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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4511
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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My husband was given Series E bonds purchased by his mother

Resolved Question:

My husband was given Series E bonds purchased by his mother for him in 1971. He was not aware that this was done and quite surprised to receive them. Since he was unaware of their existence, he has not claimed the interest as income. From my understanding, the bonds matured after 30 years and the interest should have been reported. Again, he was totally unaware of these until his mother gave them to him this past weekend. The redemption value is now in excess of $137,000. What does he do now and will he be subjected to tax penalties?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi,

Customer:

Hi]

Customer:

Sorry but my country is US not Argentina

NPVAdvisor :

Let me look this up, for you bu the more current version of the bonds are not taxed until cashed in ,,, but it IS possible that the interest may have come due upon maturity

NPVAdvisor :

Yes, I was guessing that one :)

NPVAdvisor :

Juuuust a sec

NPVAdvisor :

sorry I want to get the information from IRS, just another moment

Customer:

Thanks....

NPVAdvisor :

If you deferred interest on the savings bonds until maturity, the interest income was taxable in the year the bonds reach final maturity. The TreasuryDirect Web page, "Treasury Securities that have Stopped Earning Interest," describes the savings bond issued dates that have since matured. When you cash in the savings bond, the financial institution will issue a Form 1099-INT for the interest earnings.


The 1099-INT should reflect the year the interest earnings became taxable -- that is, the year the bonds matured. That may necessitate you amending your tax return for that year, and there could also be an interest penalty levied on top of the income tax due. Talk to your tax professional, or ask the Internal Revenue Service by calling its toll-free Telephone Assistance for Individuals at(NNN) NNN-NNNN

NPVAdvisor :

So, first, nothing will happen until you go to cash them in ..... so no need to panick

NPVAdvisor :

I see you're typing ... I'll wait

Customer:

But....the longer we wait, the more we will be subject to the IRS penalty. Right?

NPVAdvisor :

That's right ... another tax year, more interest .... Now ...

NPVAdvisor :

Here's what you need to do ...

NPVAdvisor :

Many of the series did not mature until 2010, you can go to that web.n page I linked and enter the bonds' number to see when they actually mature .... some were extended

NPVAdvisor :

For the year they matured, you'll need to do an amended tax return

NPVAdvisor :

You'll have plenty of money to pay the tax from having cashed them in

NPVAdvisor :

and you should (once you have your ducks in the row, ou'll need to do the returnbnecause that will generate the 1099 from the bank y

NPVAdvisor :

sorry for the typos

NPVAdvisor :

Now, you ca go to your accountant Or, if you do your own taxes, get turbotax for that year and simply choose 1040X (Amended return) when it first starts and it will ask you the interview questons form there ... and the only change, of course, will be reporting that 1099

NPVAdvisor :

Now here's the part you're poabably most interested in

NPVAdvisor :

You can ask for an abatement of penalties from IRS based on something called "reasonable cause."

Customer:

YAY!!!! How do we go about that?

NPVAdvisor :

OK, once you print out the return, or get it from your preparer, you'll need to send in the return by mail (I would sent it certified-return reciept) you need to attach a cover letter asking for abatement of penalty dure to reasonable cause

NPVAdvisor :

A request for abatement of penalties should include a well-written letter detailing the reasonable cause and documentation supporting the underlying facts

NPVAdvisor :

They'll typically grant b ased on wht we would call reasonable circumstances .... "DID NOT KNOW THE BINDS EXISTED UNTIL...., etc)

NPVAdvisor :

sorry for the typos .... did not know bonds existed, once we learned we cashed and did the amended return attached,

NPVAdvisor :

What I would do is go to a bank and see if one will work with you on getting the 1099 to you within a certain time frame

Customer:

OK...let me repeat so I'm sure I understand.

NPVAdvisor :

See this:

NPVAdvisor :

Reasonable cause. This is a facts-and-circumstances test in which the taxpayer demonstrates that he or she exercised ordinary business care and prudence in determining the tax obligation, but nevertheless failed to comply. Depending on the penalty, the taxpayer must also prove that he or she acted in good faith or that his or her failure to comply with the law was not due to willful neglect. The IRS determines reasonable cause abatement on a case-by-case basis, treating each tax form and year separately. The IRS often abates penalties based on reasonable cause because of circumstances beyond the taxpayer’s control, such as illness, natural disasters, or destruction of taxpayer records.

NPVAdvisor :

oh sorry, go ahead

Customer:

Cash in bonds....get 1099 from bank...file amended return for year bonds matured...send in letter asking for abatement. Thanks for sending the above explanation for reasonable cause....I think it we move quickly now, we have a good chance of getting the penalty removed. I can also explaint that these were given by his 96 year old mother and that they were in her safe deposit box since 1971.

NPVAdvisor :

Yes, I don't ton guarantee, but you are the "poster child" for first time abatement here. Very much out of your control, and no intent ...

NPVAdvisor :

Sounds like you have it!

Customer:

Thanks so much!!!!

NPVAdvisor :

You're welcome! ..

NPVAdvisor :

if this HAS helped, I'd appreciate a positive feedback rating (That's how they pay us here) but come back here: http://www.justanswer.com/tax/7vlsz-husband-given-series-bonds-purchased-mother.html if you have questions, so you won't be charged with another questions

Customer:

Yes...absolutely excellent service. I have used this website on numerous times and always very pleased. Wish us luck...hanve a great day. :)

NPVAdvisor :

You too, Thanks!

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4511
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane
Lane
JD, MBA, CFP, CRPS
3644 Satisfied Customers
Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986