Backstory:
In 1970 pseudo client inherited $30 million while in law school. With part of the inheritance he purchased 1,000 $10,000 E US treasury bonds titled in his name only with no payable on death designation. Over the next 30 years he became a very successful tax attorney with his name on the wall. During the years of his practice, he noticed a pattern that the Bureau of the Fiscal Service of the Department of the Treasury was not sending out 1099s for US Treasury bonds that reached final maturity.
Scenario One:
Pseudo Client waits until 2011 before sending his 1,000 $10,000 US savings bonds that reached final maturity in year 2000 to the US Treasury for redemption. He received $54,800,000 from US Treasury. The following year he receives a 1099 reporting $47,300,000 of income. He seeks an outside firm to process his 2011 tax return and specifically details how he would like the bond income to be reported resulting in no tax due on the $47,300,000 reported income. Does the IRS have any recourse or barred by statute of limitations (SOL).
Scenario Two:
Client passes in 2007. Client’s wife precedes him in death. He had one son who is the only beneficiary of his estate. His son who is an executive in an engineering firm discovers a fire safe 6 years after his fathers death. Inside this small fire safe he finds the 1,000 $10,000 US savings bonds issued in 1970 with a note from his father. The note stated: son, take the bonds to my firm, they will know how to handle them. Same bonds described in the backstory. The son is perplexed and concerned about the impact to to estate. He thinks this is going to be horrible because he is not only going to have to pay income tax on the interest but also pay estate tax. He’s heartbroken. He takes the bonds to his fathers old firm and shows them the note. A partner of the firm greats him with a smile and says you found your gift from your father, don’t worry, we take care of it. The firm’s partner seeks an outside firm to process the bonds with the treasury and specifically details how he would like the bond income to be reported resulting in no tax due on the $47,300,000 reported income or any estate tax due. Does the IRS have any recourse or barred by statute of limitations (SOL).
Scenario Three:
Same as scenario two, except the client’s last 1040 was filed with a 454(a) election and reported known interest on different bonds without knowing about the fire safe. Any impacts to the results from scenario one and two?
Opinions appreciated