Has anybody else had a problem with Capital One not paying the Withholding of taxes from their account?

Question

I work at an accounting firm and we have had 3 different clients with CDs at Capital One and Capital One is with-holding taxes from the interest but then not paying the IRS. So the IRS comes after our clients for the taxes.

These are Condominium Associations so they can set up CDs or money markets to take out with-holding. The problem is that Capital One is reporting the 1099 interest but not paying the tax with-holding they are taking out. A condominium is usually taxed on any unrelated business income such as interest income and that is why some of them have with-holding taken out automatically.
As you probably already know Capital One will only talk to the customer and not their accountant. It is not enough money to fight each individual case but if Capital One does this to all their clients they must be raking in a fortune.

The 1099's does show the witholding but the with-holding is not being paid by Capital One. I know how it works I do about 75 Condo association tax returns a year.

Answer 1

I'm curious, how are your clients finding out that the withheld taxes haven't been paid? How many years back are the letters referring to?

When Capital One issued the 1099-INT statements showing the withholding, they had the burden of making the trust fund payments to the IRS. The money is *not* automatically applied to each person's tax account. The only way to get credit for the withholding is to attach a copy of the 1099-INT to the return (which the forms generally don't mention.)

Even if the forms are attached to the return, the service center may overlook them. If the electronic copy filed with the IRS shows the withholding, it's a relatively simply account adjustment to get the withholding posted. The IRS assistor just prints out a copy of the 1099-INT for proof.

Answer 2

I'd contact Capital One and ask what is going on. Taxes are not normally withheld from bank desposits unless the taxpayer has been notified by the IRS that they are subject to backup withholding. If the taxpayer is, the 1099 from CO will show the taxes withheld. You add those to the W-2 and any other 1099 withholding amounts. The taxpayer must list the interest on their return whether they're subject to backup withholding or not.

What do you do at the accounting firm? Any tax specialist would know that. Why don't you just ask one of them?

Answer 3

That's weird. I've never seen a bank withhold taxes on savings or CD accounts.

Answer 4

if th e1099 forms are showing tax withheld and they aren't sending that money to the IRS, I don't understand why the IRS isn't coming back at those clients - if we underpay payroll taxes, they sure as h*ll send us a notice