Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 70-3

1970-1 C.B. 106

Sec. 402

IRS Headnote

Revenue Rulings 64-103 and 64-282, which explained the tax treatment of Series E Savings Bonds purchased by employees' trusts for participants, are amplified to extend their provisions to Freedom Shares.

Full Text

Rev. Rul. 70-3

Revenue Ruling 64-103, C.B. 1964-1 (Part 1), 160, and Revenue Ruling 64-282, C.B. 1964-2, 112, explain the Federal income tax treatment with respect to United States Savings Bonds, Series E, purchased for individual employee-participants by an exempt trust of a qualified employees' profit-sharing plan. United States Savings Notes, popularly known as "Freedom Shares," are similar to Series E Bonds in all essential characteristics, although the Freedom Shares are issued under the sections of the Second Liberty Bond Act, 31 USC 753 and 754b, applicable to fully negotiable Treasury notes. See Senate Report No. 1620, Ninetieth Congress, Second Session.

Held, the provisions of Revenue Ruling 64-103, as modified by Revenue Ruling 64-282, are applicable in determining the taxability of individual employee-participants with respect to Freedom Shares purchased for them by an exempt trust. Therefore, Freedom Shares purchased with employer contributions to, or earnings of, an exempt employees' trust are taxable to the individual employee-participant in the year or years in which the Freedom Shares are distributed or made available. However, where such Freedom Shares are purchased with the employee-participant's contributions to the trust, he will not be taxable on the excess of the redemption value over the cost of the Freedom Shares in the year or years in which they are distributed or made available; rather, he will be taxable as though the Freedom Shares had been in his possession from the date of purchase.

Revenue Ruling 64-103 and Revenue Ruling 64-282 are hereby amplified.