DepositAccounts.com has uncovered an Ally Bank hornets' nest of potential problems in crediting and reporting CD interest. Apparently they blame the problem on computer error, but don't plan to correct it and issue new 1099's except for customers who call it to their attention.http://www.depositaccounts.com/blog/2012/02/double-check-you...(You have to read the comments at the bottom of the page to get the full picture.)My question is -- if a financial institution issues an incorrect 1099 on which income is under-reported and the taxpayer doesn't catch it, is the taxpayer then liable for penalties and interest?When a CD matures, I can use one of the online calculators to make sure I was paid the correct interest in total, but I'm darned if I can figure out whether the yearly APY is correct. Any suggestions?
In a past life, I designed computer-like hardware and systems that used computers as some of the building blocks to make them run. It is my experience that the reliability of computers is extremely high, far higher than almost anything else a person is likely to possess.Most of what are called computer errors are not computer errors at all, but errors in the programs that are running the computer, or errors in the specifications of the programs the programmers are expected to write. Sometimes the input data are bad too.It is very clear that Ally Bank is not suffering from computer error. One of those would either crash the system, or produce very very few erroneous 1099 forms. If they got a bunch, the program was at fault, and the blame belongs not to the computer but the programmers who wrote the programs, the integration team who verified that the programs complied with the specification, or the people who wrote the specification. In either case, Ally Bank is responsible and really must issue corrected 1099s in a timely fashion. Or they could pay the fines and interest the taxpayer would incur for relying on their forms.
My question is -- if a financial institution issues an incorrect 1099 on which income is under-reported and the taxpayer doesn't catch it, is the taxpayer then liable for penalties and interest?Yes, but for any penalty to apply you'd have to be talking about such a large understatement that anyone except Treasury Secretary Geithner would have noticed it.Do they not issue, or cannot you retrieve online, periodic statements showing the accrued interest on the CD? With any CD I've ever had I could easily get the information.PhilRule Your Retirement Home Fool
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