Liability of Transferring the Reporting Tax ID

Question:

Is there a regulation or law that mandates a joint account that is tax reportable under a deceased holder be closed and a new account opened for the surviving joint owner OR is this just a policy that some institutions come up with to reduce some sort of liability? If it is a reduction in liability, what is the liability of transferring the reporting tax ID to another party after an account is opened?

Answer:

IRS Revenue Ruling 84-73 mandates that banks properly allocate interest between a decedent and a new owner. One example would be where the individual whose name/TIN combination was used for reporting died. Interest paid after the date of death would be reportable to the other owner(s), not the decedent. The same would be true on the death of sole owner of an account. Interest paid after the date of death would be reportable to the decedent's estate, not the decedent.

Common sense, not the IRS, mandates that one account be closed and a new one opened to facilitate this process. My opinion is that using file maintenance to change ownership on an account is the hallmark of laziness and will mangle reporting responsibilities. I've seen it cause banks a lot of problems and have yet to feel sorry for one of them.

First published on BankersOnline.com 2/20/12