Question

Hugo Mendes was planting a tree when he unearthed 100,000 certificates of ITT bearer bonds, with a current value of $4 million. He speculated that they had been placed there by the former owner of the home (now deceased) at a time when they were worth nearly $400,000. Hugo did not sell the bonds by the end of the year.

identify the issues, locate and analyze relevant tax authorities. determine best solution to the tax situation.

Answer 1

Here the issues is geting windfall gain by Mr. Hugo. Though he was not the holder of the bond which he can show in his known source of income but got the bond worth of $4million by fluke. According to federal tax clause it can be counted as capital gain. Hugo is also not selling the bond hence he cannot get income and cash inflow from bond. He just has the title of the bond which he can encash as and when needed.Only federal tax will be applicable in this case.Hugo will pay tax when he will sell the bond as capital gain for the whole amount of the value of the bond.