The Waterbury Democrat., 1944-01-31
YOUR FEDERAL INCOME TAX
No. 23
INTEREST INCOME

Interest received from notes, bonds, bank deposits, and other sources is taxable, with certain ex- captions, and must be reported aS income on your tax return.
 Wholly tax-exempt interest in- cludes interest on (O obligations of a State, Terrtoriy, or political sub- division thereof, or of the District of Columbia, or United States pos sions; (b) obligations issued prior to March 1, 1941, under the Federal Farm Loan Act, or amendments to the Act; Co obligations of the United States issued on or before September 1, 1917; and (d) Treas ury notes, Treasury bills, and Treas ury certificates of indebtedness issued prior to March 1, 1941.
 Certain other interest is partially tax exempt. Interest on United States savings bonds and Treasury bonds issued prior to March 1, 1941, is of this class. Interest on such bonds is exempt from normal tax and victory tax, and on holdings of such bonds up to $5,000 principal amount it is exempt from Surtax also; that is, interest on such bonds held in excess of 5000 principal amount must be included in surtax net income for computation of sur- tax.
 Interest on obligations issued on or after March 1, 1941, by the United States or any agency or tnStru- mentally of the United States, is subject to normal tax, surtax, and victory tax. However, in the case of obligations issued at discount, for example, war savings bonds, where income is reported on the cash basis, the interest may be reported each year as accrued (shown In a table on the bonds as the increase in the redemption value) or 1t may be de- ferred until the bonds are cashed or come due, when 1t may all be in- cluded as income in that year. (Once a taxpayer has elected to accrue the discount he cannot change to the other method, without the per- mission of the Commissioner of in- ternal Revenue.)
 OII CCIL LdUl UOL1Oo W1OIl O bdA II CC covenant" the corporation issuing the bonds pays part of the income tax on such bond interest @ per cent of the total interest earned by the bond). A person receiving in terest on such bonds is entitled to a credit of the amount of income tax paid by the corporation in com putting his tax due. The amount Of such credit for tax paid at the source Is entered in item IS, page 4, of the return Form 1040.
 Interest on coupon bonds is con- sidered received when the coupon becomes due and payable, irrespec- tive of when the taxpayer cashes or presents the coupon for payment (unless. of course, the issuer of the bonds is in default and no funds are available to meet the interest," Interest on savings and deposit ac. counts is considered as received wher 1t has been credited to the account of the taxpayer, subject to his with drawal, irrespective of whether hI withdraws 1t or not. Other interes is considered as received when pait or made available to the holder O the obligation.
 Sometimes notes are sold at dis count and redeemed at the fac amount. While such discount is ire quently considered interest in ch commercial sense, for tax purpose it represents a gain from sale o exchange of property and is not rA ported as ir&erest. but as 6 gs
 under item 6 on the face of tn return.