What is the federal income tax treatment of accrued interest income on stripped Treasury securities?

What will be an ideal response?

Interest income from Treasury securities is subject to federal income taxes but is exempt from state and local income taxes. A disadvantage of a taxable entity investing in stripped Treasury securities is that accrued interest is taxed each year even though interest is not paid. Thus these instruments are negative cash flow instruments until the maturity date. In brief, they have negative cash flow because tax payments on interest earned but not received in cash must be made.