CIP and Income Tax Return

Issue/Inquiry

The Bank inquires as to whether income tax returns are an acceptable form of secondary identification for CIP purposes. When using an online program to verify a customer’s identity, the Bank finds multiple names on file, the first/last name does not match, etc. When the Bank requests additional forms of identification from customers, in some cases, they only have their tax returns.

Response Summary

The Bank’s CIP must have procedures for verifying the information obtained from a customer when an account is opened. Documentary and non-documentary methods can be used. While the Bank does not need to verify every aspect of the information, it must verify enough to allow it to form a reasonable belief that it knows the true identity of the customer. The objection to using a copy of an income tax return, even for the limited purpose of resolving discrepancies in the form of the customer’s name, is because it is provided by the customer and, therefore, only reiterates information already indicated. Other documentation, such as a Social Security card, NJ public assistance card, or utility bill, would prove more readily available from most customers, as well as more reliable due to such being issued by third parties on the basis of their own identification of the customer. If an income tax return is used to resolve discrepancies in the form of the name of the customer, the Bank’s CIP should specify that it is being used for that limited purpose and the manner in which the customer’s identity has otherwise been verified.

Response Detail

The purpose of the Bank’s Customer Information Program (“CIP”) is to allow it to form a reasonable belief that it knows the true identity of a customer. At a minimum, it has to obtain the following identifying information from each customer before opening the account:

• Name
• Date of birth for individuals
• Address. For an individual: a residential or business street address, or if the individual does not have such an address, an Army Post Office (“APO”) or Fleet Post Office (“FPO”) box number, the residential or business street address of next of kin or of another contact individual, or a description of the customer's physical location. For a “person” other than an individual (such as a corporation, partnership, or trust): a principal place of business, local office, or other physical location.
• Identification number

Since CIP procedures are risk-based, the Bank may require more information for certain customers, if the risk regarding such customers is higher.

The CIP must also have procedures for verifying this information. The Bank does not need to establish the accuracy of every element of identifying information obtained, but it must verify enough information to form a reasonable belief that it knows the true identity of the customer. FFIEC, Core Examination Overview and Procedures for Regulatory Requirements and Related Topics, Customer Identification Program – Overview.

We assume that the Bank’s CIP requires verification through documents, such as a state-issued photo driver’s license or passport, and that it also uses non-documentary methods, such as the online search of a public database. The Bank’s question indicates that the Bank wants to use a secondary source of information for the purpose of resolving discrepancies regarding the customer’s name from its online search.

The objection to using a copy of an income tax return as secondary identification, even for this limited purpose, is because such is prepared by the customer, and so only reiterates the information originally provided by the customer.

However, we believe that there is better secondary documentation to use, some of which should be available to almost all customers, such as:

• Birth certificate
• Civil marriage certificate
• Order or decree of divorce or separation
• Certified copy of court order showing name and date of birth
• Certified copy of court order for legal name change
• US military discharge papers
• Current US military dependent card
• US military photo retiree card
• US school photo ID
• US college photo ID
• Social Security card
• Bank statement or record (from another bank)
• Current health insurance or prescription card
• Employee ID card with printed pay stub
• State professional license
• NJ public assistance card with photo
• High school diploma or GED
• Property tax statement, bill, or receipt
• Utility bill bearing name and address
• Major or local debit or credit card embossed with name

In addition, the Bank might consider using the Taxpayer Identification Number (“TIN”) Online Matching service offered by the IRS or have the customer sign a W-9 Request for Taxpayer Identification Number and Certification, which would be submitted to the IRS. These would indicate the form of the name appearing with the TIN.

The difference between this documentation and an income tax return is that such has been issued by third parties on the basis of their own identification of the customer. In this respect, an income tax return using a preprinted label from the taxing authority, such as the State of New Jersey, would be more useful than one with the name and other identifying information written in by the customer.

If the Bank determines that an income tax return can be used to help resolve discrepancies in information obtained from its online program, it should specify the limited purpose for which the document can be used and how the customer’s identity has otherwise been verified.

This entry was posted on Friday, October 7th, 2016 at 2:00 pm.