Consolidated Form 1099 can report several different types of bond income and each one receives specific tax treatment. This can be confusing for preparers because, although you have the summary information, you need to know what details to pull from to make sure you are accurately reporting the income.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: Does the broker report accretion on the consolidated Form 1099 each year? A: Some brokers do and some don’t. It would be beneficial to review the details in the consolidated Form 1099-B package to verify.
Q: Does the broker report amortization on the consolidated Form 1099? A: No, the taxpayer must make the election by simply claiming the deduction on the return and attaching a statement. Generally, there is a check box in the software to help with the election.
Q: If a taxpayer purchased a tax-exempt bond at premium and must amortize the premium, then sell it due to maturity, the taxpayer will always have a loss, correct? A: No, there wouldn’t be a deductible capital loss because the bond’s basis must be reduced by the amortized premium.
Q: Do the banks issue a Form 1099-INT, Interest Income, on CDs every year? A: Yes, if the interest income is at least $10, the bank will issue a Form 1099-INT.
Question: Frank and Mercy divorced on Jan. 11, 2018, but continued to live together through 2021. Frank paid alimony to his ex-spouse in 2021. Does Mercy pay taxes on the alimony, and can Frank deduct the alimony payments?
Answer: No. Mercy will not pay taxes on the alimony payments and Frank will not be able to deduct the payments. Generally, alimony payments under pre-2019 divorce decree are deductible by the payer and includable as income by the recipient. However, there are requirements that must be met for these to occur. One of the requirements is that the payee and the payer cannot be members of the same household at the time the payments were made. Because the two were still living together at the time, these payments will not count as taxable income to Mercy and will not be deductible for Frank.
The IRS announced it is caught up on its backlog and will likely be sending out balance-due notices to taxpayers by the end of the month. Are you prepared to get those calls? Do you have the credentials to help your clients by representing them in front of the IRS agents?
One way to do that is to earn an AFSP – Record of Completion or enrolled agent designation. NATP recently got together with two representation experts to discuss the pros and cons of adding IRS representation to your business offerings, how to go about adding these services and critical mistakes to avoid when starting out.
Another key topic covered in the discussion is preparer due diligence audits. With the IRS cracking down on preparer due diligence, it’s more important than ever to stay informed and ensure that you’re meeting all of the necessary requirements. Our panel of experts will be sharing their tips and best practices for meeting these requirements, helping you avoid any potential penalties or fines.
Here’s a quick five-minute preview of the roundtable discussion:
To watch the full discussion for free, simply go to natptax.com/taxestoday. You’ll be asked to create a free account if you don’t already have one, then will receive access to watch the video.
Full video transcript Sam Strong: Thanks for joining us again today for Taxes Today. I’m Sam Strong with NATP, and I have the pleasure of hosting this conversation. Today, I am joined by a longtime NATP member, New Jersey chapter leader, and NATP speaker Jason Daughtry. Jason is an enrolled agent, a self-employed financial advisor, and owner of Affirmative Financial Group. I’m also joined by Eric Green, another East Coaster from Connecticut. Eric is a tax attorney, author, law firm partner and founder of Tax Rep Network. Tax Rep Network is a partner of NATP. We’ll get into more of what they do a little bit later, but welcome gentlemen. Jason Daughtry: Hello. Hello. Eric Green: Thank you. Sam Strong: Yes. Today’s topic of discussion is tax representation. How did you get into it? What does it entail and what should tax professionals expect to see this year? So we’ll start with you, Jason. Can you start and tell us what led you to specialize in tax representation? Jason Daughtry: Honestly, for me it kind of… well, to be honest with you, Hurricane Sandy really, really did it. Eric, you’re from the East Coast, so I’m sure you remember Hurricane Sandy, and it was a lot of good people that ended up in bad situations, not just from a tax stand put, but life and those people that might’ve been honest on payment plans or whatever it may be, or lost documents, ended up in some real hot water, or at least in their mind, real hot water with the IRS. And amazingly, my office was not hit. It was like Forest Gump when the whole place around him went under, but except his boat, it was like my house and office was not hit. Everyone came to us. And so we started helping a lot of people. I mean, most people were currently not collectible and stuff like that, but it kind of opened my eyes that there’s a lot of people out here that need this kind of help. So that’s what pretty much got me into it and it’s just been rolling pretty much ever since. Sam Strong: And Eric, you presented cases in front of the US tax court and other federal courts. What was your journey to get there? Eric Green: Well, sort of similar to Jason, I was an estate planner 22 years ago, and I had clients start get into trouble. And what I found is as I help them, you’d think people would keep their tax issues to themselves. No, no, no, no, no, no. They start referring friends and everything else, and today it’s basically all I do is representation. But what happens is you start helping people, and back then, I’m going to show my age, back then there were things at the IRS called human beings and you could talk to them and they actually trained me to do this. You go meet with the revenue officers and say, “Look, you got to go do this, you got to do that today.” One of the challenges I think for new EA and CPAs in this area is they need to find training because you’re dealing with a more automated IRS, fewer local offices to deal with. But what happened for me at least, is you start kind of through the process, you’re handling an audit, you end up in appeals, and at some point you have to file in tax court, although I don’t do the heavy litigation, I have partners that do that. But it was sort of just I’d say trial by fire, but it wasn’t really fire, it was just you learn by doing. Sam Strong: Sink or swim almost. So Jason, many NATP members don’t have a designation, or it might only have their AFSP. In your experience, how did earning your enrolled agent designation elevate your practice? Jason Daughtry: Besides the money? Sam Strong: Good one. Jason Daughtry: Well, I could say it allowed me to just do a lot more and help in a different way. I can’t give the EA credential all the credit because actually my wife coming on board, actually her taking over all the tax preparation allowed me to focus more on representation to the point like Eric just mentioned, I pretty much do all representation now.
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