Rev. Rul. 71-594

Revenue Ruling 58-452, C.B. 1958-2, 37, holds that bonds issued by a water district, a political subdivision, with an insurance endorsement by the Farmers' Home Administration of the United States Department of Agriculture are obligations of a political subdivision of a state within the meaning of section 103 of the Internal Revenue Code of 1954 and interest from such bonds is excludable from gross income. It further holds that the insurance endorsement by the agency of the Federal Government does not affect the tax-exempt nature of the interest.

Public Law 91-617, C.B. 1971-1, 539, amended section 306(a)(1) of the Consolidated Farmers Home Administration Act of 1961, as amended, 7 U.S.C. 1926(a)(1), by adding the following new sentence: "When any loan made for a purpose specified in this paragraph is sold out of the Agricultural Credit Insurance Fund as an insured loan, the interest or other income thereon paid to an insured holder shall be included in gross income for purposes of chapter 1 of the Internal Revenue Code of 1954." This amendment applies to insured loans sold out of the Agricultural Credit Insurance Fund after December 31, 1970. See Senate Report No. 91-1469, Ninety-First Congress, C.B. 1971-1, 589.

Held, interest on insured loans sold out of the Agricultural Credit Insurance Fund after December 31, 1970, is includible in gross income.

Revenue Ruling 58-452 is hereby modified to limit its applicability to insured loans sold out of the Agricultural Credit Insurance Fund prior to January 1, 1971.