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The W9 is requested when the account holder is a US citizen or Resident alien. It is to make sure that the bank has the correct SSN or ITIN on file for the individual.
The bank is required to have proof of identity, your SSN (or ITIN) and the name as it is shown on your SSN card. (The rules tightened up with the Patriot Act.) The official IRS form is W-9, but many banks routinely use their own form when you open your account.
The bank will also ask for the form again if they got a letter from the IRS saying that your SSN and name do not match their records.
Of course if she has been using the correct SSN when you file taxes then the bank may have made an error them self in entering it and the IRS advised them it did not match.
The W9 is just for matching name and SSN with the account and does not imply anything for extra tax.
Actually without the W-9 on file (or if the bank thinks they don't have it), the bank MUST withhold tax of any interest they pay you. Your 1099-INT at the end of the year would show the amount withheld and you would get credit for it on your tax return.
It is much easier to make sure the bank has the correct information.
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