On page 4-14 (Section 4-3b), the text says that, when a bond is sold between interest payment dates, the interest for the period between the dates must be allocated between the buyer and the seller. Also, on page 4-10 (Section 4-2c), the text indicates that a taxpayer may elect to include interest on savings bonds in income each year using the accrual method rather than using the cash basis generally used to recognize income only at maturity. Finally, on page 4-16 (Section 4-3c), the text states that a taxpayer must report income when it is received by an agent of the taxpayer.

The interest paid on a bond sold between interest dates will be reported on Form 1099-INT to the purchaser of the bond, and will report the amount of interest for any payment made after the sales date as being paid entirely to the purchaser. Accordingly, the interest shown on the Form 1099-INT for the year of purchase will exceed the amount that is includible in income by the purchaser. The amount shown on the Form 1099-INT will also be reported to the IRS, which try to will match this amount to the taxpayers return. How does an individual purchaser of a bond between interest dates report on his or her Form 1040 the interest shown on the Form 1099-INT in this circumstance, so that the return matches the Form 1099-INT but only the correct amount of interest is taxed? Again, be specific, as if you were telling a taxpayer exactly what to write on the forms and where.

All the interest on a savings bond is reported to the holder on Form 1099-INT for the year the bond is redeemed, even if the holder accrued interest income during prior years. In this circumstance, the Form 1099-INT will show interest paid to the holder in excess of the amount that is includible in income by the holder in the year of redemption. The amount shown on the Form 1099-INT will also be reported to the IRS, which try to will match this amount to the taxpayers return. How does an individual holder of a savings bond who accrued interest income on the bond in prior years report on his or her Form 1040 the interest shown on the Form 1099-INT in this circumstance, so that the return matches the Form 1099-INT but only the correct amount of interest is taxed? Again, be specific, as if you were telling a taxpayer exactly what to write on the forms and where.

In the case of a person holding a bond as nominee (a form of agency) for the true owner, the Form 1099-INT will be issued to the nominee, in his or her own name, even though the interest income is taxable only to the true owner. The amount shown on the Form 1099-INT will also be reported to the IRS, which try to will match this amount to the nominees return. How does an individual nominee report on his or he Form 1040 the interest shown in the Form 1099-INT in this circumstance, so that the return matches the Form 1099-INT but the nominee is not taxed? Again, be specific, as if you were telling a taxpayer exactly what to write on the forms and where. Does the nominee have any other reporting obligation in this circumstance?