News
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Get to Know MBIS: Insurance for Banks, From People Who Know Banks

Bankers understand risk management. That’s what the business of banking is all about, after all. Bankers accept the risk of protecting their customers’ funds and manage the risk of extending those funds out as loans to build the community. Without effective risk management, no bank can be successful.  

That’s why Wisconsin Bankers Association wholly owned subsidiary WBA Employee Benefits Corporation (EBC) partnered with the Minnesota Bankers Association nearly a decade ago to form Midwest Bankers Insurance Services LLC (MBIS). This partnership created an insurance agency dedicated to providing community banks with comprehensive insurance options.  

As an association-owned entity, ultimately the revenue generated by MBIS flows back to support the overall mission of WBA, which is to support you, our member banks. Another advantage of working with MBIS: we serve only you. The banking industry is the only market MBIS serves; its products are specifically tailored to banks’ insurance needs. All of MBIS’ financial products are designed to protect banks, their officers, directors, and employees from disasters of all kinds.  

Because MBIS is owned by your association, you can rest assured we’re working on your behalf and you can contact us with concerns. For example, recently, we have fielded questions from bankers wondering about the impact of the current pandemic on pricing for their D&O liability policy renewals. Some experts have stated they expect increases of nearly 50% as a result of emerging claims related to COVID-19.  

Our response: while the D&O markets are a bit shaken right now, the banking sector has not seen the significant premium increases other areas have. However, some carriers are tightening in various ways, including more disciplined risk selection, increased retentions, lack of three-year prepay options, and narrower terms and conditions. 

MBIS’s lead D&O carrier, AmTrust, continues to offer broad terms, conditions, and less-than-market pricing with three-year prepay options. The MBIS-negotiated D&O forms have been broader than what we have experienced with policy forms negotiated by other agencies.  

For more guidance and insight like this, you need to work with an agency that knows banking as well as it knows insurance. That’s MBIS.  

Find out how MBIS can help your bank manage risk, and join our over 200 bank clients in Wisconsin, Minnesota, and North Dakota in enjoying peace of mind. Contact Jeff Otteson at 608-217-5219 or jeffo@mbisllc.com today. 

Lund is WBA executive vice president – chief of staff and president of EBC and MBIS. 

By, Amber Seitz

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Support Behind the Scenes: WBA Associate Members

In today’s business world, no company is entirely self-sufficient. Niche expertise and product specialization have created a competitive landscape where interdependencies lead to growth and efficiency. In order to reach your bank’s strategic goals, you rely on third-party providers for a growing list of products and services so that you can focus on being there for your customers.  

While you’re busy being there for your customers, WBA Associate Members will be there for you.  

As your association, WBA is constantly building products, services, and partnerships that will help our member banks achieve their goals. WBA’s Associate Membership program is one of the key ways in which we support our member banks. “The WBA’s Associate Members play a very intricate role in the Wisconsin banking industry,” explained Nick Loppnow, WBA director – associate member and education services (pictured, left). “Most of it is behind the scenes, and it’s all to help enhance the banks’ ability to serve their customers and deepen their relationships.” 

WBA currently has 150 associate member companies in industries ranging from law, risk management, accounting, and correspondent banking to insurance, IT, marketing, and architecture. This broad spectrum of members means there’s a WBA Associate Member for every third-party partnership your bank relies on to serve your customers. “The WBA’s Associate Membership program offers banks the opportunity to look for companies to fit their specific needs,” said Loppnow. “All of the associate members go through an approval process to ensure that the WBA recommends high-quality companies to its bank members.” 

In addition to this staff vetting, the WBA Board of Directors is informed of all new associate members and asked for any feedback on the companies. In fact, many new associates join WBA at the recommendation of a current customer that is a WBA Member Bank.  

Do you work with a company that’s not a current WBA Associate Member, but is a great partner for the industry? Refer them to Nick Loppnow. 

Through this review process, WBA and its directors strive to accept membership only from companies which are dedicated to serving the banking industry and provide exceptional products, services, and customer support. While our associate member companies pay dues, just like bank members do, the program is not a free-for-all. “Many of our associate members go above and beyond simply paying their dues by supporting the association's efforts to educate and bring bank members together at events,” said Loppnow. “Our associate members thrive on sharing their expertise by presenting on hot topics and supplying articles, white papers, and resource websites as well as dedicating funds through sponsorships to help enhance the bankers’ experiences at WBA events.” 

WBA Associate Members, through their membership, demonstrate the same dedication to customers and the Wisconsin banking industry that WBA Member Banks show their own clients and communities through their exceptional service. 

The WBA Associate Membership program offers three membership package levels in addition to the standard membership: Gold, Silver, and Bronze. Through their investment in a package-level membership, these WBA Associate Members not only streamline their involvement with the association through advertising, sponsorships, and exhibit opportunities, they further demonstrate their commitment to supporting Wisconsin’s banking industry as a whole. Click here to learn more about the WBA Associate Member Packages.

Visit www.wisbank.com/resources/associate-members for a searchable index of all WBA Associate Members. 

By, Amber Seitz

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Treasury Cancels Outstanding EIP Checks

Treasury Department announced that as of July 6, 2020 it has cancelled outstanding Economic Impact Payment (EIP) checks issued to recipients who may not be eligible for such program payments, including those that may be deceased. 

In its release, Treasury encouraged banks to determine the status of EIP checks by using either:   

  • The Treasury Check Verification Application (TCVA) for single queries; or 
  • The Treasury Check Verification Service (TCVS) for bulk queries using an automated programming interface (API). 

For a cancelled EIP check in TCVA (single query), the response will be “The U.S. Treasury Check has already been paid.” For a cancelled EIP check in TCVS (bulk queries), the response will be “U.S. Treasury Check has been cancelled.” 

If a bank inadvertently negotiates a cancelled EIP check, Treasury will not request or demand recovery from the bank, unless there is an additional reason to do so, for example the check was not properly endorsed. Similarly, Treasury will not reclaim from banks ACH payments made to recipients who may not be eligible for such payments under program specifications. 

EIP recipients are responsible for returning to Treasury a payment made to someone who may not be eligible for such payment under program specifications in accordance with guidance at www.irs.gov/coronavirus. 

Customers should use the following address for the return of EIP checks to the Treasury: 

U.S. Department of the Treasury 
Bureau of the Fiscal Service 
Philadelphia Financial Center 
P.O. Box 51320 
Philadelphia, PA 19115 

Treasury also requests customers include correspondence explaining the reason for return.  

Treasury has also posted frequently asked questions (FAQs) for banks and other useful links about EIPs at https://www.fiscal.treasury.gov/news/useful-covid-19-links.html. Treasury will continue to update the FAQs as needed when there is new information to provide. 

By, Ally Bates

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Update on Consumer Fraud, Including Imposter Scams and Money Mule Schemes

Consumer fraud has been on the rise amid the COVID-19 pandemic. WBA has become increasingly aware of unemployment, EIDL, and PPP fraud. On July 7, 2020, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to alert financial institutions to potential indicators of imposter scams and money mule schemes. 

The advisory contains descriptions of imposter scams and money mule schemes, financial red flag indicators, and information on reporting suspicious activity. Generally, fraudsters are targeting customers, and financial institutions are advised to remain alert for potential suspicious activities. For example, a customer may be in contact with criminals impersonating organizations such as the Internal Revenue Services (IRS), the Center for Disease Control and Prevention (CDC), the World Health Organization (WHO), and other healthcare or non-profit groups, looking to offer fraudulent services to victims. 

In addition to imposter scams, FinCEN outlines money mule schemes whereby a person, either knowingly or unknowingly, transfers money that has been acquired illegally, on behalf of another. An individual may either be motivated by ignorance, a romance scam, or be complicit, with expectations of profit. For example, a financial institution may notice transactions that do not fit a customer’s history, suspicious new accounts, or otherwise atypical transactions. 

In particular, there have been schemes detected related to unemployment fraud. Financial institutions may notice a customer who receives multiple state unemployment insurance payments. The United States Secret Service has identified a crime ring behind a large volume of fraudulent unemployment claims being filed with State departments across the country. As discussed above, participants may be complicit, or unknowing of their involvement, financial institutions should remain vigilant to identify potential fraud. 

Similar to unemployment fraud, financial institutions have begun identifying fraud related to EIDL and PPP loans. Given the potential avenues for fraud, financial institutions should become familiar with the known schemes, and resources available. For additional information consider the following resources: 
 
FinCEN advisory. 

Fraud related to SBA loan programs. 

By, Ally Bates

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IRS Shares COVID-19 Red Flags for Bank SARs

The IRS assembled a list of red flags regarding COVID-19 related programs like the Economic Impact Payments (EIP) and the CARES Act. The current list is available below.

Economic Impact Payments (EIP) based questionable/fraudulent or red flag activities:

Multiple direct deposits of EIP into the same account, particularly when the amounts of the checks are the same or approximately the same (e.g., $1,200 or $2,400)

Deposits of multiple paper checks into the same bank account, particularly when the amounts of the checks are the same or approximately the same (e.g., $1,200 or $2,400)

Cashing of multiple emergency assistance checks by the same individual

Deposits of one or more emergency assistance checks, when the accountholder is a business and the payee/endorser is an individual other than the accountholder

Opening of a new account with an emergency assistance check, where the name of the potential accountholder is different from that of the depositor of the check

Individual accounts opened within the last 60 days receiving multiple US Treasury checks or direct deposits from the US Treasury

Rapid transfers of funds that consolidate deposits -or- large subsequent counter withdrawals in cash -or- serial ATM withdrawals for the maximum allowable amount -or- large amounts of funds withdrawn in the form of cash back at retail establishments using prepaid debit cards from individual accounts receiving COVID-19 assistance

Other tax relief under the CARES Act questionable/fraudulent or red flag activities:

Opening of a new business account to receive a direct deposit of assistance funds or apply for a loan

The business does not appear to have a lengthy history (e.g., established within the last few months), a physical presence or address, or an Employer Identification Number

The business displays some discrepancies with the address, or it is located in a high-risk jurisdiction or an area that is not usually associated with the merchandise they are selling

The business has an unclear business model and it is difficult to determine the true nature of the company and its operations.

The business is receiving payroll protection relief without history of payroll activity

The business receives a payment/credit from Treasury in addition to a loan from SBA – businesses can be eligible for only one

Deposit to the business is solely from CARES act assistance

Additional red flags to look out for:

Customers could be victims of account takeover after their identity is stolen

Customer provides a document that appears to be a check from the U.S. Treasury, often in an amount less than the expected EIP, with instructions to contact the fraudulent government agency, via a phone number or online, to verify personal information in order to receive the entire benefit

The customer’s personal bank account starts to receive transactions that do not fit his or her history of typical transactions, including overseas transactions, When asked about the changes in transactions, the customer declines requests for “know your customer” documents or inquiries regarding sources of funds, and may mention COVID-19, relief work, or a “work-from-home” opportunity

The customer purchases large amounts of convertible virtual currency (CVC) or engages in fiat currency transactions

The customer opens accounts in his or her name at multiple banks so he or she may receive money from various individuals/businesses and then move the money to other accounts, as specified by the customer’s fraudulent “employer”

By, Eric Skrum

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Impact of CARES Act on Retirement Accounts

This was the Special Focus section for the May 2020 Compliance Journal, click here to view the entire edition.

Title II, Subpart B of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) consists of provisions that affect retirement account distributions, charitable contributions, and employer payments on student loans. The following is a summary of the provision affecting retirement accounts. 

Several sections of Subpart B effect distributions from retirement accounts including: temporary treatment for coronavirus-related distributions, limited repayment and income tax treatments for qualified individuals, and waivers from required minimum distributions.

Coronavirus-related Distributions  

The new law allows for temporary treatment for distributions referred to as “coronavirus-related distributions” (CRDs). For a distribution to be considered a CRD, the distribution need be:  

  1. Made on or after January 1, 2020 and before December 31, 2020; and 
  2. Made to an individual:   
    • Who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;  
    • Whose spouse or dependent (as defined in section 152 of the Internal Revenue Code) is diagnosed with such virus or disease by such a test; or 
    • Who experiences adverse financial consequences as a result of being: 
      • Quarantined;  
      • Furloughed or laid off or having work hours reduced due to such virus or disease; or 
      • Unable to work due to lack of childcare due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury. 

CRDs are permitted for up to $100,000 (in the aggregate) from eligible retirement accounts and are not subject to the standard 10% withholding tax penalty that would otherwise apply to a distribution taken before the participant was 59½. Eligible retirement accounts include qualified defined contribution retirement plans, including 401(k), 403(b), 457(b), and IRAs.  

The new law does allow for retirement plan administrators to rely upon an employee certification that he/she meets the CARES Act conditions to make a CRD. There is no further detail in the CARES Act regarding what specific certification should be made for reliance there upon.  

CRDs will automatically be included as qualified individual taxable income ratably over a 3-taxable year period beginning with the year withdrawn. The participant may voluntarily elect income treatment differently—such as including CRDs as qualified taxable income all in one tax year.  

The CARES Act also allows participants to repay CRDs back to eligible retirement plans and IRAs for which they are beneficiaries and for which a rollover contribution of such distributions can be made. The repayment period is three years from date the distribution was received. Repayments will be treated as satisfying general 60-day rollover requirements and will generally require the participant to file an amended tax return.  

Loans from Qualified Retirement Plans 

Separate from options available for CRDs, the CARES Act increases the amount qualified individuals may borrow from a qualified retirement plan. From the date of enactment until 180 days thereafter, qualified individuals may borrow up to 100% of the individual’s vested account balance or $100,000, whichever is less. This is an increase from current thresholds of 50% and $50,000. A qualified individual is someone that meets the criteria listed in item 2. above. Not all retirement plans allow for participant loans; plan participants should discuss loan options with retirement plan administrators.  

In the case of a qualified individual with an outstanding loan from a qualified retirement plan on or after the date of enactment of the CARES Act (March 27, 2020), if the due date for any repayment of the outstanding loan occurs during the period beginning March 27, 2020 and ending December 31, 2020, such due date is delayed for one year. In determining the traditional 5-year period for when a loan from a qualified retirement plan must be repaid, the traditional time period disregards the delayed period.   

Waiver of Required Minimum Distribution for 2020 

The rules for required minimum distributions (RMDs) for defined contribution plans (such as 403(b) and certain 457(b) accounts) and IRAs have also been impacted by the CARES Act. Under section 2203 of the Act, RMDs are waived for 2020. Due to the changes, an accountholder who was otherwise required to take an RMD in 2020 is no longer required to take the RMD. Additionally, an accountholder who turned 70½ in 2019 but had not yet taken the first RMD by April 1, 2020, is not required to take the first RMD; nor is that accountholder required to take a 2020 RMD.  

The RMD changes also impact inherited IRA-holders. If an accountholder inherited an IRA from a person who died before January 1, 2020, the accountholder is not required to take a 2020 RMD. If the accountholder inherited an IRA as a designated beneficiary, the accountholder is generally required have the IRA funds distributed to him/her within a ten-year time period. Under the CARES Act, if the death occurred after December 2019, the ten-year period does not start until 2021—skipping 2020. A non-designated beneficiary (i.e., estate, charity) normally is required to receive the inherited IRA funds over a 5-year period. Under the CARES Act, 2020 is skipped giving the non-designated beneficiary six years to have the IRA funds fully distributed.  

A change made by the CARES Act is independent of the Setting Every Community up for Retirement Enhancement Act (SECURE Act). The CARES Act made no changes to the new timing rules of the SECURE Act. Thus, under the SECURE Act, it remains that if an IRA-holder reached 70½ prior to January 1, 2020, or if the IRA-holder is not yet 70½, once the IRA-holder reaches 72 after December 31, 2019, he/she must take an RMD.  

Bank Considerations 

Given the new distribution flexibilities for retirement accounts, banks should consider whether further tracking of withdrawals should be implemented for distributions made pursuant to the CARES Act. For example, is the bank be able to track the amount of CRDs taken by a qualified individual from an IRA to help ensure the customer did not exceed the $100,000 threshold. Or whether the bank should track CRDs to then anticipate repayments thereof and perhaps monitor both the timing and amount of repayment.   

Bank should also consider whether any type of automatic RMD activity need be ceased before an otherwise pre-arranged RMD is disbursed to the customer. Banks should be in contact with those IRA customers in distribution regarding the changes made to RMDs. IRA customers may still decide to voluntarily receive an RMD even though the CARES Act waives the distribution requirement for 2020. 

Banks should also become familiar with the frequently asked questions released by the Internal Revenue Service (IRS) regarding the changes made by the CARES Act. In the guidance, IRS references past guidance issued after Hurricane Katrina. It is expected IRS will use the practices implemented in that past disaster in its implementation of the CARES Act changes. IRS needs to issue further guidance for some of the changes made by the CARES Act; banks should keep an eye on the IRS website for that further guidance. The IRS guidance may be viewed at: https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers  

Conclusion 

Title II, Subpart B of CARES Act affect retirement account distributions, charitable contributions, and employer payments on student loans. The changes made to retirement accounts include CRDs, limited repayment and income tax treatments for certain withdrawals made by qualified individuals, and waivers from RMDs for 2020. 

Banks should be familiar with guidance issued by the IRS, including a series of frequently asked questions and should consider how the changes may impact IRA operations. Bank should also consider reaching out to IRA customers currently in distribution regarding the opportunity to waive RMDs for 2020.

By, Ally Bates

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WBA Press Release: Can I Wear a Mask Into My Bank?

Bank branches reopening, may request customers lower masks briefly for identification

MADISON – The health and safety of customers and employees remains a top concern for Wisconsin banks as the state carefully begins reopening. As essential businesses, Wisconsin’s banks remained open throughout the Safer-At-Home order, serving their customers in the drive-through, over the phone, and via online and mobile banking.

In a recent Wisconsin Bankers Association member survey, the majority of respondents indicate they will either require or encourage employees to wear masks (59% total). Additionally, in order to help their customers feel safe and comply with CDC and State health recommendations, some banks may allow (or even require) branch visitors to wear masks.

However, safety and security collide when it comes to customers wearing masks, as banks are historically and understandably uncomfortable with people disguising their faces while in the bank. Out of an abundance of caution and to protect staff and customers, banks have historically prohibited masks and other face coverings. With many customers anxious about health concerns, many banks are shifting those rules to be more flexible.

“Banks’ highest priority is the health and safety of their customers and their staff,” said Rose Oswald Poels, president/CEO of the WBA. “Each bank will weigh its unique risks and determine their procedures for permitting customers to wear masks while in the branch. Customers should remember that banking services remain available online and through mobile applications as well as drive-throughs.”

Bank customers should consider what their bank’s guidelines may be related to masks. WBA’s member banks are employing a variety of strategies, so customers may be asked to:

  1. Lower their mask for a few seconds while facing a security camera
  2. Lower their mask for a few seconds to allow staff to identify them
  3. Answer security/identification verification questions (similar to using phone banking services)
  4. Use the drive-through if they are unwilling or unable to comply with the bank’s guidelines for masks

WBA encourages consumers to contact their bank directly with specific questions about wearing masks and/or other face coverings in the branch.

By, Amber Seitz

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Regulation D Transaction Limitations

This was the Special Focus section for the May 2020 Compliance Journal, click here to view the entire edition.

On Tuesday, April 28, 2020, the Board of Governors of the Federal Reserve System (FRB) issued an interim final rule to amend Regulation D to delete the numeric limits on certain kinds of transfers and withdrawals that may be made each month from “savings deposits” (interim final rule or IFR). The interim final rule is effective immediately. 

Background 

The Federal Reserve Act authorizes FRB to impose reserve requirements on certain types of deposits of depository institutions. Regulation D distinguishes between reservable “transaction accounts” and non-reservable “savings deposits” based on the ease with which the depositor may make transfers or withdrawals from the account. Prior to the interim final rule, Regulation D defined the term “savings deposit” to require, under the terms of the deposit contract or by practice of the depository institution, that the depositor be permitted to make no more than six transfers or withdrawals (in any combination) per calendar month or statement cycle of at least four weeks (six transfer limit).

In January 2019, the Federal Open Market Committee (FOMC) announced its intention to implement monetary policy in an ample reserves regime. Considering that shift, on March 15, 2020, FRB reduced reserve requirement ratios to zero percent effective March 26, 2020, eliminating reserve requirements for all depository institutions. Because of the elimination of reserve requirements on all transaction accounts, the regulatory distinction between reservable “transaction accounts” and non-reservable “savings deposits” is no longer necessary. Thus, FRB issued the IFR to delete the six transfer limit from the definition of “savings deposit.”

Impact of the Change and Considerations for Banks 

The IFR allows depository institutions to immediately suspend enforcement of the six transfer limit, but does not require any mandatory changes. Because the six transfer limit was deleted, financial institutions may, but are not required to, permit their customers to make an unlimited number of convenient transfers and withdrawals from their savings deposits. 

Many financial institutions have questioned whether the deletion of the six transfer limit is permanent. FRB has stated that, as discussed above, the underlying reason enabling the changes in Regulation D is the FOMC’s choice of monetary policy framework of an ample reserve regime. In such a regime, reserve requirements are not needed. Thus, the distinction made by the transfer limit between reservable and non-reservable accounts is also not necessary. The FOMC’s choice of a monetary policy framework is not a short-term choice. FRB does not have plans to re-impose transfer limits but may make adjustments to the definition of savings accounts in response to comments received on its interim final rule and, in the future, if conditions warrant. 

In short, based upon the IFR, and FRB’s clarifying statements above, the deletion of the six transfer limit is indefinite. The interim final rule amends Regulation D with no time limitations. FRB could later re-implement the six transfer limit, but would be required to issue a new rule. As discussed above, FRB currently has no plans to re-implement the six transfer limit. 

FRB has answered additional frequently asked questions. Some of the more common questions and answers are provided below: 

  1. May depository institutions continue to report accounts as “savings deposits” on their FR 2900 reports even after they suspend enforcement of the six-transfer limit on those accounts? 
    Yes. Depository institutions may continue to report these accounts as “savings deposits” on their FR 2900 reports after they suspend enforcement of the six-transfer limit on those accounts. 
  2. If a depository institution suspends enforcement of the six-transfer limit on a “savings deposit,” may the depository institution report the account as a “transaction account” rather than as a “savings deposit”? 
    Yes. If a depository institution suspends enforcement of the six-transfer limit on a “savings deposit,” the depository institution may report that account as a “transaction account” on its FR 2900 reports. A depository institution may instead, if it chooses, continue to report the account as a “savings deposit.” 
  3. May depository institutions suspend enforcement of the six-transfer limit on a temporary basis, such as for six months? 
    Yes. 
  4. How did the recent amendments to Reg D impact Reg CC? 
    Regulation CC provides that an “account” subject to Regulation CC includes accounts described in 12 CFR 204.2(e) (transaction accounts) but excludes accounts described in 12 CFR 204.2(d)(2) (savings deposits). Because Regulation CC continues to exclude accounts described in 12 CFR 204.2(d)(2) from the Reg CC “account” definition, the recent amendments to Regulation D did not result in savings deposits or accounts described in 12 CFR 204.2(d)(2) now being covered by Regulation CC. 

In its FAQs, FRB states that the IFR does not specify the manner in which depository institutions that choose to amend their account agreements may do so. Meaning, the IFR, and Regulation D in general, does not require or prescribe how a financial institution must modify its account agreements with respect to the six transaction limitation. However, WBA reminds financial institutions to consider Regulation DD, which implements the Truth in Savings Act.  

Regulation DD requires a depository institution to give its consumers 30 calendar days advance notice of any change in a term if the change may reduce the annual percentage yield or adversely affect the consumer. The notice shall include the effective date of the change. If a financial institution decides to remove the six transaction limitation, such a change is positive to the customer and would not require advance notice. Financial institutions might still decide to provide notice of the change from a customer service standpoint, however. 

There are other situations that might necessitate advanced notice of a change in terms under Regulation DD. As discussed above, the deletion of the six-month transaction limitation is indefinite. However, financial institutions have the flexibility to choose how to act on that change. Financial institutions could choose to maintain their current policies, procedures, and account agreements, or modify them, and could do so on a temporary basis. For example, a financial institution might decide to permit its customers to make unlimited transactions for a period of six months. At the end of the six-month period, if the financial institution decides to re-implement the six transaction limitation, 30 days advance notice would be required as the change would be adverse to the customer. 

Conclusion 

FRB’s interim final rule deletes the six transaction limit from Regulation D without further limitation. The amendments are intended to allow depository institution customers more convenient access to their funds and to simplify account administration for depository institutions. The IFR permits, but does not require, depository institutions to suspend enforcement of the six transfer limit. Thus, financial institutions have the flexibility to determine whether, and how, to act upon the deletion of the six transfer limit. 

Additional Resources 

FRB’s Interim Final Rule 
FRB’s Monetary Policy and Reduction of Reserve Requirements 
FRB’s FAQ on Reserves 
FRB’s FAQ on Savings Deposits 
FRB on Reporting Changes

By, Ally Bates

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IRS Issues Instructions on How to Handle Payments Made to Deceased Individuals

On May 6, 2020 the Internal Revenue Service (IRS) updated its Economic Impact Payment Information Center to include new questions and answers related to Economic Impact Payments (EIP) issued to deceased individuals. 

IRS Question 10 asks whether someone who has died qualifies for an EIP. The answer states the following: 

“No. A Payment made to someone who died before receipt of the Payment should be returned to the IRS by following the instructions in the Q&A about repayments. Return the entire Payment unless the Payment was made to joint filers and one spouse had not died before receipt of the Payment, in which case, you only need to return the portion of the Payment made on account of the decedent. This amount will be $1,200 unless adjusted gross income exceeded $150,000.” 

The instructions for returning an EIP provide the following: 

  • If the payment was a paper check: 
  1. Write "Void" in the endorsement section on the back of the check. 
  2. Mail the voided Treasury check immediately to the appropriate IRS location. 
  3. Don't staple, bend, or paper clip the check. 
  4. Include a note stating the reason for returning the check. 
  • If the payment was a paper check and you have cashed it, or if the payment was a direct deposit: 
  1. Submit a personal check, money order, etc., immediately to the appropriate IRS location. 
  2. Write on the check/money order made payable to “U.S. Treasury” and write 2020EIP, and the taxpayer identification number (social security number, or individual taxpayer identification number) of the recipient of the check. 
  3. Include a brief explanation of the reason for returning the EIP. 

The IRS has provided a list of appropriate addresses on its website which can be found in the link at the end of this article. 

Considerations for Banks 

The information provided by IRS answers the question as to how EIPs made to decedent should be handled, making it clear that they are to be returned. This is true for EIPs made both by check and direct deposit. An individual who receives an EIP payable to a decedent, or who is in possession of EIP funds paid to a decedent, must return those funds. 

Unfortunately, because this information was not issued until after many payments had already been made, it means that some banks have likely already accepted payments made to a decedent. While the information provided by the IRS instructs the recipient to return the EIP funds, banks should consider how they use this information. Certainly, if a customer receives a direct deposit on behalf of a decedent, or presents a check payable to a decedent, that customer should be directed to the instructions for returning the payment. For customers who have already received the funds, either by direct deposit or by depositing a check, those funds still need to be returned pursuant to the instructions. 

The IRS instructions also provide how the recipient is to determine the amount that must be returned. Banks are reminded that the appropriate amount that is to be returned is a consideration that should be made by the customer, not the bank. The instructions relate to the recipient and furthermore, banks are not in a position to know the customers adjusted gross income to make the determination on a customer’s behalf. 

Conclusion 

IRS has made it clear that decedents are not eligible for EIP funds, and individuals who have received payments made to decedents are to return those funds. At this time, IRS has not indicated any steps beyond the requirements above. For example, there is no current indication of a reclamation process beyond a requirement for recipients to return the payments themselves. 

Click here for the IRS FAQ.

By, Amber Seitz

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Tax Implications for PPP Borrowers

Late last week, the IRS issued Notice 2020-32 related to the deductibility for Federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a covered loan pursuant to the Paycheck Protection Program under section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)). This Notice can be found here.

Specifically, this Notice clarifies that no deduction is allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the CARES Act, and the income associated with the forgiveness is excluded from gross income for the purposes of the Code pursuant to section 1106(i) of the CARES Act. The IRS said that to the extent the income resulting from loan forgiveness under the PPP is excluded from income, it’s considered a “class of exempt income” under regulations promulgated under section 265. The IRS believes this treatment of not allowing the deduction of these covered expenses is appropriate because it prevents a double tax benefit.

It is possible this IRS guidance will be reversed by Congress as the heads of congressional tax committees want expenses funded with small business loans to be deductible. Given this evolving situation, bankers are reminded to be careful about providing tax information regarding any aspect of the PPP loans, and encourage borrowers to consult with their tax advisor regarding any tax implications of a PPP loan.

By, Ally Bates

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questions@wisbank.com

608-441-1200

4721 S Biltmore Ln.
Madison, WI 53718

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