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Tax Amendments

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Tax Amendments

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Information for Governmental Liaisons

Mission
The mission of the Office of Governmental Liaison and Disclosure is to improve tax administration by efficiently partnering with other government agencies and by effectively administering the Disclosure statutes.

IRS Information Sharing Programs
The IRS information sharing program saves government resources by partnering with agencies at all levels of government to enhance voluntary compliance with tax laws.

Congressional Affairs Program
The Congressional Affairs Program manages relationships with congressional representatives and staff.

Disclosure
The IRS Freedom of Information Program website contains information on contacting local IRS Disclosure Offices.

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This video on disclosure awareness discusses what access to Federal Tax Information (FTI) is and how to guard it. It also covers how the disclosure of that information is protected by law.

Disclosure - Protecting Federal Tax Information: A Pocket Guide for Government Employees (PDF)
Publication 4761, Protecting Federal Tax Information: A Pocket Guide for Government Employees, is for federal, state and local agency employees who receive and use federal tax information (FTI). It provides basic disclosure concepts and warns of civil and criminal sanctions for misuse of FTI. It can be ordered by government agencies.

Safeguards Program
The Safeguards program and staff are responsible for ensuring that federal, state and local agencies receiving federal tax information protect it as if the information remained in IRS’s hands.

Page Last Reviewed or Updated: 26-Mar-2014

The Tax Amendments

Tax amendments 7. Tax amendments   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Tax amendments Custodian account for your child. Tax amendments Penalty for failure to supply SSN. Tax amendments Reporting backup withholding. Tax amendments Savings account with parent as trustee. Tax amendments Interest not reported on Form 1099-INT. Tax amendments Nominees. Tax amendments Incorrect amount. Tax amendments Information reporting requirement. Tax amendments Taxable InterestInterest subject to penalty for early withdrawal. Tax amendments Money borrowed to invest in certificate of deposit. Tax amendments U. Tax amendments S. Tax amendments Savings Bonds Education Savings Bond Program U. Tax amendments S. Tax amendments Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. Tax amendments How To Report Interest IncomeSchedule B (Form 1040A or 1040). Tax amendments Reporting tax-exempt interest. Tax amendments U. Tax amendments S. Tax amendments savings bond interest previously reported. Tax amendments Reminder Foreign-source income. Tax amendments  If you are a U. Tax amendments S. Tax amendments citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. Tax amendments S. Tax amendments law. Tax amendments This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. Tax amendments Introduction This chapter discusses the following topics. Tax amendments Different types of interest income. Tax amendments What interest is taxable and what interest is nontaxable. Tax amendments When to report interest income. Tax amendments How to report interest income on your tax return. Tax amendments In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Tax amendments Exceptions to this rule are discussed later in this chapter. Tax amendments You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. Tax amendments See Money borrowed to invest in certificate of deposit , later, and chapter 28. Tax amendments Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends 8815 Exclusion of Interest From Series EE and I U. Tax amendments S. Tax amendments Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Tax amendments S. Tax amendments Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. Tax amendments Recordkeeping. Tax amendments You should keep a list showing sources and interest amounts received during the year. Tax amendments Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. Tax amendments Tax on unearned income of certain children. Tax amendments    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Tax amendments If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Tax amendments If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Tax amendments   Some parents can choose to include the child's interest and dividends on the parent's return. Tax amendments If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Tax amendments   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Tax amendments Beneficiary of an estate or trust. Tax amendments   Interest you receive as a beneficiary of an estate or trust is generally taxable income. Tax amendments You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Tax amendments , from the fiduciary. Tax amendments Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Tax amendments Social security number (SSN). Tax amendments   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. Tax amendments This includes payers of interest. Tax amendments If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Tax amendments SSN for joint account. Tax amendments   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. Tax amendments (For information on who owns the funds in a joint account, see Joint accounts , later. Tax amendments ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Tax amendments This is because only one name and SSN can be shown on Form 1099. Tax amendments   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Tax amendments For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. Tax amendments Custodian account for your child. Tax amendments   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. Tax amendments For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. Tax amendments Penalty for failure to supply SSN. Tax amendments   If you do not give your SSN to the payer of interest, you may have to pay a penalty. Tax amendments See Failure to supply SSN under Penalties in chapter 1. Tax amendments Backup withholding also may apply. Tax amendments Backup withholding. Tax amendments   Your interest income is generally not subject to regular withholding. Tax amendments However, it may be subject to backup withholding to ensure that income tax is collected on the income. Tax amendments Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Tax amendments   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Tax amendments For more information, see Backup Withholding in chapter 4. Tax amendments Reporting backup withholding. Tax amendments   If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. Tax amendments The Form 1099-INT will show any backup withholding as “Federal income tax withheld. Tax amendments ” Joint accounts. Tax amendments   If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law. Tax amendments Income from property given to a child. Tax amendments   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. Tax amendments   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. Tax amendments Savings account with parent as trustee. Tax amendments   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. Tax amendments The savings account legally belongs to the child. Tax amendments The parents are not legally permitted to use any of the funds to support the child. Tax amendments Form 1099-INT. Tax amendments   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. Tax amendments This form shows you the interest you received during the year. Tax amendments Keep this form for your records. Tax amendments You do not have to attach it to your tax return. Tax amendments   Report on your tax return the total interest income you receive for the tax year. Tax amendments Interest not reported on Form 1099-INT. Tax amendments   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Tax amendments For example, you may receive distributive shares of interest from partnerships or S corporations. Tax amendments This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. Tax amendments , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Tax amendments Nominees. Tax amendments   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. Tax amendments   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions. Tax amendments Incorrect amount. Tax amendments   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Tax amendments The new Form 1099-INT you receive will be marked “Corrected. Tax amendments ” Form 1099-OID. Tax amendments   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Tax amendments For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Tax amendments Exempt-interest dividends. Tax amendments   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Tax amendments (However, see Information reporting requirement , next. Tax amendments ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Tax amendments You do not reduce your basis for distributions that are exempt-interest dividends. Tax amendments Information reporting requirement. Tax amendments   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Tax amendments This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Tax amendments Note. Tax amendments Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Tax amendments See Alternative Minimum Tax (AMT) in chapter 30 for more information. Tax amendments Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. Tax amendments Interest on VA dividends. Tax amendments   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Tax amendments This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. Tax amendments Individual retirement arrangements (IRAs). Tax amendments   Interest on a Roth IRA generally is not taxable. Tax amendments Interest on a traditional IRA is tax deferred. Tax amendments You generally do not include it in your income until you make withdrawals from the IRA. Tax amendments See chapter 17. Tax amendments Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Tax amendments The following are some sources of taxable interest. Tax amendments Dividends that are actually interest. Tax amendments   Certain distributions commonly called dividends are actually interest. Tax amendments You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. Tax amendments  The “dividends” will be shown as interest income on Form 1099-INT. Tax amendments Money market funds. Tax amendments   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. Tax amendments Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Tax amendments Certificates of deposit and other deferred interest accounts. Tax amendments   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. Tax amendments You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. Tax amendments The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Tax amendments If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Tax amendments Interest subject to penalty for early withdrawal. Tax amendments   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Tax amendments You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Tax amendments See Penalty on early withdrawal of savings in chapter 1 of Publication 550 for more information on how to report the interest and deduct the penalty. Tax amendments Money borrowed to invest in certificate of deposit. Tax amendments   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. Tax amendments You must report the total interest you earn on the certificate in your income. Tax amendments If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Tax amendments See Interest Expenses in chapter 3 of Publication 550. Tax amendments Example. Tax amendments You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. Tax amendments The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. Tax amendments The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Tax amendments The bank also gives you a statement showing that you paid $310 interest for 2013. Tax amendments You must include the $575 in your income. Tax amendments If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. Tax amendments Gift for opening account. Tax amendments   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. Tax amendments   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Tax amendments For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Tax amendments The value is determined by the cost to the financial institution. Tax amendments Example. Tax amendments You open a savings account at your local bank and deposit $800. Tax amendments The account earns $20 interest. Tax amendments You also receive a $15 calculator. Tax amendments If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. Tax amendments You must report $35 interest income on your tax return. Tax amendments Interest on insurance dividends. Tax amendments   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. Tax amendments However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. Tax amendments Prepaid insurance premiums. Tax amendments   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. Tax amendments U. Tax amendments S. Tax amendments obligations. Tax amendments   Interest on U. Tax amendments S. Tax amendments obligations, such as U. Tax amendments S. Tax amendments Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Tax amendments Interest on tax refunds. Tax amendments   Interest you receive on tax refunds is taxable income. Tax amendments Interest on condemnation award. Tax amendments   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Tax amendments Installment sale payments. Tax amendments   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. Tax amendments That interest is taxable when you receive it. Tax amendments If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Tax amendments See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. Tax amendments Interest on annuity contract. Tax amendments   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Tax amendments Usurious interest. Tax amendments   Usurious interest is interest charged at an illegal rate. Tax amendments This is taxable as interest unless state law automatically changes it to a payment on the principal. Tax amendments Interest income on frozen deposits. Tax amendments   Exclude from your gross income interest on frozen deposits. Tax amendments A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Tax amendments   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). Tax amendments If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income in chapter 1 of Publication 550, for information about reporting this interest income exclusion on your tax return. Tax amendments   The interest you exclude is treated as credited to your account in the following year. Tax amendments You must include it in income in the year you can withdraw it. Tax amendments Example. Tax amendments $100 of interest was credited on your frozen deposit during the year. Tax amendments You withdrew $80 but could not withdraw any more as of the end of the year. Tax amendments You must include $80 in your income and exclude $20 from your income for the year. Tax amendments You must include the $20 in your income for the year you can withdraw it. Tax amendments Bonds traded flat. Tax amendments   If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. Tax amendments The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Tax amendments When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Tax amendments Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. Tax amendments See Bonds Sold Between Interest Dates , later, for more information. Tax amendments Below-market loans. Tax amendments   In general, a below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Tax amendments See Below-Market Loans in chapter 1 of Publication 550 for more information. Tax amendments U. Tax amendments S. Tax amendments Savings Bonds This section provides tax information on U. Tax amendments S. Tax amendments savings bonds. Tax amendments It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Tax amendments For other information on U. Tax amendments S. Tax amendments savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. Tax amendments O. Tax amendments Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. Tax amendments O. Tax amendments Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. Tax amendments O. Tax amendments Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. Tax amendments treasurydirect. Tax amendments gov/indiv/indiv. Tax amendments htm. Tax amendments Accrual method taxpayers. Tax amendments   If you use an accrual method of accounting, you must report interest on U. Tax amendments S. Tax amendments savings bonds each year as it accrues. Tax amendments You cannot postpone reporting interest until you receive it or until the bonds mature. Tax amendments Accrual methods of accounting are explained in chapter 1 under Accounting Methods . Tax amendments Cash method taxpayers. Tax amendments   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Tax amendments S. Tax amendments savings bonds when you receive it. Tax amendments The cash method of accounting is explained in chapter 1 under Accounting Methods. Tax amendments But see Reporting options for cash method taxpayers , later. Tax amendments Series HH bonds. Tax amendments    These bonds were issued at face value. Tax amendments Interest is paid twice a year by direct deposit to your bank account. Tax amendments If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Tax amendments   Series HH bonds were first offered in 1980 and last offered in August 2004. Tax amendments Before 1980, series H bonds were issued. Tax amendments Series H bonds are treated the same as series HH bonds. Tax amendments If you are a cash method taxpayer, you must report the interest when you receive it. Tax amendments   Series H bonds have a maturity period of 30 years. Tax amendments Series HH bonds mature in 20 years. Tax amendments The last series H bonds matured in 2009. Tax amendments Series EE and series I bonds. Tax amendments   Interest on these bonds is payable when you redeem the bonds. Tax amendments The difference between the purchase price and the redemption value is taxable interest. Tax amendments Series EE bonds. Tax amendments   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Tax amendments   Before July 1980, series E bonds were issued. Tax amendments The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. Tax amendments Paper series EE and series E bonds are issued at a discount. Tax amendments The face value is payable to you at maturity. Tax amendments Electronic series EE bonds are issued at their face value. Tax amendments The face value plus accrued interest is payable to you at maturity. Tax amendments As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Tax amendments   Owners of paper series EE bonds can convert them to electronic bonds. Tax amendments These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Tax amendments Series I bonds. Tax amendments   Series I bonds were first offered in 1998. Tax amendments These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Tax amendments The face value plus all accrued interest is payable to you at maturity. Tax amendments Reporting options for cash method taxpayers. Tax amendments   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. Tax amendments Method 1. Tax amendments Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. Tax amendments (However, see Savings bonds traded , later. Tax amendments )  Note. Tax amendments Series EE bonds issued in 1983 matured in 2013. Tax amendments If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Tax amendments The last series E bonds were issued in 1980 and matured in 2010. Tax amendments If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Tax amendments Method 2. Tax amendments Choose to report the increase in redemption value as interest each year. Tax amendments You must use the same method for all series EE, series E, and series I bonds you own. Tax amendments If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Tax amendments    If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Tax amendments To learn how, see Education Savings Bond Program, later. Tax amendments Change from method 1. Tax amendments   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. Tax amendments In the year of change you must report all interest accrued to date and not previously reported for all your bonds. Tax amendments   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. Tax amendments Change from method 2. Tax amendments   To change from method 2 to method 1, you must request permission from the IRS. Tax amendments Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Tax amendments You have typed or printed the following number at the top: “131. Tax amendments ” It includes your name and social security number under “131. Tax amendments ” It includes the year of change (both the beginning and ending dates). Tax amendments It identifies the savings bonds for which you are requesting this change. Tax amendments It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. Tax amendments   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Tax amendments   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. Tax amendments On the statement, type or print “Filed pursuant to section 301. Tax amendments 9100-2. Tax amendments ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Tax amendments    By the date you file the original statement with your return, you must also send a signed copy to the address below. Tax amendments   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Tax amendments O. Tax amendments Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Tax amendments   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW  Washington, DC 20224   Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115, Application for Change in Accounting Method. Tax amendments In that case, follow the form instructions for an automatic change. Tax amendments No user fee is required. Tax amendments Co-owners. Tax amendments   If a U. Tax amendments S. Tax amendments savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. Tax amendments One co-owner's funds used. Tax amendments    If you used your funds to buy the bond, you must pay the tax on the interest. Tax amendments This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Tax amendments Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. Tax amendments The co-owner who redeemed the bond is a “nominee. Tax amendments ” See Nominee distributions under How To Report Interest Income in chapter 1 of Publication 550 for more information about how a person who is a nominee reports interest income belonging to another person. Tax amendments Both co-owners' funds used. Tax amendments   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. Tax amendments Community property. Tax amendments   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. Tax amendments If you file separate returns, each of you generally must report one-half of the bond interest. Tax amendments For more information about community property, see Publication 555. Tax amendments Table 7-1. Tax amendments   These rules are also shown in Table 7-1. Tax amendments Ownership transferred. Tax amendments   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. Tax amendments But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Tax amendments   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Tax amendments Purchased jointly. Tax amendments   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. Tax amendments The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. Tax amendments This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Tax amendments   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Tax amendments But the new co-owner will report only his or her share of the interest earned after the transfer. Tax amendments   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. Tax amendments    Table 7-1. Tax amendments Who Pays the Tax on U. Tax amendments S. Tax amendments Savings Bond Interest IF . Tax amendments . Tax amendments . Tax amendments THEN the interest must be reported by . Tax amendments . Tax amendments . Tax amendments you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Tax amendments you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. Tax amendments you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. Tax amendments you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Tax amendments If you file separate returns, both you and your spouse generally report one-half of the interest. Tax amendments Example 1. Tax amendments You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Tax amendments The bond was issued to you and your spouse as co-owners. Tax amendments You both postpone reporting interest on the bond. Tax amendments You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Tax amendments At that time neither you nor your spouse has to report the interest earned to the date of reissue. Tax amendments Example 2. Tax amendments You bought a $1,000 series EE savings bond entirely with your own funds. Tax amendments The bond was issued to you and your spouse as co-owners. Tax amendments You both postpone reporting interest on the bond. Tax amendments You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Tax amendments You must report half the interest earned to the date of reissue. Tax amendments Transfer to a trust. Tax amendments   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. Tax amendments However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. Tax amendments You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. Tax amendments   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. Tax amendments See Savings bonds traded , later. Tax amendments Decedents. Tax amendments   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. Tax amendments This is explained in chapter 1 of Publication 550. Tax amendments Savings bonds traded. Tax amendments   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. Tax amendments (You cannot trade series I bonds for series HH bonds. Tax amendments After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Tax amendments ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Tax amendments When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. Tax amendments Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. Tax amendments Example. Tax amendments You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Tax amendments You reported the $223 as taxable income on your tax return. Tax amendments At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Tax amendments You hold the series HH bonds until maturity, when you receive $2,500. Tax amendments You must report $300 as interest income in the year of maturity. Tax amendments This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Tax amendments (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Tax amendments ) Choice to report interest in year of trade. Tax amendments   You could have chosen to treat all of the previously unreported accrued interest on the series EE or series E bonds traded for series HH bonds as income in the year of the trade. Tax amendments If you made this choice, it is treated as a change from method 1. Tax amendments See Change from method 1 under Series EE and series I bonds, earlier. Tax amendments Form 1099-INT for U. Tax amendments S. Tax amendments savings bonds interest. Tax amendments   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Tax amendments Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. Tax amendments However, your Form 1099-INT may show more interest than you have to include on your income tax return. Tax amendments For example, this may happen if any of the following are true. Tax amendments You chose to report the increase in the redemption value of the bond each year. Tax amendments The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Tax amendments You received the bond from a decedent. Tax amendments The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. Tax amendments Ownership of the bond was transferred. Tax amendments The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Tax amendments You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Tax amendments The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Tax amendments (See Co-owners , earlier in this chapter, for more information about the reporting requirements. Tax amendments ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Tax amendments The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. Tax amendments (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Tax amendments , for the year of distribution. Tax amendments )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. Tax amendments Publication 550 includes examples showing how to report these amounts. Tax amendments    Interest on U. Tax amendments S. Tax amendments savings bonds is exempt from state and local taxes. Tax amendments The Form 1099-INT you receive will indicate the amount that is for U. Tax amendments S. Tax amendments savings bond interest in box 3. Tax amendments Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. Tax amendments S. Tax amendments savings bonds during the year if you pay qualified higher educational expenses during the same year. Tax amendments This exclusion is known as the Education Savings Bond Program. Tax amendments You do not qualify for this exclusion if your filing status is married filing separately. Tax amendments Form 8815. Tax amendments   Use Form 8815 to figure your exclusion. Tax amendments Attach the form to your Form 1040 or Form 1040A. Tax amendments Qualified U. Tax amendments S. Tax amendments savings bonds. Tax amendments   A qualified U. Tax amendments S. Tax amendments savings bond is a series EE bond issued after 1989 or a series I bond. Tax amendments The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Tax amendments You must be at least 24 years old before the bond's issue date. Tax amendments For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. Tax amendments    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. Tax amendments Beneficiary. Tax amendments   You can designate any individual (including a child) as a beneficiary of the bond. Tax amendments Verification by IRS. Tax amendments   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. Tax amendments Qualified expenses. Tax amendments   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. Tax amendments   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Tax amendments   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Tax amendments Eligible educational institutions. Tax amendments   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the U. Tax amendments S. Tax amendments Department of Education. Tax amendments Reduction for certain benefits. Tax amendments   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Tax amendments Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). Tax amendments Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Tax amendments Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Tax amendments Any tax-free payments (other than gifts or inheritances) received for educational expenses, such as Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Tax amendments Any expense used in figuring the American Opportunity and lifetime learning credits. Tax amendments Amount excludable. Tax amendments   If the total proceeds (interest and principal) from the qualified U. Tax amendments S. Tax amendments savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. Tax amendments If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Tax amendments   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Tax amendments The numerator of the fraction is the qualified higher educational expenses you paid during the year. Tax amendments The denominator of the fraction is the total proceeds you received during the year. Tax amendments Example. Tax amendments In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. Tax amendments S. Tax amendments savings bond they bought in April 1997. Tax amendments They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. Tax amendments In 2013, they paid $4,000 of their daughter's college tuition. Tax amendments They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. Tax amendments They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. Tax amendments They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. Tax amendments Modified adjusted gross income limit. Tax amendments   The interest exclusion is limited if your modified adjusted gross income (modified AGI) is: $74,700 to $89,700 for taxpayers filing single or head of household, and $112,050 to $142,050 for married taxpayers filing jointly or for a qualifying widow(er) with dependent child. Tax amendments You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status. Tax amendments   Modified AGI, for purposes of this exclusion, is adjusted gross income (Form 1040, line 37, or Form 1040A, line 21) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion and deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for tuition and fees, Deduction for student loan interest, and Deduction for domestic production activities. Tax amendments   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. Tax amendments If you claim any of the exclusion or deduction items listed above (except items 6, 7, and 8), add the amount of the exclusion or deduction (except items 6, 7, and 8) to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. Tax amendments   If you have investment interest expense incurred to earn royalties and other investment income, see Education Savings Bond Program in chapter 1 of Publication 550. Tax amendments Recordkeeping. Tax amendments If you claim the interest exclusion, you must keep a written record of the qualified U. Tax amendments S. Tax amendments savings bonds you redeem. Tax amendments Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. Tax amendments You can use Form 8818 to record this information. Tax amendments You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. Tax amendments U. Tax amendments S. Tax amendments Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. Tax amendments S. Tax amendments Government. Tax amendments Taxation of interest. Tax amendments   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. Tax amendments You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. Tax amendments   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. Tax amendments Treasury bills. Tax amendments   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. Tax amendments They are generally issued at a discount in the amount of $100 and multiples of $100. Tax amendments The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. Tax amendments Generally, you report this interest income when the bill is paid at maturity. Tax amendments If you paid a premium for a bill (more than the face value), you generally report the premium as a section 171 deduction when the bill is paid at maturity. Tax amendments Treasury notes and bonds. Tax amendments   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. Tax amendments Maturity periods for Treasury bonds are longer than 10 years. Tax amendments Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. Tax amendments Generally, you report this interest for the year paid. Tax amendments For more information, see U. Tax amendments S. Tax amendments Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. Tax amendments For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. Tax amendments O. Tax amendments Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Tax amendments treasurydirect. Tax amendments gov/indiv/indiv. Tax amendments htm. Tax amendments For information on series EE, series I, and series HH savings bonds, see U. Tax amendments S. Tax amendments Savings Bonds , earlier. Tax amendments Treasury inflation-protected securities (TIPS). Tax amendments   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. Tax amendments For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. Tax amendments Bonds Sold Between Interest Dates If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. Tax amendments You must report that part of the sales price as interest income for the year of sale. Tax amendments If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. Tax amendments When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. Tax amendments See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. Tax amendments Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. Tax amendments But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. Tax amendments For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. Tax amendments Annuity. Tax amendments   If you buy an annuity with life insurance proceeds, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan, not as interest income. Tax amendments See chapter 10 for information on pension and annuity income from nonqualified plans. Tax amendments State or Local Government Obligations Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the United States, or any of their political subdivisions. Tax amendments Bonds issued after 1982 (including tribal economic development bonds issued after February 17, 2009) by an Indian tribal government are treated as issued by a state. Tax amendments Interest on these bonds is generally tax exempt if the bonds are part of an issue of which substantially all proceeds are to be used in the exercise of any essential government function. Tax amendments For information on federally guaranteed bonds, mortgage revenue bonds, arbitrage bonds, private activity bonds, qualified tax credit bonds, and Build America bonds, see State or Local Government Obligations in chapter 1 of Publication 550. Tax amendments Information reporting requirement. Tax amendments   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. Tax amendments This is an information reporting requirement only. Tax amendments It does not change tax-exempt interest to taxable interest. Tax amendments Original Issue Discount (OID) Original issue discount (OID) is a form of interest. Tax amendments You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer. Tax amendments A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. Tax amendments OID is the difference between the stated redemption price at maturity and the issue price. Tax amendments All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Tax amendments Zero coupon bonds are one example of these instruments. Tax amendments The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). Tax amendments See Discount on Short-Term Obligations in chapter 1 of Publication 550. Tax amendments De minimis OID. Tax amendments   You can treat the discount as zero if it is less than one-fourth of 1% (. Tax amendments 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Tax amendments This small discount is known as “de minimis” OID. Tax amendments Example 1. Tax amendments You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Tax amendments One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Tax amendments Because the $20 discount is less than $25, the OID is treated as zero. Tax amendments (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. Tax amendments ) Example 2. Tax amendments The facts are the same as in Example 1, except that the bond was issued at $950. Tax amendments The OID is $50. Tax amendments Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. Tax amendments Debt instrument bought after original issue. Tax amendments   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. Tax amendments If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. Tax amendments See Market Discount Bonds in chapter 1 of Publication 550. Tax amendments Exceptions to reporting OID. Tax amendments   The OID rules discussed in this chapter do not apply to the following debt instruments. Tax amendments Tax-exempt obligations. Tax amendments (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). Tax amendments U. Tax amendments S. Tax amendments savings bonds. Tax amendments Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). Tax amendments Obligations issued by an individual before March 2, 1984. Tax amendments Loans between individuals if all the following are true. Tax amendments The lender is not in the business of lending money. Tax amendments The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. Tax amendments Avoiding any federal tax is not one of the principal purposes of the loan. Tax amendments Form 1099-OID. Tax amendments   The issuer of the debt instrument (or your broker if you held the instrument through a broker) should give you Form 1099-OID, or a similar statement, if the total OID for the calendar year is $10 or more. Tax amendments Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. Tax amendments It also will show, in box 2, the stated interest you must include in your income. Tax amendments A copy of Form 1099-OID will be sent to the IRS. Tax amendments Do not file your copy with your return. Tax amendments Keep it for your records. Tax amendments   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. Tax amendments But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. Tax amendments Form 1099-OID not received. Tax amendments   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. Tax amendments gov that list total OID on certain debt instruments and have information that will help you figure OID. Tax amendments For the latest OID tables, go to www. Tax amendments irs. Tax amendments gov and enter “OID tables” in the Search box. Tax amendments If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. Tax amendments Nominee. Tax amendments   If someone else is the holder of record (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID. Tax amendments Refiguring OID shown on Form 1099-OID. Tax amendments   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. Tax amendments You bought the debt instrument after its original issue and paid a premium or an acquisition premium. Tax amendments The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). Tax amendments For information about figuring the correct amount of OID to include in your income, see Figuring OID on Long-Term Debt Instruments in Publication 1212. Tax amendments Refiguring periodic interest shown on Form 1099-OID. Tax amendments   If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates , earlier, for information about the treatment of periodic interest that may be shown in box 2 of Form 1099-OID for that instrument. Tax amendments Certificates of deposit (CDs). Tax amendments   If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. Tax amendments   This also applies to similar deposit arrangements with banks, building and loan associations, etc. Tax amendments , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. Tax amendments Bearer CDs. Tax amendments   CDs issued after 1982 generally must be in registered form. Tax amendments Bearer CDs are CDs not in registered form. Tax amendments They are not issued in the depositor's name and are transferable from one individual to another. Tax amendments   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. Tax amendments More information. Tax amendments   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. Tax amendments When To Report Interest Income When to report your interest income depends on whether you use the cash method or an accrual method to report income. Tax amendments Cash method. Tax amendments   Most individual taxpayers use the cash method. Tax amendments If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. Tax amendments However, there are special rules for reporting the discount on certain debt instruments. Tax amendments See U. Tax amendments S. Tax amendments Savings Bonds and Original Issue Discount (OID) , earlier. Tax amendments Example. Tax amendments On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. Tax amendments You are not in the business of lending money. Tax amendments The note stated that principal and interest would be due on August 31, 2013. Tax amendments In 2013, you received $2,508. Tax amendments 80 ($2,000 principal and $508. Tax amendments 80 interest). Tax amendments If you use the cash method, you must include in income on your 2013 return the $508. Tax amendments 80 interest you received in that year. Tax amendments Constructive receipt. Tax amendments   You constructively receive income when it is credited to your account or made available to you. Tax amendments You do not need to have physical possession of it. Tax amendments For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal. Tax amendments This is true even if they are not yet entered in your passbook. Tax amendments   You constructively receive income on the deposit or account even if you must: Make withdrawals in multiples of even amounts, Give a notice to withdraw before making the withdrawal, Withdraw all or part of the account to withdraw the earnings, or Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity. Tax amendments Accrual method. Tax amendments   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. Tax amendments Interest is earned over the term of the debt instrument. Tax amendments Example. Tax amendments If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. Tax amendments You would report the interest as follows: 2011, $80; 2012, $249. Tax amendments 60; and 2013, $179. Tax amendments 20. Tax amendments Coupon bonds. Tax amendments   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. Tax amendments It does not matter when you mail the coupon for payment. Tax amendments How To Report Interest Income Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2. Tax amendments You cannot use Form 1040EZ if your taxable interest income is more than $1,500. Tax amendments Instead, you must use Form 1040A or Form 1040. Tax amendments Form 1040A. Tax amendments   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. Tax amendments Your taxable interest income is more than $1,500. Tax amendments You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Tax amendments You received interest from a seller-financed mortgage, and the buyer used the property as a home. Tax amendments You received a Form 1099-INT for U. Tax amendments S. Tax amendments savings bond interest that includes amounts you reported before 2013. Tax amendments You received, as a nominee, interest that actually belongs to someone else. Tax amendments You received a Form 1099-INT for interest on frozen deposits. Tax amendments You are reporting OID in an amount less than the amount shown on Form 1099-OID. Tax amendments You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Tax amendments You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (see Bond Premium Amortization in chapter 3 of Publication 550). Tax amendments List each payer's name and the amount of interest income received from each payer on line 1. Tax amendments If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Tax amendments   You cannot use Form 1040A if you must use Form 1040, as described next. Tax amendments Form 1040. Tax amendments   You must use Form 1040 instead of Form 1040A or Form 1040EZ if: You forfeited interest income because of the early withdrawal of a time deposit; You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (see Bond Premium Amortization in chapter 3 of Publication 550); or You received tax-exempt interest from private activity bonds issued after August 7, 1986. Tax amendments Schedule B (Form 1040A or 1040). Tax amendments   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. Tax amendments Your taxable interest income is more than $1,500. Tax amendments You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Tax amendments You received interest from a seller-financed mortgage, and the buyer used the property as a home. Tax amendments You received a Form 1099-INT for U. Tax amendments S. Tax amendments savings bond interest that includes amounts you reported before 2013. Tax amendments You received, as a nominee, interest that actually belongs to someone else. Tax amendments You received a Form 1099-INT for interest on frozen deposits. Tax amendments You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Tax amendments You are reporting OID in an amount less than the amount shown on Form 1099-OID. Tax amendments Statement (2) in the preceding list under Form 1040 is true. Tax amendments In Part I, line 1, list each payer's name and the amount received from each. Tax amendments If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Tax amendments Reporting tax-exempt interest. Tax amendments   Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and on Form 1099-DIV, box 10. Tax amendments Add these amounts to any other tax-exempt interest you received. Tax amendments Report the total on line 8b of Form 1040A or 1040. Tax amendments   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. Tax amendments Do not add tax-exempt interest in the total on Form 1040EZ, line 2. Tax amendments   Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. Tax amendments These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Tax amendments Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Tax amendments    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. Tax amendments Form 1099-INT. Tax amendments   Your taxable interest income, except for interest from U. Tax amendments S. Tax amendments savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. Tax amendments Add this amount to any other taxable interest income you received. Tax amendments You must report all of your taxable interest income even if you do not receive a Form 1099-INT. Tax amendments Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. Tax amendments Your identifying number may be truncated on any paper Form 1099-INT you receive. Tax amendments   If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. Tax amendments See Penalty on early withdrawal of savings in chapter 1 of Publication 550. Tax amendments   Box 3 of Form 1099-INT shows the interest income you received from U. Tax amendments S. Tax amendments savings bonds, Treasury bills, Treasury notes, and Treasury bonds. Tax amendments Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. Tax amendments If part of the amount shown in box 3 was previously included in your interest income, see U. Tax amendments S. Tax amendments savings bond interest previously reported , later. Tax amendments   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. Tax amendments Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or Form 1040, line 62 (federal income tax withheld). Tax amendments   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. Tax amendments See chapter 28 for more information about investment expenses. Tax amendments   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. Tax amendments You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). Tax amendments To take the credit, you may have to file Form 1116, Foreign Tax Credit. Tax amendments For more information, see Publication 514, Foreign Tax Credit for Individuals. Tax amendments U. Tax amendments S. Tax amendments savings bond interest previously reported. Tax amendments   If you received a Form 1099-INT for U. Tax amendments S. Tax amendments savings bond interest, the form may show interest you do not have to report. Tax amendments See Form 1099-INT for U. Tax amendments S. Tax amendments savings bonds interest , earlier, under U. Tax amendments S. Tax amendments Savings Bonds. Tax amendments   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. Tax amendments Then follow these steps. Tax amendments Several lines above line 2, enter a subtotal of all interest listed on line 1. Tax amendments Below the subtotal enter “U. Tax amendments S. Tax amendments Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. Tax amendments Subtract these amounts from the subtotal and enter the result on line 2. Tax amendments More information. Tax amendments   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. 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