Step #1:  Find out if your uncle has been reporting the accrued interest each year.  That is not common, but it is an option that your uncle had.  If he DID, then when you turn in the bonds you will only pay interest on what was earned after he died.

Step #2:  Find out if the the cumulative interest was reported on your uncle's final tax return.  If it was, then when you turn in the bonds you will only pay interest on what was earned after he died.

Step #3:  If neither of those two apply, you will owe Federal Income Tax on all of the interest that the bonds earned.  It will not be subject to State income tax. 

(a) You have the option to report the accrued interest every year on your tax return.  This is not common, but it is an option.  Even if #1 or #2 do apply, you have the option to do this on your portion of the interest.  If you do not choose this option, there is nothing to report on your current year tax return, it is only reported when you trade in the bonds.

(b) If you do not report the interest each year, you will pay Federal income tax all of the interest when you turn in your bonds.  This is the most common scenario.