Our client met with his father’s CPA yesterday. His father passed away this year with a large estate. His father had a large amount of EE bonds that are paying no interest and some are still paying interest. The bonds were titled in his father’s name with POD to his son. The son asked if he should cash in the non interest paying bonds and the CPA said yes. He said not to worry about the interest because there is a step up in basis. I emailed the CPA to make sure I understood the situation and he did say there was a step up and he said to cash them in. I assume he believes there will not be a tax consequence to cashing them in. The father did not report the interest on the bonds while he was alive.

Am I missing something? Is there a step up with EE bonds I am not aware of?

If there is no step up, any suggestions on how to handle the situation?

Thanks,