New for 2016: changes to Form 1099-INT and Form 1099-OID.

• Author: Feigen, Jeremy

In recent years, the IRS has grown more technologically sophisticated. Practitioners may have noticed an increase in the number of notices that clients receive--many of which can be attributed to Form 1099 "matching." The experienced taxpayer knows that Forms 1099 do not always paint the entire picture. The Service is aware of this and has been taking steps to ensure more accurate reporting while simultaneously decreasing processing times--a result beneficial to taxpayers and the IRS alike, hopefully meaning fewer notices.

As part of this effort, taxpayers will be receiving additional information in 2016 relating to bond premiums on Forms 1099-INT, Interest Income, and 1099-OID, Original Issue Discount. One major change would be the addition of "Bond premium on Treasury obligations" to box 12 of the 2016 Form 1099-INT. Previously, box 12 was left blank.

The second noticeable change is the reporting of "Bond premium" in box 10 of the 2016 Form 1099-OID. In the past, box 10 was a "State" input. This has been pushed to box 11.

So why are these additional boxes helpful, and what are the various nuances that preparers should still be aware of?

Sec. 171

Normally, brokers assume that taxpayers wish to amortize the amount of bond premium over its life. However, as stated in Regs. Sec. 1.6045-1(n)(5) (ii)(A), a taxpayer can notify a broker in writing that he or she does not want to amortize bond premiums. In this case, box 12 should be left blank. Taxpayers may not want to amortize bonds if the broker has not been tracking bonds, or if the security is not covered for reporting purposes, and they do not want to manually track the amortization.

Covered Securities Only

The bond premium amortization allocable to the interest paid during the tax year that is reported on Forms 1099-INT and 1099-OID will be for covered securities only. Covered...