reporting tax-exempt interest

wrote

Why? Why not report it? What do you hope to gain by omitting the information? If it doesn't change your balance due (or refund amount) then what is the point of not disclosing it?

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

Even when he's "evading" exactly $0.00 in taxes?

But that was taxable income, right?

Hell is paying 100% penalty on $0.00 of taxes?

Seth

-- And they won't stop billing you until you send them a check for $0.00 either.

I am not hearing much informed comment on this. If the government feels it is important for tax-exempt interest income to be reported, why does it not require a 1099 to be filed by the payer? The fact that a 1099 is not required casts some doubt that disclosure can actually be required (otherwise there would be a 1099 requirement). As long as you pay the correct amount of tax, why would they take action?

There are lots of things you put on your tax return that don't require the other party to report to the IRS. Since tax-exempt interest doesn't affect your taxes, it would be wasteful to require the payers to send this paperwork.

-- Barry Margolin, snipped-for-privacy@alum.mit.edu Arlington, MA

Internal Revenue Code Section 6012(d): "Every person required to file a return under this section for the taxable year shall include on such return the amount of interest received or accrued during the taxable year which is exempt from the tax imposed by chapter 1." The tax exempt interest information is used in several different ways. It can affect the amount of a social security benefit that is taxable, it can affect the amount of investment interest that is deductible, and it can raise red flags in regards to alternative minimum tax. State taxing authorities can also use the information: just because income is exempt from federal taxation does not mean that it is exempt from state taxation.

--Chris Ballard

Where do you get *that* idea from?

To wit:

• 1099-INT isn't required to be issued for interest of under , but the law *requires* you to report all interest on your return.

• Options sales aren't reported on 1099-B, but the law *requires* you to report them on your return.

• People don't have to give you a 1099-MISC for under 0, but the law *requires* you to report that income on your return. [I could keep going in this vein...]

That's rather faulty "logic".

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

Here is the legal answer:

Internal Revenue Code Section 6011 states in part that: "Every person required to make a return or statement shall include therein the information required by such forms or regulations." The law makes no distinction on the type of information required. Therefore, you could be liable for a penalty for failure to disclose your tax exempt interest even though it does not effect your tax liability. Practically, whether you are assessed a penalty depends on whether you are audited and whether you get an IRS agent that is a stickler for the rules. I was once threaten with a preparer penalty for failing to disclose shareholder loan reparments on Page 2 of schedule K-1 (which had no bearing on the taxable income of the shareholder). As the moderator says: When you play the audit lottery, winners live in fear and losers learn what hell is like. Bert Harrison, CPA

Thanks Chris. The Code section you give clearly settles the matter of whether tax-exempt interest is required to be reported. But as a practical matter, again, why would they audit (or prosecute) if the correct tax amount is paid (including correct social security, correct investment interest, correct AMT, etc). I guess in extreme cases they might suspect undisclosed income and initiate an audit on that basis, and even if you paid the correct tax an audit is about as much fun as a root canal. You just don't want that. But I resent the requirement. I don't want my ex-wife to see it. I don't want my mortgage lender to see it. I don't like the idea of the IRS providing information to other entities. Even if it is all legal.

It is not often prosecuted in the normal course, but you are signing the return under penalty of perjury. Leaving off a material item is one element of the crime. The law requires no showing of understated tax. It requires no proof of evil motive. They jury further is not to consider the harm to the gov't, which anyway is inhibiting IRS' ability to enforce tax laws.

Why don't you want them to see that you have additional assets/earnings beyond the taxable items you report on 1040?

That evidence would help a jury convict you. It helps answer their question as to knowledge of the falsity, another element of the crime. If your ex-wife doesn't see it on the 1040 you furnish her, and she knows about it, she could write to IRS and inform them you filed a criminally false tax return.

Under law, IRS cannot provide your tax return information to other entities, except like court order in certain criminal cases, written request by the President of the U.S., or Grand Jury subpoena. Fred F.

I am sure you are wrong about that one. They routinely provide the information to many other governments.

Thanks. I now have a better understanding.

... Fred

I know what section 6103 says, but I tried to confine the issue to the poster's ex-wife receiving the information. The most common disclosure is to State gov'ts, but it may not be further disclosed by States for nontax purposes.

Fred F.