I have several paper Series E treasury bonds which I purchased in July 1992. The bonds matured in July 2004 but I have not cashed them in yet. In 2012, I made a tax decision to pay all the accrued taxes - 30 years worth - on the bonds and to change my tax reporting on the bonds to the accrual method. Since then, I have paid taxes each year on the accrued interest for just the current tax year. The bonds will continue to earn 4 percent per year until final maturity in 2022, so each year until then I will continue to report just the taxes on the interest earned for the current tax year.
My question is this. If I cash in some of these bonds, say in 2018, the bank where I cash them will probably issue a 1099-INT showing I owe all of the accumulated interest on the bonds I cash going back to their original issue, which won't be correct. Is there a way I can convey to the bank that the taxes have already been paid on the bonds so that they will issue a correct
1099-INT? If not, how do I address this problem when I fill out my 1040 for the year? My thought was that perhaps I should list the incorrect interest amount from the 1099 on Schedule A and then right below it list a credit for that amount with a notation that the the number on the 1099 is incorrect because of the change I made in my reporting method in 2012. Is there a less clumsy way to address this?