So what exactly is reported on the 1099? Part II.

• Author: Pry, Carl G.
• Position: Marketing Compliance

In my last column (November 2007), we discussed the definitions of "interest" and "bonus" under both deposit regulations and Internal Revenue Service (IRS) roles to determine what is reported to the IRS on a Form 1099-INT. Here we'll go a few steps further and describe some exceptions and repotting of giveaways and prizes in other situations.

Normally the amount of a bonus given in connection with opening or maintaining an account is considered reportable interest to the IRS. There is an exception to this general role, however. According to an IRS ruling, noncash "de minimis premiums" are not treated as interest, and thus are not included in determining whether the $10 threshold for 1099-INT reporting is met. A de minimis premium "does not have a value in excess of $10 for a deposit of less than $5,000 or $20 for a deposit of $5,000 or more" [IRS Rev. Proc. 2000-30].

These amounts mirror the Federal Reserve's Regulation Q, which prohibits the payment of interest on demand deposits, except for certain "premiums" (Reg. Q's term for a bonus). Cash premiums, even if less than these $10/$20 limits, are not de minimis and are always considered interest and included in determining whether the $10 threshold for 1099-INT reporting is met.

How about other types of awards and bonuses banks provide? Let's say a bank conducts a reward program or drawing and gives away a prize. Let's also assume the award of the prize is not dependent on the recipient establishing or having any sort of account. Is the value of the prize "interest" that should be reported on a 1099-INT? The answer is "no"--since the prize is not related or deposited to an account, it is not "interest," and therefore not reportable on a 1099-INT. But the analysis doesn't quite end there.

The prize may not be interest, but that doesn't necessarily mean its not reportable...