Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 68-61

1968-1 C.B. 346

Sec. 1002

IRS Headnote

A reissuance of Series E United States Savings Bonds in the sole name of the prior co-owner who purchased them with his own funds is not an actual disposition or redemption for Federal income tax purposes. The reissuance of the bonds in the sole name of the prior co-owner who purchased them with his own funds is not a taxable transaction.

Full Text

Rev. Rul. 68-61

Advice has been requested whether the reissuance of Series E United States Savings Bonds in the sole name of the prior co-owner who purchased them with his own funds is a taxable transaction.

Series E United States Savings Bonds were purchased entirely with the funds of A but were registered in the names of A and his wife in the alternative as co-owners. Subsequently, the bonds were reissued in the sole name of A. A and his wife are domiciled in a State not having community property laws.

The Regulations Governing United States Savings Bonds (31 CFR 315) provide, in relevant part, that, where the co -owners of a bond are related as husband and wife, the bond registered in co-ownership form may be reissued in the name of either co-owner alone, upon the request of both co-owners, and upon its presentation and surrender during the lifetime and competency of both. 31 CFR 315.61. Such regulations define `reissue' as meaning `* * * the cancellation and retirement of a bond and issue of a new bond or bonds of the same series, amount (face value) (or the remainder thereof in case of partial redemption) and issue date.' 31 CFR 315.2(n).

The general rule to be applied to the taxation of interest on savings bonds held by co-owners, domiciled in a State not having community property laws, is reflected in  Revenue Ruling 54-143, C.B. 1954-1, 12, which considered a situation where savings bonds were registered in the names of two natural persons in the alternative as co-owners but were purchased entirely with the funds of one of the co-owners.  Revenue Ruling 54-143 holds that all the interest (increment in value) earned thereon is the income of the co-owner who purchased the bonds, even though he gratuitously permits the other co-owner to redeem the bonds (whether at or before their maturity) and retain the entire proceeds. See also Revenue Ruling 55-278, C.B. 1955-1, 471, which relates, in part, to whom and when the interest (increment in value) is taxable under different circumstances.

Consistent with the above authority, the reissuance of the bonds in the instant case in the sole name of the prior co-owner who purchased them with his own funds does not change the incidence of the taxation of the interest. Such co-owner continues to own the source of the income and thus to be liable for the interest earned thereon. See Helvering v. Paul R. G. Horst , 311 U.S. 112 (1940), Ct. D. 1472, C.B. 1940-2, 206. Furthermore, since the reissued bond represents the same series, amount (face value) and issue date, there is no substantive change in such bond.

Accordingly, under the above described facts, the reissuance of the Series E bonds in the sole name of the prior co-owner who purchased them with his own funds is not a disposition or redemption for Federal income tax purposes. Furthermore, the reissuance of the bonds in the sold name of the prior co-owner who purchased them with his own funds is not a taxable transaction. r