I recently inherited substantial EE bonds from my Father who passed away in November 2010. They were purchased in his name from 1990 through 2010 and I am listed as POD beneficiary. The bonds have fully matured and accrued some interest. How will these bonds taxed? Do I file anything (if so what form) or is it taxed in his estate, or both? Lastly I have to split the proceeds with my 2 siblings, what would be the best tax efficient way to accomplish this? All siblings (3 of us) are over age 21.

Savings bonds can be taxed annually on the accrued interest, or when cashed in. You need to check your father's past years returns to see if he claimed the accrued interest on Schedule B.

If the bonds themselves are passed on to you, you will have to pay the tax on the interest if that interest was allowed to accrue tax-deferred.

Alternatively, the estate can cash in the bonds and pay the tax under its fiduciary return (Form 1041), then distribute the money from the cash in to the heirs free from income taxes.

One way or another, the interest, if untaxed on your father's past years tax returns, WILL be subject to an income tax.

You need to get a tax professional to model which is the best way to approach the problem.