Accrued interest and Form "1099-INT Worksheet", two questions

[steveacres]

Regarding Treasury Notes that I purchased, the notes had accrued interest at the purchase time.  The brokerage 1099 documents for cost basis do not seem to take this into account as I would expect.  Therefore, I need to subtract this accrued interest out of my gains.  Going through the TurboTax 1099-INT questions, I chose "Tell us if any of these uncommon situations apply"  "We need to adjust the taxable amount".   I had more than one treasury note purchased, so I added the accrued interest amounts together and entered the value.  My question is this, should I choose "I received all or part of this interest for someone else (I am a nominee)" or "My accrued interest is included in this Form 1099-INT".  It seems like the "Accrued Interest..." choice would be correct, but I don't think this value "is included in this Form 1099-INT", at least the one provided by the broker.  I looked at Schedule B to see what making each choice does in the form.  On Schedule B, it simply lists either "Nominee Distribution" or "Accrued Interest" depending on which I chose.  Which option is correct?

In addition, I don't think the accrued interest at purchase time is provided to the IRS on the 1099 papers provided by the broker.  Given that I entered this random looking number, will this cause a red flag?  Or is there any way to provide a note or additional details to explain the value that I entered.

I am using TurboTax Premier 2023 Desktop.

[LizaJane]

When you buy a bond on the open market (not newly issued) there is usually accrued interest that the bond has earned but that hasn't yet been paid out. You pay the accrued interest amount to the seller at purchase (which the seller then owes taxes on).  You are basically reimbursing the seller for that interest that the bond earned while they still held it. When you receive the next coupon payment it will pay you, as the "nominee," the interest the bond earned while the seller still owned it, plus the interest for the time after you purchased the bond. When I purchased bonds, my 1099 then showed in its Supplemental pages "Accrued Interest Paid on Purchases." This is for my information only though, not reported to the IRS. So I think you are good.

Accrued interest is not part of the cost basis. You are subtracting the accrued interest paid from your interest income, not from capital gains.