Certified Regulatory Compliance Manager (CRCM) — Question 301

First National Bank receives a notice from the IRS to begin withholding 28 percent of the interest payments on the money market savings account of Myra Wilcox because of payee underreporting. What is the most proper action for First National Bank to take?

Answer options

• A. Send a notice to Ms. Wilcox within 15 days of the receipt of the IRS notice and begin withholding; stop withholding if Ms. Wilcox can prove to the bank that she is not underreporting
• B. Begin withholding and send a notice to Ms. Wilcox within 15 days of beginning the withholding; stop withholding only on written notice from the IRS
• C. Begin withholding with the first payment after 30 days and send a notice to Ms. Wilcox at least 15 days before the first payment from which funds are to be withheld; stop withholding only on written notice from the IRS
• D. Send notice to Ms. Wilcox within 15 days of the receipt of the IRS notice and begin backup withholding with the first payment following 30 days after the notice; stop withholding only on written notice from the IRS

Correct answer: B

Explanation

The correct answer is B because the bank must begin withholding immediately and notify Ms. Wilcox within the specified timeframe. Options A and D incorrectly suggest stopping withholding based on Ms. Wilcox's proof, while option C inaccurately indicates a 30-day delay before withholding starts.