I think 2 options:
- Enter it as Box 3 income. Not sure IRS implications but I assume Box 1 vs. 3 adjustments happen.
- Enter an adjustment into VA state return under "Misc" then "Other Deductions from Federal Income" and you can provide explanation statement there.
Vanguard reported my FHLB interest in Box 3 so it seems the treatment can vary by broker.
I am not a CPA/Expert so this is just my 2 cents, but if this happened to me I would not lose much sleep doing a 1099-INT Box 3 adjustment for this situation.
Seen some similar posts on this problem:
https://ttlc.intuit.com/community/taxes/discussion/us-agency-bonds-minnesota/00/3582609
https://ttlc.intuit.com/community/state-taxes/discussion/e-file-minnesota-with-overrides-for-us-trea...
