Nominee interest income

[acitrola]

A client will be receiving a 1099-INT in 2025.  However, the interest will be split 50/50 with her sister.

I understand my client has to send the IRS a 1099-INT with her sister's information and her share of the interest.

My question is as follows:  does my client only claim half of the 1099 interest on her tax return?  That seems to lead to a letter from the IRS regarding the other half?

I seem to remember there was once a way to claim all the interest, and then deduct "nominee interest" on Schedule B.

Comments please!

Thank you!

[rbynaker]

If you double-click on the line in the Sch B worksheet it should take you to the Additional Information screen where you can enter the nominee amount.  Then it should present as you expect on the Sch B.

Rick

[Just-Lisa-Now-]

"I understand my client has to send the IRS a 1099-INT with her sister's information and her share of the interest."

No, your client doesnt issue a 1099INT to the other person.

[rbynaker]

While I suspect the compliance rate is well under 5%, here's what the IRS instructions say:

1099 General Instructions 

Nominee/middleman returns. Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts allocable to each. You must also furnish a Form 1099 to each of the other owners.

The only one I've ever prepared is with me as the Payer on an account where I'm primary.

[Just-Lisa-Now-]

Wow, Ive neve done that or seen anyone come in with a nominee 1099INT from someone else, I do have multiple people that report interest that  was nomineed to them by a joint account holder.

[BobKamman]

Actually, this is what the IRS instructions for 1099-INT say:

Report only interest payments made in the course of your
trade or business including federal, state, and local government
agencies and activities deemed nonprofit, or for which you were
a nominee/middleman.  [Emphasis added]

https://www.irs.gov/pub/irs-pdf/i1099int.pdf 

[rbynaker]

---

@BobKamman wrote:

Actually, this is what the IRS instructions for 1099-INT say:

Report only interest payments made in the course of your
trade or business including federal, state, and local government
agencies and activities deemed nonprofit, or for which you were
a nominee/middleman.  [Emphasis updated]

https://www.irs.gov/pub/irs-pdf/i1099int.pdf 

---

[Terry53029]

I totally agree with Rbnaker the IRS instruction clearly state to  issue a 1099 if in your trade /business OR

 you were a nominee/middleman. Having said that I do not follow the irs instructions, and I doubt very

many do I just split it on the schedule B, and have never had any blowback from IRS

[BobKamman]

That's certainly the way IRS would like you to read the statute.  However, IRS also approved the Regulation that says, "a person shall not be considered to be a nominee as to any portion of an interest payment which is actually owned by another person whose name is also shown on the information return filed by the payer or nominee with respect to such interest payment."  It's not uncommon for two names to be on an account, but the bank to use only one SSN on a 1099.  That's not a nominee distribution.

Furthermore, Section 6049 says "For purposes of subsection (a), the term “interest” does not include—
(A)interest on any obligation issued by a natural person."  So even if he uses the money in his Schedule C business, John does not have to issue his sister Mary a 1099 for the interest he paid her on the money she loaned him.  Why would Congress exclude "natural persons" from reporting interest on direct transactions, but include them when they are only indirect agents?

I agree, IRS has too much work to do already, no one is going to Leavenworth if nominees in these circumstances don't file 1099s.  

[George4Tacks]

@acitrola Is this a joint account with both names on it?

-OR-

Is this one account with one name and an understanding that they share the interest?