Savings bonds -- cash accrual method

[Not A Clue]

For individual taxpayers, s/he can report interest income on an accrual or cash basis.

If one has been using the accrual method (and therefore report no interest income from those bonds), can he make a one-time switch to Cash method at any time without approval from IRS?

If yes, is there any statement that must be attached to the tax return in the year of change?

I assume that in the year of switch, he needs to report the cumulative income from those bonds from inception. And the Cash method will apply too all saving bonds going forward.

TIA

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[Rick]

"Not A Clue" wrote in message
news:7ddf8629-2a02-4aa4...@googlegroups.com...

>
>For individual taxpayers, s/he can report interest income on an accrual or
>cash basis.
>
>If one has been using the accrual method (and therefore report no interest
>income from those bonds), can he make a one-time switch to Cash method at
>any time without approval from IRS?
>
>If yes, is there any statement that must be attached to the tax return in
>the year of change?
>
>I assume that in the year of switch, he needs to report the cumulative
>income from those bonds from inception. And the Cash method will apply too
>all saving bonds going forward.
>
>TIA
>

All correct assumptions except your terminology is reversed. You actually
go from cash to accrual and not the other way around. Cash (which the IRS
calls "Method 1") means you don't report any interest until you actually
cash the bonds in. Accrual (which the IRS calls "Method 2") means you
report the interest earned each year even if you don't cash any bonds in.

IRS Publication 550 explains how to do this:

"Change from method 1. If you want to change your method of reporting the
interest from method 1 to method 2, you can do so without permission from
the IRS. In the year of change, you must report all interest accrued to date
and not previously reported for all your bonds. Once you choose to report
the interest each year, you must continue to do so for all Series EE, Series
E, and Series I bonds you own and for any you get later, unless you request
permission to change, as explained next."

When I did this, I reported all the interest on Schedule B with this
notation:

"US EE Savings Bond Interest Accrued To Date".

The other tricky part is that when you finally cash the bonds in, you will
receive a 1099 which will assume you followed Method 1 and will this list
all the interest earned to date. If you've converted to Method 2 at some
point, this amount will be overstated by the amount you paid each year
following conversion to Method 2. Here are the instructions for reporting
this:

"On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest
shown on your Form 1099-INT. Then follow these steps.
1. Several lines above line 2, enter a subtotal of all interest listed on
line 1.
2. Below the subtotal enter “U.S. Savings Bond Interest Previously Reported”
and enter amounts previously reported or interest accrued before you
received the bond.
3. Subtract these amounts from the subtotal and enter the result on line 2."

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[Not A Clue]

Appreciate your thorough explanation.