my wife and mother-in-law have a low 4 figures CD with a local bank, held in 18 month CD and the interest is rolled automatically into another purchase of a new 18 month CD, no funds are (or have ever been) taken out from the CD
am I correct in assuming the half of the interest paid on the CD should be attributed to my wife and thus even if she does not receive a 1099-I form from the bank, I would report half of the interest paid in 2010 as her interest income?
If the 1099-I is in MIL's name/number, that's how it should get claimed on the tax return. Mismatches of these things are obvious to the IRS and will result in a letter asking why MIL didn't claim full amount (and asking wife why she did).
Iff'en the 1099 is only in one of the two joint-owners' names, first should ask the issuer to correct it to reflect proper ownership.
If that doesn't happen and report the interest split on the two returns, when and if the letter appears, answer it w/ the fact the interest was shown on the tow returns as it was.
Similar problem arose here for years on a mis-named 1099--it took two tax years past the time of mother's death to finally get a last royalty issuer to change the name on the account. Each year a letter came asking about why the deceased hadn't filed a return; each year the answer was the royalties were paid to and reported on the tax return of the rightful heir.
If the money is owned one-half by each person, then MIL should report the full amount as on her 1099-INT, and in addition she should report half of it as a negative amount using the nominee indication on Schedule B. Wife should then report that half of it on her own return.
Strictly speaking, MIL should issue a nominee 1099-INT to wife for the nomineed amount, but in practice the IRS doesn't seem to care. They will not question reporting of interest by wife in excess of what was reported on 1099-INT.
Did the two people actually pool their own funds to buy the CD? Or was a gift made by one to the other *before* opening the account? If the wife, for example, is only on the account for convenience and it's clear the money still belongs to MIL, then MIL should report all the interest income. IANAL, but I believe that simply adding someone as a joint tenant on your savings account does not constitute a gift -- only if that person removes all the money from the joint account, then it would be a gift.
-Mark B.
I agree with you. In addition, even if the gift was made before opening the account, depending on the amount involved the IRS doesn't like assignments of income, and could require the donor to recognize all the income. Though if the gift is under $10,000 I wouldn't worry about that particular issue.
Just my 2 cents - Mark and Stu are correct on this.
Gene E. Utterback, EA, RFC, ABA
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