Page 1 of 1

Can I split interest from proceeds on 1099-B?

Posted: Tue Feb 26, 2019 11:11 pm
by newacct
My company was sold and stock we received cash for shares. A certain percentage of the payment for the shares was set aside in an escrow account for an amount of time, after which it was released to us. During this time, some interest was earned in the escrow account, which was included in the money released at the end. I received a 1099-B which has a "proceeds" amount equal to the amount released to us, including interest. I did not receive a 1099-INT. It seems that this is normal as this article says:
But while IRC ยง483 and associated regulations require escrow recipients to impute and report a part of any installment proceeds received as interest, there is no requirement for buyers to calculate imputed interest or file any interest information reports to the IRS. In fact, the need to report imputed interest on funds held in escrow as security, or to guarantee performance, is specifically exempted under 26 CFR 1.6049. Nonetheless, payment administrators typically provide escrow recipients form 1099-B, which includes the full amount of the escrow release.
So for a hypothetical example, suppose $10,000 of the stock sale was placed into escrow, and it earned $100 of interest, and $10,100 was distributed to me from the escrow account, and they gave me a 1099-B with "proceeds" of $10,100. Is it correct if I include $100 on my Form 1040 line 2b (taxable interest), and $10,000 as proceeds on Form 8949 and Form 1040 Schedule D? If so, I am afraid that IRS will flag it for audit because they get a 1099-B with $10,100 but see only $10,000 on my Form 8949 / Form 1040 Schedule D.

Re: Can I split interest from proceeds on 1099-B?

Posted: Tue Feb 26, 2019 11:46 pm
by nalor511
If these are long term capital gains, you will come out ahead by them being lumped into proceeds rather than broken out as interest. If they are short term, you'll be the same, no worse or better than if it were broken out as interest. I don't see why you would want to bother.

Re: Can I split interest from proceeds on 1099-B?

Posted: Wed Feb 27, 2019 10:12 am
by newacct
I want to bother because I want to file my taxes correctly. The article quoted above said that I (the recipient) must report interest.

Re: Can I split interest from proceeds on 1099-B?

Posted: Wed Feb 27, 2019 11:52 am
by aspiringboglehead
As you suggest, and contrary to what many people seem to assume, a 1099 does not dictate your tax liability; it is simply a report. I don't have statistics on the risk of an audit, but, particularly if you explain what you're doing in an attached letter, it seems unlikely that what you suggest would lead to any problems. Obviously, that isn't legal advice.

Re: Can I split interest from proceeds on 1099-B?

Posted: Wed Feb 27, 2019 12:41 pm
by kaneohe
One thing that is sometimes done when "incorrect" tax forms are received is to document them as received by you/IRS and then to make a corrective line negating part of the original form and then reporting the correction in the appropriate place. That way there is a line item corresponding to the original tax form.

Ex: 10100 reported on 1099B. You report 10100 on 8949. Then report <100> on next line as "interest earned reported on Sch B (or 1040 line 2".