General Information A few items of general interest are covered here. Files: Recordkeeping.You should keep a listshowing sources and amounts of investment income that you receiveduring the year. Also, keep the forms you receive that show yourinvestment income (Forms 1099-INT, Interest Income,and 1099-DIV, Dividends and Distributions, forexample) as an important part of your records. Tax on investment income of a child under age 14.Part of a child's 2000 investment income may be taxed at theparent's tax rate. This may happen if all of the following are true. The child was under age 14 on January 1, 2001. The child had more than $1,400 of investment income (such astaxable interest and dividends) and has to file a tax return. Either parent was alive at the end of 2000. If all of these statements are true, Form 8615 must be completed and attached to thechild's tax return. If any of these statements is not true, Form 8615is not required and the child's income is taxed at his or her own taxrate. However, the parent can choose to include thechild's interest and dividends on theparent's return if certain requirements are met. Use Form 8814for this purpose. For more information about the tax on investment income of childrenand the parents' election, see Publication 929, Tax Rules forChildren and Dependents. Beneficiary of an estate or trust.Interest, dividends, and other investment income you receive as abeneficiary of an estate or trust is generally taxable income. Youshould receive a Schedule K-1 (Form 1041), Beneficiary'sShare of Income, Deductions, Credits, etc., from the fiduciary.Your copy of Schedule K-1 and its instructions will tell youwhere to report the income on your Form 1040. Social security number (SSN).You must give your name and SSN to any person required by federaltax law to make a return, statement, or other document that relates toyou. This includes payers of interest and dividends. SSN for joint account.If the funds in a joint account belong to one person, list thatperson's name first on the account and give that person's SSN to thepayer. (For information on who owns the funds in a joint account, seeJoint accounts, later.) If the joint account containscombined funds, give the SSN of the person whose name is listed firston the account. These rules apply both to joint ownership by a married couple andto joint ownership by other individuals. For example, if you open ajoint savings account with your child using funds belonging to thechild, list the child's name first on the account and give the child'sSSN. Custodian account for your child.If your child is the actual owner of an account that is recorded inyour name as custodian for the child, give the child's SSN to thepayer. For example, you must give your child's SSN to the payer ofdividends on stock owned by your child, even though the dividends arepaid to you as custodian. Penalty for failure to supply SSN.You will be subject to a penalty if, when required, you fail to: Include your SSN on any return, statement, or otherdocument, Give your SSN to another person who has to include it on anyreturn, statement, or other document, or Include the SSN of another person on any return, statement,or other document. The penalty is $50 for each failure up to a maximum penalty of$100,000 for any calendar year. You will not be subject to this penalty if you can show that yourfailure to provide the SSN was due to a reasonable cause and not towillful neglect. If you fail to supply an SSN, you may also be subject to backupwithholding. Backup withholding.Your investment income is generally not subject to regularwithholding. However, it may be subject to backup withholding toensure that income tax is collected on the income. Under backupwithholding, the bank, broker, or other payer of interest, originalissue discount (OID), dividends, cash patronage dividends, orroyalties must withhold, as income tax, 31% of the amount you arepaid. Backup withholding applies if: You do not give the payer your identification number (eithera social security number or an employer identification number) in therequired manner, The Internal Revenue Service (IRS) notifies the payer thatyou gave an incorrect identification number, The IRS notifies the payer that you are subject to backupwithholding on interest or dividends because you have underreportedinterest or dividends on your income tax return, or You are required, but fail, to certify that you are notsubject to backup withholding for the reason described in (3). Certification.For new accounts paying interest or dividends, you must certifyunder penalties of perjury that your social security number (SSN) iscorrect and that you are not subject to backup withholding. Your payerwill give you a Form W-9,Request for TaxpayerIdentification Number and Certification, or similar form, tomake this certification. If you fail to make this certification,backup withholding may begin immediately on your new account orinvestment. Underreported interest and dividends.You will be considered to have underreported your interest anddividends if the IRS has determined for a tax year that-- You failed to include any part of a reportable interest ordividend payment required to be shown on your return, or You were required to file a return and to include areportable interest or dividend payment on that return, but you failedto file the return. How to stop backup withholding due to underreporting.If you have been notified that you underreported interest ordividends, you can request a determination from the IRS to preventbackup withholding from starting or to stop backup withholding once ithas begun. You must show that at least one of the following situationsapplies. No underreporting occurred. You have a bona fide dispute with the IRS about whetherunderreporting occurred. Backup withholding will cause or is causing an unduehardship, and it is unlikely that you will underreport interest anddividends in the future. You have corrected the underreporting by filing a return ifyou did not previously file one and by paying all taxes, penalties,and interest due for any underreported interest or dividend payments. If the IRS determines that backup withholding should stop, it willprovide you with a certification and will notify the payers who weresent notices earlier. How to stop backup withholding due to an incorrectidentification number.If you have been notified by a payer that you are subject to backupwithholding because you have provided an incorrect SSN or employeridentification number, you can stop it by following the instructionsthe payer gives you. Table 1-1 Where to Report Common Types of Investment Income Reporting backup withholding.If backup withholding is deducted from your interest or dividendincome or other reportable payment, the bank or other business mustgive you an information return for the year (for example, a Form1099-INT) that indicates the amount withheld. The informationreturn will show any backup withholding as "Federal income taxwithheld." Nonresident aliens.Generally, payments made to nonresident aliens are not subject tobackup withholding. You can use Form W-8BEN,Certificate of Foreign Status of Beneficial Owner for UnitedStates Tax Withholding, to certify exempt status. However, thisdoes not exempt you from the 30% (or lower treaty) withholding ratethat may apply to your investment income. For information on the 30%rate, see Publication 519, U.S. Tax Guide for Aliens. Penalties.There are civil and criminal penalties for giving false informationto avoid backup withholding. The civil penalty is $500. The criminalpenalty, upon conviction, is a fine of up to $1,000, or imprisonmentof up to 1 year, or both. Where to report investment income.Table 1-1 gives an overview of the forms andschedules to use to report some common types of investment income.But, see the rest of this publication for detailed information aboutreporting investment income. Joint accounts.In a joint account, two or more persons hold property as jointtenants, tenants by the entirety, or tenants in common. That propertycan include a savings account, bonds, or stock. Each person mayreceive a share of any interest or dividends from the property asdetermined by local law. Example.You and your husband have a joint money market account. Under statelaw, half the income from the account belongs to you, and half belongsto your husband. If you file separate returns, you each report half ofthe income. Income from property given to a child.Property you give as a parent to your child under the Model Giftsof Securities to Minors Act, the Uniform Gifts to Minors Act, or anysimilar law, becomes the child's property. Income from the property is taxable to the child, except that anypart used to satisfy a legal obligation to support the child istaxable to the parent or guardian having that legal obligation. Savings account with parent as trustee.Interest income from a savings account opened for a child who is aminor, but placed in the name and subject to the order of the parentsas trustees, is taxable to the child if, under the law of the state inwhich the child resides, both of the following are true. The savings account legally belongs to the child. The parents are not legally permitted to use any of thefunds to support the child. Accuracy-related penalty. An accuracy-related penalty of 20% can be charged for underpaymentsof tax due to negligence or disregard of rules or regulations orsubstantial understatement of tax. For information on the penalty andany interest that applies, see Penalties in chapter 2.