PA-40 Reporting Issue: Accrued Market Discount on U.S. Treasury Note in ProConnect

[BFlinner]

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?

[Accountant-Man]

In a normal, no accrued interest or Sch D return, federal B will always be different than PA B.

Bank interest $10, US interest $100. Federal B says $110, PA B says $10.

The rest doesn't matter.

[BFlinner]

Thank you for your response, yes we are aware of the difference between taxable interest for Federal and PA.  We have spoken with technical support multiple times and they said there is no problem the way it is being reported.  We are new to ProConnect and were UltraTax users for decades.  We entered the 1099-B in question in our 2023 UltraTax software and are getting a different output than ProConnect - we are getting what we expected to see.  I think we decided to paper file and will complete the form using a fill in pdf.

[George4Tacks]

There are overrides in ProConnect. I am not sure what you are seeing vs what you expect to see. Make ProConnect present what you expect to see.