I don't know if you're correct in your assertion that all the interest on that 1099-INT should be reported under the mother's final income tax return or not. Here's the IRS's instructions (I've added emphasis:(
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Decedent who reported interest each year.
If the bonds transferred because of
death were owned by a person who used an accrual method, or who used the
cash
method and had chosen to report the interest
each year, the interest earned in the year of death up to the date of
death must
be reported on that person's final return. The
person who acquires the bonds includes in income only interest earned
after
the date of death.
Decedent who postponed reporting interest.
If the transferred bonds were owned by a
decedent who had used the cash method and had not chosen to report the
interest
each year, and who had bought the bonds entirely
with his or her own funds, all interest earned before death must be
reported
in one of the following ways.
-
The surviving spouse or personal
representative (executor, administrator, etc.) who files the final
income tax return of the
decedent can choose to include on
that return all interest earned on the bonds before the decedent's
death. The person who
acquires the bonds then includes in
income only interest earned after the date of death.
-
If the choice in (1) is not made,
the interest earned up to the date of death is income in respect of the
decedent and should
not be included in the decedent's
final return. All interest earned both before and after the decedent's
death (except any
part reported by the estate on its
income tax return) is income to the person who acquires the bonds. If
that person uses
the cash method and does not choose
to report the interest each year, he or she can postpone reporting it
until the year the
bonds are cashed or disposed of or
the year they mature, whichever is earlier. In the year that person
reports the interest,
he or she can claim a deduction for
any federal estate tax paid on the part of the interest included in the
decedent's estate.
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Since the 1099-INT has your wife's name and Social Security number on it, enter the 1099-INT using the "Interest on 1099-INT" interview. If you intend to report some amount of the interest in the final return of your wife's mother you tick the "need to adjust the taxable amount box" on the next page, and on the page following that enter the amount of interest the final return will be reporting and click the radio button next to "I am a nominee."
Tom Young
