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FED ERAL R E SE R V E BANK
OF NEW YORK
Fiscal A g en t o f the U nited States

r Circular N o. 3 6 7 9 1
L
March 26, 1951
J

INCOME T A X STATUS OF TREASURY BOND EXCHANGE OFFER

To all Banking Institutions, and Others Concerned,
in the Second Federal Reserve D istrict:

The Treasury Department lias asked the Commissioner of Internal Revenue whether the
exchange oi the 21: percent Treasury Bonds o f 1967-72 for the non-marketable 2% percent
/
Treasury Bonds is a closed transaction such as to result in a gain or loss for income tax purĀ­
poses. The Treasury Department has received the following ruling from the Commissioner of
Internal Revenue:
Under the provisions o f section 112(a) o f the Internal Revenue Code, every exchange results in gain
or loss fo r income tax purposes unless the exchange comes within one o f the statutory exceptions
enumerated in section 1 1 2 .
Exchange o f 2y2 percent marketable Treasury Bonds o f 1967-72 fo r non-marketable 2'% percent
Treasury Bonds does not come within any o f the exceptions enumerated in that section.
A ccordingly, gain derived or loss sustained from such exchange would be recognized fo r Federal
income tax purposes. The gain or loss will be the difference between the cost or other basis o f the old
bonds and the fair market value o f the new bonds on the date o f the exchange. (C f. I.T . 2359, C.B.
V I-1, 51; I.T . 2734, C.B. X II-2 , 73.) In the com putation o f such gain or loss the face amount of
the new bonds w ill be regarded as their fair market value at the date o f the exchange.
The gain derived or loss sustained will constitute
section 117 o f the Code, except that in any case where
by a dealer in securities prim arily for sale to customers
would not constitute capital assets as defined in section
constitute ordinary gain or loss.

capital gain or loss under the provisions o f
the old bonds are held at the time o f exchange
in the ordinary course o f business such bonds
117(a) o f the Code and the gain or loss would

Additional copies of this circular will be furnished upon request.




A

llan

S

proul,

President.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102