Rev. Rul. 62-27

In Treasury Department Circular No. 1066, dated September 11, 1961, 26 F.R. 8647, the Secretary of the Treasury offered 3 1/2 percent Treasury Bonds of 1990 in exchange for other Treasury Bonds as follows:

(1) at 99.00 percent of their face value for 2 1/2 percent Treasury Bonds of 1965-70, dated February 1, 1944, due March 15, 1970; or

(2) at 100.25 percent of their face value for 2 1/2 percent Treasury Bonds of 1966-71, dated December 1, 1944, due March 15, 1971.

The income derived from the bonds is subject to all taxes imposed under the Internal Revenue Code of 1954. The bonds are subject to estate, inheritance, gift or other excise taxes, whether Federal or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority.

The bonds will be acceptable to secure deposits of public moneys. They may, upon the death of the owner, be redeemed at par, plus accrued interest to date of payment, in payment of Federal estate taxes due from the deceased owner's estate.

Pursuant to the provisions of section 1037(a) of the Code, the Secretary of the Treasury has declared that no gain or loss shall be recognized, for Federal income tax purposes, upon the exchange with the United States of 2 1/2 percent Treasury Bonds of 1965-70 or 2 1/2 percent Treasury Bonds of 1966-71 solely for the 3 1/2 percent Treasury Bonds of 1990 as offered by Department Circular No. 1066, supra .

However, section 1031(b) of the Code requires the recognition of any gain realized on the exchange to the extent that money is received by the bond holder in connection with the exchange.

Treasury Department Circular No. 1066 provides that accrued interest from August 15 to September 15, 1961, in the amount of $2.94837 per $1,000, on the bonds to be issued will be charged subscribers. In the case of the 2 1/2 percent bonds of 1965-70, the accrued interest will be deducted from the payment of $10 per $1,000 due to the subscriber on account of the issue price of the new bonds, and the difference of $7.05163 per $1,000 will be paid to the subscriber. Under section 1031(b) of the Code, the $10 per $1,000 due the subscriber on account of the issue price of the new bonds is the money received, and is the maximum amount of gain, if any, recognized at the time of the exchange.

To the extent not recognized at the time of the exchange, gain or loss, if any, upon the obligations surrendered in exchange will be taken into account upon the disposition or redemption of the new obligations.