Should a 1099 be created for Interest that is deferred, or compounded, on our CD's?

You report all interest paid in the calendar year. So if it was compounded - yes. I'm not sure what you mean by deferred interest. If you mean accrued interest that has yet to be paid, you would not report that amount.

No, I don't mean accrued. I mean interest that is not paid out, but added back to the CD at the end of the year.

Yes, if it has been credited to the account prior to December 31st, then it has been paid. This amount would be included in their 1099 INT

Thanks...there seems to be some disagreement based on what our CD Contract stipulates regarding the customer's access to this interest (penalty for withdrawal or not)...would this matter?

Access to the interest paid is governed by the CD contract and has no bearing on whether the interest is reportable to the IRS.

Thanks!

Randy, is that info available in any IRS Code that I could show someone?

Just tell whomever it is that Randy said so....they should be fine with that.

Lol...In Randy We Trust...

Refer here - Page 1 - When is a payment made?

http://www.irs.gov/pub/irs-pdf/i1099int.pdf

Thanks, Randy.