Series E Savings Bonds

[Snaggletooth]

All my career I have interfaced with the spectre of savings bonds. "Bond-a-month" club, payroll withholdings, etc. And in every case, a bond of any denomination may be bought by paying 75% of the face value. A $25 bond may be purchased for $18.75 - a $50 bond may be purchased for $37.50, etc.

A client cashed in bonds in 2007. I'll use rounded numbers for easy illustration. Face value of bonds cashed in was $20,000. Proceeds were $34,000. IRS is referencing a Treasury Agency 1099-INT from the Bureau of the Public Debt, which says the interest earned was $24,000. This means the bonds would have been purchased for $10,000, or 50% of their face value.

I maintain that if the face value was $20,000 the taxpayer would have bought them for $15,000 and the interest earned would be only $19,000. Taxpayer is in nursing home, and his representative cannot find original purchase documentation, which occurred during a number of years under a "bond-a-month" program sponsored by his employer.

How strong is my argument? I'm aware that IRS is going to accept the validity of the 1099-INT before listening to anything else, but I want to know whether my thinking is flawed.

[Roland Slugg]

My understanding is the same as yours

Series E bonds were always sold at 75% of face value. Thus, those $20,000 of face value Series E bonds should have cost $15,000, and if they did, the taxable interest should be $19,000, not $24,000.

[Gene V]

My understanding is the same as both of you—I’m wondering if he bought Series EE (which is 50% of face value) instead of Series E.

[joanmcq]

I agree, Series EE were and are bought for 50% of face value. They've been available since 1980. He could have had E's, EEs or a combination of the two. If you don't know anything about the bonds, you'll have to accept the 1099-INT. If you had the bond numbers you could use the calculator available on the US Treasury website.

[Snaggletooth]

Series E

Client says the bonds were ordinary Series E. Not sure he can prove this, or that he is even correct.

I don't know whether this is an indicator or not, or whether it is worth mentioning. Normally the 1099-INT comes from a bank. With some of the small local banks, their 1099-INT does not even mention that the interest comes from savings bonds. However, this 1099-INT came from "Bureau of the Public Debt - Division of Accounting and Risk Management" with a paying office of Parkersburg, WV. This is obviously one of the agencies within the Treasury Dept. Is anyone aware of any significance that can be attached to this?

[joanmcq]

He didn't cash them at a bank, he cashed them direct with the treasury.

And they stopped selling series E in 1980 so he may be confused.

[OtisMozzetti]

When were the bonds issued?

Client says the bonds were ordinary Series E. Not sure he can prove this, or that he is even correct.

When, what month and year, were these bonds issued?

Also, I ran some sample dates of issuances through "Savings Bond Wizard":

Series E bonds issued 7/1979, for example the $1000 bond, were issued for 75% of face value or $750, and there was $3463.20 interest accumulated as of 7/2008. That assumes that tax was not reported on interest as it accrued.

Series E bonds issued 6/1980 [the last month that Series E bonds were issued], for example the $1000 bond, were issued for 75% of face value or $750, and there was $3379.60 interest accumulated as of 7/2008.

According to this, the savings bonds in question had to have been issued sometime more recently than June 1980, because the proportion of interest which you described was much less than the large proportion of interest shown above.

Apparently, you're looking at an average purchase date (since bonds were purchased at several different dates, right?) of around 1993, and they were Series EE bonds, not Series E bonds.

In any event, you're almost certainly going to have to use the 1099-INT which they issued.

[Snaggletooth]

Illustrative Numbers

Otis - good theory, but my numbers were not real, just big round numbers for illustrative purposes.

Still, your line of thinking may enable me to reach a conclusion. I am relying on the client when he tells me these things were Series E, and he may just not know.

Actual face value $14,400 and cashed out for $22,480 sometime during 2007. If at 75% the total return is 208.15%. If at 50% the total return is 312.22%. I'll google up a bond wizard and see what happens.

Good thinking, Otis.

UPDATE: Using the bond wizard, the return on the actual numbers indicates that the bonds could not have been purchased while they were still issuing Series E. Mystery solved. Otis, I owe you an RC cola and moon pie.

[Burke]

Been on vacation for 2 weeks and catching up on old threads. It is just this sort of problem that pushes me to advise clients to PHOTOCOPY these old bonds (and stock certificates) before surrendering them for redemption. If there were a lot of old bonds, they can be stacked and copied so just the numbers show and reduced to 65% to get as many to a page as possible. The stock certs have the date of issue, which helps a lot in determining basis.