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amount.2 Petitioner, in the meantime, filed a timely petition
with the Court.
With respect to series E U.S. savings bonds, section 454(a)
allows a cash-basis taxpayer/owner of such bonds for whom the
entire interest is includable in income at the maturity of the
bonds to elect to treat the annual interest as income. An
“election” is effected simply by including the interest as income
on a tax return, and that election is binding for all subsequent
years. If no election is made, the interest accumulates, and,
when the bonds mature, the accumulated interest is taxable in the
year the bonds mature or are redeemed. In this case, because
petitioner’s mother did not file income tax returns, no election
was made under section 454(a); therefore, when petitioner
redeemed the bonds in 2001, the accrued interest was includable
in income for that year. Petitioner does not dispute that the
interest is includable in income.
Petitioner’s motive in having the interest taxable to his
mother’s estate is obvious. If the interest is taxed as her
2A copy of the return was not offered into evidence.
Petitioner did not explain how he arrived at the $11,598 tax
liability shown on the return; however, it appears that the check
tracks the deficiency determined in the notice of deficiency as
well as the addition to tax and penalty plus an additional amount
the Court assumes was interest. Counsel for respondent agreed
that petitioner had sent a check for that amount but did not
explain why the payment was not returned to petitioner. The
decision in this case will presumably determine the disposition
of those funds by respondent.
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Last modified: May 25, 2011