Paul:
So, I posted this, which started another discussion:

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

4 responses:

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.
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.

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.

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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"MZB" wrote in message news:t4nocu$oh3$1@dont-email.me...

Paul:
So, I posted this, which started another discussion:

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

4 responses:

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.
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.

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.

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.

.........

But think about this from practical standpoint. The IRS computers keep
track of things like W2s and 1099s being sent to them which they try to
track to returns. I don't think they are sophisticated enough to track
30-year savings bonds and know that certain bonds are past 30 years old and haven't had tax reported. So nothing is going to trigger them until a 1099
is issued, let's say in year 32 or year 40. Now I don't recall exactly
what's on the 1099 that's issued for a savings bond redemption, but I don't think it includes the date the bond was opened, so what is going to trigger
the IRS to know the interest is being reported late? And yes, I know that somewhere there probably is a computer file that shows the dates that
savings bonds were originally issued, but I don't think the IRS ties into
that.

You have to realize the IRS system is pretty old and has been patched up and held together with wires and gum for decades. I don't think it is quite as sophisticated as some people may think, especially when to something like
this.

--

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>

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