Mr. Stern, a cash basis taxpayer, was notified by his bank that he earned $1,193 of interest on his savings account in 2020. Mr. Stern has not withdrawn any funds from this account for eight years and did not receive the notification until January 26, 2021. Mr. Stern does not recognize the interest as income in 2020.

Question

Quizplus · Accepted Answer

Even though Mr. Stern is a cash basis taxpayer and received the notification in 2021, the interest income should still be reported as income for tax year 2020 since it was earned during that year. Failure to report this income as required by tax law could result in penalties and interest charges.

Mr Stern, a Cash Basis Taxpayer, Was Notified by His