Federal tax exempt interest taxable in Wisconsin

[JanT2020]

Have investments in federal tax free municipal bonds, which are taxable in WI.  I assumed TurboTax was handling this interest correctly, adding it to our WI taxable income, but we just got audited for 2015 and 2016 and had to pay back tax and penalties.  In doing the 2019 taxes, it appears the tax free interest is not being added to the WI taxable income.  The tax exempt interest on line 2a on the 1040 is not carrying forward to line 13 on WI Form 1.  The correct amount of fed tax free interest is entered in the fed form Schedule B Line 8.  How and where do I make sure it is included in our taxable WI income?  Do I enter it on WI DOR form Schedule I, Adjustments to Convert 2019 Federal Adjusted Income and Itemized Deductions to the Amounts Allowable for Wisconsin?  Or do I file without verifying it and plead for forgiveness if audited. 

[AmyC · Accepted solution]

My program is carrying from Federal 1040 line 2a to WI Form 1 line 2.

In the WI program, where it asks about Investments from State and Municipal Obligations, it does ask you how much is exempt from WI and make the rest taxable.

Once the return is paid for, you can view all the forms. Please view all forms before filing.

WI shows a worksheet:

Comes from the federal:

[JanT2020 · Accepted solution]

I know all of the interest reported as federal tax free is taxable in WI.  Since I have muni bonds issued by multiple states, I entered multiple states in lieu of listing each state.   I learned from another response to a similar question that I needed to go into the actual 1099 form and change the MX to XX.  That forced all of the tax exempt interest amount to go to line 2 on the Wisconsin Form 1 from line 2a on the 1040SR.  Now I'm confident that it is being reported correctly.