It is rare that you have a cash basis taxpayer using the accrual method
for reporting savings bond interest as it accrues (Series E, EE & I).
Unless the new owner can show that the accrued interest income was
already reported, then the assumption is that it was not reported by the
cash basis decedent.
The personal representative of the estate could request prior tax
returns from the IRS for the decedent. Unfortunately, it might not be
obvious what interest is being reported on those returns.
However, if there is a Schedule B with the source of the interest income
identified and the US Treasury is not listed, then it would appear that
the interest has never been reported as it accrued. If the accrual
method was used, most tax preparers identify that interest as Accrued
Savings Bond Interest in order to have a record that the accrual method
was used. If you see US savings bond interest reported without an
identifier that it is accrued interest then more analysis would be
required to determine what type of bonds generated the savings bond
Obviously, without a Schedule B, a lot more investigation would be required.
IRS Pub 550 explains how the new owner(s) may report the accrued
interest. There is more than one method. It starts at the bottom of page
8 and continues onto page 9 with examples.
In article you write:
What kind of bonds are they? If they're HH, they paid interest
semiannually and are redeemed at face value, so there's no gain when
If they're EE or I, interest is added to the principal and generally
taxed when redeemed. It's possible to pay tax on interest as earned
but nobody does that other than bonds bought for children in a zero
But I don't think it matters. Pub 559 says:
U.S. savings bonds acquired from decedent. If series EE or series I
U.S. savings bonds, owned by a cash method taxpayer who reported the
interest each year, or by an accrual method taxpayer, are transferred
because of death, the increase in value of the bonds (interest earned)
in the year of death up to the date of death must be reported on the
decedent's final return. The transferee (estate or beneficiary)
reports on its return only the interest earned after the date of
So the question of whether he paid the tax affects the father's final
tax return, not X's problem. If there's no interest paid since the
father died, there's no tax due.
John Levine, email@example.com, Primary Perpetrator of "The Internet for Dummies",