You must show on your tax return the amount of any tax exempt interest you received during the tax year. This is an information reporting requirement only, and does not convert tax exempt interest to taxable interest.
That is the statement from the IRS, however while the interest is not taxable it can effect other items on the return. Taxable Social Security is determined from a “modified” AGI figure which does include tax-exempt interest. And the new Medicare premium surcharge will be calculated based on AGI from two years back and that also includes tax-exempt interest, EE Bonds used for education among other income.

2/7/7