Two 1099-INTs were received for a Series H/HH bond that was redeemed. One was for the amount of interest received in 2022. The second 1099-INT only has an amount in the "Accrued Interest Reported" section of box 3. Is there suppose to be an offset for it

[Lin1]

Two 1099-INTs were received for a Series H/HH bond that was redeemed. One was for the amount of interest received in 2022. The second only has an amount in the "Accrued Interest Reported" section of box 3, of the 1099-INT. Is there suppose to be an offset for it?  Entering the amount into the "Accrued Interest box" in the "Adjustments to Federal Taxable Interest" section of the "Interest Income" page of the "ProConnect" software of course makes it a negative number on Schedule B. 

Should the client have received an additional 1099-INT showing the original purchase price along with the breakdown of accrued interest being separate at the time of the 2022 redeemption? I understand that the 1099-INT with the accrued amount must be put on the tax return but it seems there should be something to show that the interest beyond the small 2022 interest payment on the first 1099-INT should be on a separate or even the same 1099-INT as well but the client said she did not receive anything else for it.  With the Series H/HH the interest payments of the bond are made every six months and that interest is taxable annually until it is redeemed or reaches maturity. So as I understand it the "accrued interest reported" amount is just a credit for the amounts that you have previously paid taxes on over the years that you received the interest payments; that is why it shows as a negative number on the Schedule B Interest Income report.  However, the treasury department apparently does not send a 1099-INT statement showing that you redeemed the bond (I realize the face value original purchase price would not be taxable). 

Why would they give you credit under "accrued interest reported" if there isn't something that you are expected to report as a positive amount and this balances it out?  

[BobKamman]

My copy of IRS 1099-INT says that Box 3 is " Interest on U.S. Savings Bonds and Treasury obligations."  My guess is that Series E bonds were exchanged for the Series H bond, so that all accrued interest on the E bonds is not taxable until the H bond is cashed.  

[Lin1]

I agree that it was probably due to exchange of Series E/EE or even possibly matured H (client does not know since her spouse who purchased them is recently deceased and she never knew), however, shouldn’t there be a 1099-INT issued with the deferred interest from the previously held E/EE bonds exchanged for HH/H that would make the interest taxable if the interest was truly deferred and not instead reinvested into HH/H bonds?   

The client received nothing from the Dept of Treasury that would require her to include the possible deferred interest in her interest income.  She only received a 1099-INT from the Dept of the Treasury in the amount of $200 in box 3 for the portion listed as “Annual Interest Paid” that was for interest she received in 2022. She received a second 1099-INT from the Dept of the Treasury in 2022 in the amount of $25,000 in box 3 for “Accrued Interest Reported”.  If I put the amount listed as “Accrued Interest Reported” into the box worded as "Accrued Interest” in the "Adjustments to Federal Taxable Interest" section of the "Interest Income" page of the "ProConnect" software it makes it a negative number on Schedule B. Therefore, it only shows a credit and there isn’t a 1099-INT to which she would pay taxes on the redeemed bond.  It seems to me that there should be something to say you redeemed this bond for say $35,000 but you have already paid taxes on $25,000 so you are required to pay taxes on the remaining $10,000 so include that in your Interest Income.  Obviously not in that language.  Shouldn’t the 1099-INT showing the amount of “Annual Interest Paid” have been for $10,000 rather than $200?  If the 1099-INT with the amount of $25,000 in box 3 for “Accrued Interest Reported” had not been sent, I would not have had a clue that she even redeemed the bond (she didn’t mention it until I told her that the accrued amount isn’t given until the bond is mature or redeemed).  It originally appeared that the only payment she received was the usual 1099-INT “Annual Interest Paid” that they had received for years, at least until I questioned her about the second 1099-INT. 

I have researched this matter on the internet and it seems other preparers have had the same question.  Where is the 1099-INT to report the redeemed bond as taxable interest?  Should I be putting the “Accrued Interest Reported” in a different box? If it doesn’t say “Annual Interest Paid” then how would I justify putting it in that box?  What is the precedence if that is the case?  

[BobKamman]

You have the advantage of being able to see the 1099-INT.  Doesn't sound like anything I have seen, but then you're dealing with the US Treasury.  "Accrued Interest Reported" is used when someone buys corporate bonds and has to pay the accrued interest -- for example, if interest of $600 is paid every six months, but the bond is bought two months after the last payment date, the buyer would pay the seller $200 in accrued interest and deduct that, against the $600 interest payment collected later.  

[Lin1]

Yes, Nominee Interest but this is not the case in this situation.  I suppose I will contact the Department of the Treasury to ask why they did not provide a 1099-INT or perhaps a 1099-OID for the redeemed bond or if the "Accrued Interest Reported" should be handled differently than it is directly reported.

I thank you for your assistance.  Sharing knowledge is a true kindness.