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Posted by Dan Lanciani on January 27, 2007, 12:30 am
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I see that tax exempt interest is now being reported on
1099-INT (per the Tax Increase Prevention and Reconciliation
Act?). The 1099 instruction say to include accrued interest
received and OID, though I read somewhere that OID reporting
is on hold. The instructions on 1099-INT (and in various
cheery articles on the subject) simply say to report the tax
exempt interest on 1040 line 8b. There is obviously no
Schedule B analog to reconcile any differences between the
total of the 1099-reported numbers and line 8b.
In the past I have made the same adjustments to the number
on line 8b that I would make on Schedule B for taxable
interest, in particular subtracting accrued interest _paid_
on purchase. This makes no difference to my federal tax
(though it could for someone receiving social security) but
it does affect my state tax when the interest source is
out-of-state. If the IRS is going to match line 8b with the
total of 1099 exempt interest then this might no longer be a
good approach. I could report the total and back out
accrued interest only where it makes a difference on my
state return. (I already have to include a separate
statement for interest adjustments so this would be only one
more entry.) What is the correct approach?
Dan Lanciani
ddl@danlan.*com
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