Beginning in January 2013, the IRS will require that dividends to non-US citizens be reported by credit unions in an effort to reduce tax evasion. To assist our credit unions in complying with this regulation, I recommend that they:
- Create a savings account that does not pay dividends and freezes the regular share account from deposits and withdrawals at the par value of the credit union
- Create a non-US-citizen designation with a restriction that these members cannot open a CD or any interest-bearing accounts
Credit unions would find non-interest-bearing accounts most useful for the following types of members:
- Seasonal laborers who simply need a place to cash a check and potentially wire money to their home outside the US
- Foreign students who need an account to have money wired into and maybe have a debit card attached to it
- Undocumented aliens trying to establish their presence in the US
Non-interest-bearing accounts would also simplify credit union procedures in the case of:
- Deceased members, for whom credit unions cannot report dividends
- Members for whom credit union staff use a temporary alias number at account opening because the member doesn’t know their social security number
While my recommendation to create a non-interest-bearing accounts is supported by our core compliance group, some credit union compliance officers fear that prohibiting non-US citizens from holding interest-bearing accounts may be seen as discriminatory in the case of credit unions whose non-US-citizen members are primarily comprised of only one ethnic group. Do you think that creating a non-interest-bearing account for certain members could be seen as discriminatory? Please provide us with your feedback.
We’d also like your feedback on software ideas. Since this new requirement to report dividends on non-US citizens will require changes to the CU*BASE software, we’d like your input so that our changes to the software are catered to your needs.
Please provide your feedback by clicking the red Comments link below.