Distributing U.S. Government Savings Bonds
Series E and HH US. Government savings bonds pose difficult and troublesome challenges in planning. First, taxpayers on the cash method of accounting have the option of reporting their interest currently for income tax purposes or deferring payment of income tax on the interest until the bonds are redeemed. Deferral of income tax payment on accrued Series E bond interest appears to have been a common practice with farm families. Second, for taxpayers on the cash method of accounting who do not report the increment of increase in value of Series E bonds as taxable income, the increment in value up to the date of death becomes income in respect of decedent. Therefore, the accrued interest remains taxable after death of the owner.