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Is this interest taxable?

I was issued a 1099-INT by the Commonwealth of Massachusetts Office of the Comptroller.

My mother died 35 years ago. Last April, while scanning my state's unclaimed money list, it seems that the state has possession of $28k of forgotten funds that had belonged to my mother. When I claimed the funds, they sent her estate a check for $32k. They just sent her estate a 1099-INT for the $4000 in interest.

As the state paid the interest, is it exempt from federal taxes? Anyone got a cite one way or another?

Reply to
NadCixelsyd
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The interest is taxable. Interest paid on tax-exempt municipal bonds is tax-free, but this was interest paid in the normal course of business. This is the same as the difference between US Savings Bond interest and the interest the IRS pays on a delayed refund. Savings bond interest is tax-free at the state level, but IRS interest is taxable.

ALthough IRS Pubs are not authoritative sources, IRS Pub. 4079, Tax-Exempt Governmental Bonds,

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does a good job of explaining what state and local interest payments are tax-exempt.

Ira Smilovitz, EA Leonia, NJ

Reply to
ira smilovitz

Just wondering, how does an estate that was closed 35 years ago pay its taxes?

Reply to
John Levine

It doesn't. The beneficiaries do.

Reply to
Stuart O. Bronstein

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