The Internal Revenue Service has warned that many investors may be overpaying their 1981 taxes because a substantial number of financial institutions have made mistakes in filing dividend and interest income statements.
The difficulty centers on that portion of the interest and dividends that qualify for exclusion. Single persons may exclude up to $200, and married couples filing jointly, up to $400.
Form 1099 for 1981 lists the interest payments that qualify for exclusion in column one and the payments that do not qualify in column two. This is a change from the 1980 form on which interest from savings and loans, credit unions, etc., was listed in column one, and other interest on bank deposits, corporate bonds, etc., was listed in column two.
IRS representative Ellen Murphy said that either through failure to reprogram their computers or through ignorance, some financial institutions were continuing to list eligible payments under the 1980 system. The result is causing taxpayers confusion. Many who already have filed their 1981 returns have not taken the exclusions due them, and hundreds have contacted the IRS asking for clarification.
For 1981 these types of interest payments qualify for the exclusion: those made by U.S. banks, credit unions, domestic building and loan associations, and other saving or thrift institutions if the deposits or accounts are insured under federal or state law. Interest on domestic corporate obligations, interest on taxable obligations of the federal government or a state or a political subdivision of a state, and interest earned on participation shares of a trust established under federal law also qualify for exclusion. However, interest paid to taxpayers by individuals cannot be excluded.
If the payments qualify, IRS urges taxpayers to take the exclusion whether it is indicated. Murphy said IRS has no plans now to contact banks to advise them of the confusion or to order them to send out corrections. She added, however, that many banks are advising their customers of the error.
One that did was Morgan Guaranty Trust Co. of New York, which acts as a transfer agent for big corporations. In early January, a professor discovered the bank had made another kind of error on its 1099 forms. It had advised its customers that neither spouse on a joint return could use any part of the $200 exclusion used by the other in the case of stock owned separately. While this was true for 1980 returns, it is not true for 1981. This time $400 may be excluded on a joint return regardless of ownership.