Question about a tax implications of a foreign CD, with interest payable at a later date

[John Bliss]

In 2012, I opened a CD in India (NRE fixed deposit) for a term of 10 years. I elected to compound the interest, and not receive quarterly interest payments. My question is: Do I have to report the interest income on my 2012 tax return, even though I have not received the interest payment? Thanks

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[Alan]

On 4/7/13 8:37 PM, John Bliss wrote:
> In 2012, I opened a CD in India (NRE fixed deposit) for a term of 10 years. I elected to compound the interest, and not receive quarterly interest payments. My question is: Do I have to report the interest income on my 2012 tax return, even though I have not received the interest payment? Thanks
>

You report interest income either when you receive it or when the bank
credits your account AND you can withdraw it. So.... if the bank is not
going to credit your account and give you access to the interest until
the end of the 10 year period, there is no interest income to declare
until the end of the 10 year period.

--
Alan
http://taxtopics.net

[Rich Carreiro]

Alan <temp...@vacationmail.com> writes:

>On 4/7/13 8:37 PM, John Bliss wrote:
>> In 2012, I opened a CD in India (NRE fixed deposit) for a term of 10 years. I elected to compound the interest, and not receive quarterly interest payments. My question is: Do I have to report the interest income on my 2012 tax return, even though I have not received the interest payment? Thanks
>
>You report interest income either when you receive it or when the bank
>credits your account AND you can withdraw it. So.... if the bank is
>not going to credit your account and give you access to the interest
>until the end of the 10 year period, there is no interest income to
>declare until the end of the 10 year period.

Are you sure about that? I've not read Pub 1212 in
some time, but I believe that CDs with a term of
longer than one year that do not give you access to the
interest until maturity are treated as zero-coupon bonds
and thus the holder is required to report OID annually.

--
Rich Carreiro rlc-...@rlcarr.com

[ira smilovitz]

On Monday, April 8, 2013 4:18:10 AM UTC-4, Rich Carreiro wrote:
> Alan <temp...@vacationmail.com> writes:
>
>
>
> >On 4/7/13 8:37 PM, John Bliss wrote:
>
> >> In 2012, I opened a CD in India (NRE fixed deposit) for a term of 10 years. I elected to compound the interest, and not receive quarterly interest payments. My question is: Do I have to report the interest income on my 2012 tax return, even though I have not received the interest payment? Thanks
>
> >
>
> >You report interest income either when you receive it or when the bank
>
> >credits your account AND you can withdraw it. So.... if the bank is
>
> >not going to credit your account and give you access to the interest
>
> >until the end of the 10 year period, there is no interest income to
>
> >declare until the end of the 10 year period.
>
>
>
> Are you sure about that? I've not read Pub 1212 in
>
> some time, but I believe that CDs with a term of
>
> longer than one year that do not give you access to the
>
> interest until maturity are treated as zero-coupon bonds
>
> and thus the holder is required to report OID annually.
>
>
>
> --

My understanding is the same as Rich's. OID if term greater than one year.

Ira Smilovitz

[Alan]

On Monday, April 8, 2013 9:16:31 AM UTC-6, ira smilovitz wrote:
> My understanding is the same as Rich's. OID if term greater than one year.
>
>
>
> Ira Smilovitz

Yeah... I forgot about that rule but it is not the term of the CD that matters. It is whether the interest being credited goes beyond a year.
E.g., I have a 5 year CD that credits me on 12/31 each year. No OID.
I have a 5 year CD that credits me at the end of the 5 years. OID

[sidk...@gmail.com]

On Sunday, April 7, 2013 9:37:27 PM UTC-5, John Bliss wrote:
> In 2012, I opened a CD in India (NRE fixed deposit) for a term of 10 years. I elected to compound the interest, and not receive quarterly interest payments. My question is: Do I have to report the interest income on my 2012 tax return, even though I have not received the interest payment? Thanks -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2011) - All rights reserved. >> << ------------------------------------------------------- >>

Few more items to ponder.

a. Assuming that you calculate accrued interest income and convert it to USD, if dollar is stronger your original principal is lower value as of 31 Dec 2012. How do you or can you account for the loss of principal value. If not done now, if loss is accounted for after 10 years it becomes a Long term loss which is a lower rate.

b. How about the interest income declared ? If say the accrued interest income is calculated using ex: Rs. 55 / USD. but after 10 years when you close out the CD the forex rate is Rs. 85 / USD. how can those losses be accounted for ?

Thanks
Sid