Changing the Name on U.S. Savings Bond Is a Fairly Easy Procedure
QUESTION: Several years ago, my husband received a chain letter directing him to send a $50 U.S. savings bond to the person at the top of the list. Not understanding the deception of this scheme, my husband bought the bond. But he never mailed it. Now we are wondering if we can change the name on the bond to our name so we can cash it in. How can we do this?--L. G. P.
ANSWER: First of all, the Bureau of the Public Debt takes an exceedingly dim view of chain letter schemes involving savings bonds. In fact, if the bureau’s bureaucrats find out that the reason you need to change the name on a bond is because you were ready to get involved in such a scheme, you will be forced to forfeit any interest the bond has accumulated while you’ve held it. However, you are entitled to a refund of the amount you paid for the bond.
Of course, there are many reasons why someone might want to change a name or cash in a bond he is holding. For example, one common reason is that the purchaser intended to give the bond as a gift but later changed his mind.
The government has two separate forms for changing names on savings bonds, one for people who want to confess their involvement--or potential involvement--in a chain letter and one for all others. In the first instance, you should request the “Special Bond of Indemnity to the United States of America,” Bureau of the Public Debt Form 2966. You may obtain it from the bureau’s Division of Transactions and Rulings, 200 Third St., Parkersberg, Va. 26101. Complete the form as instructed and return it, and the government will get back in touch with you.
Now, if you simply want to cash in a bond you intended to give someone else as a gift, contact your local Federal Reserve Bank or branch and ask for the form titled “Request for Refund of Purchase.” Complete it and follow the other instructions and you will be entitled to receive a refund of the amount you paid for the bond, plus any accumulated interest. The local branch for Southern California is at 950 S. Grand Ave., Los Angeles, Calif. 90015.
Forming Partnerships to Buy Treasury Bills
Q: I would like to join with three other investors and purchase large-denomination U.S. Treasury notes. However, my broker says he can accept only one taxpayer identification number on the purchase. How can all four of us handle our separate tax responsibilities for the interest these notes pay if there is only one tax ID number? Also, where can I reach the Assn. of Individual Investors?--J. C.
A: There are two fairly easy solutions to your first question. The simplest is to form an investment partnership among the four of you and use the taxpayer identification number assigned to the partnership for your purchases. The terms of the partnership will spell out how the interest is to be divided. The four investors should report their individual shares of the interest payments on their personal tax returns.
The other solution is for the partners to agree on a “manager” whose Social Security number would be used for the purchases. This person would be responsible for reporting the entire interest payment on his tax return and showing how it was distributed to each of his investment partners. Each partner would then report his share of the interest on his tax return. For example, let’s say the group of four equal partners received $500 in a given year. The manager would report that $500 on his tax return and then list the names and Social Security numbers of his three partners who each received a $125 share of the interest. Those three partners would be responsible for reporting the receipt of $125 in interest from Treasury notes.
The American Assn. of Individual Investors is at 625 N. Michigan Ave., Chicago, Ill. 60611. The telephone number is (312) 280-0170. The association, a nonprofit educational group, publishes each year 10 investment journals, a guide to taxes and a guide to no-load mutual funds. The membership fee is $49 per year.
Special Tax Rules on Stock Distributions
Q: I work for a large public company and have participated in the savings plan for the last 30 years. When I retire I will receive a lump-sum distribution of those savings in the form of stock in the company. I am wondering about the tax consequences of this. Specifically, how do you treat the unrealized gain--the amount the stock has grown in value--when you get the distribution? Can you explain?--N. M. B.
A: First of all, we have to assume that the savings plan that you have been a part of is what the government terms a “qualified plan.” This is very likely the case, but you should check just to be sure.
Now, there are special rules that address the issues of price appreciation for lump-sum distributions made in the form of shares of stock. If your distribution was all cash, you would be subject to taxes on the entire distribution, the amount you put in as well as the amount the contribution had generated in interest over the years. With stock, however, you are taxed at distribution only on the purchase price value of the stock.
For example, let’s say you had bought $10,000 worth of stock over the years, and those shares were now worth $50,000 at distribution. You would be taxed immediately on the $10,000 when you receive the distribution. You will be taxed on the remaining value of the stock when you sell it, an amount that may be higher or lower than the stock’s value on the day you actually receive it.
If you choose to sell the shares immediately after receiving them, you can invoke either the five- or 10-year “forward averaging” provision in the tax code, which essentially allows you to treat the one-time gain as though it were received over several years, thus reducing the tax bite. To invoke the more favorable 10-year-averaging provision, you must have turned age 50 by Jan. 1, 1986. If you turn 50 after that date, then you may average the gain over just five years.
Treasury Bill Interest Is Directly Deposited
Q: Not to belabor the Treasury bill matter, but I have one more question that I haven’t been able to get an answer for. How does the government pay interest on longer-term securities, such as 10- and 20-year notes? Do I get monthly or quarterly interest payments? Is it sent directly to me?--J. Z.
A: Interest on Treasury notes--securities held for one year or longer--is deposited directly into a checking or savings account of your choice twice a year. You designate the account to receive the direct deposit when you open your account with the Treasury Department.
Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.
