You and your sister have a joint savings account that paid $1,500 interest for 2006. Your sister deposited 30% of the funds in this account, and you and she have agreed to share the yearly interest income in proportion to the amount that each of you has invested. Because your social security number was given to the bank, you received a Form 1099-INT for 2006 that includes the interest income earned belonging to your sister. This amount is $450, or 30% of the total interest of $1,500.
You must give your sister a Form 1099-INT by January 31, 2007, showing $450 of interest income that she earned for 2006. You must also send a copy of the nominee Form 1099-INT, along with Form 1096, to the Internal Revenue Service Center by February 28, 2007 (April 2, 2007, if you file Form 1099-INT electronically). Show your own name, address, and social security number as that of the ?Payer? on the Form 1099-INT. Show your sister's name, address, and social security number in the blocks provided for identification of the ?Recipient.?
When you prepare your own federal income tax return, report the total amount of interest income, $1,500, on Schedule 1 (Form 1040A), Part I, line 1, or Schedule B (Form 1040), Part I, line 1, and identify the name of the bank that paid this interest. Show the amount belonging to your sister, $450, as a subtraction from a subtotal of all interest on Schedule 1 (or Schedule B) and identify this subtraction as a ?Nominee Distribution.? (Your sister will report the $450 of interest income on her own tax return, if she has to file a return, and identify you as the payer of that amount.)