In 2006, I received a small refund from California FTB for the 2005 state income taxes. In my federal filing for 2005, I had used schedule A (itemized deductions). Therefore, normally, the state tax refund would be considered income for 2006. I have received 1099G, and normally this would be reported on line 10 of federal 1040. However, in 2005, I was subject to a huge AMT (and even huger for 2006 :(). As such, I did NOT get any benefit from a large chunk of state income tax. I followed pub 525, and basically, since I did not effectively get a benefit on my
2005 federal taxes filed in 2006, I do not have to report the amount from 1099G on my 2006 federal taxes on line 10. OK, that's good.But where and how do I explain the reason? I do not want IRS computers going bonkers -- California FTB would tell IRS computers that I was issued a 1099G, and IRS computers will not find any entry on line 10 of my 1040. So, some database comparison, and voila, I would get unwanted letters from IRS! I know this can be explained at that time, but I would rather explain it upfront. So, how do I do it? Do I leave line 10 blank, or do I enter
0.00, which might indicate that a 1099G was issued, uit includbile amount is zero? Thanks for your help and suggestions!