Form 1098-VLI Compliance for Credit Unions with an Auto Loan Portfolio

You have not filed Form 1098-VLI before, and that is the whole difficulty. There is no prior year file to copy from and no internal precedent for how the data gets assembled. There is also no settled answer inside your credit union about handing member tax identification numbers to an outside filer.

My background is compliance and process engineering for institutions that file information returns, so this stays practical. What follows is the rule as the IRS has written it. It covers the parts of your auto book the rule reaches, and what part 748 asks of you before member data leaves the building.

One caution rides along with all of it. The instructions for this form are posted as an early release draft marked not for filing. Every rule in this article that comes from those instructions is draft guidance. That includes the trade or business test, the threshold mechanics, the payer of record rule and the vehicle definitions. Check all of it against the final release when one appears.

Why a credit union files this at all

The duty attaches to interest of $600 or more received during the year on a specified passenger vehicle loan, in the course of a trade or business. The payer has to be an individual, a decedent's estate or a nongrantor trust. What controls is the trade or business test rather than the filer's own tax status.

Carry that into your first internal conversation. The question is not what kind of entity you are. It is whether you received qualifying interest in the course of a trade or business. Your own counsel and tax advisers make that call for your credit union, and they should make it against the rule.

If you want the underlying authority before you brief anyone, here is the statutory requirement behind the form and how the $600 threshold works loan by loan. Hand that version to someone who wants the citation trail rather than a summary.

Which auto loans in your book meet the definition

The vehicle definition filters more loans than people expect, so begin there. An applicable passenger vehicle is a motor vehicle manufactured primarily for use on public streets, roads and highways, with at least two wheels. It has to be a car, minivan, van, sport utility vehicle, pickup truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds.

Final assembly must have occurred within the United States, under section 163(h)(4)(D) and Prop. Reg. 1.163-16(e)(1). Original use has to begin with the purchaser, which the instructions define this way. "Original use begins with the first person that takes delivery of an APV that has been sold, registered, or titled." APV is their shorthand for applicable passenger vehicle.

The loan itself has to clear every one of these conditions. It was incurred after 2024, it financed the purchase of that vehicle, the vehicle is for personal use, and a first lien secures it. The instructions leave no wiggle room on the lien. "Do not file Form 1098-VLI unless the loan was secured by a first lien on the APV at the time the loan was incurred."

Some amounts ride along with the purchase. Vehicle service plans, extended warranties, sales taxes and vehicle-related fees are named as part of the loan. These are named as sitting outside it.

• Indebtedness incurred to purchase collision and liability insurance
• Indebtedness incurred to purchase property or services unrelated to the vehicle, such as a trailer or a boat
• Indebtedness incurred to repay negative equity on a loan secured by a trade-in vehicle

Where one loan covers both qualifying and non-qualifying amounts, the debt gets allocated. Only the interest on the qualifying portion is reported. The rule sits at Prop. Reg. 1.163-16(d)(2)(iii), and Box 1 repeats it in plainer words. "Do not include in Box 1, interest paid on amounts to repay existing loans on trade-ins, collision insurance, or boat and trailer purchases." If your book rolls negative equity into new auto loans, test that allocation on a sample before you scale anything.

These rules decide the situations a real portfolio produces.

• On a refinance, the new loan qualifies if a first lien on the same vehicle secures it. The amount treated as a qualifying loan is capped at the outstanding balance of the refinanced loan on the refinancing date. Prop. Reg. 1.163-16(d)(4).
• A loan stops qualifying if the individual who incurred it stops being the obligor and another individual becomes the obligor. A change caused by the obligor's death does not stop it qualifying. Prop. Reg. 1.163-16(d)(5).
• A loan owed by a person related to you within the meaning of section 267(b) or 707(b)(1) is not a qualifying loan.
• Do not file where the payer of record is a nonresident alien individual, a foreign nongrantor trust or a foreign estate. Prop. Reg. 1.6050AA-1(d).

The $600 test applies separately to each loan, and who counts as the payer of record

First drafts go wrong here more often than anywhere else. The instructions state it without hedging. "File a separate Form 1098-VLI for each SPVL. The $600 threshold applies separately to each SPVL." SPVL is their shorthand for specified passenger vehicle loan.

You are not required to file for a loan on which you received less than $600 in interest. That holds even where the same individual paid you more than $600 in total across several loans. Write the per loan rule on the whiteboard, because a borrower-level report will produce forms you do not owe.

Co-signed and joint paper raises the second question. You prepare the form only for the payer of record, and only where that payer of record is an individual, a decedent's estate or a nongrantor trust. The form shows the total interest received on the loan. It does not split that figure between the names on the note.

The instructions define the payer of record and then hand you a duty. "The payer of record is the person carried on your books and records as the principal borrower. If your books and records do not indicate which borrower is the principal borrower, you must designate one." A blank field doesn't block filing. It moves the decision to you, and that decision has to live in your books and records.

Payments from someone other than the borrower don't change the answer either. Where a third party pays, the interest is still reported as received from the payer of record. The instructions use a borrower's parent as the example. The account number is required where you hold multiple accounts for a borrower and file more than one form for them. The IRS encourages designating one on every form filed.

Indirect lending, bought paper, and who actually files

Credit unions rarely originate every auto loan in the book. You may buy retail paper originated at a dealership through an indirect lending program. You may hold a loan participation with another institution, or use an outside servicer on loans you own. Two tests decide the filing question in each of those arrangements. Who is the lender of record, and who is first to receive the interest.

The lender of record is the party named as lender on the loan documents at the time the loan is made. That party's right to payment is secured by the borrower's vehicle. An intention to sell or transfer the loan afterwards does not change the answer.

Where a servicer or collection agent is the first party to receive the interest, that party files. It enters its own name, address, TIN and telephone number in the recipient and lender entity area. The person for whom the interest was collected does not then file, subject to a stated exception where the collector lacks the information needed to report.

The draft instructions never mention loan participations and state no rule for a loan held among several institutions. If you hold participations, work the two tests above with your own counsel and your participation agreement rather than looking for an answer the instructions do not give.

Acquisition also moves two date fields. Box 3a is the date the loan was originated with the original lender, and the instructions add a warning. "If you acquired this SPVL, do not enter the date of acquisition." Box 3b holds the date of acquisition, and it stays blank on loans you originated yourself.

The fields the IRS asks for, and the questions to put to your core

Box 1 holds the interest received. Boxes 2a through 2d hold the vehicle year, make, model and the VIN of the vehicle the loan was made for. Box 4 holds the outstanding principal as of January 1 of the year being reported. For a loan that started during the year, use the principal at origination or at acquisition.

Prepaid interest carries its own timing rule inside Box 1. Report it in the year it properly accrues. Interest received this year that accrues in full by January 15 of next year may be reported for this year. If any part accrues after January 15, only the amount accruing by December 31 is reportable now, under Prop. Reg. 1.6050AA-1(b)(2).

Box 5 is a separate field. It holds the total refund or credit of a prior year overpayment of interest, reportable once reimbursements to a payer of record reach $600.

I have no idea what your core holds in an exportable field, and I'm not going to guess at it.

If you want the box by box view before that meeting, here is what Form 1098-VLI is, who has to file it, and what each box holds. It is the fastest way to brief a colleague who hasn't read the draft instructions.

What part 748 requires before member data leaves your credit union

This is the question that stalls the project. Under part 748, the rule of the National Credit Union Administration, each federally insured credit union develops a written security program. One stated objective at 12 CFR 748.0(b)(2) is to "Ensure the security and confidentiality of member records." Another is protecting against unauthorized access or use that could cause a member substantial harm or serious inconvenience.

A vendor does not sit outside that program. Under Appendix A, your member information system includes the systems maintained by your service providers. Appendix A is titled "Guidelines for Safeguarding Member Information," and its sections include Involve the Board of Directors, Oversee Service Provider Arrangements, Adjust the Program, and Report to the Board.

The section that governs a filing vendor is Oversee Service Provider Arrangements. It asks you to exercise appropriate due diligence in selecting service providers. It also asks you to require them by contract to implement appropriate measures designed to meet the objectives of the Guidelines. Where your risk assessment indicates it, you also monitor them to confirm they have satisfied those obligations. Monitoring may include reviewing audits, summaries of test results, or equivalent evaluations.

Tell your board this part early. The Guidelines do not require a board vote approving an individual vendor. The board or an appropriate committee oversees the development, implementation and maintenance of the program, assigns responsibility for it, and reviews management reports, under Appendix A III.A. You then report at least annually on the overall status of the program, and that report should discuss material matters including service provider arrangements.

Contract terms belong in the same conversation. Appendix B advises that your contract require the provider to act on incidents of unauthorized access to member information. That includes notifying you as soon as possible so you can run your response program. Where an incident involves systems maintained by a provider, notifying your members and your regulator stays your responsibility. You may authorize or contract with the provider to give that notice for you.

The Guidelines are issued under sections 501 and 505(b) of the Gramm-Leach-Bliley Act, at 15 U.S.C. 6801 and 6805(b). The full text sits in the GPO edition of 12 CFR part 748. A service provider may separately be required to run its own information security program under the Federal Trade Commission's Safeguards Rule. That is a fair question to put to any filer you evaluate. One detail helps the diligence memo. Under Regulations section 301.6109-4, all filers of this form may truncate a payee's TIN on payee statements, but "Truncation is not allowed on any documents the filer files with the IRS."

What the filing work looks like from here

Your volume decides the method, so count first. The Taxpayer First Act of 2019 authorized a reduced e-file threshold, and T.D. 9972 lowered it to 10 returns, "calculated by aggregating all information returns." That applies to returns required to be filed on or after January 1, 2024. The count runs across every information return type you file. So this form gets added to the rest of your volume rather than measured on its own.

The IRS operates the Information Returns Intake System for e-filing information returns. For the 2025 calendar year only, Notice 2025-57 offered transitional relief. It treated the obligation as met where the lender made the total interest received available to the buyer. An easily accessible online portal counted, as did a regular monthly statement, an annual statement, or other similar means designed to provide accurate information. The Notice also said no penalties would fall on lenders who satisfied it, and Internal Revenue Bulletin 2025-45 carries it in full.

Nothing after 2025 is covered by it. Deadlines and penalty exposure move with the shift, and what changed once the 2025 transition period ended is a separate read worth having open. The December 2026 form and instructions are continuous use documents, applying to calendar year 2026 and later years until a superseding revision is issued.

The mechanics on our side are deliberately dull. You upload borrower data as a spreadsheet, review the generated forms, then eFile with the IRS. There is no integration with your core, so nothing has to be built, scheduled or approved on the technology side. Nothing reaches the IRS until you review the forms and submit them, which means you can upload in batches while your data questions are still open.

eFile only is $3.00 per form. eFile plus print and mail is $4.50 per form and adds printed borrower copies sent by mail. A $750 annual minimum applies. If you want to see the file layout before committing to anything, here is the spreadsheet field by field and what happens after the upload.

If the mapping is the part you're unsure about, send it over and we'll look at it with you before you commit a full extract.

Common questions about Form 1098-VLI at a credit union

A member has three auto loans with us. Do we combine the interest?

No. File a separate form for each loan, and apply the $600 threshold to each one on its own. A loan that paid you less than $600 in interest is not reportable even when that member paid you well over $600 across all three.

One loan has two borrowers. Whose name goes on the form?

You prepare the form only for the payer of record, showing the total interest received on the loan. The payer of record is the person carried on your books and records as the principal borrower. If your records don't indicate which borrower that is, you must designate one.

A member's parent makes the payments. Who do we report?

Interest received from a third party who is not the borrower is still reported as received from the payer of record. The instructions use a borrower's parent as the example. The person writing the check does not become the person on the form.

Can we truncate a member's TIN on the copy we send them?

Under Regulations section 301.6109-4, all filers of this form may truncate a payee's TIN on payee statements. The limits are stated flatly. "Truncation is not allowed on any documents the filer files with the IRS. A recipient's/lender's TIN may not be truncated on any form."

How many returns before e-filing is required?

The threshold is 10 returns, "calculated by aggregating all information returns," lowered by T.D. 9972 and effective for returns required to be filed on or after January 1, 2024. The aggregation covers every information return type you file, so this form is counted alongside the rest.

Do we need board approval before sending member data to a filing vendor?

The Guidelines do not require a board vote approving an individual vendor. What they ask for is due diligence in selection, contract terms requiring appropriate safeguards, and monitoring where your risk assessment indicates it. The board oversees the program itself and receives an annual report covering service provider arrangements.

Are these instructions final?

Not yet. The instructions carry the IRS early release draft caution and are marked a draft, not for filing. Every rule this article draws from them is draft guidance, from the vehicle definition through the threshold and the box fields. Build your extract and your internal memo against them, and re-check all of it when a final release is issued.