Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 66-44

1966-1 C.B. 94

Sec. 451

IRS Headnote

The increment in value of growth savings certificates issued by a bank shall be included in the gross income of a taxpayer employing the cash receipts and disbursements method of accounting in each taxable year in which the increase occurs, since the taxpayer (certificate holder) has a right to redeem the certificate in such taxable year.

Revenue Ruling 57-452, C.B. 1957-2, 302, revoked.

Full Text

Rev. Rul. 66-44

Advice has been requested with respect to constructive receipt of income earned on growth savings certificates issued by a bank.

These growth savings certificates have face amounts greater than the amounts with respect to which they are issued and are redeemable at any time for amounts equal to the issue price plus increments which accrue regularly up the their maturity date. Thus, these certificates are in the nature of deposits.

At one time, such growth savings certificates were regarded as obligations issued at a discount and similar to series E, United States savings bonds. These certificates received tax treatment similar to series E bond under Revenue Ruling 57-452, C.B. 1957-2, 302, which held that the increase in redemption price (increment in value) during a taxable year did not constitute income in such year to a taxpayer-depositor holding such certificate and employing the cash receipts and disbursements method of accounting. However, the Revenue Ruling permitted the taxpayer to elect, under section 454(a) of the Internal Revenue Code of 1954, to report the increase in the taxable year in which it occurs.

Section 1.451-2(a) of the Income Tax Regulations, as amended by Treasury Decision 6723, C.B. 1964-1 (Part 1), 73, provides that income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year in which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, it also provides that income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions.

The phrase `or otherwise made available' which was inserted in the first sentence of paragraph (a) of section 1.451-2 of the regulations makes it clear that it is a right of withdrawal during the taxable year, rather than the formal setting apart or crediting of income, which causes such income to be constructively received.

The regulations, as amended, list four specific conditions which do not constitute substantial limitations or restrictions on the taxpayer's control over the receipt of earnings payable in respect of any deposit or account in a `bank or other financial institution,' which term includes banks, building and loan associations, savings and loan associations, and Federal savings and loan associations.

Upon reconsideration of the matter, the increment in value of growth savings certificates issued by a bank shall be included in the gross income of a taxpayer, employing the cash receipts and disbursements method of accounting, in each taxable year in which the increase occurs since the taxpayer (certificate holder) has a right to redeem the certificate in such taxable year.

The provisions of Revenue Procedure 64-24, C.B. 1964-1 (Part 1), 693, relating to closing agreements for interest earned on deposits or accounts opened before November 15, 1962, apply to the increment in value of these growth savings certificates.

Revenue Ruling 57-452, C.B. 1957-2, 302, is hereby revoked.