Yeeecchhh... and it was going so well up 'til then.
I did some more thinking, though, and I'm wondering why the income needs to be reported to the child at all.
In a savings bond co-owner situation, either co-owner can cash the bond without knowledge of the other. So it would seem bizarre that if the second co-owner cashed it, that the first co-owner would have any tax liability or reporting requirements, since they might not even know the bond had been cashed.
I also found these tidbits from that same godforsaken place you referenced, CFR Title 31 (don't operate heavy machinery after browsing that masterpiece).
Sec. 360.37, Payment during lives of both coowners.
A savings bond registered in coownership form will be paid to either coowner upon surrender with an appropriate request, and upon payment ... the other coowner will cease to have any interest in the bond.
Sec. 321.9(f), Specific limitations on payment authority.
An agent is not authorized to redeem a security ... if the taxpayer identifying number of the presenter ... is not known to the agent and the presenter refuses to furnish the number.
Sec. 321.7(g), Interest reporting
A paying agent is required to report interest ... to the payee and to the Internal Revenue Service, in accordance with 26 CFR 1.6049-4.
Putting these tidbits together, it sounds to me like if I cash the bond, my kid loses all ownership, and the bank issues a 1099-INT in my name and social security number.
I pay the same taxes as in your scenario, just without all the extra filing/nominating steps because my kid isn't in the tax picture at all.
What do you think, would that work?
[This message has been edited by supe (edited May 06, 2003).]