I see that tax exempt interest is now being reported on
1099-INT (per the Tax Increase Prevention and Reconciliation Act?). The 1099 instruction say to include accrued interest received and OID, though I read somewhere that OID reporting is on hold. The instructions on 1099-INT (and in various cheery articles on the subject) simply say to report the tax exempt interest on 1040 line 8b. There is obviously no Schedule B analog to reconcile any differences between the total of the 1099-reported numbers and line 8b. In the past I have made the same adjustments to the number on line 8b that I would make on Schedule B for taxable interest, in particular subtracting accrued interest _paid_ on purchase. This makes no difference to my federal tax (though it could for someone receiving social security) but it does affect my state tax when the interest source is out-of-state. If the IRS is going to match line 8b with the total of 1099 exempt interest then this might no longer be a good approach. I could report the total and back out accrued interest only where it makes a difference on my state return. (I already have to include a separate statement for interest adjustments so this would be only one more entry.) What is the correct approach? Dan Lanciani ddl@danlan.*com
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