Academic journal article Journal of Accountancy

IRS Offers Refunds for EE Bonds

Academic journal article Journal of Accountancy

IRS Offers Refunds for EE Bonds

Article excerpt

In order to help low- to middle-income parents save for their children's education, Congress added a provision to the Small Business Job Protection Act of 1996 that allows the interest on series EE U.S. savings bonds to be excluded from gross income if the bond proceeds are used to pay for the qualified higher education expenses of the taxpayer, a spouse or a dependent. However, if a taxpayer's modified adjusted gross income exceeds an inflation-adjusted threshold amount, the exclusion does not apply.

The Revenue Reconciliation Act of 1993 inadvertently reduced the dollar thresholds for post-1992 years, preventing many taxpayers from taking a larger interest exclusion; however, the 1996 act retroactively corrected this drafting error. As a result, some taxpayers may now qualify for refunds for up to three years.

According to information release 96-52, the Internal Revenue Service estimates this technical correction will mean refunds for several thousand middle-income taxpayers who have redeemed qualified U.S. savings bonds after 1992, paid higher education expenses in the year of redemption and had incomes between the "former threshold" and "exclusion ends" amounts as listed in the table below.

In order to obtain a refund, taxpayers should use Form 8815, Exclusion of Interest From Series EE U.S. Savings Bonds Issues After 1989, to determine the correct exclusion and attach it to a completed Form 1040X, Amended U.S. Individual Income Tax Return, for each year being amended. Any version of form 8815 may be used by marking the proper year in the upper righthand corner and entering on line 10 the appropriate "revised threshold" amount from the table. However, taxpayers will not qualify for the exclusion and shouldn't complete the form if the amount entered on line 9 equals or exceeds the appropriate "exclusion ends" amount from the table. …

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