Treasury Trying New Way to Market Savings Bonds
QUESTION: I am a grandmother and whenever my grandchildren have birthdays, I buy them savings bonds. Much better than toys, I think. My sister, who lives in Ohio, swears she heard the other day that banks are going to stop issuing bonds. I haven’t found anyone who knows what she’s talking about. Do you?--I. G.
ANSWER: She probably heard about an experiment that the Treasury Department is conducting in Ohio.
Banks and other financial institutions there still take the applications and money for Series EE U.S. savings bonds. But while the test continues, they are no longer issuing the bonds on the spot. Instead, the applications are forwarded to a Federal Reserve bank, which in turn issues the bonds and mails them to customers.
As cumbersome as this may seem, the idea actually is to make bond buying speedier and more reliable. Frequently, banks do not have certain denominations of savings bonds on hand, so they must order them from the Treasury, resulting in lengthy delays.
Treasury officials say that, by mailing bonds directly to customers in the Ohio experiment, they have cut the average delivery time to 12 days from three weeks elsewhere. They also maintain that financial institutions frequently issue the wrong bonds and that this experimental system has reduced the number of errors.
The Treasury Department hasn’t yet made a decision on whether to introduce the new system nationwide.
Q: My husband and I recently joined some friends in starting a little business. We spend some nights and weekends there, but we have other, “real” jobs, too. It’s mostly just for a change of pace. Do you have any idea how we figure out whether we “materially participate” in the management and therefore qualify for more favorable tax rules on deducting our losses? We have called the Internal Revenue Service, but we just can’t pin them down.--H. E.
A: The IRS itself has been pondering that same question ever since Congress drastically reformed the tax laws in 1986. What the agency has come up with so far is a plan to base its definition of “material participation” on the number of hours spent participating in the management.
The IRS doesn’t have this down to an exact science, and there will be some room for negotiation. But, generally, if you spend at least 500 hours a year managing this business, you’ll have no problem proving to the IRS that your participation qualifies as material.
What if you spend considerably less time than that at the business but do all of the managing that needs to be done? You may have a case, the IRS says, but you’ll have to provide proof, such as a logbook of management decisions or payroll records showing that you have no other management employees.
Q: Do you know whether there is a new cutoff on the number of withholding exemptions you can get away with claiming--legitimately, of course--before the IRS requires proof?--H. R.
A: The IRS requires employers to report all W-4 withholding forms that claim more than 10 exemptions. That is something new since tax reform. Before, the cutoff was 14.
That doesn’t mean a taxpayer can’t claim more than 10. If he or she expects to have an enormous amount of legitimate deductions that will drastically reduce taxable income, it isn’t hard to demonstrate that a higher level of withholding exemptions is called for. All this means is that a higher standard of proof is required after you reach 10 exemptions.
