Rev. Rul. 76-50

Advice has been requested whether United States District Courts are required to report on information returns interest earned on registry funds deposited in interest bearing accounts pending the outcome of litigation.

Funds deposited with a court pursuant to court order are deposited by the court in interest bearing bank accounts pending the outcome of the matter being litigated. A separate account is opened for each case. The court has complete control over the accounts. Upon settlement of the case, the funds, including the interest earned, are transferred to a court checking account and then disbursed to the party or parties found to be entitled to them.

Section 6041(a) of the Internal Revenue Code of 1954 requires the filing of information returns for payments by the United States of income of $600 or more.

Section 1.6041-1(a) of the Income Tax Regulations provides that the term "payments," as used in section 6041(a) of the Code, includes payments of interest of $600 or more. Section 1.6041-1(a)(1) of the regulations defines interest, for purposes of section 6041 of the Code, to include all interest other than that coming within the definition of interest provided in section 1.6049-2 of the regulations.

Section 6049(a) of the Code provides that information returns are required when interest aggregating $10 or more is paid during a calendar year. Section 1.6049-1(a)(2)(i) of the regulations provides that interest paid by or to the United States, a State, the District of Columbia, or a political subdivision of a State need not be reported under section 6049 of the Code. Section 6049(b) and section 1.6049-2 of the regulations define interest, for purposes of section 6049, to include amounts paid by persons carrying on the banking business and by mutual savings banks, savings and loan associations, building and loan associations, cooperative banks, credit unions or similar organizations in respect of deposits.

Rev. Rul. 64-131, 1964-1 C.B. (Part 1) 485, holds that payer banks, rather than the courts, are required to file information returns as provided in section 6049 of the Code for interest earned on bank deposited registry funds pending termination of litigation. The banks, however, are not required to file the returns until the appropriate court official notifies the bank as to who is entitled to such interest. Additionally, the person entitled to the interest is not required to include any interest in gross income until the taxable year in which that person becomes entitled to receive the funds. See also Rev. Rul. 70-567, 1970-2 C.B. 133.

Accordingly, interest income paid on registry funds is not required to be reported by the United States District Courts on information returns. However, the payer bank is required to file information returns as provided in section 6049 of the Code when the appropriate court official notifies the bank as to who is entitled to such interest and when the amount is $10 or more. Since the reporting of interest income is specifically provided for in section 6049(a) and section 1.6049-1 of the regulations, and since section 1.6041-1(a)(1) specifically exempts interest income within the scope of section 1.6049-2 from the reporting requirements of section 6041, the interest income in this case is not subject to the reporting requirements of section 6041.