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@PN10 

PN10 suggested he might try changing 1099-OID Box 2 from 0 to 310.41 to get around the TT complaint that Box 10 of 310.41 is greater than 0 in Box 2.  That effectively is the same as changing Box 10 to 0 as TT inadequately suggests because both will cause TT to pointlessly add 0 to 1040 Line 2A as the presumed amount of net tax-exempt income for this 1099-OID.  Unfortunately neither of those options gives the tax payer credit for the 310.41 amortized premium associated with the TE interest that C. Schwab has separately reported on the 1099-INT box 8.   By failing to comply with the published 1099-INT payer instructions for Line 13 that tells C. Schwab to report the premium on 1099-INT box 13 (for tax-exempt interest reported on 1099-Int Box 8),  C. Schwab is unfairly causing their clients MAGI to be calculated based on Gross rather than Net TE income for their TE OID bonds that have full gross TE interest but no associated premium shown on the 1099-INT.    If this specific bond happened to pay out $1000 in gross TE interest your MAGI will be calculated using $1000 in 1040 Line 2a rather than the lower proper Net TE interest of $689.59 (1000-310.41).  I still believe that my 3/31/22 solution of adjusting the premium on the 1099-INT (if properly done) will allow TT to report the correct Net TE interest on line 1040 Line 2A to the IRS.   (Note:  I cannot guarantee that the IRS will recognize the validity of that claim, and I resent that C.Schwab’s and their subcontractors’ apparent incompetence continues to make this necessary in order to get the properly computed MAGI).  If you chose to manually adjust the 1099-INT premium as I have done, you should probably generate an official request to C.Schwab to provide you with a corrected consolidated 1099 that complies with IRS payer instructions for 1099-INT Box 13 (asking them to provide premium and gross TE interest on the same form).

C.Schwab’s non-compliant 1099-INT does not affect your TAXABLE income on your tax return and hence it is unlikely to affect the taxes due.  This only affects the MAGI that if erroneously high might subject someone to erroneously high Medicare IRMAA based surcharges, might disqualify someone from EV tax credits (and hence erroneously cause a higher taxes due), or might disqualify someone from other MAGI based benefits.

I have tried repeatedly to get C.Schwab to comply with the published IRS payer instructions.  They have repeatedly failed to provide any proof that they are authorized to disregard 1099-INT Box 13 payer instructions that clearly and succinctly tell them where they are supposed to report the premium that they are clearly required to report (for covered bonds for which they report the gross interest rather than net interest in Box 8).  The Box 13 payer instructions say:

Box 13. Bond Premium on Tax-Exempt Bond. For a tax-exempt covered security acquired at a premium, enter the amount of bond premium amortization allocable to the interest paid during the tax year. If you reported a net amount of interest in box 8 or 9, whichever is applicable, leave this box blank.

C.Schwab's apparently incompetent tax advisor has apparently convinced them that they have the option to report the premium on a different form than its associated gross interest. Please note that there is no such option shown in the Box 13 payer instructions above (or anywhere else in the official IRS payer instructions). Separation of the premium and gross interest on separate forms causes TT to treat the single bond that has an associated premium as if it is two bonds (one that paid the full gross interest shown on the 1099-INT and the other as an OID bond that paid no interest presumably due to default and had an amortized premium that could not be used to reduce the total TE interest).  

There is absolutely nothing in the official IRS publications giving C. Schwab the option to report interest on the 1099-INT and its associated premium on the separate 1099-OID's.  The official IRS instructions give the payer the option to report NET TE interest on either of those forms, or to report both the Gross TE interest and its associated premium on either of those two forms. The official IRS instructions for both forms clearly state that the payer is required to report the premium for covered bonds. However the official IRS publications never provides the payer with the option to report the gross interest and its associated premium on separate forms.

I have verified that TT properly computes the net TE interest for any of the 4 officially documented options, but TT ends up reporting the erroneously high gross TE interest for the bogus fifth option that C.Schwab alleges (without proof) to be entitled to use.

The only officially documented purpose for 1099-OID Box 10 is to report an adjustment for gross TE interest that the payer has properly elected to report on 1099-OID Box 2. C.Schwab has not elected to report the gross interest on the 1099-OID Box 2, and hence they should be reporting 0 for 1099-OID Box 10 (and they should report the premium on the 1099-INT where they have elected to report the gross TE interest). 

C.Schwab has acknowledged being aware that TT ends up reporting the gross rather than net TE interest on 1040 Line 2A but they describe that as a deficiency in TT and repeatedly suggest that I contact a professional tax preparer. I strongly disagree with their insinuation that TT has a deficiency when it seems very clear that they violate Official IRS instructions by failing to report the premium on the same form as the associated interest.

C.Schwab's alleges that they have IRS guidance allowing them to report in the bizarre manner in which they report but they have refused to provide a copy of that guidance that apparently contradicts the official publications.  The IRS SAMS group has apparently chosen not to address my complaint and FINRA has apparently chosen to disregard my complaint. It appears that TT has apparently failed to notify the IRS that their customers are receiving non-compliant 1099-OID’s from C.Scwab. Because this is such a subtle problem that is hard for most tax payers to recognize as possibly affecting them, C.Schwab has been able for years to get away with making demonstrably false claims that they are complying with the IRS official payer instructions. When pressed they claim they have some secret IRS guidance allowing them to report as they improperly do, but they have refused to provide a copy of that alleged guidance that apparently contradicts the official publications (if such private IRS guidance actually even exists).

You may wish to complain to C.Schwab, IRS, TT, your congressman, or others. I wish you luck.

I believe that TurboTax should complain to the IRS that C.Schwab is maligning their product when if fact it appears that C.Schwab obstinately fails to comply with the official IRS payer instructions.

If the IRS acknowledges sanctioning the bizarre separation of premium from gross interest on separate forms, the IRS should have instructed TurboTax and other tax preparers how to give their clients credit for the premium that is clearly intended to be used to reduce the gross TE interest reported on 1040 Line2A.

You may wish to transfer your tax exempt bond business to Vanguard that complies with the officially documented options and reports both the gross TE interest and the associated premium on the same 1099-INT.