reporting tax-exempt interest


F

fdashiell

I don't want to disclose my tax-exempt interest income (none
from private activity bonds, which might trigger AMT). I
have no social security income. My tax is not affected by
my tax-exempt interest income.

Is it true that my tax-exempt interest income is not
reported to the IRS on any 1099's? This would seem to imply
that there is no automated cross checking for this item. If
I don't disclose it on Line 8a of Form 1040, do I increase
the likelihood of an audit?

I can't see why the IRS would want to audit me for that
reason alone --- they would not collect a tax deficiency
from me.

.... Fred

Moderator:
U.S. citizens amd some other individuals are required to
pay U.S. Federal Income taxes on all of their income. That
means "If you are meet the requirements for filing a U.S.
tax return, you must disclose all of your income. To do
otherwise is tax evasion.

For many years I had between $1,500 and $10,000 in income
that was not reported to the IRS by the people who paid
me. I reported every penny of it and took every penny of
expenses that was related to that income. God bless
Section 179.

When you play the audit lottery, winners live in fear and
losers learn what hell is like.
 
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Paul Thomas, CPA

I don't want to disclose my tax-exempt interest income
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?
 
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S

Seth Breidbart

I don't want to disclose my tax-exempt interest income (none
from private activity bonds, which might trigger AMT). I
have no social security income. My tax is not affected by
my tax-exempt interest income.

If
I don't disclose it on Line 8a of Form 1040, do I increase
the likelihood of an audit?

I can't see why the IRS would want to audit me for that
reason alone --- they would not collect a tax deficiency
from me.

Moderator:
U.S. citizens amd some other individuals are required to
pay U.S. Federal Income taxes on all of their income. That
means "If you are meet the requirements for filing a U.S.
tax return, you must disclose all of your income. To do
otherwise is tax evasion.
Even when he's "evading" exactly $0.00 in taxes?
For many years I had between $1,500 and $10,000 in income
that was not reported to the IRS by the people who paid
me. I reported every penny of it and took every penny of
expenses that was related to that income. God bless
Section 179.
But that was taxable income, right?
When you play the audit lottery, winners live in fear and
losers learn what hell is like.
Hell is paying 100% penalty on $0.00 of taxes?

Seth
 
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C

cagauss

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?
 
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B

Barry Margolin

cagauss said:
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.
 
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C

cballard

cagauss said:
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?
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
 
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R

Rich Carreiro

cagauss said:
The fact that a 1099 is not required casts some doubt that
disclosure can actually be required
Where do you get *that* idea from?

To wit:
* 1099-INT isn't required to be issued for interest of
under $10, 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 $600,
but the law *requires* you to report that income on
your return.
[I could keep going in this vein...]
(otherwise there would be a 1099 requirement).
That's rather faulty "logic".
 
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T

Taxbert

I don't want to disclose my tax-exempt interest income (none
U.S. citizens amd some other individuals are required to
pay U.S. Federal Income taxes on all of their income. That
means "If you are meet the requirements for filing a U.S.
tax return, you must disclose all of your income. To do
otherwise is tax evasion.

For many years I had between $1,500 and $10,000 in income
that was not reported to the IRS by the people who paid
me. I reported every penny of it and took every penny of
expenses that was related to that income. God bless
Section 179.

When you play the audit lottery, winners live in fear and
losers learn what hell is like.
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
 
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C

cagauss

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.
 
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T

TxSrv

cagauss said:
...
But as a practical matter, again, why would they audit
(or prosecute) if the correct tax amount is paid...
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.
I don't want my mortgage lender to see it.
Why don't you want them to see that you have additional
assets/earnings beyond the taxable items you report on 1040?
But I resent the requirement. I don't want my ex-wife
to see it.
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.
I don't like the idea of the IRS providing
information to other entities. Even if it is all legal.
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.
 
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D

DF2

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

cagauss

Thanks. I now have a better understanding.

.... Fred
 
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T

TxSrv

DF2 said:
...
I am sure you are wrong about that one. They routinely
provide the information to many other governments.
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.
 
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L

LTSLLC

Realistically, if it is tax exempt interest income that
doesn't change the amount of tax due, owed, or unnpaid, then
there is no real penalty against the taxpayer for not
reporting it.

The IRS will not waste what few resources it has to audit
this guy. For what purpose? If there is no chance of the
tax-exempt interest income increasing this taxpayer's tax,
then the IRS will not pursue the issue.

When I worked at the IRS, I often could not get my managers
to approve opening audits on related taxpayers or related
tax years that had potential tax increases of thousands of
dollars!!! And you think they'll audit this guy when it
won't make a bit of difference in the tax due, owed, or
unpaid?

It ain't gonna happen.

Rudy
www.LizcanoTaxServicesLLC.com
 
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