Advanced Underwriting Consultants

Question of the Day – June 5

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: My client had a Series EE Savings Bond mature in 2008, but received no Form 1099 from the Treasury Department.  He will cash in the bond this year.  What is his tax liability?

Answer: Unless the taxpayer makes a special election to pay tax on the Series EE bond’s annual growth, the interest earned on the bond is taxable at the earlier of

  • The time the bond is cashed in or
  • The bond’s maturity date.

Under the facts described, the interest earned should have been recognized as a taxable event at the bond’s maturity in 2008.  Apparently the Treasury Department has not traditionally issued Form 1099-INT to the taxpayer at the time of maturity.  Nevertheless, that fact does not relieve the taxpayer of liability for reporting the tax result at the proper time.

Ironically, the bank where the taxpayer redeems the EE Bond is required to issue a Form 1099-INT when the bond is redeemed.  In this case, the 1099 will be issued in 2012—four calendar years after the actual taxable event.

The client should consult with his tax advisor to decide whether it is necessary to file an amended tax return for 2008.

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