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Matured Savings Bonds


SaraEA

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I was at a seminar today, and the presenter mentioned how elderly clients will sometimes unearth US Savings Bonds that matured some time ago, or someone dies and the relatives find a stash of matured bonds.  We know the interest should have been reported in the year of maturity even if the bonds were not cashed.  The presenter said that if the SOL has passed, the IRS can't collect taxes on the accrued interest.  He did mention that the SOL is longer if the unreported interest was more than 25% of gross income and even suggested that if the person hadn't filed because they were under the filing requirement the tax could no longer be assessed.  He said that when the person/heirs cash the bonds they will get a 1099 for the interest paid, but they should add that to the return and then back it out with a notation that the interest was reportable in a closed year.

To me, it just seems wrong that someone who cashes in old bonds with, say, $50k accrued interest, will not have to pay taxes on that amount because they didn't report it when they should have and the IRS didn't catch them. Thoughts?

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I believe the presenter is correct, the presenter in the annual tax training seminar I attend had a similar case, I just pulled out my training material; moms bonds stopped earning interest in 2007, mom died in 2012, in 2014  the two daughters found the bonds that had fell to the bottom of the dresser and cashed them.  Presenter amended the deceased mother 2008 tax return, daughters paid the tax, on the daughters tax return he submitted a disclosure about an election that was not made and that bonds were included in gross income (mothers after amending) in the taxable year in which the obligation is finally redeemed or in the taxable year of final maturity, whichever is earlier.  I wish I could share the material, but I just discovered the presenter forgot to black out information.

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On ‎6‎/‎21‎/‎2017 at 8:15 PM, SaraEA said:

To me, it just seems wrong that someone who cashes in old bonds with, say, $50k accrued interest, will not have to pay taxes on that amount because they didn't report it when they should have and the IRS didn't catch them. Thoughts?

I agree.  And I feel this way about anybody skating on debts they owe.  It's a real kick in the teeth for people who do what they are supposed to do and when they are supposed to do it.  Someone pays for those who don't.  Every time.

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