I don't disagree with you, for the most part. TTX really should provide an easier way to indicate US Agency $$ from box 1 for direct integration into each state's tax forms as state income deductions.
The easiest way to deal with them, legally, would be for the IRS and the States, to agree to put those $$ from "Agency" bonds in box 3 of the 1099-INT. That only works if all the income-taxing states agree that they do not tax dividends/interest from those US agencies. I just don't know if all states exempt all US Agency interest...none...or just a certain subset. If they do agree, the brokerages could then reassign the $$ to box 3 for whichever Agencies all the states agree to.
Need someone internally at the IRS to address this with the states....not sure how that can be started up.
Guess I need to go to the IRS site and see if they have a taxpayer comment submission area. IF they do, we all need to poke at them to change the handling of where the $$ are reported on the 1099-INT.....with the various state's agreement of course.
____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
