If the member-borrower does not provide a TIN at the time of closing, it is to be solicited annually until provided and the member-borrower is to be informed of the following:

· That the IRS requires a TIN to verify the mortgage interest deduction

· That the IRS may impose a $50 penalty on the member for failure to provide a TIN

Backup Withholding

The credit union is required to backup withhold when:

· The member fails to provide a TIN.

· The member reports an incorrect TIN and the credit union is so notified by the IRS (B notice).

· The member does not report or underreports interest or dividend income and the credit union is so notified by the IRS (C notice).

· The member does not certify (usually on a W-9) that the member is not subject to backup withholding.

Form 1099 Filings

All payments to more than 250 members in the aggregate will be reported electronically.

Interest Income

Interest income is reported on Form 1099-INT. Dividends paid by federal credit unions on member share accounts are considered interest payments by the IRS, and the rules for interest reporting will apply. Interest payments aggregating more than $10 per member in a calendar year are to be reported on Form 1099-INT. This reporting will include the fair market value of any merchandise or gifts given for opening deposits added to the interest paid on the deposits.

Exhibit 12.1
Sample Regulatory Reporting Policy (cont.)

Reporting of Certain Gifts — When a cash payment or merchandise is given to a member to induce a prospective member to open a nondividend-bearing account, the credit union will report the fair market value of the item given on Form 1099-MISC if the amount equals or exceeds $600.

Reporting on Accounts Pending Litigation — Reporting on escrow deposits held pending the outcome of litigation will be filed on Form 1099-INT for the year litigation is settled.

Reporting on Funds Held by District Courts — Reporting of funds deposited with a U.S. district court pursuant to a court order will be filed on Form 1099-INT when the credit union receives notification from the court of the name of the person judged to be entitled to the accrued interest.

Reporting on Certain Nonnegotiable Share Certificates — Dividends on nonnegotiable time share certificates not paid, or available to the member without penalty, will not be reported until redemption or maturity. When dividends on these certificates are credited monthly or quarterly and there is no penalty for early withdrawal of the dividends, the dividends will be reported on Form 1099-INT for the calendar year in which it is credited.

Reporting on Dividend-Bearing Personal Share Draft Accounts — The credit union will report the full amount earned by a member on dividend-bearing personal share draft accounts maintained at the credit union. The amount reported is not to be reduced by any fees charged for check-writing privileges.

Reporting on Dividends and Principal Forfeited Due to Early Withdrawal — Dividends and principal that are forfeited due to early withdrawal from share certificates and are deducted from gross income by the member will be reported in box 2 of Form 1099-INT. This amount can be determined by using either of the following:

· The gross income method, where dividends are computed to the date of withdrawal and the total penalty is forfeited

· The modified income method, where dividends are calculated only to the last date dividends were credited to the account and the forfeiture deducted by the member was the total penalty, less the amount earned from the last date that dividends were credited to the date of the early withdrawal

Reporting of Dividends Earned on IRS Levies on Member Accounts — The credit union will immediately freeze all funds sufficient to satisfy an IRS levy and effect a 21-calendar-day holding period for all member accounts subject to the levy. The credit union will turn over funds in levied accounts (with dividends) to the IRS only after the 21-day holding period has passed. The IRS is entitled only to the funds the member would have received if the account had been closed on the date of the levy and only to those balances up to an amount sufficient to satisfy the levied amount. Because the credit union account agreement states that funds must be on hand at the end of the quarterly dividend period, and the 21-day holding period for remittance may expire prior to that date, no dividends are to be remitted, even if the

Exhibit 12.1
Sample Regulatory Reporting Policy (cont.)

amount in the account is less than the levy. The dividends accrued during the 21-day holding period that are forwarded to the IRS are deemed to be interest earned by the member and will be reported on the same Form 1099-INT used for other dividends; a separate Form 1099-INT is not required.

Negotiable share certificates, safety deposit boxes, and most individual retirement accounts (IRAs) are examples of items that cannot be attached by an IRS levy.

Exemptions from 1099-INT Reporting — No Form 1099-INT will be required in any of the following situations:

· Interest or dividends are paid on a tax-exempt obligation.

· Interest or dividends are paid to nonresident aliens and foreign corporations when a valid Form W-8 is on file at the credit union.

· Interest or dividends are paid to recipients who are exempt.

Interest is considered tax exempt when paid on the obligations of a state, U.S. territory or possession, or any political subdivisions of any of the above, including the District of Columbia. Also exempt from reporting is interest paid on state and local bonds used for traditional government purposes. Although the above are exempt from federal taxes, the credit union is not required and will not file Form 1099-INT on these payments. The credit union is required to report the proceeds of a sale of a tax-exempt obligation using Form 1099-B, Proceeds from Broker and Barter Exchange Transactions.

Payments to exempt recipients will not be reported and include payments to the following:

· Brokers

· Charitable remainder trusts

· Common trusts

· Corporations

· Federal, state, local, and foreign governments, agencies, and instrumentalities

· Financial institutions

· Individual retirement accounts

· Nominees or custodians

· Real estate investment trusts

Exhibit 12.1
Sample Regulatory Reporting Policy (cont.)

· Registered investment companies

· Tax-exempt organizations

Annual Statement to Member — The credit union will provide a copy of each Form 1099-INT filed with the IRS to the member whose identifying number is on the form. The 1099-INT form will be mailed by first class mail prior to January 31 of the following year.

Dividends and Distributions

Form 1099-DIV, U.S. Information Return for Recipients of Dividends and Distributions, is to be used for reporting dividends and distributions aggregating $10 or more when the credit union acts as payment agent. Dividends, in this instance, are defined as:

· Distributions made by a corporation to shareholders in property or cash from earnings and profits

· Payments made by a stockholder as a substitute for a dividend

· Distributions of $600 or more made from the liquidation of a corporation

Dividends must be reported when the credit union acts as an agent or broker for mutual funds. Include in the reporting both the nontaxable portion of the payment and any capital gain dividends.

Form 1099-DIV must also be used when the credit union acts as a nominee.

Acquisition or Abandonment of Secured Property

When the credit union lends money secured by real property (such as a personal residence), tangible personal property held for investment or used in a trade or business (machinery or equipment), or intangible property (securities held for investment), it will file a Form 1099-A, Acquisition or Abandonment of Secured Property, to report foreclosures, voluntary conveyance, or abandonment to satisfy all or a portion of the debt. This occurs when the credit union acquires the property, or if the credit union learns that the borrower has abandoned the property.

Reporting is required by the credit union under the following circumstances:

· The credit union has interest in the property.

· A third party purchases the property at a foreclosure.

· The credit union knows or has reason to believe the property has been abandoned.

The date the credit union acquires the property under foreclosure or sale is the date of sale or the date that the member-borrower’s right of redemption expires under state law.

Exhibit 12.1
Sample Regulatory Reporting Policy (cont.)

When a single loan has been made to more than one borrower, the credit union will prepare a Form 1099-A for each borrower. When more than one lender lends money secured by the same property and one lender forecloses or acquires an interest in the property, affecting the other lender’s security interest, the other lenders are required to report each of the loans. When a new lender acquires a loan and the property securing the loan, the new lender has reporting responsibility for any events occurring after the transfer.

Note: The credit union does not need to file both a 1099A and 1099C. Employees should comply with the reporting instructions of each form.

Proceeds from Broker and Barter Exchange Transactions

When the credit union regularly acts as a custodian agent and arranges for the sale of securities as an agent for a member, or acts as an escrow agent in a corporate acquisition, it is considered to be a broker. In such instances, the credit union is required to file Form 1099-B to report gross proceeds from member sales and transactions regarding future contracts to provide the IRS and the member with the proceeds from the sale, redemption, or maturity to determine gain or loss for tax purposes. No information reporting will be required for the purchase of securities; only sales, redemptions, and maturities are to be reported.

Cancellation of Debt

The credit union must file a Form 1099-C for each discharge of indebtedness of $600 or more. This reporting must be completed on or before February 28 of the year following the calendar year in which the discharge occurs. The same information must be provided by January 31 to the member whose debt is discharged. A form 1099-C should not be filed if the cancelled debt is a result of identity theft.

The following events trigger the filing of Form 1099-C:

· The debt is discharged under bankruptcy when the purpose of the debt was for business or investment purposes.