Rev. Rul. 58-452

A water district, established under authority of Chapter 74 of the Kentucky Revised Statutes, Volume 1, 1958, is in the process of issuing revenue bonds of $1,000 denomination under Chapter 74 and related sections in Chapters 96 and 106 of the Kentucky Revised Statutes, with an insurance endorsement by the Farmers' Home Administration of the United States Department of Agriculture as authorized by section 10 of the Act of August 28, 1937, 50 Stat. 869, as amended by Public Law 597, 83rd Congress, 68 Stat. 734, 16 U.S.C. 590r-590x-3. The bonds will be payable solely from and secured by the income and revenues derived from the operation of the water works. Held, the bonds to be issued by the water district constitute 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 is not necessary for purposes of section 103 of the Code that the obligation be one which pledges the general credit of the municipality or the use of the taxing power. See Commissioner v. Michael Pontarelli , 97 Fed.(2d) 793, affirming 35 B.T.A. 872; Fairbanks, Morse & Co., et al. v. Harrision , 63 Fed.Supp. 495; Commissioner v. Carey-Reed Co. , 101 Fed.(2d) 602; Commissioner v. Estate of Alexander Shamberg , 144 Fed.(2d) 998, Ct. D. 1648, C.B. 1945, 335, certiorari denied, 323 U.S. 792; Revenue Ruling 54-106, C.B. 1954-1, 28. Nor will the insurance endorsement by the agency of the Federal Government affect the tax-exempt nature of the interest.