Form 8888, Allocation of Refund (Including Savings Bond Purchases),
has undergone some changes this year to accommodate taxpayers who wish to use their refunds to purchase up to $5,000 U.S. Series I Savings Bonds for themselves or their beneficiaries. The full-page form is a little more complex than its half-page predecessor; however, the recent changes make it easy for taxpayers to have their refunds distributed in a variety of ways.
The form itself has four sections for the 2010 tax year:
• Part I, Direct Deposit – Allows you to enter up to three direct-deposit accounts, with the amount of refund to be deposited in each
• Part II, U.S. Series I Savings Bond Purchases (new in tax year 2010) – Contains spaces for entering the names of the owner and co-owner or beneficiary, and the amount to be used to buy U.S. Series Savings Bonds for each
• Part III, Paper Check (new in tax year 2010) – For taxpayers who want to receive part of their refund as a paper check, and have the rest directly deposited or used to buy savings bonds
• Part IV, Total Allocation of Refund – Shows the total amount of the refund
Part I has not changed from last year; as in 2009, a routing number, account number, amount, and indication of checking or savings is required. Also unchanged is the total-refund information required in Part IV.
Part III of Form 8888 simply displays the amount of refund that will be distributed to the taxpayer as a paper check. The amount of the check is the difference between the total refund and the amount indicated in Parts I and II.
In Part II, you can enter up to three different savings-bond registrations. Note that no more than $5,000 can be used to purchase savings bonds, and that registrations must be in multiples of $50.
U.S. Series I Savings Bonds can be a great option for clients who don’t have savings accounts but want to put some money away or to be used as gifts for special people in their lives. Specific advantages your client may find especially attractive are the competitive interest rates, adjustment for inflation, tax benefits, and convenience. These low-risk bonds will accumulate up to 30 years or until your client decides to redeem them, and they are easily redeemable (generally after 12 months) at most banks. As with paper refund checks, it will usually take two to four weeks after the return has been accepted for the taxpayer to receive the purchased bonds.
More information on the bond-purchase option, and on Series I Savings Bonds in particular, is available at the IRS website.
Regardless of how your client chooses to divide up a refund, you should easily be able to indicate your client’s desires to the IRS using Form 8888. Although the form is a little more complex than it was last year, it allows taxpayers to do more with their refunds than simply have the money directly deposited into one or more bank accounts. When it comes to the IRS, an increase in complexity doesn’t always mean greater convenience for the taxpayer. Form 8888, however, is an exception.
by Kelly Donovan
Kelly Donovan is a graduate of the University of Tennessee. While working as a tax analyst at Drake Software, she is pursuing her MBA at Saint Leo University. When she isn’t working at Drake or studying, she enjoys spending time with her family back in Tennessee.