ira cd double tax
I have a unique problem here which is not easily understandable. I have an IRA cd at a bank with maturity in March. On the year end report the bank shows accrued interest of $9000. This is reported to the IRS with form 5498. I then pay tax on my RMD taking into account the FMV which includes this $9000. Then the following year the bank shows the normal posting of $12,000. This amount is added to the FMV and again reported to the IRS. I have already paid tax on the $9000 portion of that $12,000 posting. This means that I am paying tax twice on that $9000. The IRS agrees with me but says that the bank is directly responsible for correcting this problem. It seems to me that if the bank considers that $9000 as part of the FMV on 12-31 then it should only show $3000 the following year when they show the normal interest at maturity. I have also researched this thoroughly and find that not all people agree. In other words I am not getting 100% verification. However, I have presented this problem to the University of Pittsburgh economics dept and talked to a professor that teaches banking and he agrees with me. There seems to be some sort of cover-up.
What I need is someone that has come up with this before or a real knowledgeable person that has realized this situation.
I have researched this problem and I really need some dedicated person to verify this.
Permalink Submitted by Alan Spross on Tue, 2008-08-12 19:39
Did you see my reply to your prior post? And the follow up question?
Permalink Submitted by Jose Morales on Wed, 2008-08-20 23:55
I believe the confusion is on your part (original poster). If accrued interest is being shown on your 5498 then I am going to guess that your bank provides a combined Fair Market Value Statement and 5498, because a 5498 itself would not list accumulated interest. This is because accumulated interest in an IRA account would not be reportable or taxable and there is no such “accumulated interest” box on the 5498. You should not be reporting the accumulated interest on your IRA accounts at all.
Another clue that this is occuring is your statement that you received a 5498 at year end (january) and then another in March. I know several banks that do this although it is more common that they only send a second 5498 in March if there has been any reportable activity in the IRA between January and the tax filing deadline.
Are you using a professional tax preparer when you file your taxes? Sometimes the expense of hiring one can be offset by the money you save by being prevented from making mistakes such as yours.