Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 68-41

1968-1 C.B. 47

Sec. 103

IRS Headnote

The interest on bonds to be issued by a bridge commission created by Congress to construct a bridge between two neighboring States is not excludable from the gross income of a recipient under section 103 of the Internal Revenue Code of 1954.

Full Text

Rev. Rul. 68-41

Advice has been requested whether the interest on bonds to be issued by a bridge commission will be excludable from the gross income of a recipient under section 103 of the Internal Revenue Code of 1954.

The bridge commission was created by Act of Congress to build and operate a bridge across a river which is the boundary between two States. The bonds are to be issued by the bridge commission to provide funds for the construction of the bridge. Under an agreement between the highway departments of the two States and the bridge commission, the title to that portion of the bridge in the respective State would be transferred to that State when all indebtedness on the bridge is retired.

Section 103 of the Code provides, in part, that gross income does not include interest on the obligations of a State, a Territory, or a possession of the foregoing, or of the District of Columbia.

Section 1.103-1 of the regulations provides, in part, that obligations issued by or on behalf of the State, Territory, or possession of the United States, or a duly organized political subdivision acting by constituted authorities empowered to issue such obligations, are obligations of a State, Territory, or possession of the United States, or a political subdivision thereof.

Commissioner v. Estate of Alexander J. Shamberg , 144 F.2d 998 (1944), certiorari denied, 323 U.S. 792 (1945), is a leading case involving the construction of bridges and other facilities connecting States where an Authority issued bonds to finance the construction. In that case, the interest on such bonds was held to be excludable from the gross income of the recipient under a predecessor of section 103 of the Code. See also Commissioner v. Estate of Caroline White , 144 F.2d 1019 (1944), certiorari denied, 323 U.S. 792 (1945).

In Shamberg , it was concluded that the Authority which was a body politic and corporate created by a compact made between the States of New York and New Jersey, and approved by Congress and which was fully owned by the two States, was a political subdivision within the meaning of the statutory provisions referred to above.

Section 1.103-4(b)(1) of the regulations provides, in part, that under the provisions of sections 4 and 5 of the Public Debt Act of 1941 (31 U.S.C. 742(a)), interest upon obligations issued on or after March 1, 1941, by the United States, or any agency or instrumentality thereof, shall not have any exemption, as such, from Federal income tax except in certain circumstances not applicable in the instant case. The bridge commission created by Act of Congress is an instrumentality of the United States for purposes of the Public Debt Act of 1941. For this reason the interest on bonds to be issued by the bridge commission is not exempt from Federal income tax.

Accordingly, the interest on the bonds to be issued by the bridge commission is not excludable from the recipient's gross income under section 103 of the Code.