IRS trouble due to "U.S. Savings Bond Interest Previously Reported"?

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JimInIllinois
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Joined: Wed Dec 22, 2010 9:55 am

IRS trouble due to "U.S. Savings Bond Interest Previously Reported"?

Post by JimInIllinois » Sat Jan 12, 2019 12:07 pm

Has anyone ever had a problem with the IRS due to subtracting inherited savings bond interest that was included on the decedent's final tax return? It seems like making a large amount of interest reported on a 1099-INT go away with a single line of generic text and no documentation might raise a red flag.

cas
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Re: IRS trouble due to "U.S. Savings Bond Interest Previously Reported"?

Post by cas » Sat Jan 12, 2019 12:40 pm

JimInIllinois wrote:
Sat Jan 12, 2019 12:07 pm
Has anyone ever had a problem with the IRS due to subtracting inherited savings bond interest that was included on the decedent's final tax return? It seems like making a large amount of interest reported on a 1099-INT go away with a single line of generic text and no documentation might raise a red flag.
Is this a hypothetical question? Like maybe you are wondering whether you should include the EE bond interest on a final return that hasn't been filed yet? (In which case, I think the answer is that you ("you" being the person who inherits the EE bonds from the deceased) keep the relevant pages of the decendent's tax return in your savings bond records, which causes the "no documentation" problem to go away.)

Or is this an actual situation where the relevant decedent's final return vanished over the years, but somehow there is still knowledge that a specific amount of EE interest was reported on the return (note on the envelope holding the EE bonds or some such)? (If that is the case, I have no useful insight on how the IRS deals with such situations.)
Last edited by cas on Sat Jan 12, 2019 12:44 pm, edited 2 times in total.

deskjockey
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Re: IRS trouble due to "U.S. Savings Bond Interest Previously Reported"?

Post by deskjockey » Sat Jan 12, 2019 12:41 pm

You can always attach a longer explanation to your return if you think that will help avoid trouble. It can even be done in Turbotax (in a more limited fashion).

Topic Author
JimInIllinois
Posts: 364
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Re: IRS trouble due to "U.S. Savings Bond Interest Previously Reported"?

Post by JimInIllinois » Sat Jan 12, 2019 12:51 pm

cas wrote:
Sat Jan 12, 2019 12:40 pm
Is this a hypothetical question? Like maybe you are wondering whether you should include the EE bond interest on a final return that hasn't been filed yet? (In which case, I think the answer is that you ("you" being the person who inherits the EE bonds from the deceased) keep the relevant pages of the decendent's tax return in your savings bond records, which causes the "no documentation" problem to go away.)
Hypothetical, as you suggest. Not sure if including interest on the final return is worth any potential trouble when the 1099-INT shows up in a few years. By "no documentation" I meant nothing included with the return, not that the records were missing.

Longdog
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Re: IRS trouble due to "U.S. Savings Bond Interest Previously Reported"?

Post by Longdog » Sat Jan 12, 2019 1:03 pm

JimInIllinois wrote:
Sat Jan 12, 2019 12:07 pm
Has anyone ever had a problem with the IRS due to subtracting inherited savings bond interest that was included on the decedent's final tax return? It seems like making a large amount of interest reported on a 1099-INT go away with a single line of generic text and no documentation might raise a red flag.
Yes, I thought the exact same thing, then had that EXACT issue I was concerned about, even after following the instructions to a tee. Without requiring the social security number of the other (decedent’s final) return where the interest was reported, I couldn’t understand how the IRS would just say, “sure, we trust you” and leave it at that. About two years after filing, my concerns were proven right when I got the dreaded letter from the IRS telling me I owe them a significant amount of money. Fortunately, I was the preparer of the decedent’s final return (as well as my own) and had all the required information handy. I wrote them a letter and after a couple of months of hearing nothing, I called them and walked them through everything and they were satisfied. The only thing I might do differently is to include the SSN of the decedent on the line that says “previously reported savings bond interest” so that it says “previously reported savings bond interest on the final return of <decedent> SSN XXX-YYY-ZZZZ” which will make it easy to track it back if you get the letter.
Steve

Longdog
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Location: Philadelphia

Re: IRS trouble due to "U.S. Savings Bond Interest Previously Reported"?

Post by Longdog » Sat Jan 12, 2019 1:06 pm

JimInIllinois wrote:
Sat Jan 12, 2019 12:51 pm
cas wrote:
Sat Jan 12, 2019 12:40 pm
Is this a hypothetical question? Like maybe you are wondering whether you should include the EE bond interest on a final return that hasn't been filed yet? (In which case, I think the answer is that you ("you" being the person who inherits the EE bonds from the deceased) keep the relevant pages of the decendent's tax return in your savings bond records, which causes the "no documentation" problem to go away.)
Hypothetical, as you suggest. Not sure if including interest on the final return is worth any potential trouble when the 1099-INT shows up in a few years. By "no documentation" I meant nothing included with the return, not that the records were missing.
It’s only worth it if the marginal tax rate of the decedent is lower than the marginal tax rate of the individual inheriting the bond.
Steve

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