REVENUE RULE 91-14

1991-1 C.B. 18, 1991-9 I.R.B. 1.

Internal Revenue Service
Revenue Ruling

INTEREST; DIVIDENDS; VETERANS AFFAIRS; EXCLUSION

Published: February 15, 1991

Section 61. Gross Income Defined, 26 CFR 1.61-7: Interest.

Interest; dividends; Veterans Affairs; exclusion. Interest earned on dividends left on deposit with the Department of Veterans Affairs is not subject to federal income taxation, pending reconsideration by the Service. Rev. Rul. 57-441 revoked; Rev. Rul. 71-306 revoked as to the interest income portion only; Rev. Rul. 72-604 modified by deleting from it all reference to Rev. Rul. 71-306.

This revenue ruling revokes Rev. Rul. 57-441, 1957-2 C.B. 45. It also revokes Rev. Rul. 71-306, 1971-2 C.B. 76, with respect to the interest income portion only. Rev. Rul. 72-604, 1972-2 C.B. 35, is modified by deleting from it all references to Rev. Rul. 71-306. Rev. Ruls. 57-441 and 71-306 are being reconsidered by the Internal Revenue Service.

BACKGROUND

Rev. Rul. 57-441 holds that interest credited to the account of a veteran on dividends accumulated by the Veterans' Administration (VA) on a converted United States Government Life Insurance policy, or on a National Service Life Insurance (NSLI) policy, is not a veterans' benefit exempt from federal income tax under the predecessor of 38 U.S.C. section 3101(a).

Rev. Rul. 71-306 holds that interest earned on dividends left on deposit with the VA is includible in the gross income of the insured in the taxable year the interest was received by, or made available to, the insured, citing Rev. Rul. 57-441. It also holds that both the proceeds of matured NSLI contracts and the dividends paid on such unmatured contracts are not subject to federal income tax.

Rev. Rul. 72-604, after restating the dividend and interest income holdings of Rev. Rul. 71-306, holds that accumulated dividends applied to the purchase of additional NSLI and the additional paid-up insurance acquired are not subject to federal income tax.

HOLDINGS

Rev. Rul. 57-441 is revoked, as is the interest income portion only of Rev. Rul. 71-306. Accordingly, interest earned on dividends left on deposit with the Department of Veterans Affairs is not subject to federal income taxation. The Service will reconsider this issue and any conclusions adverse to veterans will be applied prospectively only.

Rev. Rul. 72-604 is modified by deleting from it all references to Rev. Rul. 71-306.

The principal author of this revenue ruling is Marilyn E. Brookens of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Ms. Brookens at (202) 566- 4177 (not a toll-free call).

Rev. Rul. 91-14, 1991-1 C.B. 18, 1991-9 I.R.B. 1.