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And, if (that's a big if) you do know when a bond matures and report it properly, the client will get a Form 1099-INT when he cashes the bond years later. You can try "in and out" on his return, but he's going to get an IRS letter re unreported income. You'll be writing letters in response and printing his return from the year of reporting to attach. And, he'll think you did something wrong! I don't lose sleep over a 1099-INT in a current year that matured earlier. I do ask and I do try to help clients in low-income years find things like Sara explained. But, what the IRS requires as reporting on tax returns and what they require of banks as reporting on 1099s is different and one of many things that make our jobs harder. Just another example of the people passing the laws not reading the laws.

Yes, it could be a big deal if IRS wanted to pursue it. Series EE bonds purchased for $15,000 in 1985 would have earned $54,192 in interest when they matured in 2015. Not everybody who invested in bonds was an old codger just giving a disappointed grandkid a $25 bond. There are bound to be people who unknowingly hold them past maturity thinking next year will be a better time to redeem these...

Exactly! So in January, I see a 2016 1099-Int for $15,000, and it could be income that should have been reported years earlier. That would be so terrible, for IRS to charge interest on the tax on that, especially when the Treasury used that money interest free all that time. I'm a stickler for rules, too, but if my clients have gotten away with one here, and I don't know of anyone who did, but I'd bet it's happened, I'm not losing sleep over it. I almost wish I didn't know the law, though, because now I'm thinking about it and worrying if I need to have this discussion with people.

I am sure the IRS, which is part of the Treasury Dept (that issues the bonds) do not communicate on this one. The old bonds actually list the buyer's Soc Sec number right on the face of the certificate. Since these bonds were issued well before everything became computerized, I'm sure they have no way of cross checking. Leaves those of us who "know the rules" in a conundrum. I would think that when the bonds finally get cashed and the IRS finally gets its share, no harm done. We're not exactly following the rules, but the IRS is still getting paid. I recently had two clients who called when they found some really old bonds that matured 12-20 years ago. I wouldn't even know how to access their returns from that long ago to amend them, and I'm sure the IRS has no record of them either. My advice was just not to cash them all in one year. I'm known to be a stickler for the rules (my boss says he often feels like asking me for my badge number), but I feel no guilt on this one. This resurrected thread brings me to an insight we might all use to help elderly clients. Some Series EE bonds were issued for 30 years. Some owners who bought them a long time ago are now in nursing homes. These people could take advantage of claiming the interest on a yearly basis. The first year they choose to do so they will have to report all the interest accumulated so far, but their nursing home bills will likely wipe that out so they will pay no tax. I have a 97 year old client who has a bunch of these bonds, still earning interest, with over $80k in accumulated interest. I plan to report it all in 2017, then deduct his $120k nursing home costs, which even with the 7.5% haircut will wipe out the income. The heirs will receive the bonds tax free. I have several clients who bring in an elderly relative's tax docs. and this year I plan to ask them all about uncashed bonds.

It IS subject to early withdrawal penalty. Treat it as if it were a distribution and disregard the loan factor. If the client is not 59 1/2, they pay the penalty.

A bit of background won't make the dead horse argument seem so silly. Did you know that the Enrolled Agent credential was created by the Horse Act of 1884? Apparently during the Civil War, soldiers were running through the countryside begging, borrowing, and sometimes stealing horses so they could (a) get to battles, and (b ) fight them. After the war the owners who never got their horses back were demanding restitution from the government. There weren't enough lawyers to handle all the cases in a timely manner, plus back in those days attorneys called themselves "esquire" and were thought of as esteemed professionals. They didn't want to mess with missing horse cases. The Treasury Department (this was before the IRS existed) therefore created a new class of professionals who were permitted to represent taxpayers before the US government provided they had specific training to do so. (Before that, only attorneys could do this.) Thus was born the Enrolled Agent credential. The first EAs helped people get paid for their confiscated horses. Over the past 20 years or so, several bills to regulate tax preparers have passed one or the other house of congress but none passed both. (Maybe one did, but it was vetoed by the President at the time.) I used to follow the hearings on these bills, and there was always strong congressional support for regulation. After years of doing what Congress does best--nothing--the IRS decided to take matters into its own hands and authorize itself to go ahead with regulation. Their argument was that the Horse Act gave it the authority to regulate people who represent taxpayers before it. That is a fact and was not in dispute in the Loving case. The dispute centered over whether tax return preparation constitutes representation. The IRS unsuccessfully argued that preparing a tax return that is then sent to the agency constitutes representing the taxpayer's intentions to the US government, and the Horse Act gives the IRS the authority to regulate those who do the preparing. The Supreme Court ruled that preparing a tax return does not rise to the level of representation. The real problem is not incompetent preparers but dishonest ones. Not a week goes by when I don't read about US Justice Dept cases against preparers who ran EITC shops, selling dependents, creating fake Sch Cs, charitable contributions, employee business expenses, etc., each defrauding the government of millions of dollars. I do maybe 500 returns a year, all done to the best of my ability to be true and accurate. One of these shops does 3,000 returns a year, most inaccurate. It doesn't take too many of those shops to dilute my good numbers and make it look like paid preparers are dishonest and idiots. Even ones like me, proudly credentialed under the Horse Act of 1884.