A U.S. Treasury note matured and was reported on a 1099-B with an adjustment to basis for accrued market discount. On the 1040, everything flows correctly:

• Sch D/Form 8949 shows proceeds, cost, and the accrued market discount basis adjustment, resulting in net gain/loss of zero.
• Sch B properly reports the accrued market discount as interest income.

PA-40 Issues & Concerns:

1. PA-40 Schedule A (Interest):

   • Should start with federal interest income but excludes the accrued market discount from Sch B.
   • I would expect to see it included in the federal interest income and coded as U.S. obligation income (PA-exempt).
   • The net number is correct as reported, but it doesn’t align with Federal Sch B, which could raise red flags.

2. PA-40 Schedule D (Dispositions):

   • Fails to reflect the basis adjustment, it is reporting a difference between gross sales price and cost basis but is leaving the gain/loss column blank.
   • Since no PA schedule reconciles this, it doesn’t foot, making it look incorrect despite the taxable income being accurate.

Concern:

These inconsistencies could trigger a PA notice, requiring unnecessary time to resolve and potentially affecting client perception. Has anyone found a clean workaround for this, or should I attach a reconciliation statement to preempt a notice?