In case you missed it the first time around, you can skip down to the 3rd from last paragraph of this post
Now guess who just got his first ever Notice of Examination from IRS Land.
And of course it has absolutely nothing to do with the international bonds. It seems rather that They are confused about how this whole Alternate Federal Government
thing works with respect to state tax refunds. Capsule summary: The Alternate Federal Government, unlike the real one, doesn't give you a deduction for state&local taxes, so refunds of same are not taxable the following year, even though they normally are if you take the deduction for the Real Federal Government. The test is whether not taking the deduction for the Real Feds (which would then raise the real tax, possibly to the point where it exceeds AMT) makes any difference at all; if it does, then that portion of the refund is taxable, but if it doesn't, then no. Fortunately, I remembered to do that calculation the first time around and can safely say, no and it's not even close. But IRS Guy apparently didn't bother to check this before issuing the notice.
Unfortunately, I am not utterly and completely In The Right because it turns out that a (very small) portion of said state tax refund was in fact interest
and California neglected to send me the 1099-INT that they evidently sent to the Feds (gee, thanks, Sacramento!), so there is in fact another $21 extra that I owe after all, which I'll grant is way better than owing them $1600 as I like to think I'll be able to to convince Them that I don't.