WASHINGTON -- Banks and thrifts may need to alter account-opening forms as a result of new Internal Revenue Service instructions designed to avoid customer confusion.
The IRS recently issued new instructions for banks and other companies on what information they may collect on forms used to gather customers' taxpayer identification numbers.
Those forms - called substitute W-9s - are used when a customer opens an account. They may be used in the place of IRS form W-9 to collect the customer's taxpayer ID number - usually a Social Security number as the IRS requires.
Jim O'Connor, tax counsel for the Savings and Community Bankers of America, said the change was prompted by some brokerage firms' use of the substitute W-9 forms.
Some firms used the forms to place conditions on the account - such as authorizing the broker to seize assets from other accounts to cover any losses in the new One.
While banks and brokerage houses have the right to impose conditions of their accounts, Mr. O'Connor said: "The IRS is responding to examples of substitute W-9s they have seen that amount to long contracts whose conditions the customer agrees to with the same signature that certifies his or her Social Security number.
Want to Avoid Wrong Signal
"IRS representatives have said that they do not want it to appear that unless the applicant agrees to the conditions, backup [tax] withholding will be imposed," Mr. O'Connor said.
Banks and other companies that use the IRS' W-9 forms rather than the substitute forms the IRS permits will not be affected by the new IRS instructions. And banks whose substitute W-9s do not ask their customers to agree to any additional conditions while certifying their taxpayer ID numbers will not have to alter their forms.
In March, the IRS revised its "Instructions for the Requester of Form W-9," to read, "You may not use a substitute [W-9] form to require the payee, by signing, to agree to provisions unrelated to [taxpayer identification number] certification."
Mr. O'Connor said the IRS change is not retroactive, so banks will not have to resolicit signatures from all their customers who might have signed forms that do not meet the agency's new standards.
Going forward, banks and thrifts whose substitute W.9 forms do not meet the new IRS requirements must make a judgment call about whether they need to throw out all their current substitute W-9s.
"IRS representatives have also said that if the other terms and conditions on the substitute W-9 are fairly standard and not the kinds of things that should be negotiated separately, institutions will be permitted to run through their existing supplies before they have to begin using conforming forms," Mr. O'Connor said. "
Or banks could still use the substitute W-9 to ask their customers to certify their Social Security numbers, and include an additional signature line for them to agree to conditions put on the account, he said.
"Institutions may decide, rather than using a form with two signatures, to revert to the original W-9," he said.
He said banks may still use substitute W-9s to verify their customers' signatures.
Companies that do not comply with the new instructions may face penalties.