Would the refund to the customer of a foreign ATM fee (which has already been debited to their account) be considered reportable income to the customer? I would think not since you are merely restoring them to where they would have been had you never charged them the fee in the first place.

If it is income, would it go on the 1099-MISC?

not reportable income

Happy - do you have a citation to back this statement up? I have been unable to find a definitive ruling by the IRS. However, the industry standard is currently that the refund of foreign ATM fees does fall into the MISC income category. It is not treated similar to the waiver of internal fees or charges, as the card holder has already paid this fee to the third party.

our OCC EIC told us it was not, but I don't have anything in writing from them to back it up. We've asked for it, just haven't received

I can't imagine anything verbally or in writing from the OCC would do much good in the event they're wrong, since this is an IRS issue.

but with nothing definitive from the IRS, the OCC guidance is what we use. If and when the IRS rules, we would make changes as needed

I've seen a memo from a major EDP vendor saying that it is definitely reportable on a 1099MISC, but they did not cite anything in support of that conclusion. My read was it was a simple CYA memo on their behalf.

Taxability and reportability are not the same thing, they don't follow the same rules. Nevertheless, I would be very comfortable saying the reimbursement is in no way taxable to the customer.

This isn't like the return of mortgage interest which is reportable on a 1098. For most people, that mortgage interest was deductible and, when it was returned to them, it would be as taxable income in the year of receipt. In the case of ATM fees, the customer could not deduct; i.e. received no tax benefit from making the payment. Therefore, it would not be income if it was returned to him.

I would find something else to do with my time.

"Nevertheless, I would be very comfortable saying the reimbursement is in no way taxable to the customer."

You pay $1,000 to X. It is for a service and is not tax deductible.

I pay you $1,000. I give you a 1099MISC for $1,000.

Are you saying my payment to you for $1,000 is not taxable?

Ken, I always respect your opinions, but I'm having a had time following your argument on this one.

Randy,
Using the 1098 analogy, if there was a reimburseable error on my loan for the vacant lot at the beach the bank would be required to reimburse me for the excess interest I paid. That would be reported on my 1098. Nevertheless, the reimbursement of that interest would not be taxable to me because I was not able to deduct the interest on a loan secured by a vacant lot; i.e. I received no prior tax benefit.

If the ATM fees were not deductible by me, getting reimbursed for them would not be taxable income.

My perspective on the reporting reimbursement for ATM fees is that I would not advise someone to do it absent direction from the IRS. My perspective on the taxability issue is that its not taxable income whether you report it or not and that would control any decision on the part of the IRS as to whether it should be reported.

"Using the 1098 analogy, if there was a reimbursable error on my loan for the vacant lot at the beach the bank would be required to reimburse me for the excess interest I paid. "

I guess I don't see that this is necessarily a good analogy. You are talking about only two parties in this case. I pay you too much money in one year and in the next year you refund part of it.

With the rebate of ATM fees, there are three parties involved. The IRS has made it pretty clear on cash advances through ATMs that it is the card holder that is paying the cash advance fees to the third party owner of the ATM and not the bank.

I would assume that ATM fees paid for the use of a debit card would be treated in a similar manner.

So if we would only reimburse up to $25 of ATM charges from other institutions per month, then we would not need to report this payment of fees as income?

If we say we are going to reimburse up to $50 per month and we waive $50 every month, then we need to complete a 1099MISC to report income of $600?

The answer is, it is an unknown at this point, based on the conversation here. At $25 per month, you never get to a reportable point. That is the safe bet.