Tax Analysts provides news, analysis, and commentary on tax-related topics, including the latest developments affecting treatment of interest income.

Tax issues that touch on interest arise throughout the Internal Revenue Code. 26 USC 61(a)(4) specifically lists interest as an item to be included in gross income, and reg. section 1.61-7 provides further details regarding interest as a part of the recipient’s income. Other provisions of the tax code, however, modify the general rule. Interest received on obligations of a state or local government, unless the bond is a private activity bond or certain other types of bonds listed in section 103(b), is not included in income. Other examples of interest income and special rules for inclusion of interest are interest associated with pension plans, whether IRAs or Roth IRAs, original issue discount (OID) which is addressed in section 1272, imputed interest rules, and the unstated interest rules of section 483, which apply to certain sales or exchanges of property.

The identity of the taxpayer and the source of the interest received can also affect the treatment of interest. Exempt organizations must take into consideration the unrelated business taxable income (UBTI) rules of section 512(b) with respect to investment income, which includes interest received. Special rules may also apply to creditors, property owners, estates and various entity types.

Tax Analysts consistently and promptly publishes all relevant developments regarding tax issues associated with interest income.