Thanks to the advice of @aj485, I have been paying income tax on the interest accrued since 2001 from my I-Series Savings Bonds.
I paid interest in 2021 and 2022 and will continue until the bonds mature in 2031. The 2001 I-Bonds are all paper but I also have electronic I-Bonds from Treasury Direct from 2021-2022. The amount of interest is substantial and so are the taxes I have paid. I report the interest as Treasury Savings Bond interest without a 1099-INT since the 1099-INT will only be issued at maturity.
I have attached a spreadsheet to each year’s Form 1040 detailing the interest from each I-Bond that I reported as taxable interest in each year. The paper I-Bonds all have unique serial numbers but the electronic I-Bonds have non-unique serial numbers such as “IAAAA,” “IAAAB,” etc.
I have redeemed the electronic I-Bonds since their fixed interest rates are low. But I plan to hold the paper I-Bonds to maturity in 2031 since their fixed interest rate is 3% (plus inflation).
When the I-Bonds mature, Treasury will issue 1099-INTs showing the total interest earned over the 30 year life of the bonds.
My question is: How can I be sure that Treasury and the IRS will have a complete record in 2031 of the taxes I have already paid so they won’t double-charge?
In addition to attaching the spreadsheet to my Form 1040, I also keep a paper copy in my safe deposit box along with the paper I-Bonds. But that doesn’t necessarily mean that the IRS will keep a record for 10 years, does it?
The IRS isn’t required to keep that documentation - you are. From IRS Pub 550 2022 Publication 550 (irs.gov) here’s the procedure on how to report the interest for the year the I-bond matures and you get the 1099-INT:
As you can see, you will show on your Schedule B that you previously reported the income. If the IRS has a question about whether you actually did report that interest, they will send you an inquiry. You would need to respond with documentation showing that you did report the interest.
But what does this entail exactly? In 2032 (or even 2033 as the IRS takes its time), when this will happen, if the IRS sends an inquiry, what exactly is sufficient to prove that you paid previously? Is the spreadsheet enough? Is the spreadsheet plus all the previous schedule B forms (2021 through 2031 in this case, but potentially could be 2001 through 2031 if you paid taxes on the I-bond interest each year from the first year) enough? Does this mean that the “new” requirement for saving tax returns and supporting documents is now 30 years instead of the usual 7 years?
I would start with the spreadsheet, but if that’s not enough, they will send another inquiry. I would then supply copies of the Schedule Bs.
That said, I doubt that the IRS will send an inquiry, and if they do, the spreadsheet should be enough because the IRS can check the spreadsheet against the Schedule Bs that they have showing the interest that hasn’t been reported on a 1099-INT for that year, confirming that the interest has been reported.
If you choose to report savings bond interest over the course of 30 years, I would suggest keeping a PDF of those returns for 30 years. It’s not that different from being required to keep your medical receipts if you want to claim tax-free HSA withdrawals in future years - except that could be 50 years (or more).
