"accrued interest paid" when purchase bonds is not reported to IRS by our financial institute

[vinchang]

In the 1099-INT form, our institute has accrued interest paid amount in "not reported to IRS" section, and we have to enter it manually,, how do we prove the amount in the tax return?

[SteamTrain]

You "prove" the amount paid...by accessing your purchase confirmation documentation from whatever financial provider sold you that bond .  Print it out...it should contain that information as a line item.

One thing to note however, is that you cannot list it as accrued interest paid, unless that bond issued an interest payment after you bought the bond...but must be  the same year that you bought it.

1)   For instance, if you bought the bond in Nov of 2019, but the bond did not issue it's next interest payout until Feb of 2020, then you should not enter your declaration of accrued interest paid until your file your 2020 taxes early in 2021.

2) a Second complication, though it is a software complication, is that IF your 1099-INT reports interest for several categories..like in any combination of boxes 1, 3, and 8 ...all in the same 1099-INT form, you should remove the interest for the bond type you just purchased, and put it on a separate 1099-INT reporting just  the $$ associated with that particular bond type and then put the accrued interest declaration on that separate 1099-INT.  Example: if the accrued interest was for a treasury bond you bought, and the financial institution put $$ in boxes 1, 3, and 8 for other holdings you have...you would remove all of the box 3 $$ (and box 12 $$ too if any shows), and create a separate 1099-INT from that provider showing only boxes 3 (and 12) and declaring the accrued interest paid for the bond on that 1099-INT form  (a followup page to the main form). 

IF you don't do that,the software will divide up the accrued interest proportionally among boxes 1, 3, and 8.  Yeah, would be nice someday if TTX would allow separate entries for accrued interest...targeted to the proper box.

[1597980]

I had "accrued interest paid" on my 2019 1099B.  I didn't use the amount to reduce my interest income as the 1099B says it was not reported to IRS.  Now that the bonds matured in 2020, I realized the interest/dividends reported on 1099B was more than I actually received in my account and after calling my financial institution, I learned it was because of the accrued interest I paid, which was not accounted for in my cost basis either.  Can I add the accrued interest paid to my cost basis on my 2020 return?  If so, where do I enter it?  Otherwise I'll be paying taxes on income that I did not receive!  Don't understand why the accrued interest did not reduce my interest income in 2019 or increase my cost basis in 2020.  Totally does not make sense!

[SteamTrain]

(I don't think they ever report it to the IRS themselves ((i.e. accrued interest paid with the purchase))...not sure there is any means established to do so.  So that ends up being the taxpayers responsibility, IF they want to deal with it)

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1)   IF the bond you bought in 2019 (correct?), also issued interest to your own account in 2019, then you'd have to amend your 2019 tax return to claim that and adjust the interest taxed accordingly.  (whether you bother, depends on how much it was).

2)  If you bought the bond later in 2019, and that bond didn't issue it's next dividend until 2020, then you can report it on your 2020 tax return.

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3)  Taxable bond? (USGovt ?or Corporate?...which one?),   or Tax-exempt Muni ?

4)  Also, important to know if this was a Zero Bond  (not sure I know how to handle those.....have never considered those)

5)  IF #2 is true...let us know....the way to do this properly may need you to break up your 1099-INT into two forms.

6) Similar for situation #1, but that depends on whether you are going to bother amending.

[1597980]

Thank you for your reply.  I didn't get a reply notification.  Only saw this now.  Someone suggested to me to report the "accrued interest paid" on my 2020 return to offset the interest income.