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ACC 443 B: Federal Income Taxation

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South-Western, Federal Taxation 2017: Comprehensive; William A. Raabe, William H

On page 4-14, the text says that, when a bond is sold between interest payment dates, the interest for the period between the dates must be allocated between the buyer and the seller. Also, on page 14-10, the text indicates that a taxpayer may elect to include interest on savings bonds in income using the accrual method rather than the cash basis generally allowed. Finally, on page 14-7, the text states that a cash basis taxpayer must report income when it is received by an agent of the taxpayer.

1- The interest paid on a bond sold between interest dates will be reported on Form 1099-INT to the purchaser of the bond, and so will show interest paid to the purchaser in excess of the amount includible in income by the purchaser. How does the purchaser of a bond between interest dates report the interest shown on the Form 1099-INT in this circumstance?

2- All the interest on a savings bond is reported to the holder on Form 1099-INT for the year the bond is redeemed, even if the holder accrued interest income during prior years, and so will show interest paid to the holder in excess of the amount includible in income by the holder. How does the holder of a savings bond who accrued interest income on the bond in prior years report the interest shown on the Form 1099-INT in this circumstance?

3- In the case of a person holding a bond as nominee (a form of agency) for the true owner, the Form 1099-INT will be issued to the nominee, even though the interest income is taxable to the true owner. How does the nominee report the interest shown in the Form 1099-INT in this circumstance?

Please answer each question in complete sentences, and cite the title and number of the IRS publication or form/instruction where you found each answer, and the page number on which the answer is found. Use your own words in the answer do not copy the IRS language. Spelling and grammar count. This assignment is worth 5 points.

This assignment is due Wednesday, September 21, 2016, at 6 pm.

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