Query about savings bonds beyond final maturity

Technically you're right, but I don't think anybody does that. When you cash the bonds you will get a 1099-INT for the year that you cashed them. So to keep things simple, you report the interest in that year. If you report the interest in an earlier year, initially or by amending, you still have to report the 1099-INT in the year you cash the bonds. Then you have to make some sort of offsetting entry and hope that the IRS doesn't question it.

The IRS doesn't seem to go after interest that's not reported in the year of maturity. I've never heard of anyone getting an IRS notice about that. As long as the interest you report matches your 1099-INT forms, the IRS is happy.

Bob Sandler

someone will send a 1099-INT showing the interest. If the 1099-INT is for the year it was cashed in, I would just declare the interest for that year even though that appears to be technically incorrect. If the

1099-INT is for the year the bond matured and that year is still open for amendment, I would probably bite the bullet and file an amended return.

If the 1099-INT is for the year the bond matured and that year is NOT still open for amendment, I don't know what I would do. In this instance, can the government even legally make you pay taxes on the interest?

Only E and EE bonds have a 30 year maturity. If the bond(s) in question are beyond their 30 year maturity they are paper bonds. As such, when cashed at a bank, it is the bank that will issue the 1099-INT for the year cashed not for the maturity year.

I not aware of the IRS ever having assessed a late payment penalty or interest charge against someone who cashed one of these bonds beyond its maturity year and reported the income in the year that matched the

1099-INT received from the bank.

I'm VERY surprised the IRS lets it slide. This means you can wait. Especially if you foresee a huge drop in income. Wait until THAT year. Cash it in at a much lower tax bracket.

Mel

If the bond earnings are so great as to need a tax strategy, you'd probably want to redeem the now zero interest matured bonds to get that money working somewhere else.

I'm more surprised the law doesn't require the interest be taxable in the year the savings bond is redeemed and NOT the year it matured. If I found a savings bond that matured 10 years ago, the unreported interest for tax year 2012 is so far beyond the statute of limitations there doesn't appear to a way for the IRS to tax it at all.

My understanding is that after 30 years, the bond is fully matured and taxes on the accrued interest are due in full. So if you wait until year 32 (or

40), you are now two years (or eight years) delinquent in paying those taxes. Assuming you cash the bond in year 32 (or year 40), the financial institution where you cash the bond would issue a 1099-INT which would be reported to the IRS. If you now report that interest on your tax return for year 32 (or year 40) as though it were due in the year of filing, it's anyone's guess if the IRS would catch that or would you bill you for any late payment on the taxes owed. While amending your return might technically be the correct thing to do, I think I would just report the interest in whatever year you cash the bond and let the IRS bill you if they catch it. Since you will have paid the full amount of the taxes owed (the bond doesn't earn interest after year 30), what the IRS might bill you for is the interest and penalty you could owe for under paying in year 30. I say "might" because it is possible you had enough money withheld in year 30 to cover the extra tax you should have paid that year.

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Unless the IRS thinks you did it on purpose to avoid paying taxes on that income. In that case it would be fraud, and there is no statute of limitations on fraud.