Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 62-21

1962-1 C.B. 37

Sec. 61

Sec. 111

Sec. 212

IRS Headnote

A premium paid by an individual to purchase a bond of indemnity, required prior to the issuance of new stock certificates to replace missing original certificates of the individual which were mislaid, lost, stolen, or destroyed, and expenses incident to such purchase are expenses for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income within the meaning of section 212 of the Internal Revenue Code of 1954.

Full Text

Rev. Rul. 62-21

Advice has been requested as to the deductibility for Federal income tax purposes of a premium paid to purchase a bond of indemnity required prior to the issuance of new stock certificates to replace missing original certificates which were mislaid, lost, stolen, or destroyed, and of expenses incident to such purchase under the circumstances described below.

A taxpayer, as the owner of common stock in a company, became entitled to receive an additional number of common shares of that company. The additional stock certificates were sent to the home of the taxpayer by registered mail by the company's transfer agent, but, although signed for by an employee in the taxpayer's home, were never received by the taxpayer.

Subsequently, the taxpayer purchased a bond of indemnity (sometimes also referred to as a surety bond or lost securities bond) which was required by the company prior to its issuance of new stock certificates to the taxpayer. The premium, plus incidental expenses, paid by the taxpayer with respect to this bond was reasonable under the circumstances.

The taxpayer can recover a small portion of his expenditures in connection with the issuance of the mew stock certificates under a so-called blanket insurance policy, if and when a claim is filed and allowed. Further, under the terms of the bond of indemnity, if the missing certificates are recovered within one year after the bond was posted, one half of the premium paid will be refunded.

Section 212 of the Internal Revenue Code of 1954 provides, in part, that in the case of an individual there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income.

Section 1.212-1(g) of the Income Tax Regulations provides, in effect, that expenses incurred by a taxpayer in connection with investments held by him are deductible where the requirements of section 212 are met.

Section 1.212-1(k) of the regulations provides, in part, that expenses paid or incurred in defending or perfecting title to property or in recovering property (other than investment property and amounts of income which, if and when recovered, must be included in gross income) constitute a part of the cost of the property and are not deductible expenses.

In the instant case, the missing certificates clearly represented ownership of stock held by the taxpayer as an investment for the production of income. The premiums for the indemnity bond and other incidental expenses were not paid or incurred in defending or perfecting title to property, since the taxpayer always had clear and complete title to the missing certificates and there was no question of establishing ownership of them.

Accordingly, it is held that the premiums paid for the purchase of the bond of indemnity in the instant case, plus the miscellaneous expenses incident thereto, are ordinary and necessary expenses for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income within the meaning of section 212 of the Code and are, to the extent not reimbursed by insurance or otherwise during the taxable year, deductible by the taxpayer under that section of the Code in computing his taxable income.

Amounts recovered in a subsequent taxable year with respect to the missing certificates through reimbursement by insurance or a refund of a portion of the premium paid for the purchase of the bond are includible in the taxpayer's gross income as ordinary income to the extent that a tax benefit was received in a prior taxable year. See section 1.111-1(a) of the regulations.