Appendix D to Part 359 - Tax Considerations
31:2.1.1.1.56.6.17.1.21 : Appendix D
Appendix D to Part 359 - Tax Considerations
1. What are some general tax considerations?
General. Interest is subject to all taxes imposed under
the Internal Revenue Code of 1986, as amended. The bonds are also
subject to Federal and State estate, inheritance, gift, or other
excise taxes. The bonds are exempt from all other taxation by any
State or local taxing authority.
2. What reporting methods are available for savings
bonds?
(a) Reporting methods. You may use either of the
following two methods for reporting the increase in the redemption
value of the bond for Federal income tax purposes:
(1) Cash basis method. You may defer reporting the
increase to the year of final maturity, redemption, or other
disposition, whichever is earliest; or
(2) Accrual basis method. You may elect to report the
increase each year, in which case the election applies to all
Series I bonds that you then own, those subsequently acquired, and
to any other obligations purchased on a discount basis, such as
savings bonds of Series E or EE.
(b) Changing methods. If you use the cash basis method,
you may change to the accrual basis method without obtaining
permission from the Internal Revenue Service. However, once you
elect to use the accrual basis method in paragraph (a)(2), you may
change the method of reporting the increase only by following the
specific procedures prescribed by the Internal Revenue Service for
making an automatic method change. For further information, you may
contact the Internal Revenue Service director for your area, or the
Internal Revenue Service, Washington, DC 20224.
3. What transactions have potential tax consequences?
The following types of transactions, among others, may have
potential tax consequences:
(a) A reissue that affects the rights of any of the persons
named on a definitive Series I savings bonds may have tax
consequences for the owner.
(b) The transfer of a book-entry Series I savings bonds from one
owner to another may have tax consequences for the purchaser.
(c) The redemption of a book-entry Series I savings bonds by the
secondary owner may have tax consequences for the primary
owner.
(d) The purchase of a Series I savings bonds as a gift may have
gift tax consequences for the purchaser.
[67 FR 64278, Oct. 17, 2002, as amended at 68 FR 24806, May 8,
2003]