RegWatch - CUNA CFO Council

CUNA Regulatory Affairs (edited by the CFO Council Regulatory Committee)
May 15, 2008 | COMMENTS

Regulatory Issues of Interest to CUNA CFO Council Members

In This Issue:

• New International ACH Payments
• IRS Publishes Draft Instructions for Redesigned Form 990

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NEW INTERNATIONAL ACH PAYMENTS

NACHA is amending its Operating Rules regarding International ACH Transactions, which would impact all financial institutions, including credit unions. Effective March 20, 2009, the new NACHA rule and format for International ACH Transactions will enable financial institutions to send and receive cross-border ACH payments that can be readily identified and that carry remittance information identifying all the parties to the payment.

The rules were amended in response to a request from the Office of Foreign Assets Control (OFAC) and the Financial Action Task Force Special Recommendation VII to align the NACHA Operating Rules with OFAC compliance obligations. The rule:

• Requires Gateway Operators to classify payments that are transmitted to or received from outside the U.S. as International ACH Transactions (IATs); and
• Includes the Bank Secrecy Act's (BSA) “Travel Rule” information within the international payment format.

These changes will make it easier for Receiving Depository Financial Institutions (RDFIs) to comply with OFAC requirements by carrying the additional information required under the BSA's Travel Rule and will contain screening indicators that will help financial institutions conduct an efficient review of the transactions, as required by law. The current cross-border payment formats, CBR and PBR, do not readily identify all parties to an IAT.

Every financial institution will be impacted by the new NACHA rule. Credit unions that outsource their ACH processing will need to comply with vendor due diligence to ensure that their processors made the proper changes to their system. All RDFIs will need to establish a written OFAC compliance policy for handling IATs and meeting OFAC compliance obligations. Originating Depository Financial Institutions (ODFIs) and their Originators will need to change their procedures to incorporate the IAT changes when originating a cross-border ACH transaction.

Click here for a copy of CUNA's Final Rule Analysis for more information.

- Lilly Thomas, Assistant General Counsel

IRS PUBLISHES DRAFT INSTRUCTIONS FOR REDESIGNED FORM 990

The IRS has released draft instructions for the newly redesigned Form 990, Return of Organization Exempt from Income Tax, for public comment.

IRS Form 990 is an annual return required to be filed by tax-exempt organizations (filing organizations) to report information about their operations.

State chartered credit unions are required to file the form with the IRS annually. Federal credit unions are not required to file since they are not subject to unrelated business income taxes.

The newly redesigned Form 990 was released in December of 2007 and is structured differently than its predecessor in that it includes a core reporting section, applicable to all filers, and fifteen different schedules, applicable only to certain types of organizations. The new Form 990 is effective for the 2008 tax year, for returns filed in 2009.

The draft instructions are based on comments the IRS received during the drafting of the form, and have been modified to accommodate the new format of Form 990. They detail how to complete the core form as well as each of the supplemental schedules.

The draft instructions list and define the individuals whose compensation must be reported, including “key employees” and up to five of the highest compensated employees. It also requires that reported compensation is that which is included on Form W-2 or Form 1099-MISC. CUNA believes the thresholds for reporting employee compensation is too low and the definition of “key employee” is too broad and may unintentionally include non-crucial employees without sufficient authority.

A new Appendix was added to provide instructions for filing group returns. Specifically, the new Appendix clarifies when an organization filing a group return (the central organization) on behalf of a group of entities (the subordinates) must aggregate data or list individual data for each subordinate. There are a few states that still file group returns on behalf of credit unions that may have concerns regarding the interpretation. For example, the special instructions regarding the compensation section requires the central organization to list individual compensation data for each subordinate. We believe the instructions should include an option to aggregate this information.

For additional information on the draft instructions, click here. Please submit your comments to CUNA by May 23, 2008. Comments are due to the IRS by June 1, 2008. We plan to voice our concerns as well as other concerns raised by credit unions with the IRS in our comment letter.

- Lilly Thomas, Assistant General Counsel