Banking Mistake

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Apr 15, 2018
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#1
People’s Bank
In April, 2017 I had a CD at Peoples Bank in Malden, MA that was about to mature. I went to the bank for the sole purpose of rolling it over to a similar CD. I met with the customer service representative, Erika Sanchez. I told her I needed to roll over my CD to the same kind. She said she could do that and was happy to find one with a better rate. Again I said I wanted the same kind of CD. I left confident that was transaction was completed.
In April, 2018 when I went to have my taxes done, my accountant mentioned that I had $11,000 in extra income from that CD, based on a tax form that People’s Bank generated. I told her I never got any money as it was a roll-over. She noticed that it was a different kind of CD. I immediately went back to People’s Bank and told Erika what happened. She called somebody else for help and told me she gave me the wrong kind of CD. She apologized and said several times that she was sorry but she wasn’t trained in CD’s. She never mentioned that fact when she was rolling over the CD for me. She contacted several people for help with a manager named Susan who was trying to walk her through step by step as to how to change the CD to the correct one. I tried to get People’s Bank to write a letter that they made the mistake. The best that they would do was to give me a form that said I had a late rollover contribution. There was no acknowledgment that I never received any money. The whole time it was in a CD in People’s Bank. I thought at that time, I was all set with IRS.
Recently, on July 15, 2019, I received a proposed tax bill of $2990 in regards to this CD. I have contacted the manager, Valentin Rivera at the Malden, Ma branch of People’s Bank. He contacted somebody in the IRA department for help. I specifically asked if they could give me a Form 5498 as recommended by the IRS with my proposed bill. After two weeks, they said no. Valentin Rivera is still trying to help me. I called the People’s Bank customer service line for help. They said they would not help me because it was past the 60 day deadline. I said I wasn’t even aware of a problem until I got the1099 from People’s Bank. They said since it was a branch problem, only the branch manager could help me.
My original deadline was August 15th. I got an extension until September 15th but time is running out. I need People’s Bank to correct this error that was made by their customer service representative.
 
Likes: Lisa W
Mar 17, 2015
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#3
I am a bit confused as to how transferring a CD would cause any sort of gain other than interest. Unless, the CD was held in a retirement account and was transferred to a non-retirement account, which then counted as a distribution. If this is the case, then you would be taxed on the distribution plus a possible penalty for early withdrawal. If the later is what happened, the bank needs to fix this. Yes, it is a headache, but it is fixable on their end. I hope you have your accountant responding to the IRS in the meantime.

In general the only item taxable with a CD is the interest.
 
May 1, 2018
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#4
Is there a rule I'm unaware of regarding a tax deferral on rolling over a CD? The interest earned was income whether you took it out in cash or reinvested it, and therefore income tax would be due.

It's clear the bank made a mistake, and they certainly should fix it to your satisfaction, but I don't think that would save you from the income tax being due.
 
Likes: mmb
Feb 12, 2019
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#5
It sounds like OPs CD was in an IRA and that it was rolled into a non-IRA CD which would trigger taxes and likely a penalty unless they are older than 59.5.

Not helpful for the current problem, but banks are usually not a good place to use to invest money. The people working at the bank usually have very little training due to the fact that they often do investments as well as regular banking duties.
 
Jan 6, 2015
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#6
This being an interesting question to me, I posed this to my banker who said something similar to justlisa:
  • For the term "rollover" to apply, the first CD "must" have been a "retirement" type CD (traditional or roth)
  • Scenario 1: first CD balance was transferred to a non-retirement CD - taxes are due
  • Scenario 2: first CD is a traditional type CD which was transferred to a roth-type CD - taxes are due
She ineicated that the bank should be able to fix this . . .
 
Mar 17, 2015
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#7
The bank is going to have to file amended forms. Which big institutions do not like to do, as it is a headache. But it is the only way to fix this with the IRS. If you happen to end up with an intelligent being at the IRS, then a letter from the bank may work. However, I believe most of the IRS employees will have their hands tied due to this being reported on a 1099.

One question, did you have to sign anything to authorize the rollover? The paperwork associated with that may be very telling.
 
Mar 17, 2015
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#9
There is an ombudsman service offered by the IRS. This can help you in dealing with them.
https://www.irs.gov/advocate/the-taxpayer-advocate-service-is-your-voice-at-the-irs

They say they have at least one local advocate in each state. I know in Missouri we have one in St Louis and one in Kansas City.
This may be a good idea to give the OP some more time, but the advocate service cannot force the bank to do anything. They are really more for helping people deal with the internal IRS system when the IRS has screwed up and is not doing their job. The OP can also request the help of their local congressperson. However, I am still unsure that anything will work if the bank will not amend the 1099. Of course, the OP could always get a rare gem at the IRS and a miracle could happen. The other option I can think of is to go ahead and pay the tax, to stop the notices, and then get this fixed with the bank and request a refund. I hate this route, but at times it is the best option.
 

jsn55

Verified Member
Dec 26, 2014
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#13
These are qualified funds and the 1099 must contain the correct number to describe the transaction. Unfortunately, this kind of thing happens often. The investor is unaware of the importance of that number code and the bank employee's mistake goes unnoticed. I'm glad we have found some contacts for you, this bank should stop arguing with you and get the transaction coded correctly. I agree with Carrie, contact the IRS ombudsman while the bank gets its act together and issues the correct form.
 

mmb

Verified Member
Jan 20, 2015
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#16
There is an ombudsman service offered by the IRS. This can help you in dealing with them.
https://www.irs.gov/advocate/the-taxpayer-advocate-service-is-your-voice-at-the-irs

They say they have at least one local advocate in each state. I know in Missouri we have one in St Louis and one in Kansas City.
These advocates are very helpful, BUT, you must be referred by IRS in order for an advocate to step in and help.
IMHO, they are used when the IRS realizes that the problem is complicated.
You can call the advocate office closest to you, but they will not just open a case for you.
It appeared to me that when the IRS is just too lazy to figure out a solution, they hand it over to an advocate.
SO much better than dealing with the IRS.
 
Mar 17, 2015
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#17
@ mmb - you do not have to be referred by the IRS in order for an advocate to step in. There is an application form. Not every case is taken by the advocates and I am not sure this would be, as their issue is not really with the IRS not doing what they should, but the bank. Anyone can apply for taxpayer advocate service. However, in my experience with the advocates, their help is about 50/50 on whether it helps. Contacting your local congressperson goes much further. I am a tax attorney and have never had to be referred by the IRS to the advocates, we just apply when the normal IRS channels are not working, no permission necessary.
 

Neil Maley

Moderator
Staff Member
Advocate
Dec 27, 2014
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www.promalvacations.com
#18
@ mmb - you do not have to be referred by the IRS in order for an advocate to step in. There is an application form. Not every case is taken by the advocates and I am not sure this would be, as their issue is not really with the IRS not doing what they should, but the bank. Anyone can apply for taxpayer advocate service. However, in my experience with the advocates, their help is about 50/50 on whether it helps. Contacting your local congressperson goes much further. I am a tax attorney and have never had to be referred by the IRS to the advocates, we just apply when the normal IRS channels are not working, no permission necessary.
As a tax attorney, don’t you think this is something the bank should have been proactive to correct? To me it sounds like total incompetence on the part of the bank.
 

mmb

Verified Member
Jan 20, 2015
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#19
@ mmb - you do not have to be referred by the IRS in order for an advocate to step in. There is an application form. Not every case is taken by the advocates and I am not sure this would be, as their issue is not really with the IRS not doing what they should, but the bank. Anyone can apply for taxpayer advocate service. However, in my experience with the advocates, their help is about 50/50 on whether it helps. Contacting your local congressperson goes much further. I am a tax attorney and have never had to be referred by the IRS to the advocates, we just apply when the normal IRS channels are not working, no permission necessary.
Thanks for this info. NOT what I was told.
 
Likes: jsn55
Mar 17, 2015
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#20
As a tax attorney, don’t you think this is something the bank should have been proactive to correct? To me it sounds like total incompetence on the part of the bank.
The process for amending these forms is not fast or easy, so they will drag their feet until made to do right, financial institutions never act proactively in these situations, in my experience. Make the complaint through the local bank association if your bank still refuses to make this right.